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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
 or
 þ
    
    Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 25, 2005
 or
 o
    
    Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from

to
 or
 o
    
    Shell company report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
Date of event requiring this shell company report
 Commission file number 000-29103
 STATS ChipPAC Ltd.
 (Exact Name of Registrant as specified in its charter)
 10 Ang Mo Kio Street 65#05-17/20 TechpointRepublic of Singapore
    
    Singapore 569059(Jurisdiction of incorporation or organization)
    
    (Address of principal executive offices)
 None
  Ordinary Shares, including Ordinary Shares
represented by American Depositary Shares (each representing ten Ordinary Shares)
 None
  1,976,292,025 Ordinary Shares of Registrant.
  þ o
  o þ
  þ o
  þ o o
  o þ
  o þ
   o o




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TABLE OF CONTENTS
 PAGEITEM 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    2ITEM 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    2ITEM 3.
    
    KEY INFORMATION
    
    
    2ITEM 4.
    
    INFORMATION ON OUR COMPANY
    
    
    21ITEM 4A.
    
    UNRESOLVED STAFF COMMENTS
    
    
    42ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    42ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    58ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    71ITEM 8.
    
    FINANCIAL INFORMATION
    
    
    73ITEM 9.
    
    THE OFFER AND LISTING
    
    
    75ITEM 10.
    
    ADDITIONAL INFORMATION
    
    
    76ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    88ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    89ITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    89ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    89ITEM 15.
    
    CONTROLS AND PROCEDURES
    
    
    89ITEM 16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    89ITEM 16B.
    
    CODE OF ETHICS
    
    
    89ITEM 16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    89ITEM 16D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
    
    
    90ITEM 16E.
    
    ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    90ITEM 17.
    
    FINANCIAL STATEMENTS
    
    
    90ITEM 18.
    
    FINANCIAL STATEMENTS
    
    
    90ITEM 19.
    
    EXHIBITS
    
    
    91SIGNATURES
    
    
    96INDEX TO FINANCIAL STATEMENTS
    
    
    F-1EX-4.46 Terms and Conditions of Appointment of Tan Lay Koon as President and Chief Executive Officer of STATS ChipPAC Ltd. dated August 5, 2004 by and between Tan Lay Koon and STATS ChipPAC Ltd.EX-4.48 Supplemental Subsidiary Guarantee Agreement dated as of Feburary 21, 2006, by and between STATS ChipPAC Ltd. and U.S. Bank National Association with respect to the 7.5% Senior Notes 2010EX-4.49 Supplemental Subsidiary Guarantee Agreement, dated as of Feburary 21, 2006, by and between STATS ChipPAC Ltd. and U.S. Bank National Association with respect to 6 3/4% Senior Notes due 2011EX-8.1 List of subsidiariesEX-12.1 Certification by the Chief Executive Officer pursuant to 17 CFR 240. 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002EX-12.2 Certification by the Chief Financial Officer pursuant to 17 CFR 240. 15D-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002EX-13.1 Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002EX-13.2 Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act 2002EX-15.1 Consent Pricewaterhouse Coopers, Singapore, independent registered public accounting firmEX-15.2 Consent of KPMG, independent registered public accounting firm
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GENERAL INFORMATION
      FORWARD-LOOKING STATEMENTS
   1




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ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
 A. Selected Financial Data
    2




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Year Ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(In thousands, except per share data and ratios)Income Statement Data:Net revenues
    
    $
    145,866
    
    
    $
    225,738
    
    
    $
    380,691
    
    
    $
    769,121
    
    
    $
    1,157,253Cost of revenues
    
    
    (217,789
    )
    
    
    (247,943
    )
    
    
    (328,014
    )
    
    
    (643,540
    )
    
    
    (968,023
    )Gross profit (loss)
    
    
    (71,923
    )
    
    
    (22,205
    )
    
    
    52,677
    
    
    
    125,581
    
    
    
    189,230Operating expenses:Selling, general and administrative(1)
    
    
    37,065
    
    
    
    36,693
    
    
    
    36,475
    
    
    
    84,965
    
    
    
    135,771Research and development
    
    
    15,160
    
    
    
    18,856
    
    
    
    15,295
    
    
    
    17,637
    
    
    
    26,071Goodwill impairment(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    453,000
    
    
    
    Equipment impairments(3)
    
