##### 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 1934
  þ
    
    Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2003
  o
    
    Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 1-14700
 (CHINESE TRANSLATION)
(Exact Name of Registrant as Specified in Its Charter) Siliconware Precision Industries Co., Ltd. Taiwan, Republic of China    No. 123, Sec. 3, Da Fong Road, Tantzu, Taichung, Taiwan, ROC    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. 1,885,173,683 shares  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, 2003 TABLE OF CONTENTS PageForward
Looking Statements in This Annual Report May Not Be Accurate
    
    
    2PART I
    
    
    
    
    3Item 1.
    
    Identity of Directors, Senior Management and Advisers
    
    
    3Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    3Item 3.
    
    Key Information
    
    
    3Item 4.
    
    Information on the Company
    
    
    15Item 5.
    
    Operating and Financial Review and Prospects
    
    
    29Item 6.
    
    Directors, Senior Management and Employees
    
    
    50Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    53Item 8.
    
    Financial Information
    
    
    55Item 9.
    
    The Offer and Listing
    
    
    55Item 10.
    
    Additional Information
    
    
    57Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    69Item 12.
    

Description of Securities Other Than Equity Securities
    
    
    69PART II
    
    
    
    
    70Item 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    70Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    70Item 15.
    
    Controls and Procedures
    
    
    70Item 16A.
    
    Audit Committee Financial Expert
    
    
    70Item 16B.
    
    Code of Ethics
    
    
    70Item 16C.
    
    Principal Accountant Fees and Services
    
    
    70PART III
    
    
    
    
    72Item 17.
    
    Financial Statements
    
    
    72Item 18.
    
    Financial Statements
    
    
    72Item 19.
    
    Exhibit Index
    
    
    73EX-8.1 LIST OF SIGNIFICANT SUBSIDIARIESEX-11.1 CODE OF ETHICSEX-12.1 CERT OF CEO TO SECTION 302EX-12.2 CERT OF CFO TO SECTION 302EX-13.1 CERT OF CEO TO SECTION 1350EX-13.2 CERT OF CFO TO SECTION 1350EX-14.1 CONSENT OF INDEPENDENT ACCOUNTANT




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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 reduced 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. 2




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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 statement of income data for the years ended December 31,
2001, 2002 and 2003 and the selected balance sheet data as of December 31, 2002
and 2003 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, 1999 and 2000 and the selected balance sheet data as
of December 31, 1999, 2000 and 2001 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 differs 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 27 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. 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. Year Ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003NT$
    
    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
    
    
    11,916
    
    
    
    18,846
    
    
    
    16,530
    
    
    
    22,299
    
    
    
    27,411
    
    
    
    806Cost of goods sold
    
    
    (9,611
    )
    
    
    (14,907
    )
    
    
    (15,109
    )
    
    
    (20,210
    )
    
    
    (23,298
    )
    
    
    (685
    )Gross profit
    
    
    2,305
    
    
    
    3,939
    
    
    
    1,421
    
    
    
    2,089
    
    
    
    4,113
    
    
    
    121Operating expenses
    
    
    (737
    )
    
    
    (999
    )
    
    
    (1,428
    )
    
    
    (1,542
    )
    
    
    (1,592
    )
    
    
    (47
    )Operating income
    
    
    1,568
    
    
    
    2,940
    
    
    
    (7
    )
    
    
    547
    
    
    
    2,521
    
    
    
    74Equity investment income (loss)(1)
    
    
    (167
    )
    
    
    192
    
    
    
    (1,199
    )
    
    
    61
    
    
    
    (533
    )
    
    
    (16
    )Other non-operating income(1)
    
    
    674
    
    
    
    662
    
    
    
    608
    
    
    
    469
    
    
    
    882
    
    
    
    26Other non-operating expenses
    
    
    (439
    )
    
    
    (599
    )
    
    
    (884
    )
    
    
    (797
    )
    
    
    (667
    )
    
    
    (20
    )Income (loss) before income tax
and minority interest(1)
    
    
    1,636
    
    
    
    3,195
    
    
    
    (1,482
    )
    
    
    280
    
    
    
    2,203
    
    
    
    65Income tax (expense)
    
    
    (129
    )
    
    
    26
    
    
    
    283
    
    
    
    145
    
    
    
    636
    
    
    
    19Net income (loss)(1)(2)
    
    
    1,507
    
    
    
    3,221
    
    
    
    (1,183
    )
    
    
    425
    
    
    
    2,839
    
    
    
    84Basic and diluted earnings (loss)
per share(3)
    
    
    1.00
    
    
    
    2.01
    
    
    
    (0.64
    )
    
    
    0.23
    
    
    
    1.55
    
    
    
    0.05Shares used in per share
calculation (average, as
adjusted)(3)
    
    
    1,503
    
    
    
    1,603
    
    
    
    1,847
    
    
    
    1,826
    
    
    
    1,837
    
    
    
    1,837Basic and diluted earnings (loss)
per ADS(1)(3)
    
    
    5.01
    
    
    
    10.05
    
    
    
    (3.20
    )
    
    
    1.16
    
    
    
    7.75
    
    
    
    0.23Dividends per share(4)
    
    
    2.30
    
    
    
    1.40
    
    
    
    1.45
    
    
    
    
    
    
    
    
    
    
    
    ADSs used in per ADS calculation
(average, as adjusted)(1)(3)
    
    
    301
    
    
    
    321
    
    
    
    369
    
    
    
    365
    
    
    
    367
    
    
    
    367US GAAPNet income (loss)
    
    
    754
    
    
    
    1,982
    
    
    
    (1,790
    )
    
    
    (223
    )
    
    
    3,247.9
    
    
    
    96
 3




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Year Ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    US$(6)(in millions, except earnings (loss) or dividends per share and per ADS data)Basic and diluted earnings (loss)
per share
    
    
    0.52
    
    
    
    1.26
    
    
    
    (0.98
    )
    
    
    (0.12
    )
    
    
    1.77
    
    
    
    0.05Shares used in per share
calculation (average, as
adjusted)(5)
    
    
    1,458
    
    
    
    1,572
    
    
    
    1,832
    
    
    
    1,826
    
    
    
    1,837
    
    
    
    1,837Basic and diluted earnings (loss)
per ADS
    
    
    2.58
    
    
    
    6.31
    
    
    
    (4.89
    )
    
    
    (0.61
    )
    
    
    8.8
    
    
    
    0.26ADSs used in per ADS calculation
(average, as adjusted)(5)
    
    
    292
    
    
    
    314
    
    
    
    366
    
    
    
    365
    
    
    
    367
    
    
    
    367
 Year Ended or as of December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    US$(6)(in millions)Other Data:ROC GAAPCapital expenditures
    
    
    3,478
    
    
    
    6,535
    
    
    
    5,474
    
    
    
    6,445
    
    
    
    4,885
    
    
    
    144Depreciation and amortization
    
    
    1,424
    
    
    
    2,257
    
    
    
    4,323
    
    
    
    4,902
    
    
    
    5,185
    
    
    
    153Balance Sheet Data:ROC GAAPCash and cash equivalents
    
    
    1,601
    
    
    
    6,566
    
    
    
    6,310
    
    
    
    5,970
    
    
    
    12,203
    
    
    
    359Working capital
    
    
    2,480
    
    
    
    8,361
    
    
    
    6,176
    
    
    
    6,856
    
    
    
    4,766
    
    
    
    140Total assets
    
    
    23,546
    
    
    
    41,740
    
    
    
    42,566
    
    
    
    46,236
    
    
    
    54,658
    
    
    
    1,608Short-term debt and current
portion of long-term debt
    
    
    959
    
    
    
    1,272
    
    
    
    2,667
    
    
    
    2,968
    
    
    
    10,342
    
    
    
    304Long-term debt
    
    
    5,207
    
    
    
    9,291
    
    
    
    10,640
    
    
    
    14,143
    
    
    
    8,813
    
    
    
    259Total stockholders equity
    
    
    14,022
    
    
    
    27,856
    
    
    
    26,046
    
    
    
    26,179
    
    
    
    29,698
    
    
    
    874US GAAPTotal assets
    
    
    23,509
    
    
    
    47,179
    
    
    
    47,852
    
    
    
    50,333
    
    
    
    61,756
    
    
    
    1,817Total liabilities
    
    
    9,706
    
    
    
    14,474
    
    
    
    16,517
    
    
    
    20,071
    
    
    
    25,322
    
    
    
    745Total stockholders equity
    
    
    13,803
    
    
    
    32,705
    
    
    
    31,335
    
    
    
    30,262
    
    
    
    36,434
    
    
    
    1,072
   (1)
    
    The ROC Securities and Futures Commission 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 (loss) in ChipMOS Technologies Inc., or ChipMOS,
which we owned 28.73% equity interest as of March 31, 2004. 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 income (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 of NT$365.7 million (US$10.8 million) for
ChipMOS in 2002. If this investment loss had been included in our results
for 2002, our non-operating income (loss), income (loss) before income tax
and net income (loss) for 2002 would have been reduced by the same amount
and our basis and diluted earnings (loss) per share in 2002 would have
been reduced by NT$0.2 (US$0.01). In 2003, we also experienced a delay in
recognition of investment income. For the first three months ended March
31, 2004, we recognized an investment income of NT$247.2 million (US$7.3
million) from ChipMOS in 2003. We also experienced a delay in recognition
of investment income (loss) in Double Win and Taiwan High-tech in each of
2001 and 2002 and Universal Communication in 2002, and recognized their
financial results in the subsequent year. Our investment income (loss)
from those entities were not material.Under US GAAP, there is no provision that allows us to delay recognition of
ChipMOSs financial results. In 2002 and 2003, our investment income (loss)
under US GAAP from ChipMOS was (NT$342.2 million) and
NT$250.0 million (US$7.4 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. 4




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(2)
    
    Net income is net of minority interest. Minority interest is less than
NT$1 million for all years shown here, except for 2001, where loss from
minority interest was NT$16 million, 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 134,720,138 shares, 123,980,637 shares and
235,421,212 shares distributed as stock dividends in 1999, 2000 and 2001,
respectively, with respect to the earnings of 1998, 1999 and 2000. 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$33.99 to US$1.00 on December 31,
2003. Currency Translations and Exchange Rates In portions of this annual report, we have translated New Taiwan dollar
amounts into US dollars for the convenience of the readers. The rate we used
for the translations was NT$33.99 = US$1.00, which was the noon buying rate
announced by the Federal Reserve Bank of New York on December 31, 2003. The
translation does not mean that New Taiwan dollars could actually be converted
into US dollars at that rate. The following table shows the noon buying rates
for New Taiwan dollars expressed in New Taiwan dollar per US$1.00. Average(of Month-EndYear Ended December 31,
    
    Rates)(1)
    
    High
    
    Low
    
    At Period-End1998
    
    
    33.498
    
    
    
    35.000
    
    
    
    32.050
    
    
    
    32.2701999
    
    
    32.281
    
    
    
    33.400
    
    
    
    31.390
    
    
    
    31.3902000
    
    
    31.366
    
    
    
    33.250
    
    
    
    30.350
    
    
    
    33.1702001
    
    
    33.911
    
    
    
    35.130
    
    
    
    32.230
    
    
    
    35.0002002
    
    
    34.526
    
    
    
    35.160
    
    
    
    32.850
    
    
    
    34.7002003
    
    
    34.399
    
    
    
    34.980
    
    
    
    33.720
    
    
    
    33.990December
    
    
    34.564
    
    
    
    34.150
    
    
    
    33.990
    
    
    
    33.9902004 (through May 28)
    
    
    33.260
    
    
    
    33.980
    
    
    
    32.730
    
    
    
    33.360January
    
    
    33.669
    
    
    
    33.980
    
    
    
    33.330
    
    
    
    33.390February
    
    
    33.214
    
    
    
    33.360
    
    
    
    33.100
    
    
    
    33.280March
    
    
    33.250
    
    
    
    33.420
    
    
    
    33.000
    
    
    
    33.000April
    
    
    32.970
    
    
    
    33.270
    
    
    
    32.730
    
    
    
    33.270May (through May 28)
    
    
    33.440
    
    
    
    33.700
    
    
    
    33.140
    
    
    
    33.360
   (1)
    
    Monthly averages are calculated using the average of the daily rates during
the relevant period. B. Capitalization and Indebtedness Not applicable. 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 business, financial condition or results of operations could be seriously
harmed. 5




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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 The semiconductor industry has historically been highly cyclical, and
economic downturns in the past have caused reduced product demand, rapid
erosion of average selling prices, low capacity utilization and production
overcapacity in our industry. 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 business
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 margins, which would
seriously harm our business. The recent recovery in the semiconductor industry 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 2004 and
subsequent periods with 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 revenue is derived from
customers who use our manufacturing services to make semiconductors for
personal computers. In 2001, 2002 and 2003, 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 results of operations 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. Any
future decrease in the demand 6




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for personal computers may decrease the demand
for our services and would likely seriously harm our operating results. In
addition, the declining average selling price of personal computers has placed
significant pressure on the prices of the components that are used in these
personal computers. We believe the average selling prices 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, 2004, we owned 28.7% equity interest in ChipMOS
Technologies Inc., or 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. In 2000, our investment income from ChipMOS was NT$401.9 million,
which constituted 12.5% of our net income. In 2001, however, we recorded an
investment loss of NT$436.3 million for our investment in ChipMOS, which
constituted 36.9% of our net loss in 2001. 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 Commission of the ROC 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 (loss) of
ChipMOS in our financial results under ROC GAAP for 2002. The unaudited
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$365.7 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, we also experienced a delay in recognition of investment income. For
the first three months ended March 31, 2004, we recognized an investment income
of NT$247.2 million (US$7.3 million) from ChipMOS in 2003. Under US GAAP,
however, there is no provision that allow us to delay recognition of ChipMOSs
income or loss. In 2002, our investment loss from ChipMOS was NT$342.2 million
under US GAAP. In 2003, our investment income from ChipMOS was NT$250.0 million
(US$7.4 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, 2004, we owned 28.7% equity interest in ChipMOS and two
directors, including one of our directors and one of our supervisors, represent
us on ChipMOSs seven-member board of directors. Since ChipMOS is a provider of
semiconductor packaging and testing services, our substantial interest in
ChipMOS may lead to conflicts of interest in the expansion and development of
the semiconductor packaging and testing markets. In addition, because one of
our directors is also a director of ChipMOS, conflicts of interest between his
duties to ChipMOS and us may 7




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arise. We cannot assure you that when conflicts of
interest arise, our director on ChipMOSs board will act completely in our
interest or that conflicts of interest will be resolved in our favor. 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 and 2003, our capacity utilization rates increased
significantly due to improved demand for our products and services as market
conditions in 2002 and 2003 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 business, 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
business. 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 business. In 2001, 2002 and 2003, 61.6%, 66.3% and 66.8% of our
unconsolidated net operating revenues, respectively, were derived from sales to
our top ten customers. In 2003, our top two customers accounted for 12.9% and
13.3%, 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 business. 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 reduces, delays or cancels its orders,
our business would be seriously harmed because each one of these customers
accounts for a significant part 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 business 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. However, this additional capital may not be
available. In addition, we may be unable to accurately estimate the timing and
amount of our capital requirements, which depend on 8




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a number of factors
including demand for our services and availability of equipment and whether or
when the market will recover. Consequently, 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 business 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), ST Assembly Test Services Ltd. (Singapore), Hana Microelectronics
Public Co. Ltd. (Thailand), Orient Semiconductor Electronics, Limited (Taiwan),
Astra International (Indonesia), Carsem Bhd. (Malaysia), ChipPAC Incorporated
(Korea) 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 business 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 business 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 business 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. 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. 9




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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, we obtained foreign investment
approval from the Investment Commission of the ROC Ministry of Economic Affairs
to invest up to US$20 million in Suzhou, PRC. We established a subsidiary
named Siliconware Technology (Suzhou) Limited, and, as of March 31, 2004, we
invested a total of US$15.5 million in this subsidiary. We are in the initial
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 business Our success depends upon the continued service of key senior management.
Most members of our senior management have served us for over 10 years and made
substantial contributions to our growth. We do not have 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 business 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. 10




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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 business 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 of our customers and suppliers in Taiwan are located in the Hsinchu
Science Park, and they are dependent on the infrastructure supporting the
Hsinchu Science Park. Occasionally, brief shortages or stoppages in power to
the Hsinchu Science Park have affected these customers and suppliers. In the
first half of 2001, the operations of our customers and suppliers located in
Taiwan, particularly in the Hsinchu Science Park, were negatively affected by
droughts in that area. As a result, our operations were also affected. Any
natural disaster or infrastructure failure affecting the Hsinchu Science Park
in the future could seriously harm our business and 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 2001, 2002 and 2003, sales to our
overseas customers accounted for 50.2%, 54.6% and 56.8%, 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 business will continue to be vulnerable to disruptions in the
international 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 do 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 2001,
2002 and 2003 under US GAAP was NT$(1,790.5) million, NT$(223.0) million and
NT$3,247.9 million (US$95.6 million), respectively, as compared to net income
(loss) under ROC GAAP of NT$(1,183.2) million, NT$425.2 million and NT$ 2,838.7
million (US$83.5 million), respectively. In addition, the ROC Securities and Futures Commission 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, 2003. Therefore, our
financial results of a prior year 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 11




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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. Risks Relating to Our Technologies If we cannot respond to rapid technology changes in the semiconductor packaging
and testing industry, our 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 which 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 and 2003, our royalty expenses due to third
parties were NT$426.2 million and NT$161.1 million (US$4.7 million),
respectively, which accounted for 1.9% and 0.6%, respectively, of our
unconsolidated 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. 12




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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 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 Disruptions in Taiwans political environment could seriously harm our business Our principal executive offices and most of our operations are located in
Taiwan. Taiwan has a unique international political status. Accordingly, our
business and financial condition will be affected by changes in local
governmental policies and political and social instability. The government of the Peoples Republic of China, or the PRC, asserts
sovereignty over mainland China and Taiwan, and does not recognize the
legitimacy of the government of the ROC. The government of the PRC has
indicated that it may use military force to gain control over Taiwan if Taiwan
declares independence or a foreign power interferes in Taiwans internal
affairs. On December 31, 2003, the ROC Referendum Law was promulgated
allowing referenda on a range of issues to be proposed and voted upon. The
law includes a provision allowing referenda involving key constitutional
issues, including, in the event that Taiwan comes under military attack from a
foreign power, issues relating to sovereignty such as changes to Taiwans flag,
official name and territorial status. On March 19, 2004, Taiwans incumbent
president was injured in an assassination attempt, and the next day narrowly
won a majority of votes in Taiwans presidential election. The incumbent
president was sworn into office for a second term on May 20, 2004 after a vote
recount resulting from a legal challenge to the election results filed by the
opposition party, but a court is still reviewing disputed ballots. The
political uncertainty surrounding the election and the recount has affected the
securities markets in Taiwan. The recent political uncertainty and related
developments could adversely affect the prices of our ADSs and our common
shares. It is unclear what effects any of the events described above may have
on relations between Taiwan and the PRC. Relations between Taiwan and the PRC
and other factors affecting Taiwans political environment could materially and
adversely affect our business. 13




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If economic conditions in Taiwan deteriorate, our current business and future
growth would be materially and adversely affected In recent years, the currencies of many East Asian countries, including
Taiwan, have experienced considerable volatility and depreciation. The Central
Bank of China, the central bank of Taiwan, has from time to time intervened in
the foreign exchange market to minimize the fluctuation of the US dollar/NT
dollar exchange rate and to prevent significant decline in the value of the New
Taiwan dollar. In October 1997, the Central Bank of China ceased its
interventions and in January 1998, US$1.00 exceeded NT$34.00 for the first time
since April 1987. New Taiwan dollars have depreciated against US dollars by
23.51% from US$1.00 = NT$27.52 on January 2, 1997 to US$1.00 = NT$33.36 on May
28, 2004 based on the noon buying rates published by the Federal Reserve Bank
of New York. In addition, the banking sector in Taiwan was seriously harmed by the
general economic downturn in Asia and Taiwan which has caused a depressed
property market and an increase in the number of companies filing for corporate
reorganization and bankruptcy protection. As a result, financial institutions
are more cautious in providing credit to businesses in Taiwan. We cannot assure
you that we will continue to have access to credit at commercially reasonable
rates of interest or at all. In the first half of 2003, several economies in Asia, including the PRC,
Hong Kong, Singapore and Taiwan have been affected by the outbreak of SARS, a
highly contagious form of atypical pneumonia. SARS caused damages to trade and
tourism industries as well as on the economies and financial markets of the
affected countries, including Taiwan. Another SARS outbreak or any other severe
and epidemic-prone disease outbreak in the future may have an adverse effect on
consumer confidence, and may in turn result in a decrease in the demand for our
products and services, which would adversely and materially affect our business
and results of operations. 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 smaller and, as a market, 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 2003, the Taiwan Stock Exchange
Index peaked at 6,142.32 on November 5, 2003, and reached a low of 4,139.50 on
April 28, 2003. From January 2, 2003 to May 31, 2004, daily closing values of
our shares ranged from NT$17.3 per share to NT$24.5 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$3.92 between June 7, 2000, the date our ADSs were listed on
Nasdaq and May 28, 2004. Over the same period, the Nasdaq Composite Index
ranged from 1,114.11 to 1,986.74. On May 31, 2004, the Taiwan Stock Exchange Index closed at 5,977.84, and
the daily closing value of our shares was NT$24.5 per share. 14




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If New Taiwan dollars or any of the currencies we use for our operations
fluctuate significantly against US dollars or Japanese yen, our profitability
may be seriously reduced Our net operating revenues and cost of goods sold are denominated in US
dollars, Japanese yen and New Taiwan dollars in varying amounts. In addition,
our capital expenditures are generally denominated in New Taiwan dollars,
Japanese yen and US dollars. As a result of our foreign currency exposure, we
are affected by fluctuations in exchange rates among the US dollar, the
Japanese yen, the New Taiwan dollar and other currencies. 
 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 Law as a company limited by
shares in 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 listed on the Nasdaq Stock Markets 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 package, 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 2,934 wire bonders on December 31, 2003. In addition, we had 196
testers in Hsinchu and Taichung, Taiwan. 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 2003, our top customers included the following leading
semiconductor suppliers: ATI Technologies, Inc., Intel Corporation,
International Business Machines Corporation, Marvell Semiconductor Inc.,
MediaTek, NVIDIA and VIA Technologies. 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; 15




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##### Table of Contents




    
    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. B. Business Overview Our Packaging and Testing Services 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 packages. Our flip chip 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 by silver paste
made with epoxy resin, either directly in a substrate package, or first to a
die-attached pad in a lead frame package. Leads on the lead frame or substrate
are then connected by extremely fine gold wires to the input/output terminals
on the chips, 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;
    
    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, in a process known as chip scale packaging. As semiconductor devices increase in complexity, the number of electrical
connections required 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, which 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 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 performance. 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 16




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##### Table of Contents



electronics. Multi-chip module packages allow for the combination of
multiple chips into a single package enabling increased application
functionality, while minimizing overall size. 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 31,2001
    
    2002
    
    2003Revenues
    
    %
    
    Revenues
    
    %
    
    Revenues
    
    %(audited) (consolidated)(in NT$ million except for percentages)Ball grid array packages
    
    
    6,460
    
    
    
    39.1
    
    
    
    8,576
    
    
    
    38.5
    
    
    
    11,698
    
    
    
    42.7Quad flat packages
    
    
    5,240
    
    
    
    31.7
    
    
    
    7,659
    
    
    
    34.3
    
    
    
    8,635
    
    
    
    31.5Small outline packages
    
    
    2,507
    
    
    
    15.1
    
    
    
    2,744
    
    
    
    12.3
    
    
    
    3,160
    
    
    
    11.5Other packages
    
    
    290
    
    
    
    1.8
    
    
    
    677
    
    
    
    3.0
    
    
    
    956
    
    
    
    3.5Testing and other revenue
    
    
    2,033
    
    
    
    12.3
    
    
    
    2,643
    
    
    
    11.9
    
    
    
    2,962
    
    
    
    10.8Total net operating revenues
    
    
    16,530
    
    
    
    100.0
    
    
    
    22,299
    
    
    
    100.0
    
    
    
    27,411
    
    
    
    100.0
 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 a customer and our
capacity utilization at the time. Lead Frame Packages Lead frame packages, including quad flat packages and small outline
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. 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: (DIAGRAM) 17




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##### Table of Contents



Lead
Frame Package Profile The following table presents our standard lead frame 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 UsesPlastic Leaded Chip Carrier
    
    28-84
    
    Package with leads
on two sides used
in consumer
electronics and
products in which
the size of the
package is not
vital
    
    Copiers, printers, scanners,
desktop personal computers, electronics games, monitorsQuad Flat Package
    
    44-256
    
    Package with leads
on four sides
designed for
advanced
processors,
consumer and
industrial
controllers,
digital signal
processors and
application
specific integrated
circuits
    
    Desktop personal
computers, consumer
and industrial
products,
commercial and
office equipment,
automotive systemsLow-Profile Quad Flat
Package
    
    32-216
    
    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
communications
products, laptop
computers, digital
cameras,
cordless/radiofrequency devicesThin Quad Flat Package
    
    44-128
    
    Designed for
lightweight,
portable
electronics
requiring broad
performance
characteristics
    
    Laptop computers,
personal computers,
disk drives, office
equipment, audio
and video products,
wireless
communications
productsQuad Flat No-lead Package
    
    20-104
    
    The small and light
package with
improved thermal
and electrical
performance makes
it suitable for
wireless
transmitters RF
front end, HD
devices and
micro-controllers
    
    Wireless
communications
products, disk
drives, portable
products, consumer
productsThin Quad Flat No-lead
Package
    
    8-56
    
    This device offers
similar features to
those of Quad Flat
No-lead Package,
but can process
smaller and lighter
packages
    
    Wireless
communications
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, audio
equipment, computer
peripherals
 18




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##### Table of Contents



Package
    
    Lead-count
    
    Major Applications
    
    End UsesPlastic Dual In-line Skinny
Package
    
    
    28-32
    
    
    General purpose
plastic package
used in consumer
electronic products
    
    Games, telephones,
televisions, audio
equipment, computer
peripheralsSmall Outline Package
    
    
    24-70
    
    
    Small lead frame
package designed
for applications
requiring reduced
height
    
    Pagers, cordless
telephones, fax
machines, copiers,
printers, computer
peripherals, audio
and video products,
automotive systemsShrink Small Outline Package
    
    
    28-56
    
    
    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 Packages
    
    
    24-70
    
    
    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/printers/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
computersThin Shrink Small Outline
Package I
    
    
    32
    
    
    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
computersThin 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,
communications
products
 Substrate Packages This family 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. 19




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##### Table of Contents



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: (DIAGRAM) 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. 20




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##### Table of Contents



The following diagram presents the cross section of a flip chip ball grid
array package: (DIAGRAM) Ball Grid Array Package Profile The following table presents our substrate packages, including the number
of leads and the description of and uses for each package format: 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
    
    36-400
    
    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,
cellular 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,
cellular 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
communications
products, standard
connections for
peripherals to
computers
 21




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##### Table of Contents



Package
    
    Lead-count
    
    Major Applications
    
    End UsesThermal Enhanced Ball Grid
Array
    
    256-1,152
    
    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,
cellular phones,
laptops,
sub-notebooks,
boardsLow Profile Ball Grid Array
    
    196-352
    
    Low-profile and
light weight
package designed
for applications
which require high
performance
    
    Laptop computers,
wireless
communications
products, computer
peripheralsLand 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
communications
products, standard
connections for
peripherals to
computers
 Our Testing 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 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 acquired Siliconware Corp. on December 30, 2000. Prior to the
acquisition, we outsourced all of our testing services to Siliconware Corp. We
recognized the amount charged to our customers for testing services provided by
Siliconware Corp. as revenues and recorded the fees charged by Siliconware
Corp. as cost of goods sold. The difference between our revenues and costs for
testing services was typically a small handling charge. 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. 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 dynamic burn in testing services to screen out
device infant mortality, laser repair to modify device connection structure
for saving expensive wafer area, 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. 22




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##### Table of Contents



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 2001, 2002
and 2003, 44.6%, 48.3% and 48.7%, respectively, of our unconsolidated net
operating revenues were derived from sales to our top five customers, and
61.6%, 66.3% and 66.8%, respectively, of our net operating revenues were
derived from sales to our top ten customers. In 2003, our top two customers
provided 12.9% and 13.3%, respectively, of our net operating revenues. Our
representative customers as of December 31, 2003 include: ATI Technologies
Inc., Intel Corporation, International Business Machines Corporation, Macronix
International Co., Ltd., Marvell Semiconductor Inc., MediaTek, NVIDIA, 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. Relationships with Independent Semiconductor Wafer Foundries in Taiwan We believe we have benefited from our location in Taiwan where outsourced
semiconductor manufacturing infrastructure is well established. Our long-term
relationships with the worlds two largest independent wafer foundries are
important to the continued growth of our business. 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. Backlog 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. 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. 23




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##### Table of Contents



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. Set forth below is a geographic breakdown of our unconsolidated net
operating revenues for the periods presented below: Year Ended December 31,2001
    
    2002
    
    2003Revenues
    
    %
    
    Revenues
    
    %
    
    Revenues
    
    %(audited)
    
    (consolidated)(revenues in NT$ million except for percentages)Taiwan
    
    
    8,227
    
    
    
    49.8
    
    
    
    10,123
    
    
    
    45.4
    
    
    
    11,875
    
    
    
    43.3U.S. and Canada
    
    
    8,006
    
    
    
    48.4
    
    
    
    11,525
    
    
    
    51.7
    
    
    
    14,775
    
    
    
    53.9Others(1)
    
    
    297
    
    
    
    1.8
    
    
    
    650
    
    
    
    2.9
    
    
    
    761
    
    
    
    2.8
   (1)
    
    Includes primarily Japan, Germany and Hong Kong. Sales from outside of Taiwan accounted for 50.2%, 54.6% and 56.7% of our
consolidated net operating revenues in 2001, 2002 and 2003, 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, 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. 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. 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. In August 2003, we also received TS16949
certification for our quality control. 24




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##### Table of Contents



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 99.5% for wafer bumping products for 2003. 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. 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. As part of our overall focus on quality service, we also closely monitor
our product delivery performance against scheduled delivery times. Research and Development 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 2001, 2002 and 2003, we spent NT$506.1
million, NT$507.0 million and NT$559.1 million (US$16.45 million),
respectively, on research and development, which accounted for 3.06%, 2.27% and
2.04%, respectively, of our consolidated net operating revenues. Material and Equipment 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 Tanaka
Kikinzoku International K.K., are leading companies in the types of materials
they supply. We work closely with them, providing them with rolling forecasts,
weekly requirement schedules and updating them on the status of our new
products. Due to the growth of substrate packaging products, our raw material costs
have increased. For 2001, 2002 and 2003, our raw material costs were 43.1%,
44.1% and 45.6%, respectively, of our net operating revenues. 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; usually only 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. In addition to raw materials, the availability of packaging and testing
equipment is critical to our business. 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 Shinkawa Ltd. As of December 31, 2003, we operated 2,869 wire
bonders. We also had 196 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. 25




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##### Table of Contents



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), ST Assembly Test Services, Ltd.
(Singapore), Hana Microelectronics Public Co. Ltd. (Thailand), Orient
Semiconductor Electronics, Limited (Taiwan), Astra International (Indonesia),
Carsem Bhd. (Malaysia), ChipPAC Incorporated (Korea) 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. Strategic Investments We, together with Siliconware Investment Company Ltd., our subsidiary,
make equity joint venture and strategic investments in companies located in
Taiwan and the United States engaged in 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 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:  
    
    Universal Communication Technology Inc.As of March 31, 2004,
we held, directly or indirectly, a 44.0% equity interest in
Universal Communication Technology Inc., which is a radio frequency
semiconductor testing company. One of our directors, Mr. Johnson
Tien, is a director of Universal Communication.
    
    ChipMOS.As of March 31, 2004, we held, directly or
indirectly, 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. One of our directors, Mr.
Bough Lin, is a director of ChipMOS, and one of our supervisors, Mr.
Jerome Tsai, is a director of ChipMOS.
    
    Sigurd Microelectronics Corp.As of March 31, 2004, we held,
directly or indirectly, a 25.0% equity interest in Sigurd
Microelectronics Corp. Sigurd provides lower-end packaging and
testing services.
    
    Double Win Enterprise Co. Ltd.As of March 31, 2004, we held,
directly or indirectly, a 24.1% equity interest in Double Win, which
is engaged in the business of printed circuit boards and surface
mount technology. One of our supervisors, Mr. Jerome Tsai, is a
director of Double Win. 26




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##### Table of Contents




    
    Phoenix Precision Technology Corporation.As of March 31,
2004, we held, directly or indirectly, a 14.0% equity interest in
Phoenix Precision, a supplier of semiconductor raw materials,
including substrates. One of our directors, Mr. Bough Lin, is a
director of Phoenix Precision. Two of our supervisors, Ms. Teresa
Wang and Mr. Jerome Tsai, are a director and a supervisor,
respectively, of Phoenix Precision.
    
    King Yuan Electronics Co., Ltd.As of March 31, 2004, we
held, directly or indirectly, a 9.3% 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, 2004, we
held, directly or indirectly, a 4.6% 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$99.5 million (US$2.9
million). Environmental Matters The principal pollutants created during semiconductor packaging are waste
water and gases from solder plating, and waste water from the wafer dicing and
solder dipping processes. During these processes, waste water is produced when
water is used to cool wafers after they are diced or to cleanse semiconductor
chips after lead frames are plated. Solid waste materials include metal lead
frame scrap and excess moulding resin. 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 for the recycling of treated water in our facilities. As
part of our pollution control program, we also subcontract certain waste
disposal and resource recycling of our facilities to third parties specializing
in these measures. We believe that we are in compliance with the existing
environmental laws and regulations in Taiwan in all material respects. Insurance Our insurance policies on our buildings, equipment and inventories only
covered damage due to fire in 2003. 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 either replacement costs
or actual cash value for our assets. Our insurance also includes protection
from losses caused by business interruption for seven to fourteen consecutive
working days and, as of December 31, 2003, had a maximum coverage of NT$55,000
million (US$1,618 million) and other specified limits and exclusions. We also maintain limited 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$5,474.2 million, NT$6,444.5
million and NT$4,884.7 million (US$143.7 million) for 2001, 2002 and 2003,
respectively. Our initial budget for capital expenditures for 2004 is
approximately US$238.9 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. 27




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Year Ended December 31,2001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(in millions)Equipment purchases
    
    
    4,697.1
    
    
    
    6,308.2
    
    
    
    3,486.9
    
    
    
    102.6Land and building purchases
    
    
    1,144.4
    
    
    
    1,117.4
    
    
    
    586.0
    
    
    
    17.2Construction in progress
and prepayment for
equipment
    
    
    
    
    
    
    654.9
    
    
    
    1,698.0
    
    
    
    50.0
 Litigation We are not involved in any material litigation or other proceedings. C. Organizational Structure The following table sets forth certain information as of March 31, 2004
regarding certain companies in which we held equity interests and the principal
business of each such entity. Total Paid-in
    
    Direct/Capital(1) of Such
    
    Indirect EquityCompany
    
    Main Activities
    
    Location
    
    Entity
    
    Interest(in millions)SPIL (B.V.I.) Holding Limited
    
    Investment activities
    
    British Virgin Islands
    
    US$43.3
    
    
    100.0
    %Siliconware Investment Company Ltd.
    
    Investment activities
    
    Taipei, Taiwan
    
    NT$1,770.0
    
    
    100.0
    %Siliconware U.S.A. Inc.
    
    Sale agent
    
    San Jose, CA, USA
    
    US$1.3
    
    
    100.0
    %SPIL (Cayman) Holding Limited
    
    Investment activities
    
    Cayman Islands
    
    US$15.6
    
    
    100.0
    %Siliconware Technology (Suzhou) Limited
    
    Design and
manufacture of DRAM
modules, flash
memory cards,
transistor and other
electronic
components
    
    Suzhou, Jiangsu, China
    
    US$15.5
    
    
    100.0
    %Universal Communication Technology Inc.
    
    RF IC testing
    
    Hsinchu, Taiwan
    
    NT$770.0
    
    
    44.0
    %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$8,872.3
    
    
    28.7
    %Sigurd Microelectronics Corp.
    
    Testing and assembly
of integrated
circuits
    
    Hsinchu, Taiwan
    
    NT$1,066.2
    
    
    25.1
    %Double Win Enterprise Co., Ltd.
    
    PCB, SMT process and
hand insert
    
    Taoyuan, Taiwan
    
    NT$350.0
    
    
    24.1
    %Phoenix Precision Technology Corp.
    
    Researching,
developing,
manufacturing and
selling ball grid
array substrate
    
    Hsinchu, Taiwan
    
    NT$4,818.5
    
    
    14.0
    %King Yuan Electronics Co., Ltd.
    