    
    23,735
    
    
    
    14,666
    
    
    
    
    
    
    
    
    
    
    
    Prepaid leases written off(4)
    
    
    3,145
    
    
    
    764
    
    
    
    
    
    
    
    
    
    
    
    Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    830Other general expenses (income), net
    
    
    101
    
    
    
    548
    
    
    
    374
    
    
    
    (464
    )
    
    
    (20
    )Total operating expenses
    
    
    79,206
    
    
    
    71,527
    
    
    
    52,144
    
    
    
    555,138
    
    
    
    162,652Operating income (loss)
    
    
    (151,129
    )
    
    
    (93,732
    )
    
    
    533
    
    
    
    (429,557
    )
    
    
    26,578Other income (expense), net:Interest income (expense), net
    
    
    5,222
    
    
    
    (5,143
    )
    
    
    (9,209
    )
    
    
    (24,386
    )
    
    
    (36,215
    )Foreign currency exchange gain (loss)
    
    
    775
    
    
    
    (512
    )
    
    
    1,634
    
    
    
    (1,122
    )
    
    
    531Other non-operating income (expense), net
    
    
    1,990
    
    
    
    3,419
    
    
    
    7,570
    
    
    
    (936
    )
    
    
    (1,076
    )Total other income (expense), net
    
    
    7,987
    
    
    
    (2,236
    )
    
    
    (5
    )
    
    
    (26,444
    )
    
    
    (36,760
    )Income (loss) before income taxes
    
    
    (143,142
    )
    
    
    (95,968
    )
    
    
    528
    
    
    
    (456,001
    )
    
    
    (10,182
    )Income tax benefit (expense)
    
    
    8,810
    
    
    
    7,163
    
    
    
    (705
    )
    
    
    (7,894
    )
    
    
    (9,689
    )Income (loss) before minority interest
    
    
    (134,332
    )
    
    
    (88,805
    )
    
    
    (177
    )
    
    
    (463,895
    )
    
    
    (19,871
    )Minority interest
    
    
    313
    
    
    
    (514
    )
    
    
    (1,539
    )
    
    
    (3,828
    )
    
    
    (6,440
    )Net income (loss)
    
    $
    (134,019
    )
    
    $
    (89,319
    )
    
    $
    (1,716
    )
    
    $
    (467,723
    )
    
    $
    (26,311
    )Net income (loss) per ordinary share:Basic
    
    $
    (0.14
    )
    
    $
    (0.09
    )
    
    $
    (0.00
    )
    
    $
    (0.33
    )
    
    $
    (0.01
    )Diluted
    
    $
    (0.14
    )
    
    $
    (0.09
    )
    
    $
    (0.00
    )
    
    $
    (0.33
    )
    
    $
    (0.01
    )Net income (loss) per ADS:Basic
    
    $
    (1.36
    )
    
    $
    (0.90
    )
    
    $
    (0.02
    )
    
    $
    (3.27
    )
    
    $
    (0.13
    )Diluted
    
    $
    (1.36
    )
    
    $
    (0.90
    )
    
    $
    (0.02
    )
    
    $
    (3.27
    )
    
    $
    (0.13
    )Ordinary shares (in thousands) used in per ordinary
share calculation:Basic
    
    
    989,083
    
    
    
    991,549
    
    
    
    1,005,374
    
    
    
    1,428,954
    
    
    
    1,961,950Diluted
    
    
    989,083
    
    
    
    991,549
    
    
    
    1,005,374
    
    
    
    1,428,954
    
    
    
    1,961,950ADS (in thousands) used in per ADS calculation:Basic
    
    
    98,908
    
    
    
    99,155
    
    
    
    100,537
    
    
    
    142,895
    
    
    
    196,195Diluted
    
    
    98,908
    
    
    
    99,155
    
    
    
    100,537
    
    
    
    142,895
    
    
    
    196,195Balance Sheet Data:Cash and cash equivalents
    
    $
    115,214
    
    
    $
    167,661
    
    
    $
    313,163
    
    
    $
    227,509
    
    
    $
    224,720Working capital
    
    
    109,447
    
    
    
    165,851
    
    
    
    328,583
    
    
    
    124,028
    
    
    
    250,369Total assets
    
    
    576,578
    
    
    
    721,968
    
    
    
    993,852
    
    
    