    IC testing
    
    Hsinchu, Taiwan
    
    NT$5,793.3
    
    
    9.3
    %ThaiLin Technology Corporation
    
    IC memory testing
    
    Hsinchu, Taiwan
    
    NT$1,559.0
    
    
    4.6
    %
   (1)
    
    Aggregate par value of all issued shares. 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. 28




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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, 2003. Facility
    
    Location of Facility
    
    Size of Facility
    
    Size of Land
    
    Wire Bonding or Testing CapacityFacility I
    
    Taichung, Taiwan
    
    6,755 square meters
    
    7,881 square meters
    
    229 wire bondersFacility II
    
    Taichung, Taiwan
    
    81,146 square meters
    
    26,246 square meters
    
    1,999 wire bondersFacility III
    
    Taichung, Taiwan
    
    77,210 square meters
    
    39,455 square meters
    
    44 testers, 641 wire bondersFacility IV
    
    Hsinchu, Taiwan
    
    23,296 square meters
    
    12,773 square meters
    
    152 testers
 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 will be completed in the second half of 2004. Upon completion, the
size of Facility III will expand from 77,210 square meters to approximately
131,769 square meters. This facility will be 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. On December 24, 2001, we obtained foreign investment
approval from the Investment Commission of the ROC Ministry of Economic Affairs
to invest up to US$20 million in Suzhou, PRC. As of March 31, 2004, we had
invested a total of US$15.5 million in this subsidiary. We are in the initial
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 27 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
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 and 2003.
As a result, we recorded operating income of NT$546.7 million and NT$2,520.9
million (US$74.2 million) in 2002 and 2003, respectively, which were offset by
net non-operating loss of NT$266.8 million and NT$318.4 million (US$9.4
million) in 2002 and 2003, respectively. Increases in our operating income were
mainly attributable to increases in provisions of more advanced packaging
services and testing of more complex, high-performance semiconductor products. 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. 29




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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. Our Acquisition of Siliconware Corp. On December 30, 2000, we acquired Siliconware Corp., in which we directly
and indirectly owned 40.1% immediately before the acquisition. We issued an
aggregate of 173.71 million new shares to acquire the remaining equity interest
in Siliconware Corp., 18.55 million of which were issued to Siliconware
Investment Company Ltd., a consolidated entity. Immediately after the
acquisition, Siliconware Investment held a total of 23.59 million of our
shares. Prior to the acquisition, Siliconware Corp. held an aggregate of 0.30
million of our shares, which were cancelled upon the consummation of the
acquisition. Prior to our acquisition of Siliconware Corp., we generally outsourced
testing services to Siliconware Corp. When we outsourced testing services to
Siliconware Corp., we recognized the amount charged to our customers for
testing services provided by Siliconware Corp. plus a small handling charge as
revenues, and we recorded the fees charged by Siliconware Corp. as cost of
goods sold. Siliconware Corp. charged us for their 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
testing program. Since the completion of the acquisition, we have continued to
recognize similar revenue streams, consisting of charges to our customers for
testing services, while eliminating the incurrence of cost of goods sold
attributable to Siliconware Corp.s testing services to our company that would
have been a result of the previous outsourcing of testing services. Consolidation Under ROC GAAP, we are required 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 Securities
and Futures Commission 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. We are only required to prepare our
consolidated financial statements on an annual basis. For 2001, we consolidated
the financial results of Siliconware Investment, SPIL (B.V.I.) Holding Limited,
which owns a 100% equity interest in Siliconware U.S.A Inc., our sales entity
in the United States. For each of 2002 and 2003, we consolidated five
subsidiaries: Siliconware Investment, 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. Delay in Recognition of Investment Income in Certain Investee Companies
Accounted for Under Equity Method ChipMOS As of March 31, 2004, we owned a 28.73% 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$1,400.0 million in the form of cash and
NT$100.0 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 30




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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, 2003,
we had not provided any guarantees with respect to ChipMOSs indebtedness. The ROC Securities and Futures Commission 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 time to enable us to recognize its financial
results for such period, we were permitted by the ROC Securities and Futures
Commission to delay the recognition of the investment loss of ChipMOS in our
financial results until 2003. As a result, we did not recognize investment
income (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$365.7 million (US$10.8 million).
If this investment loss had been included in our results for 2002, our
non-operating income (loss), income (loss) before income tax and net income
(loss) for 2002 would have been reduced by the same amount and our basis and
diluted earnings (loss) per share in 2002 would have been reduced by NT$0.2
(US$0.01). In 2003, we again experienced a delay in recognition of investment
income. For the first three months ended March 31, 2004, we recognized an
investment income of NT$247.2 million (US$7.3 million) from ChipMOS in 2003. Under US GAAP, however, there is no provision that allows us to delay
recognition of ChipMOSs financial results. In 2002 and 2003, our investment
income (loss) from ChipMOS was (NT$342.2 million) and NT$250.0 million (US$7.4
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$46.7 million (US$1.37 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. Double Win and Taiwan High-tech Recognition of our investment income (loss) in Double Win Enterprise Co.,
Ltd. and Taiwan Hi-tech Corporation has been consistently delayed until the
subsequent year. Accordingly, combined investment loss of NT$15.0 million and
combined investment income of NT$3.0 million (US$0.1 million) from investments
in these two companies for 2002 and 2003, respectively, were based on the
audited financial statements of the investee companies for 2001 and 2002,
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$715.5 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. 31




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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 undiscounted cash flows expected to result from
the use of the asset and our eventual disposition. If the undiscounted 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. Change in Product Mix Since January 1, 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 Packaging and
Testing Services) and each products revenues as a percentage of our total net
operating revenues: Year Ended December 31,2001
    
    2002
    
    2003Revenues
    
    %
    
    Revenues
    
    %
    
    Revenues
    
    %(audited) (consolidated)(revenues in NT$ millions except for percentages)Quad flat packages
    
    
    5,240
    
    
    
    31.7
    
    
    
    7,659
    
    
    
    34.3
    
    
    
    8,635
    
    
    
    31.5Small outline packages
    
    
    2,507
    
    
    
    15.1
    
    
    
    2,744
    
    
    
    12.3
    
    
    
    3,160
    
    
    
    11.5Ball grid array packages
    
    
    6,460
    
    
    
    39.1
    
    
    
    8,576
    
    
    
    38.5
    
    
    
    11,698
    
    
    
    42.7Other packages
    
    
    290
    
    
    
    1.8
    
    
    
    677
    
    
    
    3.0
    
    
    
    956
    
    
    
    3.5Test and others
    
    
    2,033
    
    
    
    12.3
    
    
    
    2,643
    
    
    
    11.9
    
    
    
    2,962
    
    
    
    10.8Total net operating revenues
    
    
    16,530
    
    
    
    100.0
    
    
    
    22,299
    
    
    
    100.0
    
    
    
    27,411
    
    
    
    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. Because our
capacity utilization rates in 2001 and 2002 were lower than our capacity
utilization rate in 2000, we have expanded less aggressively than we did in
2000. Our wire bonders and testers slightly increased to 2,481 and 198,
respectively, as of December 31, 2002, from 2,056 and 167, respectively, as of
December 31, 2001, following an increase from 1,829 and 140, respectively, as
of December 31, 2000, on a consolidated basis. Our wire bonders also increased
to 2,869, as of December 31, 2003, from 2,481, as of December 31, 2002, whereas
our number of testers remains nearly the same to 196 as of December 31, 2003
from 198 as of December 31, 2002. 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 and 2003. 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 32




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on our financial statements are described in note 27 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 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. 33




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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. During 2003, 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. We concluded that
the impairment loss was other than temporary. Accordingly, in 2003, we
recorded impairment charges totaling NT$157.3 million (US$4.6 million) on this
long-term equity investment and wrote off the carrying value of the investment
to its fair value, which approximated the amount of underlying equity in its
net assets as follows: (1) there is no quoted market value to determine its
fair value; and (2) based on our evaluation, 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. In 2003, we also recognized an impairment charge of NT$131.8 million
(US$3.9 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 to
sell. The fair value of the assets to be disposed of was determined by the
estimated net realizable value of the assets. The impairment charge was mainly
related to our decision to dispose certain machinery and equipment due to
technology phase out and replacement in 2003. Provision for Income Taxes and Deferred Tax Asset Valuation Allowances As of December 31, 2003, we had approximately NT$1,844.9 million (US$54.3
million) of net deferred tax assets related principally to investment tax
credits that expire at various dates through 2007, the unrealized loss on
long-term investments and loss carryforward. 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 period the 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
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 Statement of
Financial Accounting Standards, or 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 34




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indicate that the carrying value may not be recoverable. Goodwill amounted
to, after amortization, NT$4,873.5 million as of December 31, 2001 under US
GAAP. We did not recognize any goodwill under ROC GAAP. Effective January 1, 2002, SFAS No. 142 requires that we cease
amortization of goodwill and perform an impairment review upon adoption and at
least annually thereafter. Since we operate on an integrated basis, we have
only one reporting unit. Based on the comparison of the fair value and carrying
value of our company, we concluded that goodwill was not impaired as of the
adoption of SFAS No. 142 and as of December 31, 2003. Embedded Derivatives Under US GAAP, the convertible or exchangeable option embedded in
investments in convertible bonds or exchangeable bonds is separated from the
host and accounted for as derivative instruments. The derivative is measured at
fair value with changes in fair value reported in earnings. We recorded NT$ 52.9 million loss and NT$ 236.8 million gain in 2002 and
2003, respectively, in relation to the embedded derivatives. If the fair value
of the derivatives declines, loss will be recorded for the changes in fair
value. 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:  
    
    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 costs of substrate. For 2001, 2002 and 2003, raw materials were
approximately 43.1%, 44.1% and 45.6%, respectively, of our net operating
revenues. Due to our capacity expansion, unconsolidated depreciation expense
has increased significantly. For 2001, 2002 and 2003, depreciation, 35




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included in overhead, was NT$3,895.2 million, NT$4,450.2 million and
NT$4,732.4 million (US$139.2 million), respectively, and was approximately
25.8%, 22.0% and 20.4%, respectively, of our cost of goods sold. The increases
in depreciation expenses in 2001, 2002 and 2003 were the result of putting into
operation additional 233, 425 and 453 wire bonders during 2001, 2002 and 2003,
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.
    
    Administrative expenses. 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 31,2001
    
    2002
    
    2003%
    
    %
    
    %(audited)(consolidated)Net operating revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost of goods sold
    
    
    91.4
    
    
    
    90.6
    
    
    
    85.0Gross profit
    
    
    8.6
    
    
    
    9.4
    
    
    
    15.0Operating expenses:Selling expenses
    
    
    1.5
    
    
    
    1.1
    
    
    
    1.5Administrative expenses
    
    
    4.1
    
    
    
    3.5
    
    
    
    2.3Research and development expenses
    
    
    3.0
    
    
    
    2.3
    
    
    
    2.08.6
    
    
    
    6.9
    
    
    
    5.8Operating income (loss)
    
    
    0
    
    
    
    2.5
    
    
    
    9.2Investment income (loss)
    
    
    (7.2
    )
    
    
    0.3
    
    
    
    (1.9
    )Net non-operating income (loss)
    
    
    (1.7
    )
    
    
    (1.5
    )
    
    
    0.8Income (loss) before income tax
and minority interest
    
    
    (8.9
    )
    
    
    1.3
    
    
    
    8.1Income tax benefit
    
    
    1.7
    
    
    
    0.6
    
    
    
    2.3Net income (loss)
    
    
    (7.2
    )
    
    
    1.9
    
    
    
    10.4
 2003 Compared to 2002 Net operating revenues.Net operating revenues increased by 22.9% from
NT$22,298.5 million in 2002 to NT$27,411.4 million (US$806.5 million) in 2003.
This increase was primarily due to increases in the unit sales of ball grid
array packages, small outline packages, and other packages, even though the
prices of such products have generally decreased. 36




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Ball grid array package sales increased by 36.4% from NT$8,575.9 million
in 2002 to NT$11,697.9 million (US$344.2 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. We expect sales of ball grid array packages to
continue to constitute a large proportion of our net operating revenues for the
foreseeable future. Quad flat package sales increased by 12.7% from NT$7,659.5 million in 2002
to NT$8,635.0 million (US$254.0 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$2,743.7 million
in 2002 to NT$3,159.5 million (US$93.0 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. Gross profit and gross margin.Our gross profit increased by 97.0% from
NT$2,089 million in 2002 to NT$4,114 million (US$121.0 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 (US$685.4 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$1,541.9
million in 2002 to NT$1,593.0 million (US$46.9 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$409.4 million in 2002 to NT$415.4 million (US$12.2 million)
in 2003.
    
    Administrative expenses. Administrative expenses slightly
decreased by 1.1% from NT$625.5 million in 2002 to NT$618.4 million
(US$18.2 million) in 2003.
    
    Research and development expenses.Research and development
expenses increased by 10.3% from NT$507 million in 2002 to NT$559.1
million (US$16.4 million) in 2003 due to increase in salaries to R&D
personnel and maintenance cost of equipment. Operating income and operating margin.We recorded an operating income of
NT$546.7 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$2,520.9 million (US$74.2 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 of net operation revenues. Net non-operating loss.Our net non-operating loss increased by 19.3% from
NT$266.8 million in 2002 to NT$318.4 million (US$9.4 million) in 2003. Our
investment loss in 2003 was NT$533.1 million (US$15.7 million). This is largely
attributable to investment losses 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 Securities and Futures Commission of the ROC 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$365.7 million, in our financial results for
the three months ended March 31, 2003. If this investment loss had been
included 37




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in our results for 2002, our non-operating income (loss) for 2002 would
have been reduced by the same amount. Under US GAAP, however, 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$145.4
million and NT$636.3 million (US$18.7 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$425.2 million in 2002, compared with a net income of
NT$2,838.8 million (US$83.5 million) in 2003. 2002 Compared to 2001 Net operating revenues.Net operating revenues increased by 34.9% from
NT$16,530.4 million in 2001 to NT$22,298.5 million in 2002. This increase was
primarily due to increases in the sales of ball grid array packages and quad
flat packages, and our testing revenue. Ball grid array package sales increased by 32.8% from NT$6,460.0 million
in 2001 to NT$8,575.9 million in 2002. The increase in the sales of ball grid
array packages was attributable to increases in unit sales of ball grid array
package products. Unit sales of ball grid array packages increased by 32.5%
from 117.4 million units in 2001 to 155.5 million units in 2002. In 2002, ball
grid array package products accounted for 38.5% of our net operating revenues,
down from 39.1% in 2001. We, however, expect sales of ball grid array packages
to continue to constitute a large proportion of our net operating revenues for
the foreseeable future. Quad flat package sales increased by 46.2% from NT$5,239.8 million in 2001
to NT$7,659.5 million in 2002. The increase in sales of our quad flat packages
was attributable to an increase in unit sales, which was slightly offset by a
decrease of 7.8% in the average selling price of quad flat packages products.
Unit sales of quad flat packages increased by 58.7% from 358.8 million units in
2001 to 569.3 million units in 2002. In 2001, quad flat package products
accounted for 31.7% of our net operating revenues, up to 34.3% in 2002. Sales of small outline packages increased by 9.4% from NT$2,507.3 million
in 2001 to NT$2,743.7 million in 2002. The increase in sales of our small
outline packages was attributable to an increase in unit sales, which was
partially offset by a decrease of 15.6% in average selling price of these
products. Unit sales of small outline packages increased by 29.5% from 358.2
million units in 2001 to 463.9 million units in 2002. In 2001, small outline
package products accounted for 15.2% of our net operating revenues, down to
12.3% in 2002. Gross profit and gross margin.Our gross profit increased by 47.0% from
NT$1,420.9 million in 2001 to NT$2,088.6 million in 2002. Our gross margin
(gross profit as a percentage of net operating revenues) increased from 8.6% in
2001 to 9.4% in 2002. Our cost of goods sold increased by 33.8% from
NT$15,109.5 million in 2001 to NT$20,209.9 million in 2002, primarily due to
increases in costs of raw materials for our increased production of ball grid
array, small outline and quad flat packages and higher depreciation costs from
year to year as a result of our additional purchase of wire bonders and
testers. We experienced increases in gross profit and gross margin in 2002
because of a significant increase in net operating revenues, resulting from
increases in sales of quad flat packages, ball grid array packages and small
outline packages, despite a relatively minor decrease in the average selling
price of quad flat packages and small outline packages. Operating expenses.Operating expenses increased by 8.0% from NT$1,427.9
million in 2001 to NT$1,541.9 million in 2002. Operating expenses as a
percentage of net operating revenues decreased from 8.6% in 2001 to 6.9% in
2002.  
    
    Selling expenses. Selling expenses slightly increased by 5.0%
from NT$389.9 million in 2001 to NT$409.4 million in 2002 due to
additional hiring of sales personnel.
    
    Administrative expenses.Administrative expenses increased by
17.6% from NT$532.0 million in 2001 to NT$625.5 million in 2002 due
to additional hiring of supporting personnel and increases in
depreciation 38




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due to the purchase and enhancement of computer systems and equipment
used for administrative purposes.
    
    Research and development expenses.Research and development
expenses slightly increased by 0.2% from NT$506.1 million in 2001 to
NT$507.0 million in 2002. Operating income and operating margin.We recorded an operating loss of
NT$7.0 million and a negative operating margin (operating income as a
percentage of net operating revenues) in 2001 and generated operating income of
NT$546.7 million and operating margin of 2.5% in 2002. The increase in
operating income was primarily due to an increase in our gross profit mentioned
above. The increase in operating margin was primarily due to decreases of
selling expenses and research and development expenses as percentages of net
operation revenues. Net non-operating loss.Our net non-operating loss decreased by 81.9% from
NT$1,474.6 million in 2001 to NT$266.8 million in 2002. The larger net
non-operating loss in 2001 was primarily due to an investment loss of
NT$1,198.8 million attributable principally to investment losses in CAESAR and
ChipMOS. In 2001, we recorded an investment loss of NT$436.3 million for our
investment in ChipMOS, which constituted 36.9% of our net loss in 2001. Because
ChipMOS did not provide its financial statements to us in time to enable us to
recognize its financial results for the current period, effective from the
fiscal years subsequent to the year ended December 31, 2001, the Securities and
Futures Commission of the ROC allowed 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 (loss) of ChipMOS in our financial results under
ROC GAAP for 2002. The unaudited 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$365.7 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 non-operating
income (loss) for 2002 would have been reduced by the same amount. Under US
GAAP, however, 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$282.6
million and NT$145.4 million in 2001 and 2002, respectively, because of the
deferred tax benefit on certain 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 loss of NT$1,183.2 million in 2001, compared with a net income of
NT$425.2 million in 2002. As stated above, we recorded no investment income
(loss) in ChipMOS under ROC GAAP for 2002. If such loss of NT$365.7 million
were included in our financial results for 2002, our net income (loss) for 2002
would have been reduced by the same amount. 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, 2003 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 Securities and Futures
Commission of the ROC, 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. In addition, the net incomes for the quarters
ended March 31, 2002, September 30, 2002, March 31, 2003 and September 30,
2003, did not generally recognize, pursuant to ROC SFAS No. 23 Disclosure and
Presentation for Interim Financial Reporting, any income (loss) in investee
companies in which we owned 20% to 50% voting right. Such income (loss) were
recognized on a semi-annual basis in the quarters ended June 30, 2002, December
31, 2002, June 30, 2003, and December 31, 2003, thereby creating a difference
in net income (loss) between ROC GAAP and US GAAP. See US GAAP
Reconciliation for a description of other differences between ROC GAAP and US
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. 39




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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, 2002
    
    June 30, 2002
    
    September 30, 2002
    
    December 31, 2002
    
    March 31, 2003
    
    June 30, 2003
    
    September 30, 2003
    
    December 31, 2003(unaudited)
    
    (unconsolidated)Net operating revenues.
    
    
    5,252
    
    
    
    5,398
    
    
    
    5,510
    
    
    
    6,139
    
    
    
    5,601
    
    
    
    6,533
    
    
    
    7,200
    
    
    
    8,049Cost of goods sold
    
    
    (4,699
    )
    
    
    (4,853
    )
    
    
    (5,046
    )
    
    
    (5,612
    )
    
    
    (5,084
    )
    
    
    (5,587
    )
    
    
    (5,876
    )
    
    
    (6,687
    )Gross profit
    
    
    553
    
    
    
    545
    
    
    
    464
    
    
    
    527
    
    
    
    517
    
    
    
    946
    
    
    
    1,325
    
    
    
    1,362Operating expenses
    
    
    (370
    )
    
    
    (355
    )
    
    
    (372
    )
    
    
    (437
    )
    
    
    (382
    )
    
    
    (383
    )
    
    
    (398
    )
    
    
    (408
    )Operating income (loss)
    
    
    183
    
    
    
    190
    
    
    
    92
    
    
    
    90
    
    
    
    135
    
    
    
    564
    
    
    
    926
    
    
    
    954
 B. Liquidity and Capital Resources We need cash primarily for capacity expansion, equipment purchases and
working capital. 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.
If adequate funds are not available, whether on satisfactory terms or at all,
we may be forced to curtail our expansion plans. 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. As of December 31, 2003, our primary source of liquidity was NT$12,202.6
million (US$359.0 million) of cash and cash equivalents. As of December 31,
2003, we had total availability under existing short-term lines of credit,
short-term commercial paper and trade facilities of NT$6,245.1 million
(US$183.7 million) available from seven domestic and foreign financial
institutions, of which NT$1,962.9 million (US$57.7 million) were used as
borrowings, letters of credit or guarantees. The weighted average interest
rate for borrowings denominated in New Taiwan dollars under these facilities
was 1.84% as of December 31, 2003, and ranged from 1.4% to 2.4% per year
between January 1, 2003 and December 31, 2003. All of our short-term loans are
revolving facilities with a term of one year, which may be extended for terms
of one year each with lender consent. We are subject to restrictions on the
sale, lease, transfer or other disposal of our assets under some of our
short-term loan facilities. None of our current short-term commercial paper
facilities has received a credit rating. As of December 31, 2003, we did not
have any outstanding amount under these short-term commercial paper facilities. As of December 31, 2003, we had outstanding long-term borrowings of
NT$11,970.6 million (US$352.2 million) owed to 47 domestic financial
institutions under 58 credit facilities. The interest rates of these long-term
borrowings denominated in NT dollars are variable rates, and as of December 31,
2003 ranged from 1.715% to 4.54% per year. We have pledged a substantial
portion of our assets, with a carrying value of NT$6,280.6 million (US$184.8
million) as of December 31, 2003, to secure our obligations under these three
facilities. We entered into a multiple purpose credit facility 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 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 40




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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, 2003, we had drawn NT$1,015 million (US$29.9
million) from this facility to redeem our convertible bonds due 2004, and
NT$2,455 million (US$72.2 million) for our working capital purposes. 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. As of December 31, 2003, we had drawn NT$4.8 billion (US$142.1
million) from this credit facility for working capital and to refinance our
existing indebtedness. Our long-term loan and commercial paper facilities include certain
provisions that would trigger a requirement for early payment. Under the terms
of our credit facilities for long-term borrowings, we are 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, 2003, we complied with all financial covenants of existing
facilities. Our long-term foreign debt 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. US$8.84
million of these convertible bonds had been converted as of May 31,
2004. These bonds are scheduled to mature in January 2007 and will
be redeemable by us on July 28, 2004 at the option of the
bondholder.  
    
    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 May
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. Net cash provided by (used in) operating activities amounted to NT$4,944.3
million in 2001, NT$5,006.2 million in 2002 and NT$8,052.7 million (US$236.9
million) in 2003. Our depreciation and amortization was NT$4,322.6 million in
2001, NT$4,901.7 million in 2002 and NT$5,185.3 million (US$152.6 million) in
2003. The increases in depreciation and amortization were primarily due to
increased capital investment in package service-related capital equipment. See
Results of Operations. Net cash used for investing activities was NT$6,699.9
million in 2001, NT$8,805.6 million in 2002 and NT$4,227.9 million (US$124.4
million) in 2003. Net cash used for investing activities primarily reflected
capital expenditures for property, plant and equipment of NT$5,474.2 million in
2001, NT$6,444.5 million in 2002 and NT$4,884.7 million (US$143.7 million) in
2003. These capital expenditures were primarily funded with net cash provided
by operating activities. Cash provided by financing activities totaled NT$1,499.1 million in 2001
reflecting primarily our borrowing of short-term loans of NT$7,305.9 million
and long-term loans of NT$4,421.1 million, the repayments of short-term loans
of NT$7,487.1 million and long-term loans of NT$301.0 million and early
redemption of convertible bonds due 2004 of NT$1,917.3. In 2002, cash provided
by financing activities was NT$3,459.1 million reflecting primarily our
issuance of US$200 million zero coupon convertible bonds due 2007, partially
offset by our redemption of the 41




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remaining outstanding convertible bonds due 2004 in the amount of US$94.0
million. In 2003, cash provided by financing activities was NT$2,408.2 million
(US$70.9 million), reflecting primarily our borrowing of long-term loans of
NT$5,128.7 million and the repayment of long-term loans of NT$2,329.8 million. We are sometimes required to prepay our purchases of land and equipment.
Prepayments for purchases of land are the result of a standard processing
procedure by the Republic of China government related to the transfer of legal
title. As of December 31, 2002 and 2003, 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, 2002 and
2003, outstanding balances of prepayments for purchases of equipment amounted
to NT$1,114.8 million and NT$2,326.8 million (US$68.5 million), respectively. We have entered into agreements with third parties in connection with our
expansion plans. As of December 31, 2003, we had outstanding obligations of
approximately NT$961 million (US$28.3 million) under these agreements. We do
not have any written options on non-financial assets. 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 2004 is approximately
US$238.9 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. We frequently need to invest
in new capacity to improve our economies of scale and reduce our production
cost, which may 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. 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. 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 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 (0.01)% in 2001, (0.2)% in 2002 and
(0.3)% in 2003. 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$159.6 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. 42




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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 intend to
continue to use this tax exemption in 2004. 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 NT$12.3 million, nil and NT$399.2 million (US$11.7 million) in
2001, 2002 and 2003, respectively. In 2001, 2002 and 2003, our effective income
tax rates were -19.07%, -51.95% and -28.89%, respectively, as tax benefits more
than offset income taxes payable. According to the ROC tax credit rules, we
currently enjoy a tax credit of 13% 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 27 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: For the Years Ended December 31,2001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(in millions)Net income as reported under ROC GAAP
    
    
    (1,183
    )
    
    
    425
    
    
    
    2,839
    
    
    
    84US GAAP adjustments:Compensated absences
    
    
    (3
    )
    
    
    (7
    )
    
    
    (1
    )
    
    
    Compensation
    
    
    (257
    )
    
    
    
    
    
    
    (341
    )
    
    
    (10
    )Treasury stock transfer to employee
    
    
    
    
    
    
    
    
    
    
    (154
    )
    
    
    (5
    )Goodwill amortization
    
    
    (542
    )
    
    
    
    
    
    
    
    
    
    
    Impairment on long-term investments
    
    
    
    
    
    
    (213
    )
    
    
    
    
    
    
    Embedded derivative
    
    
    
    
    
    
    (53
    )
    
    
    237
    
    
    
    7Marketable securities
    
    
    
    
    
    
    (6
    )
    
    
    6
    
    
    
    Equity investments:Timing differences
    
    
    (15
    )
    
    
    (362
    )
    
    
    630
    
    
    
    19Net income/(loss) variance between US
GAAP and ROC GAAP
    
    
    54
    
    
    
    22
    
    
    
    (30
    )
    
    
    (1
    )Accounting for income in preferred stock
    
    
    (34
    )
    
    
    (45
    )
    
    
    87
    
    
    
    3Technology and know-how contributed to a
joint venture investee
    
    
    (31
    )
    
    
    (6
    )
    
    
    (6
    )
    
    
    (828
    )
    
    
    (670
    )
    
    
    428
    
    
    
    13Taxation effect
    
    
    221
    
    
    
    22
    
    
    
    (19
    )
    
    
    (1
    )Net income under US GAAP
    
    
    (1,790
    )
    
    
    (223
    )
    
    
    3,248
    
    
    
    96
 43




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Reconciliation of consolidated shareholders equity: As of December 31,2001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(in millions)Total shareholders equity as reported
under ROC GAAP
    
    
    26,046
    
    
    
    26,179
    
    
    
    29,698
    
    
    
    874US GAAP adjustments:Compensated absences
    
    
    (13
    )
    
    
    (20
    )
    
    
    (21
    )
    
    
    (1
    )Compensation
    
    
    
    
    
    
    
    
    
    
    (341
    )
    
    
    (10
    )Impairment on long-term investments
    
    
    
    
    
    
    (213
    )
    
    
    (213
    )
    
    
    (6
    )Embedded derivative
    
    
    
    
    
    
    (53
    )
    
    
    184
    
    
    
    5Equity investments:Timing differences
    
    
    (9
    )
    
    
    (372
    )
    
    
    259
    
    
    
    8Net income variance between US GAAP
and ROC GAAP
    
    
    104
    
    
    
    126
    
    
    
    97
    
    
    
    3Accounting for income in preferred stock
    
    
    (14
    )
    
    
    (66
    )
    
    
    29
    
    
    
    1Technology and know-how contributed to a
joint venture investee
    
    
    (198
    )
    
    
    (204
    )
    
    
    (210
    )
    
    
    (6
    )Marketable securities
    
    
    542
    
    
    
    (14
    )
    
    
    2,072
    
    
    
    61Acquisition of Siliconware Corp.
    
    
    4,873
    
    
    
    4,873
    
    
    
    4,873
    
    
    
    143Taxation effect
    
    
    4
    
    
    
    26
    
    
    
    7
    
    
    
    Shareholders equity under US GAAP
    
    
    31,335
    
    
    
    30,262
    
    
    
    36,434
    
    
    
    1,072
 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 27 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 period 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. 44




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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. 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 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 2003 and concluded that there was no
impairment. Impairment of Long-lived Assets There are 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. 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$212.6 million (US$6.3 million) on these long-term equity
investments and wrote off the carrying value of the investments to their fair
value in 2003. Embedded Derivatives Under ROC GAAP, investment in convertible or exchangeable bonds is carried
at the lower of cost of 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 separately as a derivative
instrument. The bifurcated derivative would be measured at fair value with
changes in fair value reported in earnings as they occur. 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. 45




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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$19,268.6 million (US$566.9 million) on
December 31, 2003. 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 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. 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. Recent Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (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 2003, the 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, 2003, and for
variable interest entities created prior to February 1, 2003, no later than the
end of the first reporting period after March 15, 2004. We have performed a
review of entities created prior to and subsequent to January 31, 2003, and
determined that the adoption of FIN 46 and FIN 46-R did not have a material
impact on the Companys financial reporting and disclosures. On April 30, 2003, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities (SFAS No. 149). 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. The new guidance amends SFAS No. 133 for decisions made as part of
the Derivatives Implementation Group (DIG) process that effectively required
amendments to SFAS No. 133, and decisions made in connection with other FASB
projects dealing with financial instruments and in connection with
implementation issues raised in relation to the application of the definition
of a derivative and characteristics of a derivative that contains financing
components. In addition, it clarifies when a derivative contains a financing
component that warrants special reporting in the statement of cash flows. SFAS
No. 149 is effective for 46




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contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of SFAS No. 149 did
not have a material impact on the Companys consolidated financial statements. In May 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity (SFAS No. 150). SFAS No. 150
establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. SFAS No. 150 is effective for
all financial instruments created or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 did not have a material impact on the
Companys consolidated financial statements. 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 December 2003, the FASB issued SFAS No. 132, Employers Disclosures
about Pensions and Other Postretirement Benefits. This Statement revises
employers disclosures about pension plans and other postretirement benefit
plans. It requires additional disclosures to those in the original SFAS No.
132 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, which also requires
new disclosures for interim periods beginning after December 15, 2003, is
effective for fiscal years ended after December 15, 2003. The Company adopted
this Statement for the year ended December 31, 2003 and the adoption of this
statement has no impact on the Companys consolidated financial statements. C. Research and Development, Patents and Licenses, Etc. 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 47




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##### Table of Contents



in Japan, are jointly developing low cost and high performance underfill
materials. Moreover, we work with customers 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 2001, 2002 and 2003, we spent NT$506.1
million, NT$507.0 million and NT$559.1 million (US$16.5 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 with physical testing methods. Intellectual Property As of December 31, 2003, 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, 2003, 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 package design technology, whereby
silicon die is directly attached to the substrate using solder
bumping rather than wire bonding. A flip chip 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.  
    
    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 2001, 2002 and 2003, ongoing royalty payments to the companies from
which we license intellectual property were NT$257.8 million, NT$426.2 million
and NT$161.1 million (US$4.7 million), respectively, which accounted for 1.6%,
1.9% and 0.6%, respectively, of our net operating revenues. With the increasing
pace of technological change in the semiconductor industry, we expect that
royalty payments will increase in the future. 48




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##### Table of Contents



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. 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 2003. 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, 2003, we had unused letters of credit for imported
machinery and equipment in the aggregate amount of approximately NT$729.7
million (US$21.5 million). See note 23 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 The following table sets forth our contractual obligations and commitments
with definitive payment terms on a consolidated basis which will require
significant cash outlays in the future as of December 31, 2003. Payments Due by PeriodContractual Obligations
    
    Total
    
    Less Than 1 Year
    
    1-3 Years
    
    4-5 Years
    
    After 5 Years(consolidated)(in NT$ millions)Long-term debt(1)Secured long-term loans
    
    
    5,979.1
    
    
    
    1,953.4
    
    
    
    4,025.7
    
    
    
    
    
    
    
    Unsecured long-term loans
    
    
    5,191.5
    
    
    
    1,200.0
    
    
    
    3,991.5
    
    
    
    
    
    
    
    Secured bonds
    
    
    800.0
    
    
    
    
    
    
    
    800.0
    
    
    
    
    
    
    
    Operating leases(2)
    
    
    83.5
    
    
    
    7.4
    
    
    
    22.2
    
    
    
    14.8
    
    
    
    39.1Purchase obligations(3)
    
    
    846.6
    
    
    
    846.6
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    
    12,900.7
    
    
    
    4,007.4
    
    
    
    8,839.4
    
    
    
    14.8
    
    
    
    39.1
   (1)
    
    Excludes our payment obligations under the convertible bonds and
exchangeable bonds 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. 49




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##### Table of Contents



(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. 
 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, 2004. The business address
of our directors, supervisors and executive officers is the same as our
registered address. Principal Business ActivitiesName
    
    Age
    
    Position
    
    Years with Us
    
    Performed Outside Our CompanyBough Lin
    
    
    52
    
    
    Chairman; Executive
Vice President
    
    
    21
    
    
    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.Chi Wen Tsai
    
    
    56
    
    
    Vice Chairman; President
    
    
    21
    
    
    Director of Siliconware USA, Inc.Li Ping Wang
    
    
    49
    
    
    Director
    
    
    21
    
    
    NoneYen Chun Chang
    
    
    49
    
    
    Director; Senior Vice
President
    
    
    21
    
    
    NoneWen Jung Lin
    
    
    57
    
    
    Director
    
    
    15
    
    
    NoneWen Chung Lin
    
    
    51
    
    
    Director; Chief
Financial Officer
    
    
    20
    
    
    Director of Siliconware USA, Inc.Hsiu Li Liu
    
    
    49
    
    
    Director
    
    
    14
    
    
    NoneC.Y. Lin(1)
    
    
    51
    
    
    Director
    
    
    12
    
    
    NoneJohnson Tien(1)
    
    
    50
    
    
    Director; Senior Vice
President
    
    
    8
    
    
    Director of Universal
Communication Technology Inc.Wen Lung Cheng
    
    
    56
    
    
    Supervisor
    
    
    3
    
    
    NoneTeresa Wang(1)
    
    
    48
    
    
    Supervisor
    
    
    13
    
    
    Director of Phoenix Precision
Technology CorporationJerome Tsai(2)
    
    
    51
    
    
    Supervisor
    
    
    7
    
    
    Director of ChipMOS Technologies
Inc., Double Win Enterprise Co.,
Ltd. and Taiwan High-tech
Corporation and supervisor of
Phoenix Precision Technology
Corporation
   (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 ChipMOS Technologies Inc., 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 B.A. 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. 50




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##### Table of Contents



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. as a
representative of SPIL (B.V.I.) Holding Limited. He received a B.A. 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 B.A. degree in electronic engineering
from Nan Tai College in Taiwan in 1976. Wen Jung Linis our Director. He received a B.A. 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 B.A. 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 B.A.
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 B.A degree in
industrial engineering from Chung-Yuan Christian University in 1976. Wen Lung Chenghas been our Supervisor since June 2002. Mr. Cheng received
a B.A. 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
B.A degree in accounting and statistics from Ming Chuang College in 1978. Jerome Tsaihas been our Supervisor since June 2002. He received his
Bachelors degree in statistics from National Cheng Kung University and a
Masters degree in Management of Technology from National Chiao Tung University. B. Compensation of Directors, Supervisors and Executive Officers The following table sets forth cash and other compensation paid to our
directors and supervisors in 2003 in the capacities indicated below in that
fiscal year. 51




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Compensation in the
    
    OtherName
    
    Position
    
    Form of Cash
    
    Compensation(1)(in NT$ thousands)
    
    (in NT$ thousands)Bough Lin
    
    Chairman; Executive Vice President
    
    
    30
    
    
    
    3,250Chi Wen Tsai
    
    Vice Chairman; President
    
    
    30
    
    
    
    3,250Li Ping Wang
    
    Director
    
    
    30
    
    
    
    0Yen Chun Chang
    
    Director; Senior Vice President
    
    
    30
    
    
    
    0Wen Jung Lin
    
    Director
    
    
    30
    
    
    
    0Wen Chung
Lin
    
    Director; Chief Financial Officer
    
    
    30
    
    
    
    0Hsiu Li Liu
    
    Director
    
    
    30
    
    
    
    0C.Y. Lin
    
    Director
    
    
    30
    
    
    
    0Johnson Tien
    
    Director; Senior Vice President
    
    
    30
    
    
    
    0Wen Lung Cheng
    
    Supervisor
    
    
    30
    
    
    
    0Teresa Wang
    
    Supervisor
    
    
    30
    
    
    
    0Jerome Tsai
    
    Supervisor
    
    
    30
    
    
    
    0
   (1)
    
    Representing cost of providing transportation. 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 has 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. The Sarbanes-Oxley Act of 2002 directs the Securities and Exchange
Commission to require U.S. national securities exchanges, such as the Nasdaq
Stock Market, and national securities associations to adopt rules that prohibit
the listing of any security of an issuer that is not in compliance with the
relevant audit committee requirements set forth in such act. The Nasdaq Stock
Market listing requirements relating to audit committee for non-U.S. issuers
are required to be adopted and come into effect by July 31, 2005. As permitted
by law in Taiwan, our board does not maintain an audit committee or an audit
committee financial expert. We intend, however, to fully comply with the
applicable rules and regulations and Nasdaq Stock Market listing requirements
regarding the need for, and composition of, an audit committee and audit
committee financial experts. We also intend to apply for exemption for the
Nasdaq Stock Markets corporate governance standards that are in conflict with
ROC laws, rules or regulations or generally accepted business practices of the
ROC. Prior to forming an audit committee, our board of directors is
responsible for performing the functions that our audit committee will, upon
establishment, perform. D. Employees As of December 31, 2003, we had 9,160 full-time employees. Of these
employees, 5,418 were engaged in packaging and testing production, 2,132 were
engaged in engineering and other technical operations and 1,610 were engaged in
finance, business management and administration. As of December 31, 2002 and
2001, we had 8,215 and 6,626 full-time employees, respectively. Employee salaries are reviewed once 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 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. 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. Due to our net loss in 2001, we did
not pay any employee bonus in 2002. In July 2002, we adopted the 2002 Employee Stock Option Plan, or 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 52




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##### Table of Contents



granted a total of 37,511 options to purchase up to 37,511,000 shares
under the 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$15.6. The options granted in
February and May 2003 have an exercise price of NT$15.6 and NT$16.3,
respectively, and will expire 5 year from the date of grant if not previously
exercised. Under the 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. 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 13, 2004, our most recent record date. Number of Shares
    
    Percentage ofName
    
    Position
    
    Owned
    
    Shares OwnedBough Lin
    
    Chairman; Executive Vice President
    
    
    66,808,423
    
    
    
    3.53
    %Chi Wen Tsai
    
    Vice Chairman; President
    
    
    30,190,272
    
    
    
    1.59
    %Li Ping Wang
    
    Director
    
    
    42,037,367
    
    
    
    2.22
    %Yen Chun Chang
    
    Director; Senior Vice President
    
    
    12,069,327
    
    
    
    *Wen Jung Lin
    
    Director
    
    
    6,009,115
    
    
    
    *Wen Chung Lin
    
    Director; Chief Financial Officer
    
    
    29,583,161
    
    
    
    1.56
    %Hsiu Li Liu
    
    Director
    
    
    12,527,237
    
    
    
    *C.Y. Lin(1)
    
    Director
    
    
    27,015,776
    
    
    
    1.43
    %Johnson Tien(1)
    
    Director; Senior Vice President
    
    
    
    
    
    
    Wen Lung Cheng.
    
    Supervisor
    
    
    8,306,594
    
    
    
    *Teresa Wang(1).
    
    Supervisor
    
    
    
    
    
    
    Jerome Tsai(2).
    
    Supervisor
    
    
    2,500,000
    
    
    
    
   *
    
    Less than 1%.(1)
    
    Representing Siliconware Investment Company Ltd.(2)
    
    Representing Joinwin Investment Company Ltd. 
 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, 2001, December 31, 2002, December
31, 2003 and April 13, 2004 (our most recent record date) by (i) the ten
largest shareholders of our company (as of April 13, 2004) 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. 53




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##### Table of Contents



December 31, 2001
    
    December 31, 2002
    
    December 31, 2003
    
    April 13, 2004(6)Number of
    
    Percentage of
    
    Number of
    
    Percentage of
    
    Number of
    
    Percentage of
    
    Number of
    
    Percentage ofName of beneficial owner
    
    Shares owned
    
    Shares Owned
    
    Shares owned
    
    Shares Owned
    
    Shares owned
    
    Shares Owned
    
    Shares owned
    
    Shares OwnedCitibank(1)
    
    
    120,346,711
    
    
    
    6.38
    %
    
    
    99,194,619
    
    
    
    5.26
    %
    
    
    67,711,044
    
    
    
    3.59
    %
    
    
    155,033,701
    
    
    
    8.18
    %JP Morgan Chase -Emerging Market
Growth Fund
    
    
    
    
    
    
    
    
    
    
    50,667,000
    
    
    
    2.69
    %
    
    
    17,932,000
    
    
    
    0.95
    %
    
    
    76,508,000
    
    
    
    4.04
    %Bough Lin(2)
    
    
    62,056,265
    
    
    
    3.29
    %
    
    
    70,080,423
    
    
    
    3.72
    %
    
    
    60,080,423
    
    
    
    3.19
    %
    
    
    66,808,423
    
    
    
    3.53
    %Kuming Investment Company Ltd.(3)
    
    
    40,448,200
    
    
    
    2.15
    %
    
    
    48,583,204
    
    
    
    2.58
    %
    
    
    34,687,655
    
    
    
    1.84
    %
    
    
    48,583,204
    
    
    
    2.56
    %Li Ping Wang(4)
    
    
    27,697,264
    
    
    
    2.00
    %
    
    
    42,037,367
    
    
    
    2.23
    %
    
    
    42,037,367
    
    
    
    2.23
    %
    
    
    42,037,367
    
    
    
    2.22
    %Chi Wen Tsai
    
    
    30,360,063
    
    
    
    1.61
    %
    
    
    33,895,272
    
    
    
    1.8
    %
    
    
    31,645,272
    
    
    
    1.68
    %
    
    
    30,190,272
    
    
    
    1.59
    %Chunghwa Post Co., Ltd.
    