    2,271,702
    
    
    
    2,393,382Current installments of obligations under capital leases
    
    
    2,564
    
    
    
    6,558
    
    
    
    5,296
    
    
    
    7,587
    
    
    
    7,091Short-term borrowings and current installments of
long-term debt
    
    
    14,045
    
    
    
    21,588
    
    
    
    6,841
    
    
    
    174,281
    
    
    
    35,542Obligation under capital leases, excluding current
installments
    
    
    7,689
    
    
    
    5,520
    
    
    
    812
    
    
    
    10,771
    
    
    
    3,680Long-term debt, excluding current installments
    
    
    14,045
    
    
    
    218,370
    
    
    
    358,789
    
    
    
    642,175
    
    
    
    775,425Shareholders equity
    
    
    452,795
    
    
    
    366,512
    
    
    
    475,956
    
    
    
    1,159,350
    
    
    
    1,141,652Share capital
    
    $
    159,961
    
    
    $
    160,295
    
    
    $
    172,434
    
    
    $
    298,233
    
    
    $
    303,052Ordinary shares outstanding (in thousands)
    
    
    989,683
    
    
    
    992,115
    
    
    
    1,076,620
    
    
    
    1,944,330
    
    
    
    1,976,292
 
 (1)
    
    Includes stock-based compensation expenses of $1,024,000, $60,000, $97,000, $658,000
and $743,000 in 2001, 2002, 2003, 2004 and 2005, respectively.(2)
    
    We recorded impairment charges of $453,000,000 in 2004 on our goodwill associated with
purchase accounting for the acquisition of ChipPAC.(3)
    
    The impairment charges were recognized in 2001 in accordance with SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of and in
2002 in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets.(4)
    
    We recorded impairment charges of $3,145,000 in 2001 and $764,000 in 2002 to write off
prepaid leases for testers with no expectation of future use. 3




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B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use of Proceeds
  D. Risk Factors
  Risks Relating to Our Company
 Downturns in the semiconductor industry have adversely affected our operating results and may
continue to adversely affect our operating results.
  
    
    rapid technological change;
    
    evolving industry standards;
    
    intense competition; and
    
    fluctuations in end-user demand.
  We may not be able to compete successfully in our industry.
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
    
    their desire to realize higher utilization of their existing test and packaging capacity;
    
    their unwillingness to disclose proprietary technology;
    
    their possession of more advanced packaging and testing technologies; and
    
    the guaranteed availability of their own packaging and test capacity.
  A decrease in demand for communications equipment, consumer and multi-applications, and personal
computers, would significantly decrease the demand of our services.
  We depend on a small number of customers for a significant portion of our revenues and any decrease
in sales to any of them could adversely affect our business and results of operations.
    5




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Decisions by our IDM customers to curtail outsourcing may adversely affect our business.
   We may not be able to develop or access leading technology which may affect our ability to compete
effectively.
   We expect to incur significant capital expenditures in the future and therefore may require
additional financing in the future which may not be available on terms favorable to us, if at all.
   
    
    limit the ability of our China subsidiaries to pay dividends or require us to seek
consents for the payment of dividends, upon which we rely in order to pay the interest on
the convertible notes;
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    limit our ability to pursue our growth plan;
    
    require us to dedicate a substantial portion of our cash flow from operations to payments
on our debt, thereby reducing the availability of our cash flow to fund capital
expenditures, working capital and other general corporate purposes; and
    
    limit our flexibility in planning for, or reacting to, changes in our business and our
industry.
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If we are unable to obtain packaging and testing equipment in a timely manner or on reasonably
favorable terms and prices, we may be unable to meet customer demand and our revenue may decline.
   We have experienced substantial losses in the past and may continue to do so in the future.
  Our substantial indebtedness could adversely affect our financial health.
   