    
    65,047,337
    
    
    
    3.45
    %
    
    
    51,534,200
    
    
    
    2.73
    %
    
    
    59,678,200
    
    
    
    3.17
    %
    
    
    30,093,470
    
    
    
    1.59
    %Wen Chung Lin(5)
    
    
    30,583,161
    
    
    
    1.62
    %
    
    
    26,187,167
    
    
    
    1.39
    %
    
    
    29,583,161
    
    
    
    1.57
    %
    
    
    29,583,161
    
    
    
    1.57
    %Workers Retirement Fund
Supervisory Committee
    
    
    22,508,520
    
    
    
    1.19
    %
    
    
    25,772,255
    
    
    
    1.37
    %
    
    
    25,772,255
    
    
    
    1.37
    %
    
    
    28,414,255
    
    
    
    1.5
    %Siliconware Investment Company
Ltd.
    
    
    27,015,776
    
    
    
    1.43
    %
    
    
    27,015,776
    
    
    
    1.43
    %
    
    
    27,015,776
    
    
    
    1.43
    %
    
    
    27,015,776
    
    
    
    1.43
    %Directors and Supervisors as a group
    
    
    266,694,438
    
    
    
    14.15
    %
    
    
    243,002,272
    
    
    
    14.32
    %
    
    
    236,646,272
    
    
    
    12.55
    %
    
    
    237,047,272
    
    
    
    12.51
    %
   (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, 2004, a total of 32,334,722 ADSs and 1,894,575,782 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, 2004, 161,673,610 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, 2004,
161,648,665 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 2001, we had total sales to ChipMOS of 54




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NT$3.9 million. For 2002, we had no sales to ChipMOS. For 2003, we had
total sales to ChipMOS of NT$102.0 million (US$3.0 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. Bough Lin, our Chairman, is a director of ChipMOS. One of our
Supervisors, Mr. Jerome Tsai, is also a director of ChipMOS. Phoenix Precision Technology Corporation We purchased semiconductor raw materials from Phoenix Precision Technology
totaling NT$1,353.9 million, NT$1,716.3 million and NT$2,610.0 million (US$76.8
million) in 2001, 2002 and 2003, respectively. The purchase price and payment
terms for such purchases were generally comparable to those provided by
non-related parties. The average payment period is approximately 30 days from
the date of completion of service or purchase. As of December 31, 2001, 2002
and 2003, we owed NT$162.8 million, NT$195.0 million and NT$301.5 million
(US$8.9 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 2001 and 2002, we purchased machinery and equipment from CAESAR
Technology totaling NT$70.6 million and NT$59.5 million before tax,
respectively. 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. B. Significant Changes Our net operating revenues on an unconsolidated basis for the first five
months of 2004 amounted to NT$13,997.6 million, representing a 40.4% increase
from NT$9,972.0 million of our net operating revenues on an unconsolidated
basis for the first five months of 2003. Our net operating revenues for the
first five 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. 55




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Closing Price for Each Share(1)
    
    
    
    Taiwan Stock Exchange IndexHigh
    
    Low
    
    Average Daily
    
    High
    
    LowTradingPeriod
    
    NT$
    
    NT$
    
    Volume(in thousandsof shares)1999
    
    
    80.0
    
    
    
    45.1
    
    
    
    13,984
    
    
    
    8,608.91
    
    
    
    5,474.792000
    
    
    78.0
    
    
    
    17.8
    
    
    
    13,921
    
    
    
    10,202.20
    
    
    
    4,555.912001
    
    
    31.0
    
    
    
    14.25
    
    
    
    16,058
    
    
    
    6,104.24
    
    
    
    3,446.262002
    
    
    38.4
    
    
    
    15.60
    
    
    
    18,277
    
    
    
    6,242.64
    
    
    
    3,850.042003
    
    
    36.90
    
    
    
    15.60
    
    
    
    19,698
    
    
    
    6,142.32
    
    
    
    4,139.502004First Quarter
    
    
    42.0
    
    
    
    31.6
    
    
    
    20,996
    
    
    
    7,034.10
    
    
    
    6,041.56January
    
    
    42.0
    
    
    
    36.7
    
    
    
    20,996
    
    
    
    6,386.25
    
    
    
    6,041.56February
    
    
    39.8
    
    
    
    35.6
    
    
    
    17,910
    
    
    
    6,750.54
    
    
    
    6,241.39March
    
    
    38.4
    
    
    
    31.6
    
    
    
    17,978
    
    
    
    7,034.10
    
    
    
    6,132.62Second Quarter
    
    
    36.9
    
    
    
    22.0
    
    
    
    23,457
    
    
    
    6,880.18
    
    
    
    5,482.96April
    
    
    36.9
    
    
    
    28.7
    
    
    
    21,595
    
    
    
    6,880.18
    
    
    
    6,117.81May
    
    
    29.3
    
    
    
    22.0
    
    
    
    25,409
    
    
    
    6,188.15
    
    
    
    5,482.96
   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 Pricefor Each ADS(1)High
    
    Low
    
    Average DailyPeriod
    
    US$
    
    US$
    
    Trading Volume2000 (since June 7)
    
    
    5.62
    
    
    
    2.18
    
    
    
    431,4332001
    
    
    4.30
    
    
    
    1.88
    
    
    
    247,5422002
    
    
    5.48
    
    
    
    2.23
    
    
    
    394,0062003
    
    
    5.60
    
    
    
    2.19
    
    
    
    669,9492004First Quarter
    
    
    6.22
    
    
    
    4.80
    
    
    
    1,854,816January
    
    
    6.22
    
    
    
    5.33
    
    
    
    2,945,837February
    
    
    5.95
    
    
    
    5.25
    
    
    
    1,518,463March
    
    
    5.79
    
    
    
    4.80
    
    
    
    1,183,958Second Quarter
    
    
    5.62
    
    
    
    3.25
    
    
    
    1,092,902April
    
    
    5.62
    
    
    
    4.26
    
    
    
    997,747May
    
    
    4.45
    
    
    
    3.25
    
    
    
    1,192,815
   Source:
    
    NASDAQ Stock Exchange.(1)
    
    As reported. 56




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B. Plan of Distribution Not applicable. C. Markets Not applicable. 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, and 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 Law and our articles of incorporation provide that our
board of directors is elected by shareholders and is responsible for the
management of our business. Our board of directors is composed of nine
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 business and financial condition, inspecting
corporate records, calling shareholders meetings when our board of directors
does not or cannot convene a shareholders meeting and/or when such a meeting
is necessary for the benefit of the shareholders, 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 57




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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. Shares As of May 31, 2004, our authorized share capital was NT$26 billion,
divided into 2.6 billion shares, of which NT$18,944,757,820, divided into
1,894,475,782 shares, were issued and outstanding. Our issued and outstanding
shares do not include 100,000 shares of treasury stock, which we hold for
employee bonuses. We issued US$200 million of convertible bonds due 2007 in
January 2002, of which an aggregate amount of US$191.16 million remained
outstanding as of May 31, 2004. 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 the date of this offering
memorandum. 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 may not directly acquire our
shares except under limited circumstances as permitted by ROC law. Except for
the 100,000 shares of treasury stock, which we hold for employee bonuses, we
did not directly hold any of our own shares as of May 31, 2004. According to our 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 37,511 options to purchase up to 37,511,000
shares under our 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 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. 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 Securities and Futures Commission and the Ministry of Economic Affairs.
According to the ROC Company Law, 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. 58




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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 Law, 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 Law 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 by law or 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 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 Securities and
Futures Commission. 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. 59




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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
Securities and Futures Commission 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:  
    
    deduction of any past losses;
    
    payment of all income taxes;
    
    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 allocated as follows:  (1)
    
    10% is distributable as bonus shares for employees.(2)
    
    4% is set aside as remuneration of directors and supervisors.(3)
    
    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 Law 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. 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 Law 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 Securities and Futures Commission, for the following purposes: 60




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
    
    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 Law. Other Rights of Shareholders Under the ROC Company Law, 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. 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. 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 61




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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 New Taiwan 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 New Taiwan dollars to a foreign currency and vice versa. The above limit
does not, however, apply to the conversion of New Taiwan 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. You will be considered a non-resident of Taiwan for the purposes of this
section if:  
    
    you are an individual and you are not physically present in
Taiwan for 183 days or more during any calendar year, or
    
    you are an entity and you are organized under the laws of a
jurisdiction other than Taiwan and have no fixed place of business
or other permanent establishment in Taiwan. You should consult your own tax advisers concerning the tax consequences
of owning ADSs or shares in Taiwan and any other relevant taxing jurisdiction
to which you are subject. Dividends Dividends, whether in cash or shares, declared by us out of retained
earnings and paid out to a holder that is not a Taiwan resident in respect of
shares represented by ADSs are normally subject to Taiwan withholding tax at
the time of distribution. The current rate of withholding for non-residents is
20% of the amount of the distribution, in the case of cash dividends, or of the
par value of the shares distributed in the case of stock dividends. As
discussed below in Tax Reform, certain of our retained earnings will be
subject to an undistributed retained earnings tax. To the 62




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extent dividends are paid out of retained earnings which have been subject
to the retained earnings tax, the amount of such tax will be used by us to
offset a non-residents withholding tax liability on such dividend.
Consequently, the effective rate of withholding on dividends paid out of
retained earnings previously subject to the retained earnings tax may be less
than 20%. It is not clear whether there is any withholding tax with respect to
stock dividends declared out of our capital reserve. Capital Gains Gains realized on securities transactions in Taiwan are exempt from Taiwan
income tax. In addition, transfers of ADSs by non-resident holders are not
regarded as sales of Taiwan securities and, as a result, any gains on such
transactions are currently not subject to Taiwan income tax. Securities Transaction Tax The Taiwan government imposes a securities transaction tax that will apply
to sales of shares, but not to sales of ADSs. The transaction tax is payable by
the seller and is generally equal to 0.3% of the sales proceeds. Preemptive Rights Distributions of statutory preemptive rights for shares in compliance with
the Taiwan Company Law are not subject to Taiwan tax. Proceeds derived from
sales of statutory preemptive rights evidenced by securities are subject to
Taiwan securities transaction tax, currently at the rate of 0.3% of the gross
amount received. Proceeds derived from sales of statutory preemptive rights
which are not evidenced by securities are subject to income tax at the rate of:  
    
    25% of the gains realized for non-Taiwan entities; and
    
    35% of the gains realized for non-Taiwan individuals. We have the sole discretion to determine whether statutory preemptive
rights are evidenced by securities or not. Tax Reform The Taiwan Income Tax Laws have been recently amended to integrate the
corporate income tax and the shareholder dividend tax with the goal of
eliminating the double taxation effect. Under this amendment, we are subject to a 10% retained earnings tax on our
after-tax earnings generated after January 1, 1998 which are not distributed in
the following year. The retained earnings tax so paid will further reduce the
retained earnings available for future distribution. When we declare dividends
out of those retained earnings, a maximum amount of up to 10% of the declared
dividends will be credited against the 20% withholding tax imposed on the
non-resident holders of our shares. 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; 63




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
    
    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;
    
    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. 64




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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 dividends 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 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. 65




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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 2003 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:  
    
    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 66




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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 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 67




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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. 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 As of December 31, 2003, we had 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 of
which we owned 100% equity interest, either directly or indirectly. The
principal activity of Siliconware Investment is to invest in companies mostly
in IC design industries. The principal activity of SPIL (B.V.I.) Holding
Limited is to own the equity interest in Siliconware U.S.A. Inc and SPIL
(Cayman) Holding Limited. The principal activity of Siliconware U.S.A. Inc. is
to be our sales agent in the United States. The principal activity of SPIL
(B.V.I.) Holding Limited is to own the equity interest in Siliconware
Technology (Suzhou) Limited. The principal activity of Siliconware Technology
(Suzhou) Limited is the design and manufacture of transistors and electronic
components. 68




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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 2003, sales in the amount of US$464.6
million were denominated in US dollars. In 2003, material purchases from our
overseas vendors in the amounts of US$141.1 million and ¥1,398.8 million were
denominated in US dollars and Japanese yen, respectively. As of December 31,
2003, we had certificates of deposit, bank deposits and accounts receivable
denominated in US dollars of US$211.4 million. As of December 31, 2003, we also
had accounts payable, bonds payable and other liabilities denominated in US
dollars and the Japanese yen of US$250.0 million and of ¥1,399.1 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, 2003. Contractual Obligations
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008 and thereafter(in millions, except percentages)Long-term debtUS$-denominated debt:Fix rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,189.0
    
    
    
    Interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NT$-denominated debt:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Variable rate
    
    
    3,153.4
    
    
    
    6,425.7
    
    
    
    1,200.0
    
    
    
    
    
    
    
    Average interest rate
    
    
    2.3
    %
    
    
    2.1
    %
    
    
    2.2
    %
    
    
    
    
    
    
    Fix rate
    
    
    
    
    
    
    800.0
    
    
    
    
    
    
    
    
    
    
    
    Interest rate
    
    
    
    
    
    
    2.7
    %
    
    
    
    
    
    
    
    
    
    
    RMB$-denominated debt:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Variable rate
    
    
    
    
    
    
    61.5
    
    
    
    330.0
    
    
    
    
    
    
    
    Average interest rate
    
    
    
    
    
    
    4.5
    %
    
    
    3.7
    %
    
    
    
    
    
    
    Fair value
    
    
    3,153.4
    
    
    
    7,287.2
    
    
    
    1530.0
    
    
    
    8,938.7
    
    
    
    
 Other Market Risk In addition to our interests in our joint ventures, we have made
investments in equity securities issued by a significant number of private
companies related to test and assembly and other related technology industries.
As of December 31, 2003, the aggregate carrying value of these investments on
our balance sheet was NT$3,299.6 million (US$97.1 million). The carrying value
of our investments in private companies are subject to fluctuation based on
many factors such as prevailing market conditions. Moreover, because these are
investments in unlisted securities, the fair market value may be significantly
different from our carrying value. 
 Item 12. Description
of Securities Other Than Equity Securities Not applicable. 69




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PART II 
 Item 13. Defaults, Dividend Arrearages and Delinquencies None of these events occurred in any of the years ended December 31, 2001, 2002 and 2003. 
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds Not applicable. 
 Item 15. Controls and Procedures As of the end of the period covered by this annual report, an evaluation
has been carried out under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures, as such term is defined under Rules 13a-14(c) and
15d-14(c) promulgated under the Securities Exchange Act of 1934, as amended, or
the Exchange Act. Based on that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures are effective in ensuring that material information required to be
disclosed in this annual report is recorded, processed, summarized and reported
to them for assessment, and required disclosure is made within the time period
specified in the rules and forms of the Securities and Exchange Commission. There has been no change 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 Our board of directors has determined that our company does not have an
audit committee financial expert serving on our audit committee. We are in the
process of discussing with potential candidates for the audit committee
position who will be qualified as an financial expert pursuant to the
instruction to paragraph (a) of Item 16A of Form 20-F. We have not been able to
conclude our discussions as of the date of this annual report. 
 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
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, 2003, for
which audited financial statements appear in this annual report. 70




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The following table presents the aggregate fees for professional services
and other services rendered by PricewaterhouseCoopers to us in 2003 and 2002. Year Ended December 31,2002
    
    2003
    
    2003NT$
    
    NT$
    
    US$(in thousands)Audit Fees(1)
    
    
    6,307
    
    
    
    6,905
    
    
    
    203Audit-related Fees(2)
    
    
    5,349
    
    
    
    3,903
    
    
    
    115Tax Fees(3)
    
    
    820
    
    
    
    850
    
    
    
    25All Other Fees(4)
    
    
    1,220
    
    
    
    22
    
    
    
    1Total
    
    
    13,696
    
    
    
    11,680
    
    
    
    344
   (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.(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. 71




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PART III 
 Item 17. Financial Statements We have elected to provide the financial statements and related
information specified in Item 18 in lieu of Item 17. 
 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. INDEX TO THE FINANCIAL STATEMENTS PageSILICONWARE PRECISION INDUSTRIES CO., LTD.Report of Independent Accountants
    
    F-2Consolidated Balance Sheets as of December 31, 2002 and 2003
    
    F-4Consolidated Statements of Income for the Years Ended December 31, 2001, 2002 and 2003
    
    F-6Consolidated Statements of Changes in Stockholders Equity for the Years Ended December
31, 2001, 2002 and 2003
    
    F-7Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2002 and 2003
Notes to Consolidated Financial Statements
    
    F-9Notes to
Consolidated Financial Statements
    
    F-13CHIPMOS TECHNOLOGIES INC.Independent Auditors Report
    
    F-74Balance Sheets as of December 31, 2002 and 2003
    
    F-75Statements of Operations for the Years Ended December 31, 2001, 2002 and 2003
    
    F-77Statements of Changes in Shareholders Equity for the Years Ended December 31, 2001, 2002
and 2003
    
    F-79Statements of Cash Flows for the Years Ended December 31, 2001, 2002 and 2003
    
    F-80Notes to Financial Statements
    
    F-82
 72




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Item 19. Exhibit Index ExhibitNumber
    
    Description of Exhibits1.1
    
    Articles of Incorporation of Siliconware Precision Industries Co., Ltd. (English translation)12.1
    
    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 Receipts24.1
    
    Immunity Agreement with Motorola, Inc. (effective from November 5, 1996 to December 31, 2010)34.2
    
    License Agreement with Flip Chip Technologies, L.L.C. (effective from November 28, 1999 to
November 27, 2009)44.3
    
    Joint Venture Agreement with Mosel Vitelic, Inc. (English translation)58.1
    
    List of Significant Subsidiaries of Siliconware Precision Industries Co., Ltd.11.1
    
    Code of Ethics12.1
    
    Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 200212.2
    
    Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 200213.1
    
    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 200213.2
    
    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 200214.1
    
    Consent of Independent Accountants
   1
    
    Incorporated by reference to Exhibit 3.1 to our Year 2001 Form 20-F filed
with the Commission 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 Commission 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 Commission 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 Commission 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 Commission on April 29, 2000. 73




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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 28, 2004




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##### Table of Contents



INDEX TO THE FINANCIAL STATEMENTS PageSILICONWARE
PRECISION INDUSTRIES CO., LTD.Report of Independent Accountants
    
    
    F-2Consolidated Balance Sheets as of December 31, 2002 and 2003
    
    
    F-4Consolidated Statements of Income for the Years Ended December 31, 2001, 2002 and 2003
    
    
    F-6Consolidated Statements of Changes in Stockholders Equity for the Years Ended December
31, 2001, 2002 and 2003
    
    
    F-7Consolidated
Statements of Cash Flows for the Years Ended December 31, 2001, 2002 and 2003
    
    
    F-9Notes to Consolidated Financial Statements
    
    
    F-13CHIPMOS TECHNOLOGIES INC.Independent Auditors Report
    
    
    F-74Balance Sheets as of December 31, 2002 and 2003
    
    
    F-75Statements of Operations for the Years Ended December 31, 2001, 2002 and 2003
    
    
    F-77Statements of Changes in Shareholders Equity for the Years Ended December 31, 2001, 2002
and 2003
    
    
    F-79Statements of Cash Flows for the Years Ended December 31, 2001, 2002 and 2003
    
    
    F-80Notes to 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, 2002 and
2003, and the related consolidated statements of income, of changes in
stockholders equity and of cash flows for each of the three years in the
period ended December 31, 2003, expressed in New Taiwan dollars. 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 7, the Company delayed recognition of
investment income (loss) for certain investee companies under the equity method
until the subsequent year. Accordingly, the investment amounts of
NT$195,161,000 and NT$2,748,559,000 at December 31, 2002 and 2003,
respectively, and the investment losses of NT$17,211,000 and NT$365,669,000
recognized for these investee companies for the years ended December 31, 2002
and 2003, respectively, were based on the investees financial statements for
the years ended December 31, 2001 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, 2002 and
2003, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003, expressed in New Taiwan
dollars, 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 27 to the consolidated financial statements. (-s- PRICEWATERHOUSECOOPERS) Taichung, Taiwan
Republic of China February 5, 2004 (except for the information in note 27 for which the date is
June 8, 2004) 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 31,2002
    
    2003NT$
    
    NT$
    
    US$(Note 2)ASSETSCurrent AssetsCash and cash equivalents (Note 4)
    
    
    5,969,646
    
    
    
    12,202,601
    
    
    
    359,006Short-term investments
    
    
    47,736
    
    
    
    7,989
    
    
    
    235Notes receivable, net
    
    
    127,237
    
    
    
    118,531
    
    
    
    3,487Accounts receivable, net (Note 5)
    
    
    4,122,784
    
    
    
    5,311,273
    
    
    
    156,260Other financial assets  current (Note 22)
    
    
    621,019
    
    
    
    343,853
    
    
    
    10,116Inventories (Note 6)
    
    
    1,372,607
    
    
    
    1,896,966
    
    
    
    55,810Deferred tax assets  current (Note 18)
    
    
    43,606
    
    
    
    463,150
    
    
    
    13,626Other current assets
    
    
    422,440
    
    
    
    550,913
    
    
    
    16,20812,727,075
    
    
    
    20,895,276
    
    
    
    614,748Long-term investments (Note 7)Long-term investments under equity method
    
    
    4,413,051
    
    
    
    3,820,417
    
    
    
    112,398Long-term investments under cost method
    
    
    1,948,120
    
    
    
    2,566,249
    
    
    
    75,500Long-term investments in bonds
    
    
    629,450
    
    
    
    641,350
    
    
    
    18,869Prepaid long-term investments in stocks
    
    
    899,540
    
    
    
    
    
    
    
    Allowance for loss on long-term investments
    
    
    (302,780
    )
    
    
    
    
    
    
    7,587,381
    
    
    
    7,028,016
    
    
    
    206,767Property, plant and equipment (Notes 8, 20 , 21
and 22)Cost:Land
    
    
    2,094,494
    
    
    
    2,128,476
    
    
    
    62,621Buildings
    
    
    4,809,439
    
    
    
    5,368,157
    
    
    
    157,933Machinery and equipment
    
    
    27,794,516
    
    
    
    30,072,783
    
    
    
    884,754Utility equipment
    
    
    431,316
    
    
    
    535,180
    
    
    
    15,745Furniture and fixtures
    
    
    355,599
    
    
    
    411,907
    
    
    
    12,119Other equipment
    
    
    1,111,815
    
    
    
    1,166,431
    
    
    
    34,31736,597,179
    
    
    
    39,682,934
    
    
    
    1,167,489Accumulated depreciation
    
    
    (13,817,625
    )
    
    
    (17,607,422
    )
    
    
    (518,018
    )Construction in progress and prepayments for
equipment
    
    
    1,114,832
    
    
    
    2,326,759
    
    
    
    68,45423,894,386
    
    
    
    24,402,271
    
    
    
    717,925Other AssetsRefundable deposits
    
    
    18,659
    
    
    
    15,733
    
    
    
    463Deferred charges
    
    
    616,075
    
    
    
    697,932
    
    
    
    20,533Deferred income tax asset  noncurrent (Note 17)
    
    
    1,170,140
    
    
    
    1,381,780
    
    
    
    40,653Other assets  others (Note 9)
    
    
    222,148
    
    
    
    236,733
    
    
    
    6,9652,027,022
    
    
    
    2,332,178
    
    
    
    68,614Total assets
    
    
    46,235,864
    
    
    
    54,657,741
    
    
    
    1,608,054
 The accompanying notes are an integral part of these consolidated financial statements. See report of independent accountant dated February 5, 2004. 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 31,2002
    
    2003NT$
    
    NT$
    
    US$(Note 2)LIABILITIES AND STOCKHOLDERS
EQUITYCurrent LiabilitiesShort-term loans
    
    
    302,000
    
    
    
    
    
    
    
    Commercial paper
    
    
    499,796
    
    
    
    
    
    
    
    Notes payable
    
    
    1,289
    
    
    
    1,072,896
    
    
    
    31,565Accounts payable (Note 21)
    
    
    1,358,787
    
    
    
    2,139,759
    
    
    
    62,952Income tax payable (Note 18)
    
    
    50,162
    
    
    
    40,608
    
    
    
    1,195Accrued expenses
    
    
    715,361
    
    
    
    821,710
    
    
    
    24,175Other payables (Note 10)
    
    
    706,330
    
    
    
    1,492,501
    
    
    
    43,910Current portion of long-term loans (Notes 11 and 12)
    
    
    2,166,160
    
    
    
    10,342,339
    
    
    
    304,276Other current liabilities
    
    
    70,958
    
    
    
    219,848
    
    
    
    6,4685,870,843
    
    
    
    16,129,661
    
    
    
    474,541Long-term LiabilitiesBonds payable (Note 11)
    
    
    7,947,857
    
    
    
    800,000
    
    
    
    23,536Long-term loans (Note 12)
    
    
    6,195,101
    
    
    
    8,013,164
    
    
    
    235,75114,142,958
    
    
    
    8,813,164
    
    
    
    259,287Other liabilities
    
    
    43,511
    
    
    
    16,707
    
    
    
    492Total Liabilities
    
    
    20,057,312
    
    
    
    24,959,532
    
    
    
    734,320Stockholders EquityCapital stock (Note 14)
    
    
    18,851,737
    
    
    
    18,851,737
    
    
    
    554,626Capital reserve (Note 15)Additional paid-in capital
    
    
    6,126,478
    
    
    
    6,126,478
    
    
    
    180,243Premium arising from merger
    
    
    1,951,563
    
    
    
    1,951,563
    
    
    
    57,416Others
    
    
    9,072
    
    
    
    21,069
    
    
    
    620Retained earnings (Note 16)Legal reserve
    
    
    424,495
    
    
    
    467,014
    
    
    
    13,740Special reserve
    
    
    
    
    
    
    302,780
    
    
    
    8,908Unappropriated earnings
    
    
    425,195
    
    
    
    2,918,612
    
    
    
    85,867Unrealized loss on long-term investments
    
    
    (302,780
    )
    
    
    
    
    
    
    Cumulative translation adjustment
    
    
    35,683
    
    
    
    3,278
    
    
    
    96Treasury stock (Note 17)
    
    
    (1,342,891
    )
    
    
    (944,322
    )
    
    
    (27,782
    )Total Stockholders Equity
    
    
    26,178,552
    
    
    
    29,698,209
    
    
    
    873,734Commitments and Contingencies (Note 23)Subsequent Event (Note 24)Total liabilities and stockholders equity
    
    
    46,235,864
    
    
    
    54,657,741
    
    
    
    1,608,054
 The accompanying notes are an integral part of these consolidated financial statements. See report of independent accountant dated February 5, 2004. 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 31,2001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(Note 2)Net Operating Revenues (Note 21)
    
    
    16,530,394
    
    
    
    22,298,530
    
    
    
    27,411,427
    
    
    
    806,455Cost of Goods Sold (Note 21)
    
    
    (15,109,501
    )
    
    
    (20,209,935
    )
    
    
    (23,297,669
    )
    
    
    (685,427
    )Gross Profit
    
    
    1,420,893
    
    
    
    2,088,595
    
    
    
    4,113,758
    
    
    
    121,028Operating ExpensesSelling expenses
    
    
    (389,875
    )
    
    
    (409,448
    )
    
    
    (415,433
    )
    
    
    (12,222
    )Administrative expenses
    
    
    (531,970
    )
    
    
    (625,490
    )
    
    
    (618,397
    )
    
    
    (18,194
    )Research and development
expenses
    
    
    (506,082
    )
    
    
    (506,981
    )
    
    
    (559,076
    )
    
    
    (16,448
    )(1,427,927
    )
    
    
    (1,541,919
    )
    
    
    (1,592,906
    )
    
    
    (46,864
    )Operating (Loss) Income
    
    
    (7,034
    )
    
    
    546,676
    
    
    
    2,520,852
    
    
    
    74,164Non-operating Income and Gain
Interest income
    
    
    300,432
    
    
    
    191,551
    
    
    
    88,379
    
    
    
    2,600Investment income accounted for
under equity method
    
    
    
    
    
    
    61,059
    
    
    
    
    
    
    
    Gain on disposal of investments
    
    
    30,561
    
    
    
    
    
    
    
    344,385
    
    
    
    10,132Others
    
    
    277,186
    
    
    
    277,726
    
    
    
    448,763
    
    
    
    13,203608,179
    
    
    
    530,336
    
    
    
    881,527
    
    
    
    25,935Non-operating Expenses and
LossesInterest expenses
    
    
    (655,675
    )
    
    
    (521,117
    )
    
    
    (375,111
    )
    
    
    (11,036
    )Investment loss accounted for
under equity method
    
    
    (1,198,756
    )
    
    
    
    
    
    
    (533,061
    )
    
    
    (15,683
    )Others
    
    
    (228,351
    )
    
    
    (276,064
    )
    
    
    (291,783
    )
    
    
    (8,584
    )(2,082,782
    )
    
    
    (797,181
    )
    
    
    (1,199,955
    )
    
    
    (35,303
    )(Loss) Income Before Income Tax
and Minority Interest
    
    
    (1,481,637
    )
    
    
    279,831
    
    
    
    2,202,424
    
    
    
    64,796Income Tax Benefit (Note 18)
    
    
    282,610
    
    
    
    145,364
    
    
    
    636,292
    
    
    
    18,720Minority Interest in Net Loss of
Consolidated Subsidiaries
    
    
    15,816
    
    
    
    
    
    
    
    
    
    
    
    Net (Loss) Income
    
    
    (1,183,211
    )
    
    
    425,195
    
    
    
    2,838,716
    
    
    
    83,516(Loss) Earnings Per Share
(Note 19)(Loss) Income before income tax
and minority interest
    
    
    (0.80
    )
    
    
    0.15
    
    
    
    1.20
    
    
    
    0.04Net (loss) income
    
    
    (0.64
    )
    
    
    0.23
    
    
    
    1.55
    
    
    
    0.05Diluted Earnings Per Share(Loss) Income before income tax
and minority interest
    
    
    
    
    
    
    
    
    
    
    1.10
    
    
    
    0.03Net (loss) income
    
    
    
    
    
    
    
    
    
    
    1.40
    
    
    
    0.04
 The accompanying notes are an integral part of these consolidated financial statements. See report of independent accountant dated February 5, 2004. F-6




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(EXPRESSED IN THOUSANDS OF DOLLARS) Capital Stock Issued
    
    
    
    
    
    Retained Earnings
    
    UnrealizedLoss on
    
    CumulativeShares
    
    
    
    
    
    Capital
    
    Legal
    
    Special
    
    Unappropriated
    
    Long-term
    
    Translation
    
    Treasury2001
    
    (Thousand)
    
    Amount
    
    Reserve
    
    Reserve
    
    Reserve
    
    Earnings
    
    Investments
    
    Adjustment
    
    Stock
    
    TotalNT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$Balance at January 1, 2001
    
    
    1,623,595
    
    
    
    16,235,946
    
    
    
    8,121,124
    
    
    
    998,652
    
    
    
    
    
    
    
    3,277,635
    
    
    
    (16,255
    )
    
    
    32,902
    
    
    
    (794,184
    )
    
    
    27,855,820Appropriation for legal reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    323,183
    
    
    
    
    
    
    
    (323,183
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Appropriation for special reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    269,154
    
    
    
    (269,154
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Directors and supervisors remuneration
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52,790
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52,790
    )Capitalization of employees bonus
    
    
    26,158
    
    
    
    261,579
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (261,579
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock dividends
    
    
    235,421
    
    
    
    2,354,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,354,212
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reverse of investee companys unrealized
loss on long-term investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,255
    
    
    
    
    
    
    
    
    
    
    
    16,255Adjustment for investee companies
cumulative translation adjustment on
long-term investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,486
    
    
    
    
    
    
    
    12,486Long-term investment adjustment for
investee companys long-term investment
adjustment for change in investment
holding ratio
    
    
    
    
    
    
    
    
    
    
    (33,219
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,219
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,183,211
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,183,211
    )Treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (568,951
    )
    
    
    (568,951
    )Balance at December 31, 2001
    
    
    1,885,174
    
    
    
    18,851,737
    
    
    
    8,087,905
    
    
    
    1,321,835
    
    
    
    269,154
    
    
    
    (1,166,494
    )
    
    
    
    
    
    
    45,388
    
    
    
    (1,363,135
    )
    
    
    26,046,390
 The accompanying notes are an integral part of these consolidated financial statements.
See report of independent accountant dated February 5 2004. F-7




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) Capital Stock Issued
    
    
    
    
    
    Retained Earnings
    
    UnrealizedLoss on
    
    CumulativeShares
    
    Capital
    
    Capital
    
    Legal
    
    Special
    
    Unappropriated
    
    Long-term
    
    Translation
    
    Treasury2002
    
    (Thousand)
    
    Stock
    
    Reserve
    
    Reserve
    
    Reserve
    
    Earnings
    
    Investments
    
    Adjustment
    
    Stock
    
    TotalNT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$Balance 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 surplus 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    425,195Treasury stock transfer 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 reverse
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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 adjustment for investee companys
additional paid in capital
    
    
    
    
    
    
    
    
    
    
    617
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    617Long-term investment adjustment for investee
companies cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,405
    )
    
    
    
    
    
    
    (32,405
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,838,716
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,838,716Treasury stock transfer 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
 The accompanying notes are an integral part of these consolidated financial statements
See report of independent accountants dated February 5, 2004. F-8




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN THOUSANDS OF DOLLARS) For the years ended December 31,2001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(Note 2)Cash flows from operating activitiesNet (loss) income
    
    
    (1,183,211
    )
    
    
    425,195
    
    
    
    2,838,716
    
    
    
    83,516Adjustments to reconcile net (loss) income to net
cash provided by operating activitiesDepreciation
    
    
    4,057,729
    
    
    
    4,575,422
    
    
    
    4,854,558
    
    
    
    142,823Amortization
    
    
    264,834
    
    
    
    326,266
    
    
    
    330,768
    
    
    
    9,731Bad debts expense
    
    
    5,634
    
    
    
    
    
    
    
    4,834
    
    
    
    142(Recovery of) provision for decline in market
value of short-term investments
    
    
    (5,095
    )
    
    
    6,360
    
    
    
    (6,349
    )
    
    
    (187
    )Gain on disposal of investments
    
    
    (30,561
    )
    
    
    (51,626
    )
    
    
    (340,950
    )
    
    
    (10,031
    )Provision for sales allowance
    
    
    35,000
    
    
    
    29,262
    
    
    
    27,294
    
    
    
    803Provision for (recovery of) loss on obsolescence
and decline in market value of inventory
    
    
    105,144
    
    
    
    (10,312
    )
    
    
    (109,910
    )
    
    
    (3,233
    )Long-term investment loss (income) accounted for
under equity method
    
    
    1,153,495
    
    
    
    (41,399
    )
    
    
    313,010
    
    
    
    9,209Permanent loss on long-term investments
    
    
    52,976
    
    
    
    24,934
    
    
    
    189,454
    
    
    
    5,574Cash dividend received from long-term investment
accounted for under the equity method
    
    
    
    
    
    
    
    
    
    
    12,684
    
    
    
    373Loss on decline in market value upon
reclassification of long-term/short-term
investment
    
    
    
    
    
    
    
    
    
    
    30,597
    
    
    
    900Gain on disposal of property, plant and equipment
    
    
    (280
    )
    
    
    (15,794
    )
    
    
    (39,395
    )
    
    
    (1,159
    )Provision for loss on idle assets
    
    
    1,240
    
    
    
    17,243
    
    
    
    131,828
    
    
    
    3,878Amortization of discount on commercial paper
    
    
    1,095
    
    
    
    2,986
    
    
    
    2,762
    
    
    
    81Amortization of discount on long-term note payable
    
    
    12,903
    
    
    
    17,487
    
    
    
    6,385
    
    
    
    188Amortization of discount on long-term receivable
    
    
    (6,039
    )
    
    
    
    
    
    
    
    
    
    
    Compensation interest payable on bonds payable
    
    
    331,902
    
    
    
    285,977
    
    
    
    204,873
    
    
    
    6,028Foreign currency exchange loss (gain) on bonds
payable
    
    
    304,643
    
    
    
    (97,163
    )
    
    
    (163,751
    )
    
    
    (4,818
    )Gain on redemption of bonds payables
    
    
    (20,556
    )
    
    
    (16,798
    )
    
    
    
    
    
    
    Reversal of deferred credit to revenue
    
    
    
    
    
    
    
    
    
    
    (23,506
    )
    
    
    (691
    )(Increase) decrease in assetsNotes receivable
    
    
    230,251
    
    
    
    53,525
    
    
    
    8,706
    
    
    
    256Accounts receivable
    
    
    (123,378
    )
    
    
    (441,191
    )
    
    
    (1,220,618
    )
    
    
    (35,911
    )Other financial assets  current
    
    
    (128,047
    )
    
    
    (61,381
    )
    
    
    17,566
    
    
    
    517Inventories
    
    
    115,850
    
    
    
    41,427
    
    
    
    (414,850
    )
    
    
    (12,205
    )Other current assets
    
    
    168,309
    
    
    
    (187,224
    )
    
    
    (128,401
    )
    
    
    (3,778
    )Deferred income tax assets
    
    
    (270,956
    )
    
    
    (196,413
    )
    
    
    (631,184
    )
    
    
    (18,569
    )Increase (decrease) in liabilitiesNotes payable
    
    
    (4,455
    )
    
    
    (393,956
    )
    
    
    1,071,607
    
    
    
    31,527Accounts payable
    
    
    302,952
    
    
    
    397,210
    
    
    
    780,972
    
    
    
    22,977Income tax payable
    
    
    (376,457
    )
    
    
    48,879
    
    
    
    (9,362
    )
    
    
    (275
    )
 F-9




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##### Table of Contents



For the years ended December 31,2001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(Note 2)Accrued expenses
    
    
    (109,146
    )
    
    
    117,212
    
    
    
    106,157
    
    
    
    3,123Other current liabilities
    
    
    38,221
    
    
    
    18,556
    
    
    
    148,890
    
    
    
    4,380Other payables
    
    
    (1,397
    )
    
    
    144,367
    
    
    
    60,611
    
    
    
    1,783Other liabilities
    
    
    5,307
    
    
    
    3,775
    
    
    
    (1,288
    )
    
    
    (38
    )Accrued pension liabilities
    
    
    16,408
    
    
    
    (16,627
    )
    
    
    
    
    
    
    Net cash provided by operating activities
    
    
    4,944,315
    
    
    
    5,006,199
    
    
    
    8,052,708
    
    
    
    236,914
 The accompanying notes are an integral part of these consolidated financial statements.
See report of independent accountant dated February 5, 2004. F-10




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(EXPRESSED IN THOUSANDS OF DOLLARS) For the years ended December 31,2001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(Note 2)Cash flows from investing activitiesPurchase of short-term investments
    
    
    
    
    
    
    (6,872,467
    )
    
    
    
    
    
    
    Proceeds from disposal of short-term
investments
    
    
    53,536
    
    
    
    6,821,740
    
    
    
    54,097
    
    
    
    1,592Payment for security deposits
    
    
    
    
    
    
    (423,000
    )
    
    
    (44,800
    )
    
    
    (1,318
    )Refund of security deposits
    
    
    212,317
    
    
    
    3,320
    
    
    
    304,400
    
    
    
    8,956Purchase of long-term investments in stocks
    
    
    (1,592,112
    )
    
    
    (1,329,915
    )
    
    
    (219,292
    )
    
    
    (6,452
    )Purchase of long-term investments in bonds
    
    
    
    
    
    
    (346,350
    )
    
    
    (295,000
    )
    
    
    (8,679
    )Proceeds from disposal of long-term
investments
    
    
    337,012
    
    
    
    129,877
    
    
    
    1,155,114
    
    
    
    33,984Acquisition of property, plant and equipment
    
    
    (5,474,188
    )
    
    
    (6,444,535
    )
    
    
    (4,884,707
    )
    
    
    (143,710
    )Proceeds from disposal of property, plant and
equipment
    
    
    2,528
    
    
    
    79,875
    
    
    
    116,853
    
    
    
    3,438Payment for deferred charges
    
    
    (244,009
    )
    
    
    (341,878
    )
    
    
    (380,103
    )
    
    
    (11,183
    )Payment for refundable deposits
    
    
    (162
    )
    
    
    (3,141
    )
    
    
    (2,094
    )
    
    
    (62
    )Refund of refundable deposits
    
    
    651
    
    
    
    686
    
    
    
    4,995
    
    
    
    147Acquisition of other assets
    
    
    (161
    )
    
    
    (79,792
    )
    
    
    (37,416
    )
    
    
    (1,101
    )Proceeds from disposal of other assets
    
    
    19
    
    
    
    
    
    
    
    12
    
    
    
    Cash received from merger
    
    
    4,643
    
    
    
    
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (6,699,926
    )
    
    
    (8,805,580
    )
    
    
    (4,227,941
    )
    
    
    (124,388
    )Cash flows from financing activitiesProceeds from short-term loans
    
    
    7,305,918
    
    
    
    8,102,000
    
    
    
    2,875,700
    
    
    
    84,604Repayment of short-term loans
    
    
    (7,487,100
    )
    
    
    (8,590,000
    )
    
    
    (3,177,700
    )
    
    
    (93,490
    )Proceeds from issuance of commercial paper
    
    
    298,800
    
    
    
    1,796,917
    
    
    
    2,397,441
    
    
    
    70,534Repayments of commercial paper
    
    
    (200,000
    )
    
    
    (1,400,000
    )
    
    
    (2,900,000
    )
    
    
    (85,319
    )Proceeds from long-term loans
    
    
    4,421,082
    
    
    
    2,245,947
    
    
    
    5,128,639
    
    
    
    150,887Repayment of long-term loans
    
    
    (301,000
    )
    
    
    (1,847,760
    )
    
    
    (2,329,760
    )
    
    
    (68,543
    )Proceeds from issuance of bonds payable
    
    
    
    
    
    
    7,608,260
    
    
    
    
    
    
    
    Redemption of bonds payable
    
    
    (1,917,304
    )
    
    
    (4,469,051
    )
    
    
    
    
    
    
    Repayment of deposit-in
    
    
    
    
    
    
    (90
    )
    
    
    (371
    )
    
    
    (11
    )Proceeds from deposit-in
    
    
    480
    
    
    
    250
    
    
    
    334
    
    
    
    10Increase in deferred credit account
    
    
    
    
    
    
    
    
    
    
    4,028
    
    
    
    119Payment of directors and supervisors
Remuneration
    
    
    (52,790
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from disposal of treasury stock
    
    
    
    
    
    
    20,694
    
    
    
    409,877
    
    
    
    12,059Purchase of treasury stock
    
    
    (568,951
    )
    
    
    
    
    
    
    
    
    
    
    Effect on foreign currency exchange
    
    
    
    
    
    
    (8,103
    )
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    1,499,135
    
    
    
    3,459,064
    
    
    
    2,408,188
    
    
    
    70,850Net (decrease) increase in cash and cash
equivalents
    
    
    (256,476
    )
    
    
    (340,317
    )
    
    
    6,232,955
    
    
    
    183,376Cash and cash equivalents at beginning of year
    
    
    6,566,439
    
    
    
    6,309,963
    
    
    
    5,969,646
    
    
    
    175,630Cash and cash equivalents at end of year
    
    
    6,309,963
    
    
    
    5,969,646
    
    
    
    12,202,601
    
    
    
    359,006
 The accompanying notes are an integral part of these consolidated financial statements.
See report of independent accountant dated February 5, 2004. F-11




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(EXPRESSED IN THOUSANDS OF DOLLARS) For the years ended December 31,2001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(Note 2)Supplemental disclosures of cash flow informationCash paid for interest (excluding capitalized interest)
    
    
    332,813
    
    
    
    763,383
    
    
    
    170,287
    
    
    
    5,010Cash paid for income tax
    
    
    358,851
    
    
    
    3,276
    
    
    
    5,279
    
    
    
    155Supplemental disclosures of partial cash paid for
investing activities:Acquisition of property, plant and equipment
    
    
    5,467,078
    
    
    
    5,868,868
    
    
    
    5,572,254
    
    
    
    163,938Add: Payable at beginning of the year
    
    
    1,014,006
    
    
    
    1,035,695
    
    
    
    482,790
    
    
    
    14,204Notes payable at beginning of the year
    
    
    51,561
    
    
    
    22,762
    
    
    
    
    
    
    
    Less: Payable at end of the year
    
    
    (1,035,695
    )
    
    
    (482,790
    )
    
    
    (1,170,337
    )
    
    
    (34,432
    )Notes payable at end of the year
    
    
    (22,762
    )
    
    
    
    
    
    
    
    
    
    
    Cash paid
    
    
    5,474,188
    
    
    
    6,444,535
    
    
    
    4,884,707
    
    
    
    143,710The fair value of assets and liabilities acquired from
merger:Payments for acquisition
    
    
    68,464
    
    
    
    
    
    
    
    
    
    
    
    Deferred charge
    
    
    (17,227
    )
    
    
    
    
    
    
    
    
    
    
    Fixed assets acquired
    
    
    (13,796
    )
    
    
    
    
    
    
    
    
    
    
    Other net assets acquired
    
    
    (32,798
    )
    
    
    
    
    
    
    
    
    
    
    Cash received
    
    
    4,643
    
    
    
    
    
    
    
    
    
    
    
    
 The accompanying notes are an integral part of these consolidated financial statements.
See report of independent accountant dated February 5, 2004. F-12




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    
    History and OrganizationSiliconware Precision Industries Co., Ltd. (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.
The main activities of SPIL are the assembly, testing and turnkey services
of integrated circuits. As of December 31, 2003, SPIL has 9160 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, 2003 and the determination of consolidated shareholders equity
and consolidated financial position also expressed in New Taiwan dollars, as
of December 31, 2002 and 2003 to the extent summarized in note 27 to the
consolidated financial statements.The Companys significant accounting policies are summarized as follows:ConsolidationPursuant to ROC Securities and Futures Commissions (SFC) 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, 2003, the issued capital of SIC was NT$1,770.0 million. F-13




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  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, 2003, the issued capital of SPIL BVI was US$41,300,000.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, 2003, the issued capital of SUI was US$1,250,000.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, 2003, the issued capital of SPIL Cayman was US$13,550,000.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, 2003, the issued capital of Siliconware Technology was
US$13,500,000.Use of EstimatesThe 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
StatementsThe 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 TransactionsThe 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 are included
in the current years results. F-14




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Convenience Translation into US DollarsThe Company maintains its accounting records and prepares its financial
statements in New Taiwan (NT) dollars. The United States (US) dollar
amounts disclosed in the 2003 financial statements are presented solely for
the convenience of the reader and were translated at the rate of NT$33.99 to
US$1.00, the U.S. Federal Reserve Bank of New York noon buying exchange rate
on December 31, 2003. 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 EquivalentsCash 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 InvestmentsMarketable securities 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 is determined by the average closing price
during the last month of the accounting period. The excess of aggregate cost
over market value is reported as a loss in the current year. In subsequent
periods, recoveries of market value are recognized as gain to the extent that
the market value does not exceed the original cost of the investment.Allowance for Doubtful AccountsThe allowance for doubtful accounts is provided based on the evaluation of
collectibility and aging analysis of notes receivable, accounts receivables
and other receivables.InventoriesInventories 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. 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. F-15




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  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. However, 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 Securities and Futures Commission (SFC) 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-16




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  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 BondsLong-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 EquipmentProperty, 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.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.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.Idle assets are stated at the lower of book value or net realizable value and
are reclassified to other assets.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 ChargesThe 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-17




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Land Use RightThe 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.  Retirement PlanSPIL 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 Directors. F-18




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Siliconware Technology has a funded defined contribution plan covering
certain employees who are qualify as permanent resident of Suzhou. According
to the retirement plan, Siliconware Technology contributes monthly an amount
equal to certain percentage of the employees monthly salaries and wages to
the Bureau of Social Insurance and recognizes as pension expense. The
employees are entitled to the retirement 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.
    
    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.C.
    
    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.D.
    
    Over or under provisions of prior years income tax liabilities are
included in the current years income tax expense.E.
    
    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 RecognitionRevenues are recognized when services are provided based on transaction terms
and when collectibility is reasonably assured.Research and DevelopmentCosts incurred by the Company in research and development activities are
expensed as incurred.Treasury Stock F-19




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  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.  Earnings (Loss) Per ShareBasic earnings (loss) per share are calculated by dividing net income (loss)
by the weighted average number of shares outstanding during the year after
considering the retroactive effect of stock dividend, capitalization of
capital reserve, and stock bonus to employees. Diluted earnings per share is
calculated by taking into consideration additional common shares that would
have been outstanding if the dilutive share equivalents had been issued.3.
    
    Effects of Changes in Accounting PrincipleThe 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 prior to 2002.
Commencing from January 1, 2002, with the approval from ROC SFC, the Company
delays the recognition of investment income (loss) for ChipMOS until the
subsequent year. The delay of recognition of investment income (loss) does
not have a cumulative effect to retained earnings as of January 1, 2002.4.
    
    Cash and Cash Equivalents As of December 31,2002
    
    2003NT$000
    
    NT$000CashCash on hand
    
    
    2,355
    
    
    
    2,271Saving accounts
    
    
    337,900
    
    
    
    785,758Checking accounts
    
    
    75,388
    
    
    
    334,673Time deposits
    
    
    5,554,003
    
    
    
    7,452,5325,969,646
    
    
    
    8,575,234Cash equivalentCommercial paper
    
    
    
    
    
    
    3,627,3675,969,646
    
    
    
    12,202,601
 F-20




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  As of December 31, 2002 and 2003, the interest rates for time deposits ranged
from 1.01% to 5% and from 0.5% to 2.35%, respectively. F-21




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  5.
    
    Accounts Receivable As of December 31,2002
    
    2003NT$000
    
    NT$000Accounts receivable
    
    
    4,159,974
    
    
    
    5,377,198Less: Allowance for sales discounts
    
    
    (29,262
    )
    
    
    (56,556
    )Allowance for doubtful accounts
    
    
    (7,928
    )
    
    
    (9,369
    )4,122,784
    
    
    
    5,311,273
  6.
    
    Inventories As of December 31,2002
    
    2003NT$000
    
    NT$000Raw materials and supplies
    
    
    1,325,087
    
    
    
    1,644,032Work in process
    
    
    125,550
    
    
    
    183,949Finished goods
    
    
    90,075
    
    
    
    127,1801,540,712
    
    
    
    1,955,161Less: Allowance for loss on obsolescence
and decline in market value of inventory
    
    
    (168,105
    )
    
    
    (58,195
    )1,372,607
    
    
    
    1,896,966
  7.
    
    Long-term Investments  A.
    
    Details of long-term investments are summarized as follows: As of December 31,2002
    
    2003Percentage
    
    
    
    
    
    Percentageof
    
    
    
    
    
    ofInvestee company
    
    Amount
    
    ownership
    
    Amount
    
    ownershipNT$000
    
    
    
    
    
    NT$000Equity method:Sigurd Microelectronics Corp.
    
    
    524,820
    
    
    
    33.58
    %
    
    
    520,843
    
    
    
    27.36
    %Double Win Enterprise Co., Ltd.
    
    
    122,400
    
    
    
    24.14
    %
    
    
    120,563
    
    
    
    24.14
    %ChipMOS Technologies Inc.
    
    
    3,116,299
    
    
    
    28.73
    %
    
    
    2,748,559
    
    
    
    28.73
    %Universal Communication
Technology Inc.
    
    
    322,586
    
    
    
    42.82
    %
    
    
    266,888
    
    
    
    42.82
    %Artest Corporation
    
    
    208,500
    
    
    
    30.09
    %
    
    
    47,569
    
    
    
    30.09
    %Taiwan Hi-tech Corporation
    
    
    118,446
    
    
    
    38.75
    %
    
    
    115,995
    
    
    
    38.53
    %4,413,051
    
    
    
    
    
    
    
    3,820,417Cost method:Phoenix Precision Technology
Corporation
    
    
    1,087,794
    
    
    
    17.48
    %
    
    
    1,129,402
    
    
    
    14.53
    %ThaiLin Semiconductor Corp.
    
    
    216,420
    
    
    
    5.43
    %
    
    
    216,420
    
    
    
    4.75
    %King Yuan Electronics Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    910,270
    
    
    
    9.45
    %Unimicron Technology Corp.
    
    
    164,122
    
    
    
    1.62
    %
    
    
    
    
    
    
    Others
    
    
    479,784
    
    
    
    
    
    
    
    310,157
    
    
    
    1,948,120
    
    
    
    
    
    
    
    2,566,2496,361,171
    
    
    
    
    
    
    
    6,386,666
 F-22




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31,2002
    
    2003Percentage
    
    
    
    
    
    Percentageof
    
    
    
    
    
    ofInvestee company
    
    Amount
    
    ownership
    
    Amount
    
    ownershipNT$000
    
    
    
    
    
    NT$000Prepayment for long-term
investment:King Yuan Electronics Co., Ltd.
    
    
    899,540
    
    
    
    
    
    
    
    7,260,711
    
    
    
    
    
    
    
    6,386,666Allowance for loss on long-term
investments
    
    
    (302,780
    )
    
    
    
    
    
    
    6,957,931
    
    
    
    
    
    
    
    6,386,666
  B.
    
    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 Securities and Futures Commission, recognition of investment
income (loss) has been delayed until the subsequent year for ChipMOS.
Therefore, the Company recognized investment loss of NT$365.7 million
for the year ended December 31, 2003 based on ChipMOS audited financial
statement for the year ended December 31, 2002. The Company did not
recognize investment loss for ChipMOS for the year ended December 31,
2002.C.
    
    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
million dividends. The recognition of investment income (loss) for
Universal has been delayed until the subsequent year. Commencing from
January 2003, the Company recognizes the investment income (loss) for
Universal based on the financial statements of the investee for the same
period. For the year ended December 31, 2003, the Company recognized
investment income of NT$15.5 million for preferred
stock in accordance with the preference of the preferred stock of Universal
and recognized investment loss of NT$62.1 million for common stock based on
the audited financial statements of the investee company for the years
ended December 31, 2002 and 2003. The Company did not recognize investment
loss for Universal for the year ended December 31, 2002. F-23




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  D.
    
    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 income of
NT$1.7 million, investment loss of NT$15.0 million and investment income
of NT$3.0 million for investments in these two companies for the years
ended December 31, 2001, 2002 and 2003, were based on the audited
financial statements of the investee companies for the years ended
December 31, 2000, 2001 and 2002, respectively.E.
    
    For the years ended December 31, 2001, 2002 and 2003, the Company
recognized investment loss of NT$433.5 million, investment income of
NT$69.2 million and NT$69.6 million, respectively, for other investees
accounted for under equity method which was based on the investee
companies audited financial statements for the years ended December 31,
2001, 2002 and 2003, respectively.F.
    
    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 2000,
2001 and 2002. Therefore, no investment income was recognized in 2001,
2002 and 2003. However, for the years ended December 31, 2003, 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 totaling NT$157.3 million on this long-term equity
investment to write off the carrying value of the investment to its fair
value.G.
    
    On December 25, 2001, the shareholders of Caesar Technology Inc.
resolved to liquidate the investee company. The Company expects that no
proceeds will be obtained after the liquidation. Therefore, the Company
wrote off the investment in the year ended December 31, 2001.H.
    
    Details of long-term investments in bonds are summarized as follows: December 31,2002
    
    2003Amount
    
    Market value
    
    Amount
    
    Market valueNT$000
    
    NT$000
    
    NT$000
    
    NT$000United Microelectronics
Corporation
exchangeable bonds
    
    
    346,350
    
    
    
    326,539
    
    
    
    346,350
    
    
    
    361,742Phoenix Precision
Technologies
Corporation
convertible bonds
    
    
    
    
    
    
    
    
    
    
    295,000
    
    
    
    588,968ThaiLin
Semiconductor Corp.
convertible bonds
    
    
    283,100
    
    
    
    267,190
    
    
    
    
    
    
    
    629,450
    
    
    
    593,729
    
    
    
    641,350
    
    
    
    950,710
  As of December 31, 2001, 2002 and 2003, the unamortized premium for
long-term investments in bonds is $0. F-24




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  The main terms of the issue of United Microelectronics Corporation
exchangeable bonds are as follows:Maturity: May 10, 2007Interest rate: 0%Redemption period: The bondholders may redeem the bonds on February 10,
2005 at 100% of the face value.Exchangeable period: The bondholders may exchange the bonds for the
common share of AU Optronics Corp. from June 19, 2003 to April 10, 2007.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 are as follows:Maturity: May 26, 2008Interest rate: 0%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.The main terms of the issue of ThaiLin Semiconductor Corp. convertible
bonds are as follows:Maturity: July 4, 2006Interest rate: 0%Redemption period: The bondholders may redeem the bonds on July 4, 2004
at annual yield rate of 4.75% or on July 4, 2004 at annual yield rate of
5.25%.8.
    
    Property, Plant and Equipment As of December 31, 2002AccumulatedCost
    
    depreciation
    
    Book valueNT$000
    
    NT$000
    
    NT$000Land
    
    
    2,094,494
    
    
    
    
    
    
    
    2,094,494Buildings
    
    
    4,809,439
    
    
    
    (879,679
    )
    
    
    3,929,760Machinery and equipment
    
    
    27,794,516
    
    
    
    (12,166,179
    )
    
    
    15,628,337Utility equipment
    
    
    431,316
    
    
    
    (174,206
    )
    
    
    257,110Furniture and fixtures
    
    
    355,599
    
    
    
    (171,641
    )
    
    
    183,958Other equipment
    
    
    1,111,815
    
    
    
    (425,920
    )
    
    
    685,895Construction in progress
and prepayments for equipment
    
    
    1,114,832
    
    
    
    
    
    
    
    1,114,83237,712,011
    
    
    
    (13,817,625
    )
    
    
    23,894,386
 F-25




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2003AccumulatedCost
    
    depreciation
    
    Book valueNT$000
    
    NT$000
    
    NT$000Land
    
    
    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
    
    
    
    
    
    
    
    2,326,75942,009,693
    
    
    
    (17,607,422
    )
    
    
    24,402,271
  For the years ended December 31, 2001, 2002 and 2003, total interest
expense amounted to NT$663.9 million, NT$605.2 million and NT$414.6
million, respectively, of which NT$8.2 million, NT$84.1 million and
NT$39.5 million was capitalized to property, plant and equipment,
respectively. The interest rates used to calculate the capitalized
interest was 3.84%, ranged from 4.04% to 4.94% and from 2.92% to 4.54%
for the years ended December 31, 2001, 2002 and 2003, respectively.9
    
    Other Assets  Others As of December 31,2002
    
    2003NT$000
    
    NT$000Land
    
    
    108,087
    
    
    
    108,087Land use right
    
    
    40,957
    
    
    
    94,671Others
    
    
    73,104
    
    
    
    33,975222,148
    
    
    
    236,733
  As of December 31, 2003, 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 and land use right under any
circumstances.10.
    
    Other Payables F-26




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31,2002
    
    2003NT$000
    
    NT$000Other payables  property, plant & equipment
    
    
    482,790
    
    
    
    1,170,337Other
    
    
    223,540
    
    
    
    322,164706,330
    
    
    
    1,492,501
 F-27




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  11.
    
    Bonds Payable As of December 31,2002
    
    2003NT$000
    
    NT$000Euro convertible bonds payable
    
    
    6,961,000
    
    
    
    6,804,000Secured bonds payable
    
    
    800,000
    
    
    
    800,000Add: Compensation interest payable
    
    
    186,857
    
    
    
    384,9797,947,857
    
    
    
    7,988,979Less: Current portion of long-term bonds
payable
    
    
    
    
    
    
    (7,188,979
    )7,947,857
    
    
    
    800,000
  A.
    
    On July 21, 1997, SPIL issued seven-year (from July 21, 1997 to
July 21, 2004) Euro Convertible bonds amounting to US$138,000,000 on
the Luxembourg Stock Exchange. The interest rate on these bonds is
0.5% per annum, net of withholding tax. As of December 31, 2002, SPIL
redeemed and cancelled the bonds at the principal amount of US$
135,525,000; the remainder of the bonds at the principal amount of
US$2,475,000 has been converted into 1,225,000 shares. SPIL recognized
gain on redemption amounting to NT$16.8 million for the year ended
December 31, 2002, which was shown as other non-operating income.B.
    
    On January 28, 2002, SPIL issued five-year (from January 28, 2002
to January 28, 2007) Euro Convertible bonds amounting to US$200,000,000
with zero interest rate on the Luxembourg Stock Exchange. Main terms
of the issue are as follows:  (1)
    
    SPIL 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 SPIL 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)
    
    Repurchase at the option of the bondholders:SPIL will, at the option of the bondholders, repurchase such bonds on
July 28, 2004 at 105.9185% of the principal amount, or on January 28,
2007 at 111.837% of the principal amount.(3)
    
    Conversion period:At any time between April 16, 2002 and December 29, 2006. F-28




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (4)
    
    Conversion price and adjustment:  The conversion price was established on the issuance date at NT$32.9
(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, 2003, the
conversion price was NT$32.9 (in dollars) per share.  C.
    
    In January 2002, SPIL issued NT$800.0 million of three-year secured
bonds. The interest rate on these bonds is 2.7% per annum. Main terms
of the bonds payables are as follows: InterestNature of bonds
    
    Date issued
    
    Maturity date
    
    Amount
    
    payment dateNT$000Secured 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
  12.
    
    Long-term Loans As of December 31,Nature of loans
    
    Repayment period
    
    2002
    
    2003NT$000
    
    NT$000Secured loans
    
    Repayable in 13 quarterly
installments from December 2000
    
    
    106,400
    
    
    
    Secured loans
    
    Repayable in 15
quarterly
installments from
December 2001
    
    
    266,000
    
    
    
    Secured loans
    
    Repayable in 15 quarterly
installments from March 2002
    
    
    1,466,520
    
    
    
    933,240Secured loans
    
    Repayable in 8
semi-annual
installments from
April 2002
    
    
    750,000
    
    
    
    496,000Secured loans
    
    Repayable in 7 semi-annual
installments from June 2002
    
    
    2,299,920
    
    
    
    1,379,840Secured loans
    
    Repayable in January 2005
    
    
    1,170,000
    
    
    
    1,170,000Credit loans
    
    Repayable in 4 semi-annual
installments from December 2004
    
    
    
    
    
    
    4,800,000Commercial paper
    
    Repayable in January 2005
    
    
    1,500,000
    
    
    
    1,500,000
 F-29




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##### Table of Contents



As of December 31,Nature of loans
    
    Repayment period
    
    2002
    
    2003NT$000
    
    NT$000Commercial paper
    
    Repayable in
January 2005
    
    
    1,500,000
    
    
    
    1,500,000Commercial paper
    
    Repayable in 7
semi-annual
installments from
October 2002
    
    
    750,000
    
    
    
    500,000Credit loans
    
    Repayable in
October and
November 2005
    
    
    62,885
    
    
    
    62,885Credit loans
    
    Repayable in October and
November 2006
    
    
    
    
    
    
    328,6388,371,725
    
    
    
    11,170,603Less: Current portion
of long-term loans
    
    
    (2,166,160
    )
    
    
    (3,153,360
    )Discount on
commercial paper
    
    
    (10,464
    )
    
    
    (4,079
    )$
    6,195,101
    
    
    $
    8,013,164Interest rates
    
    
    
    
    2.75%-4.94
    %
    
    
    1.72%-4.54
    %
  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.13.
    
    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:Assumptions used in actuarial calculations as of December 31, 2001
    
    2002
    
    2003Discount rate
    
    
    6.25
    %
    
    
    5.00
    %
    
    
    4.00
    %Long-term rate of compensation increase
    
    
    5.00
    %
    
    
    3.50
    %
    
    
    2.00
    %Expected return on plan assets
    
    
    6.25
    %
    
    
    5.00
    %
    
    
    4.00
    %
 2002
    
    2003NT$000
    
    NT$000Vested benefit
    
    
    (4,323
    )
    
    
    (6,524
    )Vested benefit obligation
    
    
    (4,241
    )
    
    
    (6,466
    )Accumulated benefit obligation
    
    
    (506,998
    )
    
    
    (659,704
    )
 F-30




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Changes in benefit obligation during the period to December 31: 2002
    
    2003NT$000
    
    NT$000Projected benefit obligation at January 1
    
    
    (533,247
    )
    
    
    (687,492
    )Service cost
    
    
    (79,402
    )
    
    
    (100,276
    )Interest cost
    
    
    (26,662
    )
    
    
    (27,500
    )Loss on projected benefit obligation
    
    
    (48,905
    )
    
    
    (233,748
    )Benefits paid
    
    
    724
    
    
    
    2,120Projected benefit obligation at December 31
    
    
    (687,492
    )
    
    
    (1,046,896
    )
  Changes in plan assets during the period to December 31: 2002
    
    2003NT$000
    
    NT$000Fair value of plan assets at January 1
    
    
    437,991
    
    
    
    551,988Actual return on plan assets
    
    
    10,839
    
    
    
    8,427Employer contributions
    
    
    103,882
    
    
    
    112,101Benefits paid
    
    
    (724
    )
    
    
    (2,120
    )Fair value of plan assets at December 31
    
    
    551,988
    
    
    
    670,396
  Funded Status at December 31: 2002
    
    2003NT$000
    
    NT$000Fair value of plan assets
    
    
    551,988
    
    
    
    670,396Projected benefit obligation
    
    
    (687,492
    )
    
    
    (1,046,896
    )Funded status
    
    
    (135,504
    )
    
    
    (376,500
    )Unrecognized transition assets
    
    
    (7,303
    )
    
    
    (6,390
    )Unrecognized net actuarial loss
    
    
    145,134
    
    
    
    388,716Prepaid pension expense
    
    
    2,327
    
    
    
    5,826
  Amounts recognized in balance sheet at December 31: 2002
    
    2003NT$000
    
    NT$000Prepaid pension expense
    
    
    2,327
    
    
    
    5,826
 F-31




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Components of net periodic cost for the period ended December 31: 2001
    
    2002
    
    2003NT$000
    
    NT$000
    
    NT$000Service cost
    
    
    85,960
    
    
    
    79,402
    
    
    
    100,276Interest cost
    
    
    33,552
    
    
    
    26,662
    
    
    
    27,500Expected return on plan assets
    
    
    (24,802
    )
    
    
    (21,899
    )
    
    
    (22,080
    )Recognition of transition assets
    
    
    (913
    )
    
    
    (913
    )
    
    
    (913
    )Recognition of actuarial loss
    
    
    4,761
    
    
    
    1,676
    
    
    
    3,819Net periodic cost
    
    
    98,558
    
    
    
    84,928
    
    
    
    108,602
 F-32




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Plan assetsAs of December 31, 2002 and 2003, the plan assets consist of all
cash deposited with the Central Trust of China.  14.
    
    Capital Stock  A.
    
    As of December 31, 2003, the authorized capital of SPIL was
NT$26,000 million, represented by 2,600,000,000 common shares with par
value of NT$10 (in dollars) per share. As of December 31, 2003, issued
common stock was NT$18,851.8 million, represented by 1,885,173,700
 shares, of which 8,548,000 shares have been purchased by the Company as
treasury stock.B.
    
    Of these outstanding shares, 111.0 million shares are outstanding
in the form of American Depositary Shares (ADSs), totaling 22.2
million ADSs at December 31, 2003. Each ADS was issued in respect of
five shares of common stock of SPIL. Main terms and conditions of the
ADSs are summarized as follows:  (1)
    
    Voting RightsADS holders will have no voting rights with respect to the Deposited
Shares. The Depositary shall provide voting instruction to the
Chairman of SPIL 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.  C.
    
    In July 2002, the Board of directors of SPIL 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 SPILs common stock
with exercise price of NT$15.6 (in dollars) to NT$16.3 (in dollars)
per share. SPIL 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.  (1)
    
    For the year ended December 31, 2003, details of the employee
stock option granted, exercised and canceled and exercise price of the
employee stock option are as follows: F-33




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Number ofAvailable
    
    employee
    
    Weighted averagefor grant
    
    stock option
    
    exercise price(in dollars)Outstanding option at
the beginning of the
year
    
    
    40,000
    
    
    
    
    
    
    NT$
    Number of option granted
    
    
    ( 40,000
    )
    
    
    40,000
    
    
    
    15.66Number of option
canceled/surrendered
    
    
    2,489
    
    
    
    (2,489
    )
    
    
    15.60Outstanding option at
the end of the period
    
    
    
    
    
    
    37,511
    
    
    
    15.67
  (2)
    
    As of December 31, 2003, the details of the outstanding
employee stock option are as follows: Outstanding exercisableOutstanding employee stock option
    
    employee stock optionWeightedaverage
    
    Weighted
    
    
    
    
    
    Weightedremaining
    
    average
    
    
    
    
    
    averageExercise price
    
    Unit of option
    
    contractual life
    
    exercise price
    
    Unit of option
    
    exercise price(in dollars)
    
    
    
    
    
    
    
    
    
    (in dollars)
    
    
    
    
    
    (in dollars)NT$15.6~NT$16.3
    
    
    37,511
    
    
    4.13 Years
    
    NT$15.67
    
    
    
    
    
    
    
  15.
    
    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.  16.
    
    Retained Earnings (Accumulated Deficit)  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; F-34




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (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 employees 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.  As of February 5, 2004, the Board of Directors of SPIL has not resolved
the distribution of the year 2003 earnings. Therefore, any information in
relation to the year 2003 earnings will be posted to the website of the
Taiwan Stock Exchange after the Boards resolution and the stockholders
approval is obtained. SPIL did not distribute earnings in 2003 and 2002.The appropriation for legal reserve can only be used to offset deficit or
increase capital. The legal reserve can be used to increase capital only
when reserve balance exceeds 50% of the capital stock, and the amount
capitalized should be limited to 50% of the excess portion of the reserve.In accordance with the ROC SFC 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 subsequently year(s), if the year-end
balances of the cumulative foreign currency translation adjustment and
unrealized loss 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.B.
    
    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
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, 2003, the undistributed earnings of SPIL derived on
or after January 1, 1998 was NT$2,918.6 million. F-35




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  As of December 31, 2003, the balance of the stockholders imputation tax
credit of SPIL was $3.1 million. The ratio of stockholders imputation tax
credit to undistributed earnings is approximately 0.11%. However, the
actual stockholders imputation ratio is subject to change since the actual
stockholders tax credit ratio is based on the ratio of the dividend
allocation date.  17.
    
    TREASURY STOCK 2003Reason for acquisition
    
    Beginning
    
    Additions
    
    Reductions
    
    EndingNumber of Shares (in thousand)Transfer to employees
    
    
    31,505
    
    
    
    
    
    
    
    (   22,957
    )
    
    
    8,548
 2002Reason for acquisition
    
    Beginning
    
    Additions
    
    Reductions
    
    EndingNumber of Shares (in thousand)Transfer to employees
    
    
    32,412
    
    
    
    
    
    
    
    (      907
    )
    
    
    31,505
  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 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 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, 2002 and 2003, SPILs treasury stock amounted to
NT$548.7 million and NT$150.1 million, respectively, representing by
31,505,000 shares and 8,548,000 shares, respectively, which should be
sold to SPILs employees within three years from the date of
acquisition. Any unsold treasury stock after three years shall be
considered as unissued shares, and shall be charged against contributed
capital and capital reserve.C.
    
    As of December 31, 2002 and 2003, SIC, a consolidated subsidiary of
SPIL, held 27,016,000 shares of SPILs common stock, with acquisition
cost of NT$794.2 million, which was shown as treasury stock.  18.
    
    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: F-36




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2001
    
    2002
    
    2003NT$000
    
    NT$000
    
    NT$000Income tax expense (benefit) per book
calculated at the statutory tax rate
(25%)
    
    
    (368,269
    )
    
    
    70,373
    
    
    
    550,877Tax exempt income and other permanent
differences (A), (F)
    
    
    218,035
    
    
    
    (149,813
    )
    
    
    217,377Loss carryforward
    
    
    (67,369
    )
    
    
    
    
    
    
    Investment tax credits (E)
    
    
    (828,443
    )
    
    
    (281,438
    )
    
    
    (720,436
    )Prior years (over) under provision
    
    
    (12,423
    )
    
    
    47,074
    
    
    
    (10,282
    )Tax on interest income separately taxed
    
    
    
    
    
    
    709
    
    
    
    873Allowance on (reversal of) deferred
tax assets (B), (C)
    
    
    762,836
    
    
    
    165,045
    
    
    
    (677,818
    )Income tax benefit for current year
    
    
    (295,633
    )
    
    
    (148,050
    )
    
    
    (639,409
    )Additional 10% tax on undistributed
earnings
    
    
    13,023
    
    
    
    2,686
    
    
    
    3,117Income tax benefit
    
    
    (282,610
    )
    
    
    (145,364
    )
    
    
    (636,292
    )Net change of deferred tax assets
    
    
    270,956
    
    
    
    196,413
    
    
    
    631,184Adjustment of prior years over (under)
provision
    
    
    12,423
    
    
    
    (47,074
    )
    
    
    10,282Tax on interest income separately taxed
    
    
    
    
    
    
    (709
    )
    
    
    (873
    )Prepaid income taxes
    
    
    (26,932
    )
    
    
    (19,359
    )
    
    
    (7,725
    )Subsidiarys tax payable
    
    
    (702
    )
    
    
    (3,088
    )
    
    
    (4,255
    )Income tax refund
    
    
    (26,865
    )
    
    
    (19,181
    )
    
    
    (7,679
    )Income tax payable carried over from
prior years
    
    
    
    
    
    
    50,162
    
    
    
    40,608
  A.
    
    As of December 31, 2001, 2002 and 2003, significant portion of the
permanent differences derived from compensation interest on bond
payable, gain on disposal of investments and long-term investments
income (loss) accounted for under the equity method, which is exempted
from income tax.B.
    
    As of December 31, 2002 and 2003, deferred tax assets and
liabilities were as follows: F-37




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31,2002
    
    2003NT$000
    
    NT$000Deferred tax assets  current
    
    
    675,082
    
    
    
    535,402Deferred tax liability  current
    
    
    
    
    
    
    (46,880
    )675,082
    
    
    
    488,522Less: Allowance for deferred tax assets
    
    
    (631,476
    )
    
    
    (25,372
    )43,606
    
    
    
    463,150Deferred tax assets  noncurrent
    
    
    2,203,289
    
    
    
    2,428,765Deferred tax liability  noncurrent
    
    
    (210,093
    )
    
    
    (242,101
    )1,993,196
    
    
    
    2,186,664Less: Allowance for deferred tax assets
    
    
    (823,056
    )
    
    
    (804,884
    )1,170,140
    
    
    
    1,381,780
 F-38




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  C.
    
    The details of deferred tax assets and liabilities as of December
31, 2002 and 2003 are as follows: December 31, 2002
    
    December 31, 2003Amount
    
    Tax Effect
    
    Amount
    
    Tax EffectNT$000
    
    NT$000
    
    NT$000
    
    NT$000Current:Temporary differencesUnrealized loss on obsolescence and
decline in market value of inventory
    
    
    168,105
    
    
    
    36,781
    
    
    
    58,231
    
    
    
    14,558Unrealized foreign currency exchange
gain arising from bonds payable
    
    
    
    
    
    
    
    
    
    
    (187,519
    )
    
    
    (46,880
    )Compensation interest from bonds payable
    
    
    
    
    
    
    
    
    
    
    390,498
    
    
    
    97,625Unrealized sales allowance
    
    
    
    
    
    
    
    
    
    
    56,556
    
    
    
    14,139Others
    
    
    31,191
    
    
    
    6,825
    
    
    
    44,321
    
    
    
    11,080Investment tax credits
    
    
    
    
    
    
    631,476
    
    
    
    
    
    
    
    398,000675,082
    
    
    
    
    
    
    
    488,522Allowance for deferred tax assets
    
    
    
    
    
    
    (631,476
    )
    
    
    
    
    
    
    (25,372
    )43,606
    
    
    
    
    
    
    
    463,150Noncurrent:Temporary differencesUnrealized loss on long-term investments
    
    
    1,341,245
    
    
    
    295,804
    
    
    
    664,403
    
    
    
    166,101Depreciation expense
    
    
    (1,024,466
    )
    
    
    (204,893
    )
    
    
    (968,405
    )
    
    
    (242,101
    )Unrealized foreign currency exchange gain
arising from bonds payable
    
    
    (23,768
    )
    
    
    (5,200
    )
    
    
    
    
    
    
    Others
    
    
    21,505
    
    
    
    4,705
    
    
    
    142,724
    
    
    
    35,681Loss carryforward
    
    
    1,450,557
    
    
    
    362,639
    
    
    
    1,190,242
    
    
    
    297,560Investment tax credits
    
    
    
    
    
    
    1,540,141
    
    
    
    
    
    
    
    1,929,4231,993,196
    
    
    
    
    
    
    
    2,186,664Allowance for deferred tax assets
    
    
    
    
    
    
    (823,056
    )
    
    
    
    
    
    
    (804,884
    )1,170,140
    
    
    
    
    
    
    
    1,381,780
  Valuation allowance for deferred tax assets relates primarily to
unrealized loss on long-term investments and allowance for investment tax
credits received in connection with SPILs investment in qualifying
investments in significant technology companies and acquisition of
qualifying machinery and equipment.D.
    
    The income tax returns of SPIL and SIC through 2001 have been
assessed and approved by the Tax Authority.E.
    
    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 F-39




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  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, 2003,
Siliconware Technology is still suffering accumulated deficit. F-40




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  F.
    
    As of December 31, 2003, the Companys unused portion of investment
tax credits under the Statue for Up-Grading of Industries, were as
follows: Deductible
    
    UnusedNature of Investment Tax Credits
    
    Amount
    
    Amount
    
    Expiration YearNT$000
    
    NT$000Acquisition costs of qualifying
machinery and equipment
    
    
    1,754,775
    
    
    
    1,754,775
    
    
    
    2004 to 2007Qualifying research and
development expenditure
    
    
    457,174
    
    
    
    457,174
    
    
    
    2004 to 2007Qualifying investments in
significant technology
companies
    
    
    109,294
    
    
    
    109,294
    
    
    
    2004 to 20072,321,243
    
    
    
    2,321,243
  G.
    
    SPIL is exempted from income tax for revenues arising from the
assembling of certain integrated circuit products under the Statute
for Up-Grading of Industries, for five years through December 2002.H.
    
    As of December 31, 2003, the details of loss carryforwards are as
follows: Year
    
    Loss carryforwards
    
    Status of filing
    
    Year of expiration2001
    
    
    22,654
    
    
    Assessed
    
    
    20062002
    
    
    1,167,588
    
    
    Filing amount
    
    
    20071,190,242
  19.
    