    
    increasing our vulnerability to general adverse economic and industry conditions by
limiting our flexibility in planning for, or reacting to, changes in the business and the
industry in which we operate;
    
    requiring us to dedicate a substantial portion of our cash flow from operations to
payments on our indebtedness, thus reducing the availability of cash flow to fund working
capital, capital expenditures, research and development efforts and other general corporate
purposes;
    
    placing us at a competitive disadvantage relative to our competitors that have less
leverage; and
    
    limiting, along with the financial and other restrictive covenants in the indebtedness,
our ability to borrow additional funds.
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To service our indebtedness and other potential liquidity requirements we will require a
significant amount of cash. Our ability to generate cash depends on many factors beyond our
control.
  We recorded an impairment charge of $453.0 million to our earnings in 2004 and may be required to
record another significant charge to earnings in the future when we review our goodwill or other
intangible assets for potential impairment.
  We could suffer adverse tax and other financial consequences if taxing authorities do not agree
with our interpretation of applicable tax laws.
  Our intellectual property is important to our ability to succeed in our business but may be
difficult to obtain and protect.
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We may be subject to intellectual property rights disputes which could materially adversely affect
our business.
   
    
    stop using certain processes or other intellectual property;
    
    cease manufacturing, using, importing or selling infringing packages;
    
    pay substantial damages;
    
    develop non-infringing technologies; or
    
    attempt to acquire licenses to use the infringed technology.
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Our operating results have fluctuated, and may continue to fluctuate, from quarter to quarter,
which may make it difficult to predict our future performance.
  
    
    general economic conditions in the semiconductor industry;
    
    a shift by IDMs, between internal and outsourced test and packaging services;
    
    general economic conditions in the markets addressed by end-users of semiconductors;
    
    the seasonality of the semiconductor industry;
    
    the short-term nature of our customers commitments;
    
    the rescheduling or cancellation of large orders;
    
    the timing and volume of orders relative to our capacity;
    
    changes in capacity utilization;
    
    the erosion of the selling prices of packages;
    
    changes in our product mix;
    
    the rescheduling, cancellation and timing of expenditures in anticipation of future orders;
    
    disruptions caused by the installation of new equipment;
    
    the ability to obtain adequate equipment and materials on a timely and cost-effective basis;
    
    any exposure to currency and interest rate fluctuations that may not be adequately covered under our hedging policy;
    
    weakness in the supply of wafers and substrates;
    
    loss of key personnel or the shortage of available skilled workers; and
    
    changes in effective tax rates.
  If we are unable to increase our capacity utilization, our gross margin will be adversely affected.
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
    
    overall industry conditions;
    
    installation of new equipment in anticipation of future business;
    
    the level of customer orders;
    
    operating efficiencies;
    
    mechanical failure;
    
    disruption of operations due to expansion of operations, introduction of new packages or relocation of equipment;
    
    disruption in supply of raw materials;
    
    changes in product mix; and
    
    fire or other natural disasters.
  We have entered into a number of financing arrangements that impose limitations on our actions
which may limit our ability to maintain and grow our business.
  
    
    incur additional debt and issue certain preferred stock;
    
    consolidate or merge with another entity;
    
    create liens;
    
    pay dividends, repurchase stock and make other distributions;
    
    prepay subordinated debt;
    
    make investments and other restricted payments;
    
    enter into sale and leaseback transactions;
    
    sell assets; and
    
    enter into transactions with affiliates.
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Our profitability will be affected by average selling prices of packaging and test services that
have experienced pricing pressures and have a tendency to decline.
  Research and development investments may not yield profitable and commercially viable packages or
test services and thus will not necessarily result in increases in revenues for us.
  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.
  We generally do not have any long-term supply contracts with our raw materials suppliers and may
not be able to obtain the raw materials required for our business, which could have a material
adverse effect on our business.
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We need a controlled environment for our operations and any prolonged inability to maintain a clean
room environment may disrupt our operations and materially adversely affect our business.
  Loss of our key management and other personnel, or an inability to attract such management and
other personnel, could impact our business.
  The packaging and testing process is complex and our production yields and customer relationships
may suffer from defects or malfunctions in our testing equipment or defective packages and the
introduction of new packages.
   
    
    contaminants in the manufacturing environment;
    
    human error;
    
    equipment malfunction;
    
    defective raw materials; or
    
    defective plating services.
   Liabilities and obligations under certain environmental laws and regulations could require us to
spend additional funds and could adversely affect our business, financial condition and results of
operations.
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Significant fluctuations in exchange rates may affect our business, financial condition and results
of operations.
  Our ability to make further investments in our subsidiaries may be dependent on regulatory
approvals.
  We are exposed to certain risks as a result of the significant ownership by Temasek Holdings
(Private) Limited, through its wholly-owned subsidiary. Temasek Holdings interests may conflict
with your interests.
   