    (Loss) Earnings Per Share For the year ended December 31, 2001Weighted
    
    Earnings per shareaverageLoss
    
    
    
    
    
    outstanding
    
    Lossbefore tax
    
    Net loss
    
    common stock
    
    before tax
    
    Net lossNT$000
    
    NT$000
    
    (in thousands)
    
    NT$
    
    NT$Basic loss per
shareNet loss
    
    
    (1,481,637
    )
    
    
    (1,183,211
    )
    
    
    1,846,975
    
    
    
    (0.80
    )
    
    
    (0.64
    )
 For the year ended December 31, 2002Weighted
    
    Earnings per shareaverageIncome
    
    
    
    
    
    outstanding
    
    Incomebefore tax
    
    Net income
    
    common stock
    
    before tax
    
    Net incomeNT$'000
    
    NT$'000
    
    (in thousands)
    
    NT$
    
    NT$Basic earnings
per shareNet income
    
    
    279,831
    
    
    
    425,195
    
    
    
    1,825,935
    
    
    
    0.15
    
    
    
    0.23
 F-41




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2003Weighted
    
    Earnings per shareaverageIncome
    
    
    
    
    
    outstanding
    
    Incomebefore tax
    
    Net income
    
    common stock
    
    before tax
    
    Net incomeNT$000
    
    NT$000
    
    (in thousands)
    
    NT$
    
    NT$Basic earnings per
shareNet income
    
    
    2,202,424
    
    
    
    2,838,716
    
    
    
    1,836,785
    
    
    
    1.20
    
    
    
    1.55Dilutive effect of
Euro convertible
bonds
    
    
    52,384
    
    
    
    39,288
    
    
    
    212,340Diluted Earnings
per share
    
    
    2,254,808
    
    
    
    2,878,004
    
    
    
    2,049,125
    
    
    
    1.10
    
    
    
    1.40
  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, 2001, 2002 and 2003.20.
    
    PERSONNEL COSTS, DEPRECIATION AND AMORTIZATION For the year ended December 31, 2001Nature of cost
    
    Operating cost
    
    Operating expense
    
    TotalNT$000
    
    NT$000
    
    NT$000Personnel CostPayroll
    
    
    1,740,870
    
    
    
    605,656
    
    
    
    2,346,526Labor and health
insurance
    
    
    136,293
    
    
    
    49,710
    
    
    
    186,003Pension expense
    
    
    72,273
    
    
    
    31,339
    
    
    
    103,612Others
    
    
    156,337
    
    
    
    31,991
    
    
    
    188,3282,105,773
    
    
    
    718,696
    
    
    
    2,824,469Depreciation
    
    
    3,895,231
    
    
    
    162,498
    
    
    
    4,056,783Amortization
    
    
    151,555
    
    
    
    99,715
    
    
    
    251,270
 For the year ended December 31, 2002Nature of cost
    
    Operating cost
    
    Operating expense
    
    TotalNT$000
    
    NT$000
    
    NT$000Personnel CostPayroll
    
    
    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
    
    
    
    246,6872,998,544
    
    
    
    873,717
    
    
    
    3,872,261Depreciation
    
    
    4,450,637
    
    
    
    124,785
    
    
    
    4,575,422Amortization
    
    
    152,284
    
    
    
    129,207
    
    
    
    281,491
 F-42




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2003Nature of cost
    
    Operating cost
    
    Operating expense
    
    TotalNT$000
    
    NT$000
    
    NT$000Personnel CostPayroll
    
    
    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
    
    
    
    275,4113,418,383
    
    
    
    909,217
    
    
    
    4,327,600Depreciation
    
    
    4,746,598
    
    
    
    107,960
    
    
    
    4,854,558Amortization
    
    
    178,074
    
    
    
    94,748
    
    
    
    272,822
  21.
    
    Related Party Transactions  A.
    
    Name and Relationship with Related Parties Names of Related Parties
    
    Relationship with the GroupChipMOS Technologies Inc.
    
    Investee company accounted for
under the equity methodSigurd Microelectronics Corp.
    
    Investee company accounted for
under the equity methodUniversal Communication Technology Inc.
    
    Investee company accounted for
under the equity methodPhoenix Precision Technology Corporation
    
    Same chairman of the boardCaesar Technology Inc. (Note 1)
    
    Investee company accounted for
under the equity method
  Note 1: The shareholders of the investee resolved to liquidate the
investee on December 25, 2001. Therefore, the Company wrote off the
investment in 2001.  B.
    
    Significant Transactions with Related Parties  (1)
    
    Sales to related parties For the years ended December 31,2001
    
    2002
    
    2003Percentage
    
    
    
    
    
    Percentage
    
    
    
    
    
    Percentageof net
    
    
    
    
    
    of net
    
    
    
    
    
    of netAmount
    
    sales
    
    Amount
    
    sales
    
    Amount
    
    salesNT$000
    
    %
    
    NT$000
    
    %
    
    NT$000
    
    %ChipMOS
Technologies Inc.
    
    
    3,886
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101,960
    
    
    
    Others
    
    
    5,644
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,530
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    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 F-43




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  period is approximately three months from the
date of sale. F-44




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    (2)
    
    Purchases of inventory from related parties For the years ended December 31,2001
    
    2002
    
    2003Percentage
    
    
    
    
    
    Percentage
    
    
    
    
    
    Percentageof net
    
    
    
    
    
    of net
    
    
    
    
    
    of netAmount
    
    purchases
    
    Amount
    
    purchases
    
    Amount
    
    purchasesNT$000
    
    %
    
    NT$000
    
    %
    
    NT$000
    
    %Phoenix Precision
Technology
Corporation
    
    
    1,353,917
    
    
    
    19
    
    
    
    1,716,348
    
    
    
    16
    
    
    
    2,610,008
    
    
    
    19Others
    
    
    7,497
    
    
    
    
    
    
    
    428
    
    
    
    
    
    
    
    
    
    
    
    1,361,414
    
    
    
    19
    
    
    
    1,716,776
    
    
    
    16
    
    
    
    2,610,008
    
    
    
    19
  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, 2002
    
    December 31, 2003Percentage
    
    
    
    
    
    Percentageof accounts
    
    
    
    
    
    of accountsAmount
    
    receivable
    
    Amount
    
    receivableNT$000
    
    %
    
    NT$000
    
    %ChipMOS
Technologies Inc.
    
    
    
    
    
    
    
    
    
    
    4,634
    
    
    
    
  (4)
    
    Accounts payable December 31, 2002
    
    December 31, 2003Percentage
    
    
    
    
    
    Percentageof accounts
    
    
    
    
    
    of accountsAmount
    
    payable
    
    Amount
    
    payableNT$000
    
    %
    
    NT$000
    
    %Phoenix Precision
Technology Corporation
    
    
    194,994
    
    
    
    14
    
    
    
    301,496
    
    
    
    14
  (5)
    
    Property TransactionsFor the year ended December 31, 2001 and 2002, SPIL purchased machinery
and equipment from Caesar Technology Inc. amounting to NT$70.6 million and
NT$59.5 million (tax excluded), respectively.  22.
    
    Assets Pledged as CollateralsAs of December 31, 2002 and 2003 the following assets have been pledged as
collateral against certain obligations of the Company: F-45




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Book ValueAssets
    
    2002
    
    2003
    
    Subject of collateralNT$'000
    
    NT$'000Buildings
    
    
    1,420,094
    
    
    
    1,377,197
    
    
    Long-term loans and bonds payableMachinery and other equipment
    
    
    7,671,251
    
    
    
    4,903,444
    
    
    Long-term loansTime deposits (shown in other
financial assets  current)
    
    
    431,600
    
    
    
    172,000
    
    
    Guarantees for custom duties and commercial paper9,522,945
    
    
    
    6,452,641
  23.
    
    Commitments and Contingencies  A.
    
    As of December 31, 2003, the Companys unused letters of credit for
imported machinery and equipment were approximately NT$729.7 million.B.
    
    SPIL and its subsidiaries entered into agreements with third
parties to construct the plant for expansion of operations amounting to
NT$961.0 million. As of December 31, 2003, the Company has outstanding
obligations of approximately NT$434.3 million related to these
contracts.C.
    
    SPIL entered into contracts with six foreign companies for the use
of certain technologies and patents related to packaging system of
integrated circuit products. SPIL agreed to pay royalty fees based on
the total number of certain products sold. Four of the contracts are
valid until 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 expire, the other is valid
until both parties agree to terminate the contract.  24.
    
    Subsequent EventFollowing the approval of the Board of Directors, SPIL issued the third Euro
convertible bonds in the amount of US$200,000,000 on February 5, 2004 to
purchase equipment and raw material. The proceed from this offering is
approximately NT$6,646.0 million. The initial conversion price is NT$47.035
(in dollars) per share. The estimated conversion shares, if fully converted
based on the initial conversion price, will be 141,979,377 shares.25.
    
    Other  A.
    
    Disclosure on Financial Instruments As of December 31, 2002Book Value
    
    Fair ValueNT$'000
    
    NT$'000Non-derivative financial instrumentsFinancial AssetsFinancial
assets with book value equal to fair value (1)
    
    
    10,947,904
    
    
    
    10,947,904Short-term investment
    
    
    47,736
    
    
    
    42,200
 F-46




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2002Book Value
    
    Fair ValueNT$'000
    
    NT$'000Long-term investments in stocks (2)
    
    
    6,957,931
    
    
    
    7,098,212Long-term investments in bonds (2)
    
    
    629,450
    
    
    
    593,72918,583,021
    
    
    
    18,682,045
 F-47




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2002Book Value
    
    Fair ValueNT$'000
    
    NT$'000Financial LiabilitiesFinancial liabilities with book value
equal to fair value (1)
    
    
    5,867,569
    
    
    
    5,867,569Bonds payable (3)
    
    
    7,949,857
    
    
    
    6,647,755Long-term loans (4)
    
    
    6,195,101
    
    
    
    6,195,101Prepaid pension expense (5)
    
    
    (2,327
    )
    
    
    135,50420,010,200
    
    
    
    18,845,929
 As of December 31, 2003Book Value
    
    Fair ValueNT$'000
    
    NT$'000Non-derivative financial instrumentsFinancial AssetsFinancial assets with book value
equal to fair value (1)
    
    
    17,991,992
    
    
    
    17,991,992Short-term investment
    
    
    7,989
    
    
    
    7,771Long-term investments in stocks (2)
    
    
    6,386,666
    
    
    
    9,292,064Long-term investments in bonds (2)
    
    
    641,350
    
    
    
    950,71025,027,997
    
    
    
    28,242,537
 As of December 31, 2003Book Value
    
    Fair ValueNT$'000
    
    NT$'000Financial LiabilitiesFinancial liabilities with book value
equal to fair value (1)
    
    
    8,761,492
    
    
    
    8,761,492Bonds payable (3)
    
    
    7,988,979
    
    
    
    8,938,741Long-term loans (4)
    
    
    8,013,164
    
    
    
    8,013,164Prepaid pension expense (5)
    
    
    (5,826
    )
    
    
    376,50024,757,809
    
    
    
    26,089,897
  (1)
    
    Financial assets and liabilities with book value equal to fair
value are cash and cash equivalents, notes receivable, accounts
receivable, other financial assets  current, refundable deposits,
short-term loans, commercial paper, notes payable, accounts payable,
income tax payable, accrued expenses, other payables, current portion
of long-term loans and other current liabilities because of their short
maturities.(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. F-48




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (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 is equal to the funded
status as shown
in the actuarial report measured at December 31, 2002 and 2003,
respectively. F-49




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    B.
    
    Eliminated transactions between parent company and subsidiaries Name of the counter party and amountSiliconware
    
    SiliconwarePrecision
    
    Investment
    
    SPIL (B.V.I.)
    
    SiliconwareTransaction
    
    Industries Co., Ltd.
    
    Company Ltd.
    
    Holding Limited
    
    USA Inc.NT$000
    
    NT$000
    
    NT$000
    
    NT$000For the year ended December 31, 2001:Eliminate long-term investment and stockholders equity
    
    
    (1,785,892
    )
    
    
    1,727,578
    
    
    
    58,314
    
    
    
    Eliminate subsidiarys long-term investment on parent
company
    
    
    794,184
    
    
    
    (794,184
    )
    
    
    
    
    
    
    Eliminate accrued expense and accounts receivable
    
    
    23,005
    
    
    
    
    
    
    
    
    
    
    
    (23,005
    )Eliminate commission expense and revenue
    
    
    (248,103
    )
    
    
    
    
    
    
    
    
    
    
    248,103Eliminate other payable and accounts receivable
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    (180
    )For the year ended December 31, 2002:Eliminate 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, 2003:Eliminate long-term investment and stockholders equity
    
    
    (2,278,920
    )
    
    $
    
    
    
    
    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
    )
    
    
    
    
    
    
    
    
    
    
    288,869
  C.
    
    Financial Statements ReclassificationCertain accounts stated in the December 31, 2001 and 2002 financial statements
have been reclassified to conform to the presentation adopted for December 31,
2003. F-50




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    26.
    
    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 Sales For the years ended December 31,Geographic
    
    2001
    
    2002
    
    2003NT$000
    
    NT$000
    
    NT$000U.S. and Canada
    
    
    8,005,894
    
    
    
    11,525,085
    
    
    
    14,774,924Other
    
    
    297,248
    
    
    
    650,365
    
    
    
    760,9958,303,142
    
    
    
    12,175,450
    
    
    
    15,535,919
  Sales by geographic region are identified by the location where
the revenue is generated.D.
    
    Major Customers For the years ended December 31,2001
    
    2002
    
    2003Percentage
    
    
    
    
    
    Percentage
    
    
    
    
    
    PercentageCustomers
    
    Amount
    
    of net sale
    
    Amount
    
    of net sale
    
    Amount
    
    of net saleNT$000
    
    %
    
    NT$000
    
    %
    
    NT$000
    
    %Customer A
    
    
    1,451,400
    
    
    
    9
    
    
    
    2,895,828
    
    
    
    13
    
    
    
    3,652,541
    
    
    
    13Customer B
    
    
    2,088,955
    
    
    
    13
    
    
    
    3,680,731
    
    
    
    17
    
    
    
    3,533,487
    
    
    
    13Customer C
    
    
    404,865
    
    
    
    2
    
    
    
    1,147,536
    
    
    
    5
    
    
    
    2,619,265
    
    
    
    10Customer D
    
    
    2,299,951
    
    
    
    14
    
    
    
    1,779,457
    
    
    
    8
    
    
    
    1,493,004
    
    
    
    5Total
    
    
    6,245,171
    
    
    
    38
    
    
    
    9,503,552
    
    
    
    43
    
    
    
    11,298,297
    
    
    
    41
  A major customer is identified as the party that accounts for more
than 10% of the Companys net sales in any given year.  27.
    
    US GAAP ReconciliationThe 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. F-51




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    The following is a summary of the material adjustments to net income and
shareholders equity, which would be required in reconciling the significant
differences between ROC GAAP and US GAAP: F-52




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    Reconciliation of consolidated net income: For the years ended December 31,2001
    
    2002
    
    2003NT$000
    
    NT$000
    
    NT$000
    
    US$000Net income(loss) as reported under ROC GAAP
    
    
    
    
    
    
    (1,183,211
    )
    
    
    425,195
    
    
    
    2,838,716
    
    
    
    83,516US GAAP adjustments:Compensated absences
    
    (i)
    
    
    (3,500
    )
    
    
    (7,000
    )
    
    
    (1,400
    )
    
    
    (41
    )Compensation
    
    (ii)
    
    
    (256,578
    )
    
    
    
    
    
    
    (341,324
    )
    
    
    (10,042
    )Goodwill amortization
    
    
    
    
    
    
    (541,939
    )
    
    
    
    
    
    
    
    
    
    
    Impairment on long-term investments
    
    (ix)
    
    
    
    
    
    
    (212,569
    )
    
    
    
    
    
    
    Embedded derivative
    
    (x)
    
    
    
    
    
    
    (52,891
    )
    
    
    236,792
    
    
    
    6,967Marketable securities
    
    (vi)
    
    
    
    
    
    
    (5,536
    )
    
    
    5,536
    
    
    
    163Treasury stock transferred to employee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (154,342
    )
    
    
    (4,541
    )Equity investments:
    
    (iii)Timing differences
    
    
    
    
    
    
    (15,497
    )
    
    
    (362,521
    )
    
    
    630,697
    
    
    
    18,555Net income/(loss) variance between US
GAAP and ROC GAAP
    
    
    
    
    
    
    53,704
    
    
    
    21,855
    
    
    
    (29,515
    )
    
    
    (868
    )Accounting for income in preferred stock
    
    
    
    
    
    
    (33,534
    )
    
    
    (45,270
    )
    
    
    87,291
    
    
    
    2,568Technology and know-how contributed
to a joint venture investee
    
    
    
    
    
    
    (31,000
    )
    
    
    (6,000
    )
    
    
    (6,000
    )
    
    
    (177
    )(828,344
    )
    
    
    (669,932
    )
    
    
    427,735
    
    
    
    12,584Taxation effect
    
    (iv)
    
    
    221,083
    
    
    
    21,774
    
    
    
    (18,571
    )
    
    
    (546
    )Net (loss) income under US GAAP
    
    
    
    
    
    
    (1,790,472
    )
    
    
    (222,963
    )
    
    
    3,247,880
    
    
    
    95,554Basic and diluted (loss) earnings per share
(EPS) under US GAAP (in dollars)
    
    (v)
    
    
    (0.98
    )
    
    
    (0.12
    )
    
    
    1.77
    
    
    
    0.05Weighted average number of common stock
outstanding (in thousands)
    
    
    
    
    
    
    1,831,716
    
    
    
    1,825,935
    
    
    
    1,836,785
    
    
    
    1,836,785
  Reconciliation of consolidated shareholders equity: As of December 31,2001
    
    2002
    
    2003NT$000
    
    NT$000
    
    NT$000
    
    US$000Total
shareholders equity as reportedUnder ROC GAAP
    
    
    
    
    
    
    26,046,390
    
    
    
    26,178,552
    
    
    
    29,698,209
    
    
    
    873,734US GAAP adjustments:Compensated absences
    
    (i)
    
    
    (12,700
    )
    
    
    (19,700
    )
    
    
    (21,100
    )
    
    
    (621
    )Compensation
    
    (ii)
    
    
    
    
    
    
    
    
    
    
    (341,324
    )
    
    
    (10,042
    )Impairment of long-term investments
    
    (ix)
    
    
    
    
    
    
    (212,569
    )
    
    
    (212,569
    )
    
    
    (6,254
    )
 F-53




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31,2001
    
    2002
    
    2003NT$000
    
    NT$000
    
    NT$000
    
    US$000Embedded derivative
    
    (x)
    
    
    
    
    
    
    (52,891
    )
    
    
    183,900
    
    
    
    5,410Equity investments:
    
    (iii)Timing differences
    
    
    
    
    
    
    (9,009
    )
    
    
    (371,530
    )
    
    
    259,167
    
    
    
    7,625Net income variance between US
GAAP and ROC GAAP
    
    
    
    
    
    
    104,392
    
    
    
    126,247
    
    
    
    96,732
    
    
    
    2,846Accounting for income in preferred stock
    
    
    
    
    
    
    (14,335
    )
    
    
    (65,943
    )
    
    
    28,885
    
    
    
    850Technology and know-how contributed
to a joint venture investee
    
    
    
    
    
    
    (198,417
    )
    
    
    (204,417
    )
    
    
    (210,417
    )
    
    
    (6,191
    )Marketable securities
    
    (vi)
    
    
    541,885
    
    
    
    (14,201
    )
    
    
    2,072,151
    
    
    
    60,964Acquisition of Siliconware Corp.
    
    (vii)
    
    
    4,873,500
    
    
    
    4,873,500
    
    
    
    4,873,500
    
    
    
    143,380Taxation effect
    
    (iv)
    
    
    3,654
    
    
    
    25,428
    
    
    
    6,858
    
    
    
    202Shareholders equity under US GAAP
    
    
    
    
    
    
    31,335,360
    
    
    
    30,262,476
    
    
    
    36,433,992
    
    
    
    1,071,903
 F-54




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  Movements in shareholders equity in accordance with US GAAP: 2002
    
    2003NT$000
    
    NT$000
    
    US$000Balance at January 1,
    
    
    
    
    
    
    31,335,360
    
    
    
    30,262,476
    
    
    
    890,335Net income (loss) under US GAAP
    
    
    
    
    
    
    (222,963
    )
    
    
    3,247,880
    
    
    
    95,554Adjustment for investee
companies capital reserve
    
    
    
    
    
    
    
    
    
    
    617
    
    
    
    18Cumulative translation adjustment
on long-term investment
    
    
    
    
    
    
    (16,042
    )
    
    
    (24,869
    )
    
    
    (732
    )Change in fair value of marketable
securities
    
    (vi)
    
    
    (853,331
    )
    
    
    2,383,597
    
    
    
    70,126Adjustment for change in equity
investment holding ratio
    
    
    
    
    
    
    (1,242
    )
    
    
    
    
    
    
    Treasury stock
    
    (xi)
    
    
    20,694
    
    
    
    564,291
    
    
    
    16,602Balance at December 31,
    
    
    
    
    
    
    30,262,476
    
    
    
    36,433,992
    
    
    
    1,071,903
  The balance sheet accounts under US GAAP is as follows: As of December 31,2002
    
    2003NT$000
    
    NT$000Current AssetsCash and cash equivalents
    
    
    2,793,055
    
    
    
    9,017,750Short-term investments
    
    
    3,218,791
    
    
    
    3,192,840Notes receivable, net
    
    
    127,237
    
    
    
    118,531Accounts receivable, net
    
    
    4,122,784
    
    
    
    5,311,273Inventories
    
    
    1,372,607
    
    
    
    1,896,966Other current assets
    
    
    1,100,503
    
    
    
    1,383,90712,734,977
    
    
    
    20,921,267Long-term investments
    
    
    6,791,612
    
    
    
    9,245,865Property, plant and equipment
    
    
    23,894,386
    
    
    
    24,402,271Intangible assets
    
    
    4,873,500
    
    
    
    4,873,500Other assets
    
    
    2,039,013
    
    
    
    2,313,045Total Assets
    
    
    50,333,488
    
    
    
    61,755,948
 As of December 31,2002
    
    2003NT$000
    
    NT$000Current liabilities
    
    
    5,890,543
    
    
    
    16,492,085
 F-55




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31,2002
    
    2003NT$000
    
    NT$000Long-term liabilities
    
    
    14,142,958
    
    
    
    8,813,164Other liabilities
    
    
    37,511
    
    
    
    16,707Total Liabilities
    
    
    20,071,012
    
    
    
    25,321,956Total Stockholders Equity
    
    
    30,262,476
    
    
    
    36,433,992Total Liabilities and Stockholders Equity
    
    
    50,333,488
    
    
    
    61,755,948
 F-56




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (i)
    
    Compensated AbsencesUnder 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.(ii)
    
    Compensation For the years ended December 31,Net Income Impact of Compensation Adjustments
    
    2001
    
    2002
    
    2003NT$000
    
    NT$000
    
    NT$000US GAAP Adjustments:Remuneration to directors
    
    
    
    
    
    
    
    
    
    
    57,153Employee bonusesAccrual
    
    
    
    
    
    
    
    
    
    
    284,171Adjustment to fair market value
    
    
    256,578
    
    
    
    
    
    
    
    Total employee bonuses
    
    
    256,578
    
    
    
    
    
    
    
    284,171Total net income adjustment
relating to compensation
    
    
    256,578
    
    
    
    
    
    
    
    341,324
 As of December 31,Shareholders Equity Impact of Compensation Adjustments
    
    2001
    
    2002
    
    2003NT$000
    
    NT$000
    
    NT$000US GAAP Adjustments:Remuneration to directors
    
    
    
    
    
    
    
    
    
    
    57,153Employee bonuses
    
    
    
    
    
    
    
    
    
    
    284,171Total shareholders equity
adjustment relating to
compensation
    
    
    
    
    
    
    
    
    
    
    341,324
  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.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 F-57




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  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 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. As the Company incurred loss in 2001, no employee bonus was
paid in 2002. 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 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$4,074.2 million and NT$4,074.2 million for the years ended December 31,
2002 and 2003, respectively.(iii)
    
    Equity InvestmentsUnder 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.Timing differenceUnder 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 F-58




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  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 under US GAAP. F-59




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  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. 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.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.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 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, 2003, 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. F-60




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (iv)
    
    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.(v)
    
    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 2001, 2002 and 2003 were 26,157,900 shares, 0 shares
and 0 shares, respectively.(vi)
    
    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.(vii)
    
    Goodwill Acquired from MergerThe fair value of the net assets received is used by the Company as the
value of the consideration for the acquisition of the remaining interests
in Siliconware Corporation and is reflected in the common stock and capital
reserve in the balance sheet. As the consideration is equal to the fair
value of the net assets received, no goodwill is recorded under ROC GAAP.
The fair value of the net assets acquired F-61




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  is determined based on an
independent appraisal process. Under US GAAP, the acquisition is accounted for using the purchase method of accounting, and
the purchase price is determined using the fair value of the shares
exchanged. The fair value of the shares exchanged was determined based on
the average closing market price of the Companys stock on the five trading
days beginning two days prior to August 22, 2000, the date of the
announcement of the acquisition. No identifiable intangible assets were
acquired in the merger. The difference between the fair value of the shares exchanged and the fair value of the net assets acquired results in
goodwill. The purchase price was allocated to all identifiable tangible
assets and liabilities acquired based on their estimated fair values at
December 30, 2000, as follows (in NT$ millions): Current assets
    
    $
    1,371Other assets
    
    
    5,692Liabilities
    
    
    (3,403
    )Goodwill
    
    
    5,415Purchase price
    
    $
    9,075
  Before the adoption of SFAS No. 142, goodwill is amortized on a
straight-line basis over ten years. Amortization of goodwill during 2001
was NT$541.9 million. Effective January 1, 2002, SFAS No. 142 requires that
we cease amortization of goodwill and perform an impairment review upon
adoption and at least annually thereafter. Based on the comparison of the
fair value and carrying value of the Company, management concluded that
goodwill was not impaired as of adoption and as of December 31, 2003.(viii)
    
    Stock DividendsUnder ROC GAAP, an issuance of stock dividend is recorded at par with
a 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$19,268.6 million and
NT$19,268.6 million at December 31, 2002 and 2003, respectively. This
adjustments have no effect on shareholders equity.(ix)
    
    Impairment of Long-lived AssetsThere is no specific standards under ROC GAAP addressing impairment of
long-lived assets. US GAAP 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. 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., F-62




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  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$212.6 million on these long-term equity
investments to write off the carrying value of the investments to their fair
value.(x)
    
    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
(1) 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; (2) 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 (3) 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. 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.(xi)
    
    Stock-based CompensationThe Company has adopted the disclosure provisions of SFAS No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure,
which is an amendment of SFAS No. 123, Accounting for Stock-Based
Compensation, and starting to apply Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for its stock plans. If
the Company had elected to recognize compensation cost for all of the plans
based upon the fair value at the grant dates for awards under those plans,
consistent with the method prescribed by SFAS No. 123, net income (loss)
and earnings (loss) per share would have been changed to the pro forma
amounts indicated below: For the year endedDecember 31, 2003NT$000Net income, as reported
    
    $
    3,247,880Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects
    
    
    (91,224
    )Pro forma net income
    
    $
    3,156,656Earnings per share:Basic  as reported (In NT dollars)
    
    $
    1.77Basic  pro forma (In NT dollars)
    
    $
    1.72
 F-63




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  The fair value of the Companys stock options used to compute 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: 2003Volatility
    
    
    59.96% - 67.12
    %Risk-free interest rate
    
    
    1.70% - 3.04
    %Expected holding period
    
    3-5 yearsDividend yield
    
    
    0
    %
  (xi)
    
    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.  ADDITIONAL US GAAP DISCLOSURES  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 43% and North America of 54%. The
Companys largest customer accounted for 17% and 13% for 2002 and 2003,
respectively, and its five largest customers accounted for 48% and 49% of the
Companys total sales in 2002 and 2003, respectively.In 2002 and 2003, significant portion of the Companys net operating revenue
were denominated in U.S. dollars. On the other hand, in 2002 and 2003,
significant portion the Companys purchase were incurred in U.S. dollars and
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$2,165.0
million and NT$2,428.7 million F-64




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  as of December 31, 2002 and 2003,
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.
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, 2002 and 2003, the carrying amounts of property, plant and
equipment held for disposal were NT$17.2 million and NT$131.8 million,
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, 2001, 2002 and 2003
were NT$1.2 million, NT$17.2 million and NT$131.8 million, respectively. The
impairment charge in 2003 was mainly related to the Companys decision to
dispose certain machinery and equipment due to technology phase out and
replacement.Maturity of Long-term LiabilitiesAggregate maturities for the Companys bonds payable and long-term loans as
of December 31, 2003 are as follows: Year ending December 31,
    
    MaturitiesNT$0002004
    
    
    10,342,3392005
    
    
    7,287,1922006
    
    
    1,530,05119,159,582
  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: F-65




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years endedDecember 31,2002
    
    2003NT$'000
    
    NT$'000Net cash provided by operating activities, US GAAP
    
    
    5,006,199
    
    
    
    8,052,708Net cash used in investing activities, US GAAP
    
    
    (7,139,390
    )
    
    
    (4,236,201
    )Net cash provided by financing activities, US GAAP
    
    
    3,459,064
    
    
    
    2,408,188Net increase in cash and cash equivalents, US GAAP
    
    
    1,325,873
    
    
    
    6,224,695Cash and cash equivalents at beginning of year
under US GAAP
    
    
    1,467,182
    
    
    
    2,793,055Cash and cash equivalents end of year under US GAAP
    
    
    2,793,055
    
    
    
    9,017,750
 Comprehensive Income Comprehensive income under ROC GAAP for the years ended December 31, 2002 and
2003 and accumulated other comprehensive income balances as of December 31,
2002 and 2003 are summarized as follows: 2002
    
    2003NT$'000
    
    NT$'000Net income
    
    
    425,195
    
    
    
    2,838,716Other comprehensive income (loss), net of taxes:Cumulative translation adjustment on equity investment
    
    
    (9,705
    )
    
    
    (32,405
    )Adjustment for change in equity investment holding ratio
    
    
    (1,242
    )
    
    
    Adjustment for unrealized loss on long-term investment
    
    
    (302,780
    )
    
    
    302,780Adjustment for investee companies capital reserve
    
    
    
    
    
    
    617Resale of treasury stock
    
    
    20,694
    
    
    
    Comprehensive income
    
    
    132,162
    
    
    
    3,109,708Accumulated other comprehensive income balances:Cumulative translation adjustment on equity investment
    
    
    35,683
    
    
    
    3,278Adjustment for change in equity investment holding ratio
    
    
    15,063
    
    
    
    15,063Adjustment for unrealized loss on long-term investment
    
    
    (302,780
    )
    
    
    Adjustment for investee companies capital reserve
    
    
    
    
    
    
    617Resale of treasury stock
    
    
    20,694
    
    
    
    20,694Accumulated other comprehensive (loss) income
    
    
    (231,340
    )
    
    
    39,652
 F-66




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Recent Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (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 2003, the 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, 2003, and for variable interest entities created prior to February 1, 2003, no
later than the end of the first reporting period after March 15, 2004. We have
performed a review of entities created prior to and subsequent to January 31,
2003, and determined the adoption of FIN 46 and FIN 46-R did not have a
material impact on the Companys financial reporting and disclosures. On April 30, 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities (SFAS No. 149). 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.
The new guidance amends SFAS No. 133 for decisions made as part of the
Derivatives Implementation Group (DIG) process that effectively required
amendments to SFAS No. 133, and decisions made in connection with other FASB
projects dealing with financial instruments and in connection with
implementation issues raised in relation to the application of the definition
of a derivative and characteristics of a derivative that contains financing
components. In addition, it clarifies when a derivative contains a financing
component that warrants special reporting in the statement of cash flows. SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after June 30, 2003. The adoption of
SFAS No. 149 did not have a material impact on the Companys consolidated
financial statements. In May 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity (SFAS No. 150). SFAS No. 150
establishes standards for classifying and measuring as liabilities certain
financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. SFAS No. 150 is effective for
all financial instruments created or modified after May 31, 2003 and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 did not have a material impact on the
Companys consolidated financial statements. 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 F-67




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 December 2003, the FASB issued SFAS No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits. This Statement revises employers
disclosures about pension plans and other postretirement benefit plans. It
requires additional disclosures to those in the original SFAS No. 132 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, which also requires new disclosures for interim periods beginning
after December 15, 2003, is effective for fiscal years ended after December 15, 2003. The Company
adopted this Statement for the year ended December 31, 2003 and the adoption of
this statement has no impact on the Companys consolidated financial
statements. Summarized Financial Information of Equity Investees Summary Financial Information of the Companys equity investees, except
ChipMOS, has been prepared on an aggregate basis under ROC GAAP. Balance Sheet Information 2002
    
    2003NT$000
    
    NT$000Current Assets
    
    
    1,387,540
    
    
    
    1,390,456Non-Current Assets
    
    
    4,036,858
    
    
    
    3,345,530Total Assets
    
    
    5,424,398
    
    
    
    4,735,986Current Liabilities
    
    
    1,156,519
    
    
    
    699,405Non-Current Liabilities
    
    
    1,082,017
    
    
    
    965,596Total Liabilities
    
    
    2,238,536
    
    
    
    1,665,001
 Income Statement Information 2002
    
    2003NT$000
    
    NT$000Net Sales
    
    
    2,113,099
    
    
    
    2,495,014Gross Profit
    
    
    320,567
    
    
    
    806,956(Loss) Income Before Tax
    
    
    (30,329
    )
    
    
    409,268Net (Loss) Income
    
    
    (14,933
    )
    
    
    351,834
 F-68




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  28.
    
    SPECIAL DISCLOSURE ITEMS  A.
    
    Significant Transaction Information  (1)
    
    Loans to third parties attributed to financial activities:  For the years ended December 31, 2003: None.  (2)
    
    Endorsement and guarantee provided to third parties:  For the years ended December 31, 2003: None.  (3)
    
    The ending balance of securities are summarized as follows:  As of December 31, 2003: December 31, 2003The relationship ofType of
    
    
    
    the issuers with
    
    
    
    Number of shares
    
    
    
    
    
    Percentage
    
    Market value perInvestor
    
    securities
    
    Name of securities
    
    the Company
    
    General ledger accounts
    
    (in thousands)
    
    Book value
    
    of ownership
    
    share (in dollars)NT$000
    
    
    
    NT$Siliconware
Precision
Industries Co.,
Ltd.
    
    Stock
    
    Siliconware Investment Company Ltd.
    
    Investee accounted
for under equity
method
    
    Long-term investments
    
    
    177,000
    
    
    $957,052
    
    
    100.00
    %
    
    9.88(1)Siliconware
Precision
Industries Co.,
Ltd.
    
    Stock
    
    Sigurd Microelectronics Corp.
    
    Investee accounted
for under equity
method
    
    Long-term investments
    
    
    29,174
    
    
    
    520,843
    
    
    
    27.36
    %
    
    
    49.00Siliconware
Precision
Industries Co.,
Ltd.
    
    Stock
    
    Double Win Enterprise Co., Ltd.
    
    Investee accounted
for under equity
method
    
    Long-term investments
    
    
    8,450
    
    
    
    120,563
    
    
    
    24.14
    %
    
    
    12.87
    (2)Siliconware
Precision
Industries Co.,
Ltd.
    
    Stock
    
    ChipMOS Technologies Inc.
    
    Investee accounted
for under equity
method
    
    Long-term investments
    
    
    254,863
    
    
    
    2,748,559
    
    
    
    28.73
    %
    
    
    10.95
    (2)Siliconware
Precision
Industries Co.,
Ltd.
    
    Stock
    
    SPIL (B.V.I.) Holding Limited
    
    Investee accounted
for under equity
method
    
    Long-term investments
    
    
    41,300
    
    
    
    1,321,868
    
    
    
    100.00
    %
    
    
    32.01
    (1)Siliconware
Precision
Industries Co.,
Ltd.
    
    Preferred stock
    
    Universal Communication Technology
Inc.
    
    Investee accounted
for under equity
method
    
    Long-term investments
    
    
    7,600
    
    
    
    76,000
    
    
    
    9.87
    %
    
    
    10.00
    (3)Siliconware
Precision
Industries Co.,
Ltd.
    
    Common
stock
    
    Universal Communication Technology
Inc.
    
    Investee accounted
for under equity
method
    
    Long-term investments
    
    
    25,375
    
    
    
    190,888
    
    
    
    32.95
    %
    
    
    3.67
    (1)Siliconware
Precision
Industries Co.,
Ltd.
    
    Stock
    
    Taiwan Hi-Tech Corporation
    
    Investee accounted
for under equity
method
    
    Long-term investments
    
    
    5,781
    
    
    
    71,253
    
    
    
    22.33
    %
    
    
    5.00Siliconware
Precision
Industries Co.,
Ltd.
    
    Stock
    
    Phoenix Precision Technology
Corporation
    
    
    
    Long-term investments
    
    
    67,610
    
    
    
    1,087,794
    
    
    
    14.03
    %
    
    
    26.70Siliconware
Precision
Industries Co.,
Ltd.
    
    Stock
    
    ThaiLin Semiconductor Corp.
    
    
    
    Long-term investments
    
    
    7,601
    
    
    
    216,420
    
    
    
    4.75
    %
    
    
    28.50Siliconware
Precision
Industries Co., Ltd.
    
    Stock
    
    King Yuan Electronics Co., Ltd.
    
    
    
    Long-term investments
    
    
    65,036
    
    
    
    910,270
    
    
    
    9.45
    %
    
    
    34.30Siliconware
Precision
Industries Co.,
Ltd.
    
    Bond
    
    United Microelectronic Corporation
    
    
    
    Long-term investments
    
    1,000
(Note 5)
    
    
    346,350
    
    
    
    
    
    
    
    361,742Siliconware
Precision
Industries Co.,
Ltd.
    
    Bond
    
    Phoenix Precision Technology
Corporation
    
    
    
    Long-term investments
    
    2,950
(Note 5)
    
    
    295,000
    
    
    
    
    
    
    
    588,968Siliconware
Precision
Industries Co.,
Ltd.
    
    Stock
    
    Others (4)
    
    
    
    Long-term investments
    
    
    7,356
    
    
    
    92,962
    
    
    
    
    
    
    
   (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.(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, 2002 was used.(3)
    
    The market value is not available, therefore, the redemption price
was used.(4)
    
    Combined amount for individual security less than $100,000.(5)
    
    Denomination in one unit. F-69




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SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (4)
    
    Securities for which total buying or selling amounts exceed the lower
of NT$100,000 or 20 percent of the capital stock:  For the years ended December 31, 2003: Therelationship
    
    Beginning balance
    
    Addition
    
    Disposal
    
    Ending balanceName

of the
    
    Number
    
    
    
    
    
    Number
    
    
    
    
    
    Number
    
    
    
    
    
    
    
    
    


NumberGeneral
    
    of the
    
    issuers
    
    of shares
    
    
    
    
    
    of shares
    
    
    
    
    
    of shares
    
    
    
    
    
    
    
    
    
    Gain (loss)
    
    of sharesName of
    
    ledger
    
    counter
    
    with the
    
    (in
    
    
    
    
    
    (in
    
    
    
    
    
    (in
    
    Sale
    
    Book
    
    from
    
    (inInvestor
    
    the security
    
    accounts
    
    party
    
    Company
    
    thousands)
    
    Amount
    
    thousands)
    
    Amount
    
    thousands)
    
    price
    
    value
    
    disposal
    
    thousands)
    
    AmountNT$000
    
    NT$000
    
    NT$000
    
    
    
    
    
    NT$000
    
    NT$000
    
    NT$000
    
    
    
    
    
    NT$000Siliconware
Precision
Industries Co.,
Ltd.
    
    Phoenix Precision
Technology
Corporation bond
    
    Long-term investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,950
(Note)
    
    
    295,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,950
(Note)
    
    
    295,000Siliconware
Precision
Industries Co.,
Ltd.
    
    ThaiLin
Semiconductor Corp.
bond
    
    Long-term investment
    
    
    
    
    
    2,831
(Note)
    
    
    283,100
    
    
    
    
    
    
    
    
    
    
    2,831
(Note)
    
    
    325,395
    
    
    
    283,100
    
    
    
    42,295
    
    
    
    
    
    
    Siliconware
Precision
Industries Co.,
Ltd.
    
    Sigurd
Microelectronics
Corp. stock
    
    Long-term investment
    
    
    
    
    
    
    30,594
    
    
    
    524,820
    
    
    
    
    
    
    
    
    
    
    
    5,225
    
    
    
    161,489
    
    
    
    101,088
    
    
    
    60,401
    
    
    
    29,174
    
    
    
    520,843Siliconware
Precision
Industries Co.,
Ltd.
    
    SPIL (B.V.I.)
Holding Limited
stock
    
    Long-term investment
    
    
    
    
    
    
    34,300
    
    
    
    1,161,336
    
    
    
    7,000
    
    
    
    239,610
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,300
    
    
    
    1,321,868
   Note: Denomination in one unit.  (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, 2003 : None.  (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, 2003 : 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, 2003: Description of and reasonsfor difference in transactionterms compared to non-Description of the transaction
    
    related party transactions
    
    Notes or accounts receivable / payablePercentage of notes orName of the
    
    Relationship with
    
    Purchases/
    
    Percentage of net
    
    
    
    
    
    
    
    accounts receivable/Purchase/sales company
    
    counter parties
    
    the counter parties
    
    sales
    
    Amount
    
    purchases/sales
    
    Credit terms
    
    Unit price
    
    Credit terms
    
    Amount
    
    payableNT$000
    
    
    
    
    
    
    
    
    
    
    
    NT$000Siliconware Precision
Industries Co., Ltd.
    
    Phoenix Precision
Technology
Corporation
    
    Same chairman of the
board
    
    Purchase
    
    
    2,610,008
    
    
    
    19
    %
    
    Three months
    
    
    
    
    
    Accounts payable
301,496
    
    
    14
    %Siliconware Precision
Industries Co., Ltd.
    
    ChipMOS
Technologies Inc.
    
    Investee accounted
for under equity
method
    
    Sales
    
    
    101,960
    
    
    
    
    
    
    Three months
    
    
    
    
    
    Accounts receivable
4,634
    
    
  (8)
    
    Receivables from related parties exceeding the lower of NT$100,000 or 20 percent of the capital stock:  As of December 31, 2003: None.  (9)
    
    Transaction of derivative financial instruments:  For the year ended December 31, 2003: None. F-70




---



##### Table of Contents



B.
    
    Related information on investee companies  (1)
    
    Basic information on investee companies:For the year ended December 31, 2003: Original investments
    
    The Company/majority owned subsidiary ownsCurrent period
    
    Prior periodending
    
    ending
    
    Shares
    
    Percentage ofInvestor
    
    Name of Investee
    
    Location
    
    Main activities
    
    balance
    
    balance (Note 6)
    
    (in thousands )
    
    ownership
    
    Book valueNT$000
    
    NT$000
    
    NT$000
    
    
    
    NT$000Siliconware
Precision
Industries Co.,
Ltd.
    
    Siliconware
Investment
Company Ltd.
    
    Taipei
    
    Investment activities
    
    
    1,770,000
    
    
    
    1,770,000
    
    
    
    177,000
    
    
    
    100.00
    %
    
    
    957,052Siliconware
Precision
Industries Co.,
Ltd.
    
    Sigurd
Microelectronics
Corp.
    
    Chu-tung, Hsin-Chu
    
    Testing and assembly
of integrated circuits
    
    
    266,031
    
    
    
    320,519
    
    
    
    29,174
    
    
    
    27.36
    %
    
    
    520,843Siliconware
Precision
Industries Co.,
Ltd.
    
    Double Win
Enterprise Co., Ltd.
    
    Ping-chen City, Taoyuan
    
    SMT process
and hand insert
    
    
    169,000
    
    
    
    169,000
    
    
    
    8,450
    
    
    
    24.14
    %
    
    
    120,563Siliconware
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
    %
    
    
    2,748,559Siliconware
Precision
Industries Co.,
Ltd.
    
    Taiwan Hi-tech Corporation
    
    Science-based Industrial Park, Hsin-Chu
    
    Plating of IC lead
frame
    
    
    186,728
    
    
    
    186,728
    
    
    
    5,781
    
    
    
    22.33
    %
    
    
    71,253Siliconware
Precision
Industries Co.,
Ltd.
    
    SPIL (B.V.I.)
Holding Limited
    
    British Virgin Islands
    
    Investment activities
    
    
    1,436,719
    
    
    
    1,197,109
    
    
    
    41,300
    
    
    
    100.00
    %
    
    
    1,321,868Siliconware
Precision
Industries Co.,
Ltd.
    
    Universal
Communication
Technology Inc.
    
    Hsin-Chu
    
    RF IC test
    
    
    329,750
    
    
    
    329,750
    
    
    
    32,975
    
    
    
    42.82
    %
    
    
    266,888Siliconware
Investment Company
Ltd.
    
    Artest Corporation
    
    Sunnyvale, CA USA
    
    Testing and
development of
integrated circuits
    
    
    165,048
    
    
    
    165,048
    
    
    
    6,000
    
    
    
    30.09
    %
    
    
    47,569Siliconware
Investment Company
Ltd.
    
    Taiwan Hi-tech Corporation
    
    Science-based Industrial Park, Hsin-Chu
    
    Plating of IC lead
frame
    
    
    46,392
    
    
    
    46,392
    
    
    
    4,195
    
    
    
    16.20
    %
    
    
    44,742SPIL (B.V.I.)
Holding Limited
    
    Siliconware USA, Inc.
    
    San Jose, CA USA
    
    Sales agent
    
    
    68,464
    
    
    
    68,464
    
    
    
    1,250
    
    
    
    100.00
    %
    
    
    51,176SPIL (B.V.I.)
Holding Limited
    
    SPIL (Cayman) Holding Limited
    
    Cayman Islands, British West India
    
    Investment activities
    
    
    458,904
    
    
    
    219,294
    
    
    
    13,550
    
    
    
    100.00
    %
    
    
    389,030SPIL (Cayman)
Holding Limited
    
    Siliconware Technology (Suzhou) Limited
    
    Suzhou Jiangsu, China
    
    Manufacturing of
transistor and
electronic component
    
    
    457,230
    
    
    
    217,620
    
    
    
    13,500
    
    
    
    100.00
    %
    
    
    387,890
   [Continued from above table, first column(s) repeated] Current periodIncome (loss)recognizedNet income
    
    by the(loss) of
    
    CompanyInvestor
    
    Name of Investee
    
    Location
    
    Main activities
    
    investee
    
    (Note 5)
    
    NoteNT$000
    
    NT$000Siliconware
Precision
Industries Co.,
Ltd.
    
    Siliconware
Investment
Company Ltd.
    
    Taipei
    
    Investment activities
    
    
    8,708
    
    
    
    8,708
    
    
    (Note 2)Siliconware
Precision
Industries Co.,
Ltd.
    
    Sigurd
Microelectronics
Corp.
    
    Chu-tung, Hsin-Chu
    
    Testing and assembly
of integrated circuits
    
    
    417,509
    
    
    
    112,338
    
    
    (Note 1)Siliconware
Precision
Industries Co.,
Ltd.
    
    Double Win
Enterprise Co., Ltd.
    
    Ping-chen City, Taoyuan
    
    SMT process
and hand insert
    
    
    1,784
    
    
    
    373
    
    
    (Notes 1, 3)Siliconware
Precision
Industries Co.,
Ltd.
    
    ChipMOS Technologies
Inc.
    
    Science-based Industrial Park, Hsin-Chu
    
    Testing and assembly
of integrated circuits
    
    
    (1,279,779
    )
    
    
    (365,669
    )
    
    (Notes 1, 3)Siliconware
Precision
Industries Co.,
Ltd.
    
    Taiwan Hi-tech Corporation
    
    Science-based Industrial Park, Hsin-Chu
    
    Plating of IC lead frame
    
    
    8,307
    
    
    
    1,613
    
    
    (Notes 1, 3)Siliconware
Precision
Industries Co.,
Ltd.
    
    SPIL (B.V.I.)
Holding Limited
    
    British Virgin Islands
    
    Investment activities
    
    
    (51,486
    )
    
    
    (51,486
    )
    
    (Note 2)Siliconware
Precision
Industries Co.,
Ltd.
    
    Universal
Communication
Technology Inc.
    
    Hsin-Chu
    
    RF IC test
    
    
    (87,289
    )
    
    
    (46,664
    )
    
    (Notes 1, 9)Siliconware
Investment Company
Ltd.
    
    Artest Corporation
    
    Sunnyvale, CA USA
    
    Testing and
development of
integrated circuits
    
    
    
    
    
    
    
    
    
    (Note 4)Siliconware
Investment Company
Ltd.
    
    Taiwan Hi-tech Corporation
    
    Science-based Industrial Park, Hsin-Chu
    
    Plating of IC lead frame
    
    
    8,307
    
    
    
    
    
    
    (Notes 3, 4)SPIL (B.V.I.)
Holding Limited
    
    Siliconware USA, Inc.
    
    San Jose, CA USA
    
    Sales agent
    
    
    3,688
    
    
    
    
    
    
    (Note 7)SPIL (B.V.I.) Holding Limited
    
    SPIL (Cayman) Holding Limited
    
    Cayman Islands, British West India
    
    Investment activities
    
    
    (63,277
    )
    
    
    
    
    
    (Note 7)SPIL (Cayman) Holding Limited
    
    Siliconware Technology (Suzhou) Limited
    
    Suzhou Jiangsu, China
    
    Manufacturing of transistor and
electronic component
    
    
    (63,012
    )
    
    
    
    
    
    (Note 8)
  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:
    
    Original investments as of December 31, 2002.Note 7:
    
    An investee accounted for under the equity method of SPIL (B.V.I.)
Holding Limited, a majority owned subsidiary of the Company.Note 8:
    
    An investee accounted for under the equity method of SPIL (Cayman)
Holding Limited.Note 9:
    
    Recognition of investment income (loss) is based on the financial
statements of the investee for the years ended December 31, 2003 and 2002. F-71




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (2)
    
    The ending balance of securities held by investee companies:As of December 31, 2003: December 31, 2003The relationship ofType of
    
    
    
    the issuers with
    
    General ledger
    
    Number of shares
    
    
    
    
    
    Percentage of
    
    Market value perInvestor
    
    securities
    
    Name of securities
    
    the Company
    
    accounts
    
    (in thousands)
    
    Book value
    
    ownership
    
    share (in dollar)NT$000
    
    
    
    
    
    NT$Siliconware
Investment Company Ltd.
    
    Stock
    
    Siliconware Precision Industries
Co., Ltd.
    
    The Company
    
    Long-term investments
    
    
    27,016
    
    
    
    794,184
    
    
    
    1.43
    %
    
    
    33.77Siliconware
Investment Company
Ltd.
    
    Stock
    
    Others
    
    
    
    Long-term investments
    
    
    27,454
    
    
    
    359,116
    
    
    
    
    
    
    
    
    (1)SPIL (B.V.I.)
Holding Limited
    
    Stock
    
    Siliconware USA, Inc.
    
    Indirect subsidiary
of the Company
    
    Long-term investments
    
    
    1,250
    
    
    
    51,176
    
    
    
    100.00
    %
    
    
    40.94
    (2)SPIL (B.V.I.)
Holding Limited
    
    Stock
    
    SPIL (Cayman) Holding Limited
    
    Indirect subsidiary of the Company
    
    Long-term investments
    
    
    13,550
    
    
    
    389,030
    
    
    
    100.00
    %
    
    
    28.71
    (2)SPIL (Cayman)
Holding Limited
    
    Stock
    
    Siliconware Technology (Suzhou)
Limited
    
    Indirect subsidiary
of the Company
    
    Long-term investments
    
    
    13,500
    
    
    
    387,890
    
    
    
    100.00
    %
    
    
    28.73
    (2)
  (1)
    
    Combined amount for individual security less than NT$100,000.(2)
    
    The market value is not available, therefore, the net equity per share
as of December 31, 2003 was used.  (3)
    
    Securities for which total buying or selling amounts exceed the
lower of NT$100,000 or 20 percent of the capital stock:

For the year ended December 31, 2003: Beginning balance
    
    AdditionThe relationship
    
    Number of
    
    
    
    
    
    Number ofGeneral
    
    Name of the
    
    of the issuers
    
    shares (in
    
    
    
    
    
    shares (inInvestor
    
    Name of the security
    
    ledger accounts
    
    counter party
    
    with the Company
    
    thousands)
    
    Amount
    
    thousands)
    
    AmountNT$000
    
    
    
    
    
    NT$000Siliconware
Investment Company
Ltd.
    
    Phoenix Precision Technology Corporation bond
    
    Long-term Investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,650
(Note 1)
    
    
    165,000Siliconware
Investment Company
Ltd.
    
    Unimicron
Technology Corp.
    
    Long-term Investment
    
    
    
    
    
    
    11,457
    
    
    
    164,123
    
    
    
    
    
    
    
    SPIL (B.V.I)
Holding Limited
    
    SPIL (Cayman) Holding Limited
    
    Long-term Investment
    
    Note 2
    
    
    
    
    6,550
    
    
    
    218,956
    
    
    
    7,000
    
    
    
    239,610SPIL (Cayman) Holding Limited
    
    Siliconware Technology (Suzhou) Limited
    
    Long-term Investment
    
    Note 2
    
    
    
    
    6,500
    
    
    
    216,350
    
    
    
    7,000
    
    
    
    239,610
   [Continued from above table, first column(s) repeated] Disposal
    
    Ending balanceNumber of
    
    
    
    
    
    
    
    
    
    Gain (loss)
    
    Number ofGeneral
    
    shares
    
    Sale
    
    Book
    
    from
    
    shares (inInvestor
    
    Name of the security
    
    ledger accounts
    
    (in thousands)
    
    price
    
    value
    
    disposal
    
    thousands)
    
    AmountNT$000
    
    NT$000
    
    NT$000
    
    
    
    
    
    NT$000Siliconware
Investment Company
Ltd.
    
    Phoenix Precision Technology Corporation bond
    
    Long-term Investment
    
    1,650(Note 1
    )
    
    
    271,762
    
    
    
    165,000
    
    
    
    106,762
    
    
    
    
    
    
    
    Siliconware
Investment Company
Ltd.
    
    Unimicrom
Technology Corp.
    
    Long-term Investment
    
    
    11,823
    
    
    
    277,799
    
    
    
    164,123
    
    
    
    113,676
    
    
    
    
    
    
    
    SPIL (B.V.I)
Holding Limited
    
    SPIL (Cayman) Holding Limited
    
    Long-term Investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,550
    
    
    
    389,030SPIL (Cayman) Holding Limited
    
    Siliconware Technology (Suzhou) Limited
    
    Long-term Investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,500
    
    
    
    387,890
  Note 1:
    
    Denomination in one unit.Note 2:
    
    Original investment. F-72




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##### Table of Contents



SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  C.
    
    Information of investment in Mainland China:As of December 31, 2003:  (1)
    
    Information of investment in Mainland China: Accumulatedremittance as of
    
    Remitted
    
    AccumulatedName of investee in
    
    
    
    
    
    Investment
    
    December
    
    or (collected)
    
    remittance as ofMainland China
    
    Main activities of investee
    
    Capital
    
    method
    
    31, 2002
    
    this period
    
    December 31, 2003NT$000
    
    
    
    NT$000
    
    NT$000
    
    NT$000Siliconware Technology (Suzhou) Limited
    
    Manufacturing of transistor and
electronic component
    
    459,270
(Note 2)
    
    (Note 1)
    
    
    
    459,270
(Note 2)
    
    459,270
(Note 2)
   [Continued from above table, first column(s) repeated] Ownership held by
    
    Investment income
    
    
    
    The investmentthe Company
    
    (loss) recognized
    
    
    
    income (loss)Name of investee in
    
    
    
    (Direct and
    
    by the Company
    
    Ending balance
    
    remitted back asMainland China
    
    Main activities of investee
    
    indirect)
    
    during the period
    
    of investment
    
    of December 31, 2003NT$000
    
    NT$000Siliconware Technology (Suzhou) Limited
    
    Manufacturing of transistor and
electronic component
    
    
    100.00
    %
    
    
    (63,012
    )
    
    387,890
(Note 2)
    
    
 The investment balance approved
    
    The ceiling of investment in Mainland ChinaAccumulated remittance from
    
    by Investment Commissions,
    
    according to Investment Commissions,Taiwan to Mainland China
    
    Ministry of Economic Affairs
    
    Ministry of Economic AffairsNT$000
    
    NT$000
    
    NT$000459,270
    
    
    680,400
    
    
    
    7,439,642
  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.  (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 ACCOUNTANTS10 Floor, 101 Nanjing E. Rd.
Sec. 2, Taipei 104, Taiwan
 
Tel: 886 2 25629889
Fax: 886 2 25815955
E-Mail: tpe@moorestephens.com.tw
 The Board of Directors and Shareholders
ChipMOS TECHNOLOGIES INC. We have audited the accompanying balance sheets of ChipMOS TECHNOLOGIES INC. as
of December 31, 2002 and 2003, and the related statements of operations,
changes in shareholders equity, and cash flows for each of the three years in
the period ended December 31, 2003, all expressed in New Taiwan dollars. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with auditing standards generally
accepted in the Republic of China and the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion. In our opinion, the financial statements referred above present fairly, in all
material respects, the financial position of ChipMOS TECHNOLOGIES INC. as of
December 31, 2002 and 2003, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2003, 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, 2003, and the determination of shareholders
equity and financial position as of December 31, 2002 and 2003, to the extent
summarized in Note 23. Moore Stephens Signature Moore Stephens
February 25, 2004
Taipei, Taiwan
Republic of China F-74




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##### Table of Contents



ChipMOS TECHNOLOGIES INC. 
 BALANCE SHEETS
December 31, 2002 and 2003
(In Thousands of New Taiwan and U.S. Dollars, Except Par Value) December 31ASSETS
    
    2002
    
    2003NT$
    
    NT$
    
    US$(Note 3)CURRENT ASSETSCash
    
    
    1,963,381
    
    
    
    1,155,662
    
    
    
    34,020Restricted cash and cash equivalents (Note 18)
    
    
    76,868
    
    
    
    282,378
    
    
    
    8,313Short-term investments  net (Notes 2 and 4)
    
    
    874,932
    
    
    
    437,446
    
    
    
    12,877Notes receivable
    
    
    30,474
    
    
    
    7,522
    
    
    
    221Accounts receivable  net of allowance for doubtful receivables of
NT$17,397 in 2002 and NT$43,180 in 2003 (Notes 2 and 5)
    
    
    562,424
    
    
    
    961,884
    
    
    
    28,316Receivables from related parties (Notes 2,5,7 and 17):Notes and accounts  net of allowance for doubtful receivables of
NT$14,949 in 2002 and NT$12,823 in 2003
    
    
    1,104,475
    
    
    
    1,307,321
    
    
    
    38,485Others receivable-net of allowance for doubtful receivables of
NT$39,606 in 2003
    
    
    169,859
    
    
    
    679,853
    
    
    
    20,013Other receivable  net of allowance for doubtful receivables of
NT$12,510 in 2002 and NT$1,679 in 2003 (Notes 2 and 5)
    
    
    82,614
    
    
    
    1,082,700
    
    
    
    31,872Other financial assets
    
    
    
    
    
    
    339,700
    
    
    
    10,000Inventories  net (Notes 2 and 6)
    
    
    165,378
    
    
    
    310,483
    
    
    
    9,140Deferred income tax  net (Notes 2 and 16)
    
    
    38,467
    
    
    
    184,946
    
    
    
    5,444Prepaid expenses and other current assets
    
    
    232,288
    
    
    
    365,509
    
    
    
    10,760Total Current Assets
    
    
    5,301,160
    
    
    
    7,115,404
    
    
    
    209,461LONG-TERM INVESTMENTS (Notes 2 and 7)
    
    
    1,441,866
    
    
    
    1,288,350
    
    
    
    37,926PROPERTY, PLANT AND EQUIPMENT (Notes 2, 8,12 and 13)CostBuildings and auxiliary equipment
    
    
    2,655,633
    
    
    
    2,749,442
    
    
    
    80,937Machinery and equipment
    
    
    13,934,925
    
    
    
    14,529,479
    
    
    
    427,715Furniture and fixtures
    
    
    233,059
    
    
    
    241,949
    
    
    
    7,122Transportation equipment
    
    
    10,613
    
    
    
    12,404
    
    
    
    365Tools
    
    
    833,075
    
    
    
    930,834
    
    
    
    27,402Leasehold improvements
    
    
    1,238
    
    
    
    1,238
    
    
    
    37Total cost
    
    
    17,668,543
    
    
    
    18,465,346
    
    
    
    543,578Accumulated depreciation
    
    
    (8,911,261
    )
    
    
    (10,282,138
    )
    
    
    (302,683
    )Construction in progress and advance payment
    
    
    933,011
    
    
    
    746,492
    
    
    
    21,975Net Property, Plant and Equipment
    
    
    9,690,293
    
    
    
    8,929,700
    
    
    
    262,870INTANGIBLE ASSETS  NET (Notes 2 and 9)
    
    
    50,348
    
    
    
    45,038
    
    
    
    1,326OTHER ASSETSRestricted cash and cash equivalents (note 18)
    
    
    601,744
    
    
    
    
    
    
    
    Employee dormitory building  net of accumulated depreciation
of NT$32,367 in 2002 and NT$41,484 in 2003 (Note 2)
    
    
    129,978
    
    
    
    120,861
    
    
    
    3,558Refundable deposits
    
    
    13,839
    
    
    
    12,674
    
    
    
    373Total Other Assets
    
    
    745,561
    
    
    
    133,535
    
    
    
    3,931TOTAL ASSETS
    
    
    17,229,228
    
    
    
    17,512,027
    
    
    
    515,514
 (Forward) F-75




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##### Table of Contents



ChipMOS TECHNOLOGIES INC. BALANCE SHEETS
December 31, 2002 and 2003
(In Thousands of New Taiwan and U.S. Dollars, Except Par Value) December 31LIABILITIES AND SHAREHOLDERS' EQUITY
    
    2002
    
    2003NT$
    
    NT$
    
    US$(Note 3)CURRENT LIABILITIESBank loans (Note 10)
    
    
    2,032,631
    
    
    
    1,314,045
    
    
    
    38,682Commercial papers (Note 11)
    
    
    159,427
    
    
    
    
    
    
    
    Accounts payable
    
    
    145,352
    
    
    
    312,045
    
    
    
    9,186Payables to related parties (Note 17):Accounts payable
    
    
    
    
    
    
    17,586
    
    
    
    518Others
    
    
    3,659
    
    
    
    19,757
    
    
    
    582Payables to contractors and equipment suppliers(Note 17)
    
    
    158,750
    
    
    
    166,910
    
    
    
    4,913Accrued expenses and other current liabilities
    
    
    373,480
    
    
    
    560,956
    
    
    
    16,513Current portion of long-term loans (Note 13)
    
    
    352,160
    
    
    
    650,090
    
    
    
    19,137Total Current Liabilities
    
    
    3,225,459
    
    
    
    3,041,389
    
    
    
    89,531LONG-TERM LIABILITIESLong-term bonds payable (Note 12)
    
    
    1,200,000
    
    
    
    1,200,000
    
    
    
    35,325Long-term loans (Note 13)
    
    
    2,811,435
    
    
    
    2,161,372
    
    
    
    63,626Total Long-Term Liabilities
    
    
    4,011,435
    
    
    
    3,361,372
    
    
    
    98,951OTHER LIABILITIESDeferred income tax  net (Notes 2 and 16)
    
    
    231,779
    
    
    
    368,035
    
    
    
    10,834Accrued pension cost (Notes 2 and 14)
    
    
    26,194
    
    
    
    42,866
    
    
    
    1,262Deferred credits
    
    
    
    
    
    
    91,785
    
    
    
    2,702Guarantee deposits
    
    
    461
    
    
    
    593
    
    
    
    17Total Other Liabilities
    
    
    258,434
    
    
    
    503,279
    
    
    
    14,815Total Liabilities
    
    
    7,495,328
    
    
    
    6,906,040
    
    
    
    203,297COMMITMENTS AND CONTINGENCIES (Note 19)SUBSEQUENT EVENTS (Note 20)SHAREHOLDERS EQUITY (Notes 2 and 15)Capital stock  NT$10 par valueAuthorized - 970,000 thousand sharesIssued - 887,227 thousand shares in 2002 and 2003
    
    
    8,872,272
    
    
    
    8,872,272
    
    
    
    261,180Capital surplus
    
    
    2,085,814
    
    
    
    2,097,822
    
    
    
    61,755Retained earnings:Appropriated as legal reserve
    
    
    424,007
    
    
    
    424,007
    
    
    
    12,482Unappropriated earnings (accumulated deficits)
    
    
    (1,648,057
    )
    
    
    (788,093
    )
    
    
    (23,200
    )Cumulative translation adjustments
    
    
    (734
    )
    
    
    (619
    )
    
    
    (18
    )Treasury stock (Note 7)
    
    
    598
    
    
    
    598
    
    
    
    18Total Shareholders Equity
    
    
    9,733,900
    
    
    
    10,605,987
    
    
    
    312,217TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    17,229,228
    
    
    
    17,512,027
    
    
    
    515,514
 The accompanying notes are an integral part of the financial statements. F-76




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##### Table of Contents



ChipMOS TECHNOLOGIES INC. 
 STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2001, 2002 and 2003
(In Thousands of New Taiwan and U.S. Dollars, Except Earnings (loss) Per Share) Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(Note 3)NET REVENUES (Notes 2 and 17)Related parties
    
    
    3,719,006
    
    
    
    3,665,384
    
    
    
    4,693,771
    
    
    
    138,174Third parties
    
    
    1,526,089
    
    
    
    2,860,481
    
    
    
    3,774,894
    
    
    
    111,124Total Net Revenue
    
    
    5,245,095
    
    
    
    6,525,865
    
    
    
    8,468,665
    
    
    
    249,298COST OF REVENUES (Note 17)Related parties
    
    
    3,760,067
    
    
    
    3,004,306
    
    
    
    3,405,646
    
    
    
    100,254Third parties
    
    
    2,269,242
    
    
    
    3,707,400
    
    
    
    3,505,392
    
    
    
    103,191Total Cost of Revenues
    
    
    6,029,309
    
    
    
    6,711,706
    
    
    
    6,911,038
    
    
    
    203,445GROSS PROFIT (LOSS)
    
    
    (784,214
    )
    
    
    (185,841
    )
    
    
    1,557,627
    
    
    
    45,853OPERATING EXPENSES (Note 17)Research and development
    
    
    408,905
    
    
    
    326,753
    
    
    
    295,033
    
    
    
    8,685General and administrative
    
    
    186,211
    
    
    
    180,396
    
    
    
    219,101
    
    
    
    6,450Marketing
    
    
    68,018
    
    
    
    66,898
    
    
    
    127,990
    
    
    
    3,768Total Operating Expenses
    
    
    663,134
    
    
    
    574,047
    
    
    
    642,124
    
    
    
    18,903INCOME (LOSS) FROM OPERATIONS
    
    
    (1,447,348
    )
    
    
    (759,888
    )
    
    
    915,503
    
    
    
    26,950NON-OPERATING INCOMEGain on sales of investments (Note 2)
    
    
    232,701
    
    
    
    50,370
    
    
    
    91,017
    
    
    
    2,679Rental (Note 17)
    
    
    93,491
    
    
    
    35,473
    
    
    
    24,960
    
    
    
    735Interest
    
    
    65,276
    
    
    
    36,864
    
    
    
    50,844
    
    
    
    1,497Foreign exchange gain  net (Note 2)
    
    
    55,626
    
    
    
    
    
    
    
    
    
    
    
    Reversal of allowance for doubtful receivables
(Note 5)
    
    
    38,835
    
    
    
    
    
    
    
    
    
    
    
    Subsidy income
    
    
    26,161
    
    
    
    8,982
    
    
    
    12,057
    
    
    
    355Investments income recognized by equity
method  net (Notes 2 and 7)
    
    
    
    
    
    
    
    
    
    
    22,364
    
    
    
    658Gain on disposal of property, plant and equipment
(Note 2)
    
    
    240
    
    
    
    37,698
    
    
    
    100,101
    
    
    
    2,947Other
    
    
    13,387
    
    
    
    9,964
    
    
    
    36,042
    
    
    
    1,061Total Non-Operating Income
    
    
    525,717
    
    
    
    179,351
    
    
    
    337,385
    
    
    
    9,932NON-OPERATING EXPENSESInterest
    
    
    299,136
    
    
    
    241,096
    
    
    
    237,357
    
    
    
    6,987Allowance for loss on short-term investments (Note 4)
    
    
    
    
    
    
    168,604
    
    
    
    24,902
    
    
    
    733Loss on lease rescission  net
    
    
    116,622
    
    
    
    
    
    
    
    
    
    
    
    
 (Forward) F-77




---



##### Table of Contents



Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(Note 3)Investments loss recognized by equity
method  net (Notes 2 and 7)
    
    
    73,341
    
    
    
    93,199
    
    
    
    
    
    
    
    Financing cost
    
    
    14,768
    
    
    
    17,108
    
    
    
    14,623
    
    
    
    431Loss on disposal of property, plant and equipment
(Note 2)
    
    
    1,079
    
    
    
    640
    
    
    
    16,283
    
    
    
    479Foreign exchange loss  net (Note 2)
    
    
    
    
    
    
    60,846
    
    
    
    93,940
    
    
    
    2,765Other
    
    
    50,147
    
    
    
    12,887
    
    
    
    10,776
    
    
    
    317Total Non-Operating Expenses
    
    
    555,093
    
    
    
    594,380
    
    
    
    397,881
    
    
    
    11,712INCOME (LOSS) BEFORE INCOME TAX
    
    
    (1,476,724
    )
    
    
    (1,174,917
    )
    
    
    855,007
    
    
    
    25,170INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 16)
    
    
    (32,340
    )
    
    
    (97,862
    )
    
    
    5,550
    
    
    
    163NET INCOME (LOSS)
    
    
    (1,509,064
    )
    
    
    (1,272,779
    )
    
    
    860,557
    
    
    
    25,333EARNINGS (LOSS) PER SHAREBased on weighted-average number of shares
outstanding of 887,227 thousand shares in 2001, 2002
and 2003
    
    
    1.70
    
    
    
    (1.43
    )
    
    
    0.97
    
    
    
    0.03Based on weighted-average number of shares
outstanding  retroactively adjusted
    
    
    1.70
    
    
    
    (1.43
    )
 The accompanying notes are an integral part of the financial statements. F-78




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##### Table of Contents



ChipMOS TECHNOLOGIES INC. 
 STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
For the Years Ended December 31, 2001, 2002 and 2003
(In Thousands of New Taiwan and U.S. Dollars, Except Number of Shares) CAPITAL SURPLUS (Notes 2 and 15)CAPITAL STOCK ISSUEDAdditional
    
    Gain onShares
    
    
    
    
    
    Paid-in
    
    Disposal of
    
    Long-term(Thousand)
    
    Amount
    
    Capital
    
    Properties
    
    Investments
    
    TotalNT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$BALANCE, JANUARY 1, 2001
    
    
    830,486
    
    
    
    8,304,863
    
    
    
    2,500,000
    
    
    
    6,132
    
    
    
    
    
    
    
    2,506,132Appropriation of 2000 earnings:Legal reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Remuneration to directors and supervisors
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bonus to employeesCash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    
    6,912
    
    
    
    69,117
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock
dividends - 1% appropriated by earnings
    
    
    8,305
    
    
    
    83,049
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5% appropriated by capital surplus
    
    
    41,524
    
    
    
    415,243
    
    
    
    (415,243
    )
    
    
    
    
    
    
    
    
    
    
    (415,243
    )Net loss in 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reversal of the unrealized loss on long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BALANCE, DECEMBER 31, 2001
    
    
    887,227
    
    
    
    8,872,272
    
    
    
    2,084,757
    
    
    
    6,132
    
    
    
    
    
    
    
    2,090,889Net loss in 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjustment of equity method for long-term investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,057
    
    
    
    1,057Reversal of gain on disposal of property, plant and
equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,132
    )
    
    
    
    
    
    
    (6,132
    )Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BALANCE, DECEMBER 31, 2002
    
    
    887,227
    
    
    
    8,872,272
    
    
    
    2,084,757
    
    
    
    
    
    
    
    1,057
    
    
    
    2,085,814Net income in 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjustment of equity method for long-term investment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,008
    
    
    
    12,008Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BALANCE, DECEMBER 31, 2003
    
    
    887,227
    
    
    
    8,872,272
    
    
    
    2,084,757
    
    
    
    
    
    
    
    13,065
    
    
    
    2,097,822
   [Continued from above table, first column(s) repeated] RETAINED EARNINGS (Notes 2 and 15)
    
    UNREALIZEDUnappropriated
    
    
    
    
    
    LOSS ON
    
    CUMULATIVEEarnings
    
    
    
    
    
    LONG-TERM
    
    TRANSLATION
    
    
    
    
    
    TOTALLegal
    
    (Accumulated
    
    
    
    
    
    INVESTMENT
    
    ADJUSTMENT
    
    TREASURY
    
    SHAREHOLDERSReserve
    
    Deficits)
    
    Total
    
    (Note 2)
    
    (Note 2)
    
    STOCK
    
    EQUITYNT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$BALANCE, JANUARY 1, 2001
    
    
    270,413
    
    
    
    1,537,388
    
    
    
    1,807,801
    
    
    
    (55,382
    )
    
    
    (296
    )
    
    
    
    
    
    
    12,563,118Appropriation of 2000 earnings:Legal reserve
    
    
    153,594
    
    
    
    (153,594
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Remuneration to directors and supervisors
    
    
    
    
    
    
    (27,647
    )
    
    
    (27,647
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,647
    )Bonus to employeesCash
    
    
    
    
    
    
    (69,117
    )
    
    
    (69,117
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,117
    )Stock
    
    
    
    
    
    
    (69,117
    )
    
    
    (69,117
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock
dividends - 1% appropriated by earnings
    
    
    
    
    
    
    (83,049
    )
    
    
    (83,049
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5% appropriated by capital surplus
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss in 2001
    
    
    
    
    
    
    (1,509,064
    )
    
    
    (1,509,064
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,509,064
    )Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (391
    )
    
    
    
    
    
    
    (391
    )Reversal of the unrealized loss on long-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,382
    
    
    
    
    
    
    
    
    
    
    
    55,382BALANCE, DECEMBER 31, 2001
    
    
    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
    
    
    
    
    
    
    (7,210
    )
    
    
    (7,210
    )
    
    
    
    
    
    
    
    
    
    
    598
    
    
    
    (5,555
    )Reversal of gain on disposal of property, plant and
equipment
    
    
    
    
    
    
    6,132
    
    
    
    6,132
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    (47
    )BALANCE, DECEMBER 31, 2002
    
    
    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
    
    
    
    
    
    
    (593
    )
    
    
    (593
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,415Translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    
    
    
    
    115BALANCE, DECEMBER 31, 2003
    
    
    424,007
    
    
    
    (788,093
    )
    
    
    (364,086
    )
    
    
    
    
    
    
    (619
    )
    
    
    598
    
    
    
    10,605,987
 The accompanying notes are an integral part of the financial statements. F-79




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##### Table of Contents



ChipMOS TECHNOLOGIES INC. 
 STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2002 and 2003
(In Thousands of New Taiwan and U.S. Dollars) Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(Note 3)CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    
    (1,509,064
    )
    
    
    (1,272,779
    )
    
    
    860,557
    
    
    
    25,333Adjustment
to reconcile net income (loss) to net cash provided by operating activities:Depreciation
    
    
    2,624,043
    
    
    
    2,688,374
    
    
    
    2,614,137
    
    
    
    76,954Amortization
    
    
    189,792
    
    
    
    129,901
    
    
    
    52,287
    
    
    
    1,539Investment loss (gain) recognized by equity method  net
    
    
    73,341
    
    
    
    93,199
    
    
    
    (22,364
    )
    
    
    (658
    )Allowance for loss on short-term investments
    
    
    
    
    
    
    168,604
    
    
    
    24,902
    
    
    
    733Loss (gain) on disposal of property, plant
and equipment  net
    
    
    839
    
    
    
    (37,058
    )
    
    
    (100,009
    )
    
    
    (2,944
    )Deferred income tax  net
    
    
    (5,240
    )
    
    
    78,682
    
    
    
    (10,223
    )
    
    
    (301
    )Accrued pension cost
    
    
    2,550
    
    
    
    6,988
    
    
    
    16,672
    
    
    
    491Deferred credits
    
    
    
    
    
    
    
    
    
    
    91,785
    
    
    
    2,702Changes in operating assets and liabilities:Notes receivable
    
    
    (14,344
    )
    
    
    (932
    )
    
    
    22,952
    
    
    
    676Accounts receivable
    
    
    851,102
    
    
    
    (311,715
    )
    
    
    (399,460
    )
    
    
    (11,759
    )Receivables from related partiesNotes and accounts
    
    
    (330,059
    )
    
    
    96,806
    
    
    
    (202,846
    )
    
    
    (5,971
    )Other
    
    
    (42,130
    )
    
    
    (61,630
    )
    
    
    (507,658
    )
    
    
    (14,944
    )Other receivables
    
    
    7,524
    
    
    
    (72,033
    )
    
    
    (1,000,086
    )
    
    
    (29,440
    )Inventories
    
    
    152,944
    
    
    
    6,876
    
    
    
    (145,105
    )
    
    
    (4,272
    )Prepaid expenses and other current assets
    
    
    38,443
    
    
    
    (214,406
    )
    
    
    206,779
    
    
    
    6,087Accounts payable
    
    
    (96,503
    )
    
    
    25,267
    
    
    
    166,693
    
    
    
    4,907Payables to related partiesTrade
    
    
    (11,526
    )
    
    
    
    
    
    
    17,586
    
    
    
    518Other
    
    
    (449
    )
    
    
    1,098
    
    
    
    16,098
    
    
    
    474Other financial assets
    
    
    
    
    
    
    
    
    
    
    (339,700
    )
    
    
    (10,000
    )Income tax payable
    
    
    (25,831
    )
    
    
    (35,731
    )
    
    
    
    
    
    
    Accrued expenses and other current liabilities
    
    
    (199,601
    )
    
    
    119,438
    
    
    
    187,476
    
    
    
    5,517Net Cash Provided by Operating Activities
    
    
    1,705,831
    
    
    
    1,408,949
    
    
    
    1,550,473
    
    
    
    45,642CASH FLOWS FROM INVESTING ACTIVITIESDecrease (increase) in restricted cash and cash equivalents
    
    
    (801,587
    )
    
    
    157,013
    
    
    
    396,234
    
    
    
    11,664Decrease (increase) in short-term investments
    
    
    1,078,262
    
    
    
    (73,600
    )
    
    
    630,683
    
    
    
    18,566Proceeds from sales of:Property, plant and equipment
    
    
    2,981
    
    
    
    218,757
    
    
    
    424,644
    
    
    
    12,501Acquisitions of:Long-term investments
    
    
    (10,698
    )
    
    
    (1,271,038
    )
    
    
    (33,024
    )
    
    
    (972
    )Property, plant and equipment
    
    
    (1,662,568
    )
    
    
    (1,963,825
    )
    
    
    (2,161,675
    )
    
    
    (63,635
    )Intangible assets
    
    
    (22,282
    )
    
    
    (26,387
    )
    
    
    (46,205
    )
    
    
    (1,360
    )Employee dormitory building
    
    
    (14,870
    )
    
    
    (310
    )
    
    
    
    
    
    
    Decrease (increase) in refundable deposits
    
    
    30,813
    
    
    
    (43
    )
    
    
    (338,835
    )
    
    
    (9,975
    )Net Cash Used in Investing Activities
    
    
    (1,399,949
    )
    
    
    (2,959,433
    )
    
    
    (1,128,178
    )
    
    
    (33,211
    )
 (Forward) F-80




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##### Table of Contents



Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(Note 3)CASH FLOWS FROM FINANCING ACTIVITIESPayments of:Bank loans
    
    
    
    
    
    
    
    
    
    
    (718,586
    )
    
    
    (21,154
    )Commercial papers
    
    
    
    
    
    
    
    
    
    
    (159,427
    )
    
    
    (4,693
    )Long-term loans
    
    
    (1,052,339
    )
    
    
    
    
    
    
    (352,133
    )
    
    
    (10,366
    )Proceeds from:Bank loans
    
    
    833,144
    
    
    
    965,869
    
    
    
    
    
    
    
    Commercial papers
    
    
    
    
    
    
    159,427
    
    
    
    
    
    
    
    Long-term loans
    
    
    
    
    
    
    1,214,184
    
    
    
    
    
    
    
    Increase (decrease) in guarantee deposits
    
    
    (655
    )
    
    
    132
    
    
    
    132
    
    
    
    4Remuneration paid to directors and supervisors
    
    
    (27,647
    )
    
    
    
    
    
    
    
    
    
    
    Bonus paid to employees
    
    
    (69,117
    )
    
    
    
    
    
    
    
    
    
    
    Net Cash Provided by (Used in) Financing Activities
    
    
    (316,614
    )
    
    
    2,339,612
    
    
    
    (1,230,014
    )
    
    
    (36,209
    )NET INCREASE (DECREASE) IN CASH
    
    
    (10,732
    )
    
    
    789,128
    
    
    
    (807,719
    )
    
    
    (23,778
    )CASH, BEGINNING OF THE YEAR
    
    
    1,184,985
    
    
    
    1,174,253
    
    
    
    1,963,381
    
    
    
    57,798CASH, END OF THE YEAR
    
    
    1,174,253
    
    
    
    1,963,381
    
    
    
    1,155,662
    
    
    
    34,020SUPPLEMENTAL INFORMATIONIncome tax paid
    
    
    63,411
    
    
    
    56,766
    
    
    
    469
    
    
    
    14Interest paid (excluding the amounts of NT$30,549
capitalized in 2003)
    
    
    367,495
    
    
    
    243,652
    
    
    
    237,567
    
    
    
    6,993NONCASH INVESTING AND FINANCING ACTIVITIESCurrent portion of long-term loans
    
    
    1,180,000
    
    
    
    352,160
    
    
    
    650,090
    
    
    
    19,137Credit balances of long-term investments presented as
part of other receivables from related parties
    
    
    11,504
    
    
    
    9,749
    
    
    
    7,413
    
    
    
    218Reclassification of long-term investment into short-term
investment
    
    
    
    
    
    
    
    
    
    
    218,099
    
    
    
    6,420PARTIAL CASH PAID FOR INVESTING ACTIVITIESCash paid for acquisition of property, plant and equipment:Total acquisitions
    
    
    982,932
    
    
    
    1,763,818
    
    
    
    2,169,835
    
    
    
    63,875Decrease (increase) in payables to contractors and
equipment suppliers
    
    
    679,636
    
    
    
    200,007
    
    
    
    (8,160
    )
    
    
    (240
    )1,662,568
    
    
    
    1,963,825
    
    
    
    2,161,675
    
    
    
    63,635
 The accompanying notes are an integral part of the financial statements. F-81




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##### Table of Contents



ChipMOS TECHNOLOGIES INC. 
 NOTES TO FINANCIAL STATEMENTS  1.
    