    
    the election of directors;
    
    the merger or consolidation of our Company with any other entity;
    
    any sale of all or substantially all of our assets; and
    
    the timing and payment of dividends.
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We may have conflicts of interest with our affiliates which may not be resolved in our favor.
  Investor confidence and the value of ADSs and ordinary shares may be adversely impacted if we or
our independent registered public accounting firm are unable to provide adequate attestation over
the adequacy of the internal control over our financial reporting as of December 31, 2006 as
required by Section 404 of the Sarbanes-Oxley Act of 2002.
  We may be unable to integrate our operations successfully and may not realize the full anticipated
benefits of the combination of STATS and ChipPAC.
  
    
    integration of the two companies products and services, sales and marketing, information
and software systems and other operations;
    
    retention and integration of management and other employees;
    
    achievement of the expected cost savings;
    
    coordination of ongoing and future research and development efforts and marketing activities;
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
    
    retention of existing customers of both companies and attraction of additional customers;
    
    retention of strategic partners of each company and attraction of new strategic partners;
    
    developing and maintaining uniform standards, controls, procedures and policies;
    
    minimization of disruption of the combined companys ongoing business and distraction of its management; and
    
    limiting expenses related to integration.
  
    
    the impairment of relationships with employees, customers and business partners;
    
    our ability to attract and retain key management, sales, marketing and technical personnel;
    
    a delay in, or cancellation of, purchasing decisions by current and prospective customers and business partners;
    
    the potential disruption of the combined companys ongoing business and distraction of its management; and
    
    the difficulty of incorporating acquired technology and rights into the products and
service offerings of the combined company.
  If we are unable to take advantage of opportunities to market and sell STATS and ChipPACs
products and services to the others traditional customers, we may not realize the full anticipated
benefits of the combination of STATS and ChipPAC.
  If we encounter future labor problems, we may fail to deliver our products in a timely manner,
which could adversely affect our revenues and profitability.
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With our operations conducted in a limited number of facilities, a fire, flood or other calamity at
one of our facilities could adversely affect us.
  New laws and regulations, currency devaluation and political instability in countries in which we
operate, particularly in South Korea, China, Malaysia and Taiwan could make it more difficult for
us to operate successfully.
  
    
    regulatory limitations imposed by foreign governments;
    
    fluctuations in currency exchange rates;
    
    political, military and terrorist risks;
    
    disruptions or delays in shipments caused by customs brokers or government agencies;
    
    unexpected changes in regulatory requirements, tariffs, customs, duties and other trade barriers;
    
    difficulties in staffing and managing foreign operations; and
    
    potentially adverse tax consequences resulting from changes in tax laws.
  Conducting business in China involves uncertainties and there can be no assurances that the
intended benefits from our new China facility will be realized.
  
    
    economic and political uncertainties in China;
    
    local infrastructure problems, such as electrical power interruptions;
    
    transportation difficulties that may be
encountered in receiving supplies and/or in shipping
finished products by land or by air;
    
    an unwillingness or hesitancy on the part of customers to qualify their products in the new facilities;
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
    
    an inability to attract and retain sufficient and qualified engineering and management talent and resources;
    
    measures which may be introduced to control inflation or deflation;
    
    continuing fluctuations in the value of the Chinese Renminbi currency; and
    
    modifications to fiscal, banking or monetary policies to reduce the rate of future growth in China.
 Because a significant portion of Winsteks business and operations, our new 300
millimeter (mm) wafer bumping facility, the production facilities of many of our suppliers and
customers and providers of complementary semiconductor manufacturing services are located in
Taiwan, a severe earthquake could severely disrupt their normal operations and adversely affect our
earnings.
  Outbreaks of epidemics and communicable diseases in China and other parts of Asia may disrupt our
business operations, causing us to lose customers and revenue.
  We may not be successful in our acquisitions and investments in other companies and businesses.
   
    
    our ability to identify suitable opportunities for investment or acquisition;
    
    our ability to finance any future acquisition or investment on terms acceptable to us or at all;
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
    
    whether we are able to reach an acquisition or investment agreement on terms that are satisfactory to us or at all;
    
    the extent to which we are able to exercise control over the acquired company;
    
    the economic, business or other strategic objectives and goals of the acquired company
compared to those of our Company; and
    
    our ability to successfully integrate the acquired company or business with our business.
  Risks Relating to Our Ordinary Shares and ADSs
 The trading price of our ordinary shares and our ADSs has been and may continue to be volatile.
  