    GENERALThe Company 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. The
Company also provides semiconductor testing and assembly services on a
turnkey basis, in which the Company 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 the Company 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 the Company, thus,
became the holders of the entire outstanding common shares of ChipMOS
Bermuda. As of December 31, 2003, ChipMOS Bermuda owned 70.34% of the
outstanding common shares of the Company.2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of presentationThe accompanying 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s 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. F-82




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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. 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.Investments in shares of stockInvestments 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. F-83




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##### Table of Contents



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
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 less decline 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 5 years;
buildings and auxiliary equipment, 1 to 54 years; furniture and
fixtures, 1 to 5 years; tooling, 1 to 2 years; transportation
equipment, 5 years; and leasehold improvements, 1 to 2 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. F-84




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##### Table of Contents



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 carryforwards 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 noncurrent 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.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 F-85




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##### Table of Contents



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 2001 and 2002 have been reclassified to conform to 2003
classifications.3.
    
    TRANSLATION INTO U.S. DOLLAR AMOUNTSThe Company maintains its accounts and expresses its financial statements in
New Taiwan dollars. For convenience purposes, U.S. dollar amounts presented
in the accompanying 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, 2003, which was NT$33.97 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-86




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##### Table of Contents



4.
    
    SHORT-TERM INVESTMENTS December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Stocks
    
    
    242,416
    
    
    
    478,810
    
    
    
    14,095Open-ended funds
    
    
    801,120
    
    
    
    118,172
    
    
    
    3,479Corporate bonds
    
    
    
    
    
    
    33,970
    
    
    
    1,000Allowance for loss
on short-term
investments
    
    
    (168,604
    )
    
    
    (193,506
    )
    
    
    (5,697
    )874,932
    
    
    
    437,446
    
    
    
    12,877Market value
    
    
    874,932
    
    
    
    437,446
    
    
    
    12,877
  The market value of open-ended funds is based on the market price at
year-end. The investment in corporate bonds is Kolin Euro Convertible bonds
with a par value of USD 1,000 thousand (NT$ 33,750 thousand).In 2002 and 2003, the Company acquired shares of common stock of MVI
and ProMOS Technologies Inc. (ProMOS) with the 2003 year-end balances
amounted to NT$242,416 thousand and NT$105,015 thousand respectively.The provision of allowance for market price decline on the stocks at
the year-end was NT$168,604 thousand in 2002 and NT$193,506 thousand in
2003.5.
    
    ALLOWANCE FOR DOUBTFUL RECEIVABLESThe changes in the allowances are summarized as follows: Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Balance, beginning of year
    
    
    71,000
    
    
    
    30,000
    
    
    
    44,856
    
    
    
    1,320Additions
    
    
    
    
    
    
    25,821
    
    
    
    52,432
    
    
    
    1,544Reversal
    
    
    (38,835
    )
    
    
    
    
    
    
    
    
    
    
    Write offs
    
    
    (2,165
    )
    
    
    (10,965
    )
    
    
    
    
    
    
    Balance, end of year
    
    
    30,000
    
    
    
    44,856
    
    
    
    97,288
    
    
    
    2,864
 F-87




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##### Table of Contents



6.
    
    INVENTORIES  NET December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Finished goods
    
    
    45,452
    
    
    
    5,829
    
    
    
    171Work in process
    
    
    73,076
    
    
    
    141,300
    
    
    
    4,160Raw materials
    
    
    133,458
    
    
    
    204,900
    
    
    
    6,032251,986
    
    
    
    352,029
    
    
    
    10,363Less  allowance for losses
    
    
    (86,608
    )
    
    
    (41,546
    )
    
    
    (1,223
    )165,378
    
    
    
    310,483
    
    
    
    9,140
  The changes in the inventory valuation allowance are summarized as
follows: Year Ended December 31, 2003NT$
    
    US$(In Thousands)Balance, beginning of year
    
    
    86,608
    
    
    
    2,550Reversal
    
    
    (45,062
    )
    
    
    (1,327
    )Balance, end of year
    
    
    41,546
    
    
    
    1,223
  7.
    
    LONG-TERM INVESTMENTS December 312002
    
    2003Carrying
    
    % of
    
    Carrying
    
    % ofValue
    
    Ownership
    
    Value
    
    OwnershipNT$
    
    
    
    
    
    NT$
    
    US$(In Thousands)Equity method:ChipMOS Japan Inc. (ChipMOS Japan)
    
    
    (914
    )
    
    
    100
    
    
    
    (530
    )
    
    
    (15
    )
    
    
    100ChipMOS USA Inc. (ChipMOS USA)
    
    
    (8,835
    )
    
    
    100
    
    
    
    (6,883
    )
    
    
    (203
    )
    
    
    100PlusMOS Inc. (PlusMOS)
    
    
    51,564
    
    
    
    25
    
    
    
    83,358
    
    
    
    2,454
    
    
    
    25Chantek Electronic Co., Ltd. (Chantek)
    
    
    117,314
    
    
    
    34
    
    
    
    80,696
    
    
    
    2,375
    
    
    
    34ThaiLin Semiconductor Corp. (ThaiLin)
    
    
    666,039
    
    
    
    42
    
    
    
    707,174
    
    
    
    20,818
    
    
    
    36Advanced Micro Chip Technology
    
    
    
    
    
    
    
    
    
    
    28,272
    
    
    
    832
    
    
    
    31Co., Ltd. (AMCT)Cost method:Ultima Electronics Corp. (Ultima), listed stock with market
value of NT$331,016 thousand in 2002
    
    
    218,099
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    Best Home Corp. Ltd. (Best Home)
    
    
    89,850
    
    
    
    19
    
    
    
    89,850
    
    
    
    2,645
    
    
    
    19Sun Fund Securities Ltd. (Sun Fund)
    
    
    299,000
    
    
    
    17
    
    
    
    299,000
    
    
    
    8,802
    
    
    
    171,432,117
    
    
    
    
    
    
    
    1,280,937
    
    
    
    37,708
 (Forward) F-88




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##### Table of Contents



December 312002
    
    2003Carrying
    
    % of
    
    Carrying
    
    % ofValue
    
    Ownership
    
    Value
    
    OwnershipNT$
    
    
    
    
    
    NT$
    
    US$(In Thousands)Credit balances of long-term investments (presented as part of
other receivables from related parties) (Note 17)
    
    
    9,749
    
    
    
    
    
    
    
    7,413
    
    
    
    2181,441,866
    
    
    
    
    
    
    
    1,288,350
    
    
    
    37,926
  The equity in net income or loss of investee companies which is based on
audited financial statements for the years ended December 31, 2001, 2002 and
2003 were as follows: Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)ChipMOS Japan
    
    
    711
    
    
    
    791
    
    
    
    445
    
    
    
    13ChipMOS USA
    
    
    983
    
    
    
    1,011
    
    
    
    1,776
    
    
    
    52PlusMOS
    
    
    (75,035
    )
    
    
    (1,712
    )
    
    
    32,386
    
    
    
    953Chantek
    
    
    
    
    
    
    (90,921
    )
    
    
    (36,618
    )
    
    
    (1,078
    )AMCT
    
    
    
    
    
    
    
    
    
    
    (4,752
    )
    
    
    (140
    )ThaiLin
    
    
    
    
    
    
    (2,368
    )
    
    
    29,127
    
    
    
    858(73,341
    )
    
    
    (93,199
    )
    
    
    22,364
    
    
    
    658
  Certain changes on the shareholders equity of investee companies result
in the adjustments on the Companys equity according to its ownership to the
respective accounts, which in 2002 increased capital reserve and treasury
stock by NT$1,057 thousand and NT$598 thousand; decreased unappropriated
earnings by NT$7,210 thousand, as well as in 2003 decreased unappropriated
earnings by NT$593 thousand and increased capital surplus by NT$12,008
thousand.The difference between the costs of the investment and the Company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, the Company reclassified its investment in Ultima from
long-term investments to short-term investments, which were revalued at
lower of cost or market value at transferal.The summarized financial information for equity investees is as follows: December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)PlusMOS:Current assets
    
    
    526,106
    
    
    
    496,625
    
    
    
    14,620Non-current assets
    
    
    176,403
    
    
    
    125,405
    
    
    
    3,692Current liabilities
    
    
    492,681
    
    
    
    282,689
    
    
    
    8,322Non-current liabilities
    
    
    3,408
    
    
    
    5,911
    
    
    
    174(Forward)
 F-89




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##### Table of Contents



December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Chantek:Current assets
    
    
    393,123
    
    
    
    486,134
    
    
    
    14,311Non-current assets
    
    
    1,115,699
    
    
    
    1,202,037
    
    
    
    35,385Current liabilities
    
    
    113,776
    
    
    
    865,308
    
    
    
    25,473Non-current liabilities
    
    
    909,183
    
    
    
    287,963
    
    
    
    8,477ThaiLin:Current assets
    
    
    1,265,308
    
    
    
    757,823
    
    
    
    22,309Non-current assets
    
    
    1,852,366
    
    
    
    1,938,859
    
    
    
    57,076Current liabilities
    
    
    229,448
    
    
    
    586,527
    
    
    
    17,266Non-current liabilities
    
    
    1,209,508
    
    
    
    90,995
    
    
    
    2,679AMCT:Current assets
    
    
    22,512
    
    
    
    42,165
    
    
    
    1,241Non-current assets
    
    
    191,551
    
    
    
    91,007
    
    
    
    2,679Current liabilities
    
    
    52,556
    
    
    
    49,928
    
    
    
    1,470Non-current liabilities
    
    
    63,812
    
    
    
    2,016
    
    
    
    59
 Year Ended December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)PlusMOS:Net revenue
    
    
    1,900,315
    
    
    
    2,089,052
    
    
    
    61,497Cost of revenues
    
    
    1,801,160
    
    
    
    1,799,229
    
    
    
    52,965Gross profit
    
    
    99,155
    
    
    
    289,823
    
    
    
    8,532Net income (loss)
    
    
    (6,852
    )
    
    
    129,546
    
    
    
    3,814Chantek:Net revenue
    
    
    594,338
    
    
    
    882,468
    
    
    
    25,978Cost of revenues
    
    
    765,679
    
    
    
    956,362
    
    
    
    28,153Gross loss
    
    
    (171,341
    )
    
    
    (73,894
    )
    
    
    (2,175
    )Net loss
    
    
    (1,159,989
    )
    
    
    (132,963
    )
    
    
    (3,914
    )ThaiLin:Net revenue
    
    
    721,205
    
    
    
    923,173
    
    
    
    27,176Cost of revenue
    
    
    891,069
    
    
    
    776,358
    
    
    
    22,854Gross profit (loss)
    
    
    (169,864
    )
    
    
    146,815
    
    
    
    4,322Net income (loss)
    
    
    (499,368
    )
    
    
    54,187
    
    
    
    1,595AMCT:Net revenue
    
    
    82,023
    
    
    
    104,409
    
    
    
    3,074Cost of revenues
    
    
    102,420
    
    
    
    115,835
    
    
    
    3,410Gross loss
    
    
    (20,397
    )
    
    
    (11,426
    )
    
    
    (336
    )Net loss
    
    
    (98,573
    )
    
    
    (16,466
    )
    
    
    (485
    )
 F-90




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The total assets and/or revenues of Chip MOS Japan, Inc. and Chip MOS
USA, Inc. are less than 10% of the total assets and/or total revenues of
the Company. Therefore, the
Company is not required to, nor did not prepare consolidated financial
statements.8.
    
    PROPERTY, PLANT AND EQUIPMENT  NETAccumulated depreciation consists of the following: December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Buildings and auxiliary equipment
    
    
    751,904
    
    
    
    963,720
    
    
    
    28,370Machinery and equipment
    
    
    7,370,938
    
    
    
    8,361,731
    
    
    
    246,151Furniture and fixtures
    
    
    157,245
    
    
    
    188,884
    
    
    
    5,560Transportation equipment
    
    
    5,911
    
    
    
    7,837
    
    
    
    231Tools
    
    
    624,025
    
    
    
    758,728
    
    
    
    22,335Leasehold improvements
    
    
    1,238
    
    
    
    1,238
    
    
    
    368,911,261
    
    
    
    10,282,138
    
    
    
    302,683
  As of December 31, 2003, certain of the above buildings and machinery
were mortgaged as collateral for the bonds and the long-term loans
(Notes 12 and 13).9.
    
    INTANGIBLE ASSETS  NET December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)CostTechnology know-how
    
    
    750,000
    
    
    
    750,000
    
    
    
    22,078Technology license fee (Note 19b)
    
    
    15,888
    
    
    
    41,890
    
    
    
    1,233Software
    
    
    98,921
    
    
    
    109,089
    
    
    
    3,212Bond issuance costs
    
    
    46,398
    
    
    
    57,205
    
    
    
    1,684911,207
    
    
    
    958,184
    
    
    
    28,207Accumulated amortizationTechnology know-how
    
    
    (731,666
    )
    
    
    (750,000
    )
    
    
    (22,078
    )Technology license fee (Note 19b)
    
    
    (11,349
    )
    
    
    (19,953
    )
    
    
    (588
    )Software
    
    
    (83,582
    )
    
    
    (94,308
    )
    
    
    (2,776
    )Bond issuance costs
    
    
    (34,262
    )
    
    
    (48,885
    )
    
    
    (1,439
    )(860,859
    )
    
    
    (913,146
    )
    
    
    (26,881
    )Carrying value
    
    
    50,348
    
    
    
    45,038
    
    
    
    1,326
  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 the Company, technologies related to
testing and packaging integrated circuits at an agreed valuation of
NT$750,000 thousand. F-91




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##### Table of Contents



10.
    
    BANK LOANS December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Unsecured loan:Working capital loansNT$755,000 thousand,
repayable by March 2004, annual
interest at 1.65%~3.00%
    
    
    
    
    
    
    755,000
    
    
    
    22,225NT$1,390,000 thousand,
repayable by March 2003, annual
interest at 2.5%~3%
    
    
    1,390,000
    
    
    
    
    
    
    
    Loan for imports of machineryEUR$72 thousand and JPY$1,749,463
thousand, repayable by September 2004,
annual interest at 0.57%~2.87%
    
    
    
    
    
    
    559,045
    
    
    
    16,457JPY$2,193,280 thousand,
repayable by June 2003, annual
interest at 0.61%~1.75%
    
    
    642,631
    
    
    
    
    
    
    
    2,032,631
    
    
    
    1,314,045
    
    
    
    38,682
  Unused credit lines as of December 31, 2003 aggregated approximately
NT$1,956,877 thousand, which will expire from February 2004 to December
2004.11.
    
    COMMERCIAL PAPERS December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Commercial papers
    
    
    160,000
    
    
    
    
    
    
    
    Discount on par value
    
    
    (573
    )
    
    
    
    
    
    
    159,427
    
    
    
    
    
    
    
    
  The actual interest rate was 1.8%~2.22% in 2002, and the expiration date
would be within 180 days from the issuing date.12.
    
    LONG-TERM BONDS PAYABLEThe Company 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-92




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Under the guaranteed facility agreement for the long-term bonds, the Company
is
required to:  (1)
    
    Ensure that MVI and SPIL maintain a percentage of direct or indirect
ownership in the Company of at least 28.8% and 18.0%, respectively. In
addition, the Company must notify the banks in writing and get approval
in advance in cases where additional shares are issued in connection
with an initial public offering of its shares.(2)
    
    Maintain certain financial ratios.
The Company was in compliance with the financial ratio requirements as of
December 31, 2003.As of December 31, 2003, certain buildings with an aggregate net book
value of NT$497,894 thousand was mortgaged as collateral for the
long-term bonds.  13.
    
    LONG-TERM LOANS December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Bank loans collateralized by equipment and
building, repayable semi-annually from November
2000 to December 2004, interest at floating
rate (5.425% and 5.375% as of December 31, 2002 and 2003)
    
    
    622,500
    
    
    
    276,500
    
    
    
    8,140Syndicated bank loans collateralized by
equipment, repayable semi-annually from
September 2004 to September 2007, interest at floating rate (4.75% and 4.275% as of December
31, 2002 and 2003)
    
    
    2,000,000
    
    
    
    2,000,000
    
    
    
    58,875Syndicated bank loans repayable semi-annually
from September 2004 to September 2007, interest
at floating rate (4.875% and 4.40% as of December 31, 2002 and 2003)
    
    
    500,000
    
    
    
    500,000
    
    
    
    14,719Research and development subsidy loan,
collateralized by time deposits in amounts of
NT42,450 thousand, repayable quarterly from
July 2003 to September 2006, with zero interest
rate
    
    
    41,095
    
    
    
    34,962
    
    
    
    1,0293,163,595
    
    
    
    2,811,462
    
    
    
    82,763Less: Current portion
    
    
    (352,160
    )
    
    
    (650,090
    )
    
    
    (19,137
    )2,811,435
    
    
    
    2,161,372
    
    
    
    63,626
    )
 F-93




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According to the agreement signed by the Company with
Industrial Development Bureau (IDB) in respect to the research and development subsidy loan, the
Company 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, the Company is required
to:  (1)
    
    Ensure that ChipMOS Bermuda and SPIL maintain a percentage of direct
ownership in the Company of at least 50% of outstanding shares and have
control over its operation.(2)
    
    Maintain certain financial ratios.
The Company was in compliance with the financial ratio requirements as of
December 31, 2003.  As of December 31, 2003, certain buildings and machinery with an
aggregate net book value of NT$589,393 thousand and NT$3,118,404 thousand and
time deposits in an aggregate amount of NT$42,450 thousand were mortgaged as
collateral for the long-term loans.Future minimum principal payments under the Companys long-term loans as of
December 31, 2003 are as follows: AmountNT$
    
    US$(In Thousands)Within the following year
    
    
    650,090
    
    
    
    19,137During the second year
    
    
    726,641
    
    
    
    21,391During the third year
    
    
    720,481
    
    
    
    21,209During the fourth year
    
    
    714,250
    
    
    
    21,0262,811,462
    
    
    
    82,763
  14.
    
    PENSION PLANThe Company has an obligation to provide pension benefits to employees
starting from the inception of its operation. The Company has established a
defined benefit pension plan for all of its regular employees, which
provides benefits based on length of service and average monthly salary for
the six months period immediately before retirement.The Company makes 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.Certain pension information is as follows: F-94




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##### Table of Contents



a.
    
    Net pension cost Year ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Service cost
    
    
    23,363
    
    
    
    21,323
    
    
    
    32,102
    
    
    
    945Interest cost
    
    
    3,384
    
    
    
    3,529
    
    
    
    4,275
    
    
    
    126Projected return on plan assets
    
    
    (2,496
    )
    
    
    (2,802
    )
    
    
    (2,581
    )
    
    
    (76
    )Amortization
    
    
    98
    
    
    
    27
    
    
    
    689
    
    
    
    20Curtailment gain
    
    
    (6,902
    )
    
    
    
    
    
    
    
    
    
    
    17,447
    
    
    
    22,077
    
    
    
    34,485
    
    
    
    1,015
  b.
    
    Reconciliation of the fund status of the plan and accrued pension
cost Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Actuarial present value of benefit
obligationsVested benefit obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nonvested accumulated benefit
obligation
    
    
    (25,932
    )
    
    
    (55,647
    )
    
    
    (81,658
    )
    
    
    (2,404
    )Additional benefits based on
future salaries
    
    
    (44,640
    )
    
    
    (66,501
    )
    
    
    (86,321
    )
    
    
    (2,541
    )Projected benefit obligation
    
    
    (70,572
    )
    
    
    (122,148
    )
    
    
    (167,979
    )
    
    
    (4,945
    )Plan assets at fair value
    
    
    49,642
    
    
    
    66,005
    
    
    
    84,821
    
    
    
    2,497Projected benefit obligation
in excess of plan assets
    
    
    (20,930
    )
    
    
    (56,143
    )
    
    
    (83,158
    )
    
    
    (2,448
    )Unrecognized net transition obligation
    
    
    538
    
    
    
    511
    
    
    
    484
    
    
    
    14Unrecognized net loss
    
    
    1,186
    
    
    
    29,438
    
    
    
    39,808
    
    
    
    1,172Accrued pension cost
    
    
    (19,206
    )
    
    
    (26,194
    )
    
    
    (42,866
    )
    
    
    (1,262
    )
  c.
    
    Actuarial assumptions Discount rate
    
    
    5.0
    %
    
    
    3.5
    %
    
    
    3.25
    %
    
    
    3.25
    %Future salary increase rate
    
    
    4.5
    %
    
    
    3.5
    %
    
    
    3.25
    %
    
    
    3.25
    %Expected rate of return on plan assets
    
    
    5.0
    %
    
    
    3.5
    %
    
    
    3.25
    %
    
    
    3.25
    %
  d.
    
    Changes in pension fund Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Contributions
    
    
    14,886
    
    
    
    15,332
    
    
    
    17,813
    
    
    
    524Payment of benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 F-95




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##### Table of Contents



15.
    
    SHAREHOLDERS EQUITYUnder the ROC Company Law, all of the capital surplus can only be used to
offset a deficit except those generated from donations (donated capital) and
the excess of the issue price over the par value of capital stock (including
the stocks issued for new capital and mergers, and the purchase of treasury
stock). Capital surplus can be transferred to capital as stock dividends
distributed to shareholders.The Company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, (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 the Company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 the Company, 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 the Company on earnings generated from the effective date.
An Imputation Credit Account (ICA) is maintained by the Company 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.16.
    
    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 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Income tax expense on
income before income tax
at statutory rate
    
    
    (369,181
    )
    
    
    (293,729
    )
    
    
    213,742
    
    
    
    6,292Tax effects of adjustments:Permanent difference
    
    
    (39,829
    )
    
    
    58,879
    
    
    
    (17,042
    )
    
    
    (502
    )Temporary difference
    
    
    (102,958
    )
    
    
    (72,383
    )
    
    
    (9,000
    )
    
    
    (265
    )Income tax expense
(benefit)  current before
tax credits
    
    
    (511,968
    )
    
    
    (307,233
    )
    
    
    187,700
    
    
    
    5,525
 F-96




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##### Table of Contents



b.
    
    Income tax expense (benefit) consists of: Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Income tax expense
(benefit)-current before tax
credits
    
    
    (511,968
    )
    
    
    
    
    
    
    187,700
    
    
    
    5,525Additional 10% on the
unapportionated earnings
    
    
    114,459
    
    
    
    
    
    
    
    
    
    
    
    Separate and foreign income tax
    
    
    
    
    
    
    4,217
    
    
    
    1,309
    
    
    
    39Income tax credits
    
    
    (57,230
    )
    
    
    
    
    
    
    (187,700
    )
    
    
    (5,525
    )Income tax for the current year
    
    
    (454,739
    )
    
    
    4,217
    
    
    
    1,309
    
    
    
    39Net change of deferred income
tax assets (liabilities) for
the yearTax credits
    
    
    (434,872
    )
    
    
    119,312
    
    
    
    48,014
    
    
    
    1,413Temporary difference
    
    
    172,600
    
    
    
    77,295
    
    
    
    8,127
    
    
    
    239Valuation allowance
    
    
    769,000
    
    
    
    181,633
    
    
    
    (66,405
    )
    
    
    (1,955
    )Loss carry forward
    
    
    
    
    
    
    (299,558
    )
    
    
    41
    
    
    
    1Adjustment of prior years taxes
    
    
    (19,649
    )
    
    
    14,963
    
    
    
    3,364
    
    
    
    100Income tax expense (benefit)
    
    
    32,340
    
    
    
    97,862
    
    
    
    (5,550
    )
    
    
    (163
    )
  The Company under Science Park Regulations, is entitled to an exemption
from 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 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Net current deferred income tax assets:Unrealized foreign exchange loss
    
    
    5,439
    
    
    
    8,613
    
    
    
    253Unrealized loss provision on
sales allowance
    
    
    5,721
    
    
    
    6,385
    
    
    
    188Loss of market price decline and
obsolete and slow-moving
inventories
    
    
    21,652
    
    
    
    10,387
    
    
    
    306Tax credits
    
    
    
    
    
    
    143,905
    
    
    
    4,236Others
    
    
    5,655
    
    
    
    15,656
    
    
    
    46138,467
    
    
    
    184,946
    
    
    
    5,444(Forward)
 F-97




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##### Table of Contents



December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Net non-current deferred income tax
assets (liabilities):Tax credits for investment in
machinery and equipment and R&D
expenditures
    
    
    839,526
    
    
    
    647,607
    
    
    
    19,064Loss carry forwards
    
    
    811,526
    
    
    
    811,485
    
    
    
    23,888Depreciation differences
    
    
    (575,339
    )
    
    
    (590,007
    )
    
    
    (17,368
    )Other
    
    
    (859
    )
    
    
    3,108
    
    
    
    911,074,854
    
    
    
    872,193
    
    
    
    25,675Less: Valuation allowance
    
    
    (1,306,633
    )
    
    
    (1,240,228
    )
    
    
    (36,509
    )(231,779
    )
    
    
    (368,035
    )
    
    
    (10,834
    )
  The rate at which deferred income tax components are measured was
25% as of December 31, 2002 and 2003.d.
    
    Integrated income tax informationThe balances of the ICA (See Note 15) were NT$91,152 thousand and
NT$92,828 thousand as of December 31, 2002 and 2003, respectively.The imputation credit allocated to each shareholder shall be
based on the balance in the ICA on the date of distribution of
dividends. There were no tax creditable ratios for 2002 and 2003
because of deficit.e.
    
    The balance and year of expiry of unused investment tax credits and
loss carry forwards as of December 31, 2003 are as follows: Machinery &
    
    R&D
    
    Loss CarryYear of Expiry
    
    Equipment
    
    Expenditure
    
    ForwardsNT$
    
    NT$
    
    NT$(In Thousands)2004
    
    
    60,464
    
    
    
    83,441
    
    
    
    2005
    
    
    277,807
    
    
    
    84,762
    
    
    
    2006
    
    
    146,692
    
    
    
    70,257
    
    
    
    504,2942007
    
    
    68,089
    
    
    
    
    
    
    
    307,191553,052
    
    
    
    238,460
    
    
    
    811,485
  The deferred tax assets related to the investment tax credits on R&D
expenditures and purchases of machinery and equipment will expire from
2004 to 2007. 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 F-98




---



##### Table of Contents



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, 2002 and 2003.The income tax returns of the Company through 2000 have been assessed by
the tax authorities.  17.
    
    RELATED PARTY TRANSACTIONSThe 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 investeeThaiLin
    
    A 36% owned investeeChantek
    
    A 34% owned investeeUltima
    
    A 4% owned investee; the chairman of the
Company was a member of board of
directors of Ultima (resigned in June
2003).ProMOS
    
    An investee of MVIDenMOS Technology Inc. (DenMOS)
    
    An investee of MVIBest Home
    
    A 19% owned investee; the Company is a
major shareholder.Sun Fund
    
    A 17% owned investee; the Company is a
major shareholder.ChipMOS Far East Ltd. (Far
East)
    
    A subsidiary of ChipMOS BermudaAMCT
    
    A 31% owned investeeChantek International Investment Ltd. (Chantek
International)
    
    The chairman of the Company is a
member of board of directors of Chantek
International.
  The significant transactions with the aforementioned parties, other than
those disclosed in other notes, are summarized as follows: F-99




---



##### Table of Contents



Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)During the yearSalesMVI
    
    
    2,495,046
    
    
    
    2,285,348
    
    
    
    1,680,986
    
    
    
    49,484Ultima
    
    
    1,163,383
    
    
    
    1,218,265
    
    
    
    745,562
    
    
    
    21,948PlusMOS
    
    
    55,548
    
    
    
    9,010
    
    
    
    19,642
    
    
    
    578ProMOS
    
    
    5,002
    
    
    
    
    
    
    
    1,748,326
    
    
    
    51,467ThaiLin
    
    
    
    
    
    
    
    
    
    
    1,722
    
    
    
    51Chantek
    
    
    
    
    
    
    
    
    
    
    469
    
    
    
    14AMCT
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    Far East
    
    
    
    
    
    
    
    
    
    
    234
    
    
    
    7SPIL
    
    
    
    
    
    
    
    
    
    
    345
    
    
    
    10DenMOS
    
    
    27
    
    
    
    152,761
    
    
    
    496,480
    
    
    
    14,6153,719,006
    
    
    
    3,665,384
    
    
    
    4,693,771
    
    
    
    138,174Rental revenueMVI
    
    
    29,717
    
    
    
    8,800
    
    
    
    4,800
    
    
    
    141DenMOS
    
    
    
    
    
    
    693
    
    
    
    922
    
    
    
    27ThaiLin
    
    
    
    
    
    
    2,212
    
    
    
    8,118
    
    
    
    23929,717
    
    
    
    11,705
    
    
    
    13,840
    
    
    
    407Other revenueThaiLin
    
    
    
    
    
    
    
    
    
    
    10,571
    
    
    
    311DenMOS
    
    
    
    
    
    
    
    
    
    
    2,647
    
    
    
    78Chantek
    
    
    
    
    
    
    
    
    
    
    900
    
    
    
    26PlusMOS
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    1Far East
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    ChipMOS USA
    
    
    
    
    
    
    
    
    
    
    1,343
    
    
    
    40Ultima
    
    
    
    
    
    
    305
    
    
    
    
    
    
    
    
    
    
    
    305
    
    
    
    15,504
    
    
    
    456PurchasesAMCT
    
    
    
    
    
    
    
    
    
    
    4,758
    
    
    
    140Far East
    
    
    
    
    
    
    
    
    
    
    4,654
    
    
    
    137PlusMOS
    
    
    
    
    
    
    
    
    
    
    522
    
    
    
    15MVI
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    9,946
    
    
    
    292Subcontract expensesSPIL
    
    
    3,886
    
    
    
    
    
    
    
    101,847
    
    
    
    2,998Far East
    
    
    
    
    
    
    
    
    
    
    11,804
    
    
    
    347ThaiLin
    
    
    
    
    
    
    
    
    
    
    33,515
    
    
    
    987Chantek
    
    
    2,950
    
    
    
    2,719
    
    
    
    230
    
    
    
    76,836
    
    
    
    2,719
    
    
    
    147,396
    
    
    
    4,339(Forward)
 F-100




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##### Table of Contents



Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Operating expenses:Administrative expenses  MVI
    
    
    4,550
    
    
    
    4,550
    
    
    
    4,387
    
    
    
    129Service feeChipMOS USA
    
    
    22,229
    
    
    
    20,046
    
    
    
    22,864
    
    
    
    673ChipMOS Japan
    
    
    11,135
    
    
    
    9,498
    
    
    
    11,851
    
    
    
    34933,364
    
    
    
    29,544
    
    
    
    34,715
    
    
    
    1,022R&D materialsPlusMOS
    
    
    29,888
    
    
    
    
    
    
    
    
    
    
    
    MVI
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    29,974
    
    
    
    
    
    
    
    
    
    
    
    Rental expenseMVI
    
    
    2,490
    
    
    
    2,811
    
    
    
    2,586
    
    
    
    76Chantek
    
    
    
    
    
    
    
    
    
    
    7,699
    
    
    
    227ThaiLin
    
    
    
    
    
    
    
    
    
    
    8,125
    
    
    
    2392,490
    
    
    
    2,811
    
    
    
    18,410
    
    
    
    542Fee for stock registry serviceSun Fund
    
    
    
    
    
    
    540
    
    
    
    540
    
    
    
    16
 December 312002
    
    2003NT$
    
    US$(In Thousands)At the end of yearNotes and accounts receivableMVI
    
    
    759,484
    
    
    
    13,952
    
    
    
    411Ultima
    
    
    331,940
    
    
    
    216,242
    
    
    
    6,366PlusMOS
    
    
    4,943
    
    
    
    5,506
    
    
    
    162DenMOS
    
    
    23,057
    
    
    
    123,932
    
    
    
    3,648Chantek
    
    
    
    
    
    
    431
    
    
    
    13ProMOS
    
    
    
    
    
    
    959,561
    
    
    
    28,247ThaiLin
    
    
    
    
    
    
    107
    
    
    
    3SPIL
    
    
    
    
    
    
    315
    
    
    
    9Far East
    
    
    
    
    
    
    98
    
    
    
    31,119,424
    
    
    
    1,320,144
    
    
    
    38,862Other receivableChipMOS Bermuda
    
    
    138,158
    
    
    
    640,950
    
    
    
    18,868ChipMOS USA
    
    
    23,348
    
    
    
    16,787
    
    
    
    494MVI
    
    
    4,347
    
    
    
    424
    
    
    
    12ChipMOS Japan
    
    
    6,555
    
    
    
    6,444
    
    
    
    190Ultima
    
    
    268
    
    
    
    104
    
    
    
    3ThaiLin
    
    
    6,301
    
    
    
    690
    
    
    
    20Chantek
    
    
    356
    
    
    
    19,693
    
    
    
    580DenMOS
    
    
    275
    
    
    
    375
    
    
    
    11(Forward)
 F-101




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##### Table of Contents



December 312002
    
    2003NT$
    
    US$(In Thousands)Far East
    
    
    
    
    
    
    1,855
    
    
    
    55ProMOS
    
    
    
    
    
    
    11,271
    
    
    
    332AMCT
    
    
    
    
    
    
    28,279
    
    
    
    832179,608
    
    
    
    726,872
    
    
    
    21,397Credit
balances of long-term investments (Note 7)
    
    
    (9,749
    )
    
    
    (7,413
    )
    
    
    (218
    )169,859
    
    
    
    719,459
    
    
    
    21,179Other payableChipMOS USA
    
    
    1,264
    
    
    
    1,200
    
    
    
    35MVI
    
    
    1,158
    
    
    
    730
    
    
    
    22ChipMOS Japan
    
    
    1,139
    
    
    
    927
    
    
    
    27PlusMOS
    
    
    98
    
    
    
    142
    
    
    
    4Chantek
    
    
    
    
    
    
    102
    
    
    
    3Sun Fund
    
    
    
    
    
    
    45
    
    
    
    1Far East
    
    
    
    
    
    
    11,566
    
    
    
    341ThaiLin
    
    
    
    
    
    
    5,045
    
    
    
    1493,659
    
    
    
    19,757
    
    
    
    582Account payableChantek
    
    
    
    
    
    
    242
    
    
    
    7ThaiLin
    
    
    
    
    
    
    12,710
    
    
    
    374SPIL
    
    
    
    
    
    
    4,634
    
    
    
    137
    
    
    
    17,586
    
    
    
    518Payables to contractors and equipment suppliersChantek
    
    
    
    
    
    
    714
    
    
    
    21
  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, the Company signed an agreement entrusting Best Home
with the construction for a central kitchen. The Company has paid
NT$216,000 thousand in advance to Best Home for the purpose of acquiring a
place and equipment. However, the Company entered into a contract to
transfer the claim to Prudent Holdings Group Ltd. on December 17, 2003 and
classified the amount under other receivables accordingly. F-102




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##### Table of Contents



As of December 24, 2002, the Company entered into a technology transfer
agreement with ThaiLin for a period of 10 years, starting from December 31,
2002. ThaiLin has already paid NT$79,571 thousand (pre-tax) to the Company,
recorded under deferred credits. As of December 31, 2003, the unamortized
amount was NT$71,614 thousand.As of December 31, 2002, the Company provided commercial paper acquired
under repurchase agreements as collateral for a loan amounting NT$600,000
thousand (excluding the interest) obtained by Ultima. (See Note 18)In 2002, the Company acquired shares of Sun Fund from Best Home. (See Note
7)In 2003, the Company has sold secured bonds issued by MVI to AMCT, PlusMOS
and Chantek International with the carrying value of NT$110,000 thousand,
NT$80,000 thousand and NT$90,000 thousand respectively. The interest
revenue derived from the transactions was amounted to NT$6,188 thousand.
The payment term was quarterly installment commencing from August 25, 2003.In 2003, the Company purchased machineries from ThaiLin and Chantek at the
cost of NT$104,663 thousand and NT$10,141 thousand respectively. The
Company also sold machineries to ThaiLin, Chantek and Far East with the
proceeds amounted to NT$244,710 thousand, NT$16,781 thousand and NT$1,710
thousand respectively and recognized gain on disposal of properties amounted
to NT$46,780 thousand, NT$8,848 thousand and NT$384 thousand respectively.In 2003, the Company sold convertible loans to ChipMOS Bermuda with a sales
price of NT$567,523 thousand including interest income of NT$3,198 thousand.18.
    