    
    quarterly variations in operating results;
    
    changes in financial estimates and recommendations by securities analysts;
    
    the operating and stock price performance of other companies in our industry;
    
    developments affecting us, our customers or our competitors;
    
    changes in government regulation;
    
    changes in general economic conditions;
    
    changes in accounting principles; and
    
    other events or factors described in this annual report.
  19




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##### Table of Contents



Singapore law contains provisions that could discourage a take-over of our Company.
  Our public shareholders may have more difficulty protecting their interests than they would as
shareholders of a corporation incorporated in the United States.
  It may be difficult for you to enforce any judgment obtained in the United States against us or our
affiliates.
  The Singapore securities market is relatively small and more volatile than markets in the United
States and may cause the market price of our ordinary shares and our ADSs to fluctuate.
  Future sales, or perceived sales, of our ordinary shares or our ADSs by our Company or existing
shareholders could cause the price of our ordinary shares and our ADSs to decline.
  20




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##### Table of Contents



Your voting rights with respect to the ADSs are limited by the terms of the deposit agreement for
the ADSs.
   
    
    the notice of such meeting;
    
    voting instruction forms; and
    
    a statement as to the manner in which instructions may be given by holders.
   The ability of holders of ADSs to participate in any rights offering of our Company is limited, which may cause
dilution to their holdings.
  
 ITEM 4. INFORMATION ON OUR COMPANY
 A. History and Development of Our Company
  www.statschippac.com
  21




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##### Table of Contents



B. Business Overview
  
    
    Packaging services:providing leaded, power and array packages to customers with a broad
range of packaging solutions and full backend turnkey services for a wide variety of
electronics applications. We also provide redistribution (RDL), integrated passive device
(IPD) and wafer bumping services for flip-chip and wafer level chip-scale packages. As part
of customer support on packaging services, we also offer package design, electrical,
mechanical and thermal simulation, measurement and design of lead-frames and laminate
substrates;
    
    Test services:including wafer probe and final testing, on a diverse selection of test
platforms, covering the major test platforms in the industry. We have expertise in testing a
broad variety of semiconductors, especially mixed-signal and high-performance digital
devices. We also offer test-related services such as burn-in process support, reliability
testing, thermal and electrical characterization, dry pack and tape and reel; and
    
    Pre-production and post-production services:such as package development, test software
and related hardware development, warehousing and drop shipment services.
     Our Industry
   22




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##### Table of Contents



Semiconductor Manufacturing Process
  
    
    wafer fabrication, including wafer probe;
    
    assembly of bare semiconductors, or die, into finished semiconductors (referred to as assembly or packaging); and
    
    final testing of assembled semiconductors.
 Wafer Fabrication.
 23




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##### Table of Contents



Wafer Probe.
 Assembly.
 Final Testing.
 Our Strengths and Strategy
  Leverage our broad portfolio of packaging and test services to provide full turnkey solutions.
 Leverage our established presence in the major hubs of wafer fabrication.
 Capitalize on our research and development capabilities to drive accelerated growth.
 Continue to cultivate our strong customer relationships.
 Continue to focus on high-quality customer service.
 Capitalize on our financial position.
 24




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##### Table of Contents



Our Services
   STATS
    
    STATS ChipPACHistorical
    
    Historical
    
    Pro Forma
    
    HistoricalYear Ended
    
    Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,2003
    
    2004
    
    2004
    
    2005Packaging  array
    
    
    20.6
    %
    
    
    40.6
    %
    
    
    47.2
    %
    
    
    50.2
    %Packaging  leaded
    
    
    26.9
    
    
    
    20.9
    
    
    
    21.0
    
    
    
    22.0Test and other services
    
    
    52.5
    
    
    
    38.5
    
    
    
    31.8
    
    
    
    27.8Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Packaging Services
  Leaded Packaging.
 Standard Lead-frame Packages.
  NumberPackage Format
    
    of Leads
    
    Description
    
    Typical ApplicationsPlastic Dual In-line Package
(PDIP)
    
    8-40
    
    Lead-frame package
of low pin count
with two-side leads
and
plated-through-hole
(PTH) technology
    
    Automotive
electronics, power
management, audio
and remote controlSmall Outline Integrated
Circuit (SOIC)
    
    8-32
    
    Lead-frame package
of low pin count
with two-side
leads, and a
surface mount
technology (SMT)
designed for logic,
linear, digital and
read-only-memory
devices
    
    Automotive
electronics, power
management, audio
and remote controlPlastic Leaded Chip Carrier
(PLCC)
    
    20-84
    
    Traditional
lead-frame package
designed for
applications that
do not have space
constraints and do
not require a high
number of
interconnects
    
    Personal computers,
access equipment
and multimedia
 25




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##### Table of Contents



NumberPackage Format
    
    of Leads
    
    Description
    
    Typical ApplicationsMicro Small outline Package
(MSOP)
    
    8-10
    
    Lead-frame package
of very low pin
count with
thickness below
1.0mm designed for
logic, analog and
mixed-signal
devices such as
analog and
operation
amplifiers,
controllers and
drivers, logic,
memory and radio
frequency
(RF)/wireless
devices
    
    Mobile phone, mass
storage, multimedia
and PDAShrink Small Outline
Package (SSOP)
    
    36-56
    
    Traditional
lead-frame package
designed for logic,
analog and
mixed-signal
devices such as
Flash, SRAM, EPROM,
EEPROM and DRAM
    
    Personal computers,
mass storage and
multimediaThin Shrink Small Outline
Package (TSSOP)
    
    8-56
    
    Traditional
lead-frame package
with thickness
below 1.0mm
designed for logic,
analog and
mixed-signal
devices such as
Flash, SRAM, EPROM,
EEPROM and DRAM
    
    Mobile phone, mass
storage, multimedia
and PDAThin Small Outline Package
(TSOP)
    
    28-56
    
    Traditional
lead-frame package
with two-side
leads, and a SMT
designed for
memory,
RF/wireless, logic,
linear and
automotive devices
    
    Personal computers,
portable
electronics,
networking
equipment and
automotive
electronicsThin Quad Flat Package
(TQFP)
    
    32-128
    
    Advanced QFP with
thickness of 1.0mm
for use in low
profile, space
constrained
applications
    
    Mobile phone, mass
storage and
multimediaLow Quad Flat Package
(LQFP)
    
    32-208
    
    Advanced QFP with
thickness of 1.4mm
for use in low
profile, space
constrained
applications
    
    Mobile phone, mass
storage and
multimediaMetric Quad Flat Package
(MQFP)
    
    44-240
    
    Traditional QFP
designed for
application-specific
integrated
circuits (ASICs),
field programmable
gate arrays (FPGAs)
and digital signal
processors (DSPs)
    
    Access/LAN
equipment,
multimedia and mass
storage
 Enhanced Lead-frame Packages.
   NumberPackage Format
    
    of Leads
    
    Description
    
    Typical ApplicationsQuad Leadless Package (QLPp)
    
    8-68
    
    Lead-frame based near chip scale
    
    Mobile phone, PDA, GPSBumped Chip Carrier
(BCC)
    
    16-84
    
    Lead-frame based near chip scale
    
    Mobile phone, PDA, GPSLead-frame Chip Scale Packages
(LFCSPs)
    
    8-64
    
    Lead-frame based near chip scale
    
    Mobile phone, PDA, GPSExposed Pad Low Quad Flat
Package (LQFP-ep)
    
    48-216
    
    Thermally enhanced QFP with 30%
greater thermal dissipation than
MQFP
    
    Access/WAN/LAN equipment and
PC/graphics, HDDExposed Pad Thin Quad Flat
Package (TQFP-ep)
    
    32-100
    
    Thermally enhanced TQFP with 30%
greater thermal dissipation than
TQFP
    
    Access/WAN/LAN equipment,
PC/graphics, HDD, PDA, GPS
and mobile phone
 26




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##### Table of Contents



NumberPackage Format
    
    of Leads
    
    Description
    
    Typical ApplicationsExposed Drop-in Heat Sink
Quad Flat Package (MQFP-ed)
    
    128-240
    
    Thermally enhanced QFP with 60%
greater thermal dissipation than
MQFP
    
    Access/WAN/LAN equipment and
PC/graphicsDrop-in Heat Sink Quad
Flat Package (MQFP-d)
    