    RESTRICTED CASH AND CASH EQUIVALENTS December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Current:Time deposits (matures
from January to November
2004)
    
    
    76,868
    
    
    
    282,378
    
    
    
    8,313Non-current:Commercial paper acquired
under repurchase
agreements (matured in
January 2002, and has been
extended to April 2003
subsequently)
    
    
    601,744
    
    
    
    
    
    
    
    678,612
    
    
    
    282,378
    
    
    
    8,313
  Time deposits are pledged as collateral for the Companys customs duties
payable, letter of credit, research and development subsidy loan and the
commercial paper acquired under repurchase agreements are pledged as
collateral for the guarantee provided to Ultima (See Note 17). F-103




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##### Table of Contents



19.
    
    SIGNIFICANT COMMITMENTS AND CONTINGENCIES AS OF DECEMBER 31, 2003  a.
    
    As of December 31, 2003, the Company leases parcels of land from
the Hsinchu and Taiwan 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, 2003 are as follows: Year
    
    AmountNT$(In Thousands)2004
    
    
    16,2032005
    
    
    15,6682006
    
    
    15,6682007
    
    
    15,6682008
    
    
    14,198Thereafter
    
    
    85,664Total minimum lease payment
    
    
    163,069
  b.
    
    On April 20, 1999, the Company entered into a semiconductor
packaging technology license agreement with TESSERA INC. Under the
agreement, the Company agreed to pay a license fee of US$500 thousand
and a royalty fee at certain percentage of net sales of certain
products. The Company 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. The Company also shall pay certain
additional license fees within five years if cumulative production and
sales quantity of products bearing Tessera Compliant Chip packages do
not meet the commitment schedule at a respective deadline as set in the
agreement.c.
    
    The Company has unused letters of credit aggregating approximately
US$638 thousand, EUR$10 thousand and JPY$4,169,699 thousand as of
December 31, 2003.d.
    
    In 2003, tax authorities have assessed and adjusted to increase the
income taxes of the Company for the years of 1999 and 2000 by NT$2,095
thousand and NT$30,526 thousand respectively. The Company has filed an
appealing for the assessment.e.
    
    The Company entered into a share purchase agreement with Caspian
Worldwide Holdings Limited (BVI) (Caspian) on December 22, 2003 for
acquiring 30% of shares of Ultima Technology Corp. (BVI) with the
purchase price of USD11,250 thousand. In order to secure the Companys
performance of this transaction, the Company provided Caspian with a
performance bond in the amount of NT$290,000 thousand and will be
returned upon approval of the foresaid investment by the Investment
Commission, Ministry of Economic Affairs. F-104




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##### Table of Contents



20.
    
    SUBSEQUENT EVENTSThe Company has acquired 62.50% of ChipMOS Logic TECHNOLOGIES INC. shares in
January of 2004 in the amount of NT$250,000 thousand.21.
    
    DERIVATIVE FINANCIAL INSTRUMENTSThe Company had entered into forward exchange contracts or foreign currency
options for the years ended December 31, 2001 and 2002, 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, 2002 and 2003, the Company had no outstanding forward
contracts. Net exchange gains on forward exchange contracts were
NT$13,869 thousand for the year ended December 31, 2001.b.
    
    European optionsThe Company 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, 2002 and 2003,
the Company had no outstanding foreign currency option contracts. For
the years ended December 31, 2001 and 2002, the Company realized premium
income of NT$156 thousand and NT$90 thousand respectively.c.
    
    Transaction risks  1)
    
    Credit risk: The banks with which the Company has entered
into the above contracts are reputable and, therefore, the Company
does not expected to be exposed to significant credit risks.2)
    
    Market risk and hedge strategy: The Company 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, the Company sometimes enters into forward
contracts and option contracts.3)
    
    Liquidity and cash requirements: The cash flow
requirements with respect to the Company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. F-105




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##### Table of Contents



d.
    
    The estimated fair values of the Companys financial instruments
are as follows: December 31, 2002
    
    December 31, 2003Carrying
    
    
    
    
    
    CarryingValue
    
    Fair Value
    
    Value
    
    Fair ValueNT$
    
    NT$
    
    NT$
    
    NT$(In Thousands)Non-derivative financial instrumentsAssetsCash
    
    
    1,963,381
    
    
    
    1,963,381
    
    
    
    1,155,662
    
    
    
    1,155,662Restricted cash and cash equivalents
    
    
    678,612
    
    
    
    678,612
    
    
    
    282,378
    
    
    
    282,378Short-term investments
    
    
    874,932
    
    
    
    874,932
    
    
    
    437,446
    
    
    
    437,446Notes receivable
    
    
    30,474
    
    
    
    30,474
    
    
    
    7,522
    
    
    
    7,522Accounts receivable
    
    
    562,424
    
    
    
    562,424
    
    
    
    961,884
    
    
    
    961,884Receivables from related partiesNotes and accounts
    
    
    1,104,475
    
    
    
    1,104,475
    
    
    
    1,307,321
    
    
    
    1,307,321Others
    
    
    169,859
    
    
    
    169,859
    
    
    
    679,853
    
    
    
    679,853Other receivable
    
    
    82,614
    
    
    
    82,614
    
    
    
    1,082,700
    
    
    
    1,082,700Long-term investments
    
    
    1,441,866
    
    
    
    1,549,582
    
    
    
    1,288,350
    
    
    
    2,294,089Refundable deposits
    
    
    13,839
    
    
    
    13,839
    
    
    
    352,674
    
    
    
    352,674Other financial assets
    
    
    
    
    
    
    
    
    
    
    399,700
    
    
    
    399,700LiabilitiesBank loans
    
    
    2,032,631
    
    
    
    2,032,631
    
    
    
    1,314,045
    
    
    
    1,314,045Commercial papers
    
    
    159,427
    
    
    
    159,427
    
    
    
    
    
    
    
    Accounts payable
    
    
    145,352
    
    
    
    145,352
    
    
    
    312,045
    
    
    
    312,045Payable to related partiesTrade
    
    
    
    
    
    
    
    
    
    
    17,586
    
    
    
    17,586Others
    
    
    3,659
    
    
    
    3,659
    
    
    
    19,757
    
    
    
    19,757Payables to contractors and
equipment suppliers
    
    
    158,750
    
    
    
    158,750
    
    
    
    166,910
    
    
    
    166,910Long-term loans (including current
portion)
    
    
    3,163,595
    
    
    
    3,163,595
    
    
    
    2,811,462
    
    
    
    2,811,462Long-term bonds payable
    
    
    1,200,000
    
    
    
    1,064,729
    
    
    
    1,200,000
    
    
    
    1,008,970Guarantee deposits
    
    
    461
    
    
    
    461
    
    
    
    593
    
    
    
    593
  Fair values of financial instruments were determined as follows: 1)
    
    Short-term financial instruments  market values2)
    
    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. F-106




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##### Table of Contents



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.22.
    
    SEGMENT AND GEOGRAPHIC INFORMATIONThe Company engages mainly in research, development, manufacturing,
assembly, testing and turnkey of integrated circuits. In accordance with
Statements 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, LCD and
Turnkey when making decisions about allocating resources and assessing
performance of the Company. All financial segment information required by
SFAS No. 131 are as following:  a.
    
    The Company provides semiconductor testing, assembly and turnkey
services. 2001Segment
    
    Corporate &
    
    ConsolidatedTesting
    
    Assembly
    
    Turnkey
    
    LCD
    
    Totals
    
    Other assets
    
    TotalsNT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$
    
    NT$(In Thousands)Revenues from
customers
    
    
    2,242,676
    
    
    
    1,610,880
    
    
    
    1,260,034
    
    
    
    131,505
    
    
    
    5,245,095
    
    
    
    
    
    
    
    5,245,095Cost of revenues
    
    
    2,965,268
    
    
    
    1,413,396
    
    
    
    1,246,657
    
    
    
    403,988
    
    
    
    6,029,309
    
    
    
    
    
    
    
    6,029,309Segment gross profit
    
    
    (722,592
    )
    
    
    197,484
    
    
    
    13,377
    
    
    
    (272,483
    )
    
    
    (784,214
    )
    
    
    
    
    
    
    (784,214
    )Depreciation and
amortization
    
    
    2,107,395
    
    
    
    506,901
    
    
    
    
    
    
    
    191,359
    
    
    
    2,805,655
    
    
    
    8,180
    
    
    
    2813,835Segment assets
    
    
    7,262,355
    
    
    
    2,380,771
    
    
    
    
    
    
    
    1,290,762
    
    
    
    10,933,888
    
    
    
    5,198,883
    
    
    
    16,132,771Expenditure for
segment assets
    
    
    641,304
    
    
    
    18,177
    
    
    
    
    
    
    
    323,451
    
    
    
    982,932
    
    
    
    
    
    
    
    982,932
 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-107




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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
    
    
    
    2,637,117
    
    
    
    1,075,319
    
    
    
    1,683,490
    
    
    
    8,468,665
    
    
    
    
    
    
    
    8,468,665Cost of revenues
    
    
    2,614,901
    
    
    
    2,079,706
    
    
    
    1,061,109
    
    
    
    1,155,322
    
    
    
    6,911,038
    
    
    
    
    
    
    
    6,911,038Segment gross profit
    
    
    457,838
    
    
    
    557,411
    
    
    
    14,210
    
    
    
    528,168
    
    
    
    1,557,627
    
    
    
    
    
    
    
    1,557,627Depreciation and
amortization
    
    
    1,886,241
    
    
    
    313,850
    
    
    
    
    
    
    
    451,710
    
    
    
    2,651,801
    
    
    
    14,623
    
    
    
    2,666,424Segment assets
    
    
    4,656,948
    
    
    
    2,121,812
    
    
    
    
    
    
    
    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
  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: Year ended December 312001
    
    2002
    
    2003Area
    
    NT$
    
    NT$
    
    NT$(In Thousands)Domestic
    
    
    4,693,604
    
    
    
    5,755,406
    
    
    
    7,061,812Export
    
    
    551,491
    
    
    
    770,459
    
    
    
    1,406,8535,245,095
    
    
    
    6,525,865
    
    
    
    8,468,665
  d.
    
    Net sales to customers representing at least 10% of net total sales: Year Ended December 312001
    
    2002
    
    2003Customer
    
    Amount
    
    %
    
    Amount
    
    %
    
    Amount
    
    %NT$
    
    
    
    
    
    NT$
    
    
    
    
    
    NT$(In Thousands)MVI
    
    
    2,495,046
    
    
    
    48
    
    
    
    2,285,348
    
    
    
    35
    
    
    
    1,680,986
    
    
    
    20Ultima
    
    
    1,163,383
    
    
    
    22
    
    
    
    1,218,265
    
    
    
    19
    
    
    
    
    
    
    
    ProMOS
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,748,326
    
    
    
    21
 F-108




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23.
    
    SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED
BY THE COMPANY 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 (U.S. GAAP):  a.
    
    Bonuses to employees, directors and supervisorsAccording to ROC regulations and the Articles of Incorporation of the
Company, a portion of distributable earnings should be appropriated
as bonuses to employees and remuneration to directors and
supervisors. The remuneration to directors and supervisors are
always 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
expense. 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 the Company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 or market, 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 F-109




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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.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, technologies related to the testing
and packaging of integrated circuits at an agreed valuation 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, the Company uses a 5 years
amortization period. Under U.S. GAAP, the technology contribution can
not 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 costsROC 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 US GAAP purpose,
building lives have been estimated to be 25 years.g.
    
    Transfer of building and facilities from MVIThe Company purchased building and facilities from MVI in 1997. The
actual costs 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. The
Company capitalized, allowed under ROC GAAP such additional payment of
NT $173,174 thousand. Under U.S. GAAP, assets acquired are recorded at
an amount that does 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 predecessor F-110




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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 affects 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 cannot be reversed
subsequently. Under U.S. GAAP, in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for the
Long-Lived Assets to be Disposed of, 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 the Company as of
December 31, 2002 and 2003.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
restricted 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 Certain 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 F-111




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impact to 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
under U.S. GAAP. In addition, the Company has no embedded derivatives
from January 1 to December 31, 2003. The reconciling adjustments for all
periods presented reflect lose reconciling from hedge accounting under
ROC GAAP to non-hedge accounting under U.S. GAAP.l.
    
    Employee share purchaseThe Company has elected to apply Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees (APB
Opinion No. 25) when new shares are issued to employees, which
measures compensation expenses based on the difference, if any,
between the fair value of the common stock and the selling price on
the date of issuance. In 2000, the total compensation expenses of
NT$25,900 thousand was recognized in full immediately, representing
the excess of fair market value over the amounts paid by employees
on the date the shares were purchased.m.
    
    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 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 when they were issued.n.
    
    Interest capitalizationUnder ROC GAAP, interests of borrowings during construction
conceptually should be capitalized for 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 U.S. GAAP, SFAS No. 34
Capitalization of Interest Cost, interest is generally capitalized
on assets until they are available and ready for use.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 2001, 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. F-112




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p.
    
    ConsolidationUnder ROC GAAP, a company is required to include in its annual
consolidated financial statements only those subsidiaries that are
directly or indirectly more than 50% owned. For directly owned
subsidiaries (i) with total assets and operating revenues less than 10%
of the issuers unconsolidated total assets and operating revenues, (ii)
which are in a negative equity position which is considered to be other
than temporary and the issuer did not guarantee the obligations of the
subsidiary or commit to provide additional financial support, or (iii)
with business activities which differ from that of the issuer, the issuer
has the option of whether or not to consolidate such subsidiaries. For
purposes of applying the above test, the amounts are determined on the
basis of each respective subsidiarys unconsolidated financial
statements. Under U.S. GAAP, consolidation of majority-owned
subsidiaries is required in the preparing of the consolidated financial
statements. Under U.S. GAAP, the consolidated total assets were
NT$17,295,385 thousand and NT$17,505,917 thousand as of December 31, 2002
and 2003, respectively. Since the difference between ROC GAAP and U.S.
GAAP for consolidation of ChipMOS Japan and ChipMOS US is nominal, thus
they do not appear in the reconciliation below. 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 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Net income (loss)Net income (loss) based on ROC GAAP
    
    
    (1,509,064
    )
    
    
    (1,272,779
    )
    
    
    860,557
    
    
    
    25,333Adjustments:Adjustment for employee stock
bonuses
    
    
    (34,065
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of technology
transfer in payment of capital
stocks
    
    
    150,000
    
    
    
    95,833
    
    
    
    18,334
    
    
    
    540Amortization of start-up costs
    
    
    13,424
    
    
    
    14,699
    
    
    
    14,796
    
    
    
    436Depreciation of fixed assets
and employee dormitory building
    
    
    (13,829
    )
    
    
    (14,270
    )
    
    
    (14,206
    )
    
    
    (418
    )Transfer of building and
facilities from MVI
    
    
    28,841
    
    
    
    15,634
    
    
    
    2,104
    
    
    
    62Derivative financial instruments
    
    
    2,049
    
    
    
    
    
    
    
    
    
    
    
    Pension expenses
    
    
    (1,898
    )
    
    
    
    
    
    
    
    
    
    
    Marketable securities-trading
    
    
    25,647
    
    
    
    (31,139
    )
    
    
    1,916
    
    
    
    56Interest capitalization
    
    
    75,429
    
    
    
    43,329
    
    
    
    
    
    
    
    Depreciation of interest
capitalization
    
    
    (2,201
    )
    
    
    (4,254
    )
    
    
    (5,728
    )
    
    
    (169
    )Effect of U.S. GAAP adjustment
on long-term investments
    
    
    
    
    
    
    
    
    
    
    (3,867
    )
    
    
    (114
    )(Forward)
 F-113




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Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Effect of U.S. GAAP adjustment
on income taxes
    
    
    (41,823
    )
    
    
    (38,217
    )
    
    
    (3,825
    )
    
    
    (113
    )Net increase in net income (loss)
    
    
    201,574
    
    
    
    81,615
    
    
    
    9,524
    
    
    
    280Net income (loss) based on U.S. GAAP
    
    
    (1,307,490
    )
    
    
    (1,191,164
    )
    
    
    870,081
    
    
    
    25,613Earnings (loss) per share
    
    
    (1.48
    )
    
    
    (1.34
    )
    
    
    0.98
    
    
    
    0.03Number of weighted average shares
outstanding under U.S. GAAP
    
    
    881,467
    
    
    
    887,227
    
    
    
    887,227
    
    
    
    887,227
 Shareholders equity December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Shareholders equity based on ROC GAAP
    
    
    9,733,900
    
    
    
    10,605,987
    
    
    
    312,217Adjustments:Technology transfer in payment of capital stocksOriginal cost
    
    
    (750,000
    )
    
    
    (750,000
    )
    
    
    (22,078
    )Accumulated amortization of technology transfer in payment of
capital stocks
    
    
    731,666
    
    
    
    750,000
    
    
    
    22,078Start-up costsOriginal cost
    
    
    (86,523
    )
    
    
    (73,329
    )
    
    
    (2,159
    )Accumulated depreciation of start-up costs
    
    
    51,998
    
    
    
    53,554
    
    
    
    1,576Net effect on inventories
    
    
    (252
    )
    
    
    (206
    )
    
    
    (6
    )Depreciation of fixed assets and employee dormitory buildingDepreciation of fixed assets and employee dormitory building
    
    
    (57,032
    )
    
    
    (71,239
    )
    
    
    (2,097
    )Net effects on inventories
    
    
    251
    
    
    
    252
    
    
    
    8Transfer of building and facilities from MVIOriginal cost
    
    
    (173,174
    )
    
    
    (173,174
    )
    
    
    (5,098
    )Depreciation and gain on disposal of building and facilities from MVI
    
    
    164,952
    
    
    
    166,789
    
    
    
    4,910Net effects on inventories
    
    
    (301
    )
    
    
    (34
    )
    
    
    (1
    )Marketable securities  trading
    
    
    (5,492
    )
    
    
    (3,576
    )
    
    
    (105
    )Unrealized holding gain on available-for-sale securities
    
    
    79,277
    
    
    
    
    
    
    
    Pension expenses
    
    
    (1,898
    )
    
    
    (1,898
    )
    
    
    (56
    )Interest capitalization
    
    
    118,757
    
    
    
    118,757
    
    
    
    3,496Depreciation of interest capitalization
    
    
    (6,455
    )
    
    
    (12,183
    )
    
    
    (359
    )Effect of U.S. GAAP adjustment on long-term investments
    
    
    
    
    
    
    (14,087
    )
    
    
    (415
    )Effect of U.S. GAAP adjustment on income tax
    
    
    1,528
    
    
    
    (2,297
    )
    
    
    (68
    )Net increase (decrease) in shareholders equity
    
    
    67,302
    
    
    
    (12,671
    )
    
    
    (374
    )Shareholders equity based on U.S. GAAP
    
    
    9,801,202
    
    
    
    10,593,316
    
    
    
    311,843
 F-114




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Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Changes in shareholders equity
based on U.S. GAAPBalance, beginning of the year
    
    
    12,067,676
    
    
    
    11,072,313
    
    
    
    9,801,202
    
    
    
    288,525Adjustment for common shares issued
as bonuses to employees
    
    
    103,515
    
    
    
    
    
    
    
    
    
    
    
    Reversal of unrealized loss (gain)
on available-for-sale security
    
    
    55,382
    
    
    
    (153,621
    )
    
    
    (79,277
    )
    
    
    (2,334
    )Unrealized gain (loss) on
available-for-sale security
    
    
    153,621
    
    
    
    79,277
    
    
    
    (5,618
    )
    
    
    (165
    )Cumulative translation adjustments
    
    
    (391
    )
    
    
    (47
    )
    
    
    115
    
    
    
    3Adjustment for long-term investments
    
    
    
    
    
    
    (5,556
    )
    
    
    6,813
    
    
    
    201Net income (loss) for the year
    
    
    (1,307,490
    )
    
    
    (1,191,164
    )
    
    
    870,081
    
    
    
    25,613Balance, end of the year
    
    
    11,072,313
    
    
    
    9,801,202
    
    
    
    10,593,316
    
    
    
    311,843
 A reconciliation of the significant balance sheet accounts to the
approximate amounts determined under U.S. GAAP is as follows: December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Current assetsAs reported
    
    
    5,301,160
    
    
    
    7,115,404
    
    
    
    209,461U.S. GAAP adjustmentsMarketable securities  trading
    
    
    (5,492
    )
    
    
    (3,576
    )
    
    
    (105
    )Effect of inventory adjustments:Start-up costs
    
    
    (252
    )
    
    
    (206
    )
    
    
    (6
    )Depreciation of fixed assets and employee dormitory building
    
    
    251
    
    
    
    252
    
    
    
    7Transfer of building and facilities from MVI
    
    
    (301
    )
    
    
    (34
    )
    
    
    (1
    )As adjusted
    
    
    5,295,366
    
    
    
    7,111,840
    
    
    
    209,356Long-term investmentsAs reported
    
    
    1,441,866
    
    
    
    1,288,350
    
    
    
    37,926U.S. GAAP adjustmentsAdjustment for investment income
    
    
    
    
    
    
    (8,469
    )
    
    
    (250
    )Unrealized gain (loss) on available-for-sale security
    
    
    79,277
    
    
    
    (5,618
    )
    
    
    (165
    )As adjusted
    
    
    1,521,143
    
    
    
    1,274,263
    
    
    
    37,511(Forward)
 F-115




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December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Property, plant and equipment  netAs reported
    
    
    9,690,293
    
    
    
    8,929,700
    
    
    
    262,870U.S. GAAP adjustmentsStart-up costs
    
    
    (34,525
    )
    
    
    (19,775
    )
    
    
    (582
    )Depreciation of fixed assets
    
    
    (50,393
    )
    
    
    (62,969
    )
    
    
    (1,854
    )Transfer of building and facilities from MVI
    
    
    (8,222
    )
    
    
    (6,385
    )
    
    
    (188
    )Interest capitalization
    
    
    112,302
    
    
    
    106,574
    
    
    
    3,137As adjusted
    
    
    9,709,455
    
    
    
    8,947,145
    
    
    
    263,383Intangible assets  netAs reported
    
    
    50,348
    
    
    
    45,038
    
    
    
    1,326U.S. GAAP adjustmentsTechnology transfer in payment of capital stock
    
    
    (18,334
    )
    
    
    
    
    
    
    As adjusted
    
    
    32,014
    
    
    
    45,038
    
    
    
    1,326Other assetsAs reported
    
    
    745,561
    
    
    
    133,535
    
    
    
    3,931U.S. GAAP adjustmentsDepreciation of employee dormitory building
    
    
    (6,639
    )
    
    
    (8,270
    )
    
    
    (243
    )As adjusted
    
    
    738,922
    
    
    
    125,265
    
    
    
    3,688Other liabilitiesAs reported
    
    
    258,434
    
    
    
    503,279
    
    
    
    14,815U.S. GAAP adjustmentsPension expenses
    
    
    1,898
    
    
    
    1,898
    
    
    
    56Effect of U.S. GAAP adjustment on income taxes
    
    
    (1,528
    )
    
    
    2,297
    
    
    
    68As adjusted
    
    
    258,804
    
    
    
    507,474
    
    
    
    14,939
 As a result of the adjustments presented above, the approximate amounts of
total assets based on U.S. GAAP are NT$17,296,900 thousand and NT$17,503,551
thousand as of December 31, 2002 and 2003, respectively. The following U.S. GAAP condensed statements of operation for the years ended
December 31, 2001, 2002 and 2003 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 receivable, gain (loss) on disposal of property,
plant and equipment and loss on lease rescission are included as operating
expenses. F-116




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Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Net revenues
    
    
    5,245,095
    
    
    
    6,525,865
    
    
    
    8,468,665
    
    
    
    249,298Cost of revenues
    
    
    5,999,506
    
    
    
    6,700,265
    
    
    
    6,911,268
    
    
    
    203,452Gross profit (loss)
    
    
    (754,411
    )
    
    
    (174,400
    )
    
    
    1,557,397
    
    
    
    45,846Operating expenses
    
    
    629,992
    
    
    
    397,700
    
    
    
    541,145
    
    
    
    15,930Income (loss) from operations
    
    
    (1,384,403
    )
    
    
    (572,100
    )
    
    
    1,016,252
    
    
    
    29,916Non-operating income (expenses)-net
    
    
    151,076
    
    
    
    (482,985
    )
    
    
    (147,896
    )
    
    
    (4,354
    )Income (loss) before income tax
    
    
    (1,233,327
    )
    
    
    (1,055,085
    )
    
    
    868,356
    
    
    
    25,562Net income (loss)
    
    
    (1,307,490
    )
    
    
    (1,191,164
    )
    
    
    870,081
    
    
    
    25,613
  21.
    
    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 recently issued accounting standards
will have on the financial statements upon their adoption in future
periods.In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This Statement requires, among other provisions,
retirement obligations to be recognized when they are incurred and
displayed as liabilities, with a corresponding amount capitalized as part
of the related long-lived asset. The capitalized element is required to be
expensed using a systematic and rational method over its useful life. The
Company has adopted this Statement on January 1, 2003 and there is no
material impact on the accompanying financial statements.In December 2003, the FASB issued Interpretation No. 46, (revised December
2003) Consolidation of Variable Interest Entities, an interpretation of
ARB No. 51. This Interpretation replaces FASB Interpretation No. 46
issued in January 2003 and clarifies the application of ARB No. 51
Consolidated Financial Statements to certain entities in which equity
investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support.
This Interpretation requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiaries if the entities
do not effectively disperse risks among parties involved. The enterprise
that consolidates a variable interest entity is the primary beneficiary,
which 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. The application of this
Interpretation is required in financial statements of public entities hat
have interest in variable interest entities or potential variable interest
entities commonly referred to as special-purpose entities for periods
ending after December 15, 2003, whereas no later than the end of the first
reporting period after March 15, 2004 for all other types of entities.
The Company has completed its assessment of adoption of this
Interpretation and there is no material impact on the accompanying financial statements. F-117




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In December 2003, the Financial Accounting standards Board issued
SFAS No. 132 (revised 2003), Employers Disclosures about Pensions and
Other Postretirement Benefits. This statement revises employers
disclosures about pension plans and other postretirement benefit plans.
This Statement retains the disclosure requirements contained in FASB
Statement No. 132, which it replaces. It requires additional disclosures
to those in the original Statement 132 about the assets, obligations, cash
flows and net periodic benefit cost of defined benefit pension plans and
other defined benefit postretirement plans. Those disclosures include
information describing the types of plan assets, investment strategy,
measurement dates, plan obligations, cash flows, and components of net
periodic benefit cost recognized during interim periods. The required
information should be provided separately for pension plans and for other
postretirement benefit plans. The Statement was effective for financial
statements with fiscal years ending after December 15, 2003. The
interim-period disclosures required by this Statement are effective for
interim periods beginning after December 15, 2003.In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity. This Statement establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. This Statement
requires that an issuer classify as liabilities (or assets in some
circumstances) three classes of freestanding financial instruments that
embody obligations for the issuer, including mandatory redeemable
financial instruments, an obligation to repurchase the issuers
equity shares by transferring assets, and certain obligations to issue a
variable number of shares. Further, this Statement requires disclosure
regarding the nature and terms of the financial instruments and the
right s and obligations embodied in those instruments. This Statement
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. The adoption of SFAS No.
150 does not have a material impact on the accompanying financial
statements.In April 2003, the FASB issued SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities. This Statement
amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) 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. This Statement is 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 accompanying
financial statements.In December 2002, the FASB has issued SFAS No. 148 Accounting for
Stock-Based Compensation  Transition and Disclosures, which 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, this Statement F-118




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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. SFAS No. 148 is not
expected to have a material compact on the accompanying financial
statements.In October 2002, the FASB has issued SFAS No. 147, Acquisitions of
Certain Financial Institutions, which amends SFAS No. 72 and 144 and
FASB Interpretation No. 9. The provisions of this Statement that
relate to the application of the purchase method of accounting apply to
all acquisitions of financial institutions, except transactions between
two or more mutual enterprises. This Statement is effective for
certain transactions arising on or after October 1, 2002. SFAS No. 147
will have no impact on the Company.In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and 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). This Statement requires that a liability for a
cost associated with an exit or disposal activities be recognized when
it is incurred rather than at the date of a commitment to an exit or
disposal plan. The provisions of this Statement are effective for exit
or disposal activities that are initiated after December 31, 2002. The
adoption of SFAS No. 146 does not have a material impact on the
accompanying financial statements.In April 2002, the 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
extinguishments 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 of debt. As a
result, gains and losses from extinguishments of debt should be
classified as extraordinary items only if they meet the criteria in
Opinion 30. This Statement also amends paragraph 14(a) of SFAS No. 13
to require that certain lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same
manner as sale-leaseback transactions. The adoption of SFAS No. 145
does not have a material impact on the accompanying financial
statements.In December 2003, the Staff of the 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 Statement 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. F-119




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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 Statement 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.b.
    
    Marketable securitiesOn December 31, 2002 and 2003, 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 Value2002
    
    2003
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    NT$(In Thousands)
    
    (In Thousands)Investment in trading securities (Note 4)
    
    
    874,932
    
    
    
    437,446
    
    
    
    869,440
    
    
    
    433,870Long-term investments-available-for-sale security (Note 7)
    
    
    218,099
    
    
    
    
    
    
    
    297,376
    
    
    
    
  The Company uses the weight-average cost method for trading
securities and available-for-sale securities when determining cost
basis.c.
    
    Income tax expense (benefit) Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Income tax current payable
    
    
    57,229
    
    
    
    4,217
    
    
    
    1,309
    
    
    
    39Deferred income tax
    
    
    36,583
    
    
    
    116,899
    
    
    
    (6,398
    )
    
    
    (188
    )Adjustment of prior years income taxes
    
    
    (19,649
    )
    
    
    14,963
    
    
    
    3,364
    
    
    
    99Income tax expense (benefit)
    
    
    74,163
    
    
    
    136,079
    
    
    
    (1,725
    )
    
    
    (50
    )
 F-120




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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, is as follows: Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Tax on pretax income at ROC statutory rate (25%)
    
    
    (308,415
    )
    
    
    (263,771
    )
    
    
    217,079
    
    
    
    6,390SBIP tax exemption (5%)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax on pretax income at SBIP statutory rate
    
    
    (308,415
    )
    
    
    (263,771
    )
    
    
    217,079
    
    
    
    6,390Separate and foreign income tax
    
    
    
    
    
    
    4,217
    
    
    
    1,309
    
    
    
    39Additional 10% on the unappropriated earnings
    
    
    114,459
    
    
    
    
    
    
    
    
    
    
    
    Tax effect of:Tax-exempt income
    
    
    
    
    
    
    (3,149
    )
    
    
    (1,469
    )
    
    
    (43
    )Permanent differencesNon-taxable gain on sales of investment
    
    
    (58,175
    )
    
    
    2,820
    
    
    
    (22,571
    )
    
    
    (664
    )Non-deductible investment loss
    
    
    18,758
    
    
    
    65,902
    
    
    
    6,613
    
    
    
    195Bonus to employee and directors
    
    
    8,600
    
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    (7,563
    )
    
    
    6,478
    
    
    
    
    
    
    
    Tax credits  utilized
    
    
    (57,230
    )
    
    
    
    
    
    
    (187,700
    )
    
    
    (5,525
    ) Deferred
    
    
    (434,872
    )
    
    
    119,312
    
    
    
    48,014
    
    
    
    1,413Valuation allowance
    
    
    769,000
    
    
    
    181,633
    
    
    
    (66,405
    )
    
    
    (1,955
    )Effect of increase in tax rate on deferred taxes
    
    
    49,250
    
    
    
    
    
    
    
    
    
    
    
    Loss carry forward
    
    
    
    
    
    
    7,674
    
    
    
    41
    
    
    
    1Adjustment of prior years income tax
    
    
    (19,649
    )
    
    
    14,963
    
    
    
    3,364
    
    
    
    99Income tax expense (benefit)
    
    
    74,163
    
    
    
    136,079
    
    
    
    (1,725
    )
    
    
    (50
    )
 F-121




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The components of deferred income assets (liabilities) were as
follows: December 312002
    
    2003NT$
    
    NT$
    
    US$(In Thousands)Deferred income tax assetCurrentUnrealized foreign exchange loss
    
    
    5,439
    
    
    
    8,613
    
    
    
    253Loss of market price decline and obsolete and slow-moving inventories
    
    
    21,652
    
    
    
    10,387
    
    
    
    306Sales allowance
    
    
    5,721
    
    
    
    6,385
    
    
    
    188Tax credit for investment in machinery and equipment and R&D expenditures
    
    
    
    
    
    
    143,905
    
    
    
    4,236Others
    
    
    5,655
    
    
    
    15,656
    
    
    
    46138,467
    
    
    
    184,946
    
    
    
    5,444Non-currentTax credit for investment in machinery and equipment and R & D expenditures
    
    
    839,526
    
    
    
    647,607
    
    
    
    19,064Loss carry forwards
    
    
    811,526
    
    
    
    811,485
    
    
    
    23,888Technologies transfer in payment of capital stock
    
    
    4,584
    
    
    
    
    
    
    
    Transferred assets from MVI
    
    
    
    
    
    
    1,605
    
    
    
    47Start-up cost
    
    
    8,694
    
    
    
    4,995
    
    
    
    147Others
    
    
    2,146
    
    
    
    3,108
    
    
    
    911,666,476
    
    
    
    1,468,800
    
    
    
    43,237Valuation allowance
    
    
    (1,306,633
    )
    
    
    (1,240,228
    )
    
    
    (36,509
    )359,843
    
    
    
    228,572
    
    
    
    6,728Deferred income tax liabilitiesNon-currentDepreciation differences
    
    
    (561,144
    )
    
    
    (572,260
    )
    
    
    (16,846
    )Interest capitalization
    
    
    (28,076
    )
    
    
    (26,644
    )
    
    
    (784
    )Other
    
    
    (874
    )
    
    
    
    
    
    
    (590,094
    )
    
    
    (598,904
    )
    
    
    (17,630
    )(191,784
    )
    
    
    (185,386
    )
    
    
    (5,458
    )
 F-122




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d.
    
    PensionAccording to SFAS No. 132 (revised 2003) Employers Disclosures about
Pensions and Other Post-retirement Benefits, pension information is
disclosed below: Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Components of net periodic benefit costService cost
    
    
    23,363
    
    
    
    21,323
    
    
    
    32,102
    
    
    
    945Interest cost
    
    
    3,384
    
    
    
    3,529
    
    
    
    4,275
    
    
    
    126Projected return on plan assets
    
    
    (2,496
    )
    
    
    (2,802
    )
    
    
    (2,581
    )
    
    
    (76
    )Net amortization and deferral:Unrecognized net transition obligation
    
    
    
    
    
    
    28
    
    
    
    28
    
    
    
    1Unrecognized prior service cost
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    Unrecognized net loss
    
    
    
    
    
    
    
    
    
    
    695
    
    
    
    20Curtailment gain
    
    
    (5,004
    )
    
    
    
    
    
    
    
    
    
    
    Net periodic benefit cost
    
    
    19,343
    
    
    
    22,078
    
    
    
    34,519
    
    
    
    1,016Changes in benefit obligationBenefit obligation at beginning of year
    
    
    58,009
    
    
    
    70,572
    
    
    
    122,148
    
    
    
    3,596Service cost
    
    
    23,363
    
    
    
    21,323
    
    
    
    32,102
    
    
    
    945Interest cost
    
    
    3,384
    
    
    
    3,529
    
    
    
    4,275
    
    
    
    126Curtailments
    
    
    (7,180
    )
    
    
    
    
    
    
    
    
    
    
    Actuarial loss (gain)
    
    
    (7,004
    )
    
    
    26,724
    
    
    
    9,454
    
    
    
    278Benefit obligation at end of year
    
    
    70,572
    
    
    
    122,148
    
    
    
    167,979
    
    
    
    4,945Changes in plan assetsFair value of plan assets at beginning of year
    
    
    33,101
    
    
    
    49,610
    
    
    
    66,005
    
    
    
    1,943Actual return on plan assets
    
    
    1,655
    
    
    
    1,306
    
    
    
    1,003
    
    
    
    30Employer contribution
    
    
    14,886
    
    
    
    15,089
    
    
    
    17,813
    
    
    
    52449,642
    
    
    
    66,005
    
    
    
    84,821
    
    
    
    2,497Funds status
    
    
    (20,930
    )
    
    
    (56,143
    )
    
    
    (83,158
    )
    
    
    (2,448
    )Unrecognized actuarial loss (gain)
    
    
    (181
    )
    
    
    28,043
    
    
    
    38,352
    
    
    
    1,129Net amount recognized (recognized as accrued pension cost)
    
    
    (21,111
    )
    
    
    (28,100
    )
    
    
    (44,806
    )
    
    
    (1,319
    )Actuarial assumptionsDiscount rate
    
    
    5.0
    %
    
    
    3.5
    %
    
    
    3.25
    %
    
    
    3.25
    %Rate of compensation increase
    
    
    4.5
    %
    
    
    3.5
    %
    
    
    3.25
    %
    
    
    3.25
    %Expected return on plan assets
    
    
    5.0
    %
    
    
    3.5
    %
    
    
    3.25
    %
    
    
    3.25
    %
  The Company has no other post-retirement or post-employment benefit plans.
The Company expects to contribute NT$23,150 thousand to its pension plan
in 2004. The plan assets are all invested in the Central Trust of China. F-123




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e.
    
    Statements of cash flowsWe apply ROC SFAS No. 17, Statement of Cash Flows. 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 flow 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 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Net cash inflow (outflow) from:Operating activities
    
    
    2,771,734
    
    
    
    1,335,128
    
    
    
    1,842,453
    
    
    
    54,238Investing activities
    
    
    (1,692,567
    )
    
    
    (3,042,493
    )
    
    
    (1,816,260
    )
    
    
    (53,467
    )Financing activities
    
    
    (488,275
    )
    
    
    2,496,613
    
    
    
    (1,435,656
    )
    
    
    (42,262
    )Change in cash and cash equivalents
    
    
    590,892
    
    
    
    789,248
    
    
    
    (1,409,463
    )
    
    
    (41,491
    )Cash and cash equivalents at the beginning of year
    
    
    1,184,985
    
    
    
    1,775,877
    
    
    
    2,565,125
    
    
    
    75,511Cash and cash equivalents at the end of year
    
    
    1,775,877
    
    
    
    2,565,125
    
    
    
    1,155,662
    
    
    
    34,020
  f.
    
    Statement of comprehensive income (loss) Year Ended December 312001
    
    2002
    
    2003NT$
    
    NT$
    
    NT$
    
    US$(In Thousands)Net income (loss) based on U.S. GAAP
    
    
    (1,307,490
    )
    
    
    (1,191,164
    )
    
    
    870,081
    
    
    
    25,613Other comprehensive income (loss):Reversal of unrealized loss (gain) on available-for-sale security
    
    
    55,382
    
    
    
    (153,621
    )
    
    
    (79,277
    )
    
    
    (2,334
    )Unrealized gain (loss) on available-for-sale security
    
    
    153,621
    
    
    
    79,277
    
    
    
    (5,618
    )
    
    
    (165
    )Translation adjustment
    
    
    (391
    )
    
    
    (47
    )
    
    
    115
    
    
    
    3Comprehensive income (loss)
    
    
    (1,098,878
    )
    
    
    (1,265,555
    )
    
    
    785,301
    
    
    
    23,117
  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 expenses or benefit is allocated to each
component. F-124




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##### Table of Contents



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, 2001
    
    
    (55,382
    )
    
    
    (296
    )
    
    
    (55,678
    )Addition in 2001
    
    
    209,003
    
    
    
    (391
    )
    
    
    208,612Balance, as of December 31, 2001
    
    
    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
    )
 F-125




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##### Table of Contents



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 Ethics12.1
    
    Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 200212.2
    
    Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 200213.1
    
    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 200213.2
    
    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 200214.1
    
    Consent of Independent Accountants
   (1)
    
    Incorporated by reference to Exhibit 3.1 to our Year 2001 Form 20-F filed
with the Commission 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 Commission 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 Commission 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 Commission 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 Commission on April 29, 2000.