    64-208
    
    Thermally enhanced QFP with 30%
greater thermal dissipation than
MQFP
    
    Access/WAN/LAN equipment and
PC/graphicsExposed Pad Thin Shrink
Small Outline Package
(TSSOP-ep)
    
    16-38
    
    Thermally enhanced TSSOP with 30%
greater thermal dissipation than
TSSOP
    
    Mobile phone, mass storage
multimedia and PDAStacked Die Quad Flat
Package (LQFP-SD)
    
    32-208
    
    Compact multiple die designed for
space constrained applications
    
    Mobile phone, PDA, GPS, disk
drive and multimediaStacked Die Exposed Pad
Low Quad Flat Package
(LQFP-ep-SD)
    
    32-216
    
    Thermally enhanced LQFP-SD
designed for space constrained
applications with thickness of
1.4mm and greater thermal
dissipation than LQFP-SD
    
    PC, mobile phone, PDA, GPS,
disk drive, MP3, pagers and
consumer electronicsStacked Die Exposed Pad
Thin Quad Flat Package
(TQFP-ep-SD)
    
    32-100
    
    Thermally enhanced with multiple
die TQFP designed for space
constrained applications with
thickness of 1.0mm and greater
thermal dissipation than LQFP-SD
    
    PC, mobile phone, PDA, GPS,
disk drive, MP3 and consumer
electronics
 Power Packaging.
  Array Packaging.
  
    
    smaller size;
    
    greater pin count, or number of connections to the printed circuit board;
    
    greater reliability;
    
    higher power dissipation;
    
    better electrical signal integrity; and
    
    easier attachment to a printed circuit board.
 27




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##### Table of Contents




    
    Standard BGA.Standard BGA packaging has a grid array of balls on the underside of the
integrated circuit, and is used in high-performance applications, like PC chipsets, graphic
controllers and DSPs. A BGA generally has greater than 100 pins.
    
    Chip-Scale.Chip-scale packaging includes all packages where the package is less than 1.2
times the size of the silicon die. Chip-scale BGA is a substrate (laminate or tape)-based
package that is designed for memory devices and other medium pin count semiconductors and
requires dense ball arrays in very small package sizes, like wireless telephones and
personal digital assistants, video cameras, digital cameras and pagers.
    
    System-in-Package.SiP is a family of chip-scale-packages that contain several
semiconductor dies along with passive components such as resistors, capacitors and inductors
in one package. Dies can be either stacked on top of each other or side by side. This
technology allows greater functionality in the same package footprint and thickness without
significant cost increase. These packages are used in wireless handsets, consumer products
and mobile computing applications.
    
    Flip-Chip BGA.Flip-chip BGA packaging, in which the silicon die is directly attached to
the substrate using gold or solder bumps instead of wire bonds, provides the most dense
interconnect with the highest electrical and thermal performance. Flip-chip BGA technology
is used in a wide array of applications ranging from consumer products to highly
sophisticated ASICs, PC chipsets, graphics and memory packages.
   Number ofPackage Format
    
    Balls
    
    Description
    
    Typical ApplicationsFlip-Chip Low Profile Fine Pitch
BGA (fcLFBGA)
    
    49-144
    
    CSP BGA with Flip- Chip/bump interconnect, instead of
wire bonding
    
    Mobile phone, WAN/LAN equipmentFlip-Chip BGA (fcBGA)
    
    225-1152
    
    BGA with Flip-Chip/bump interconnect instead of wire
bonding
    
    DSP, ASIC, FPGATape based Very Thin Fine Pitch
BGA (VFBGA-T)
    
    81-169
    
    Thin CSP BGA (<1.0mm) characterized by flex-tape
substrate for high density circuits
    
    Mobile phone, PDA and multimedia
 28




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##### Table of Contents



Number ofPackage Format
    
    Balls
    
    Description
    
    Typical ApplicationsStacked Die Low Profile Fine
Pitch BGA (LFBGA-SD)
    
    72-409
    
    Compact multiple die designed for space sensitive
applications. Capability to stack up to seven dies in
one package
    
    Mobile phone, PDA and multimediaTape Enhanced Plastic base
BGA (TBGA)
    
    208-792
    
    BGA characterized by a flex- tape substrate mounted on
a copper heatspreader. This package has a high thermal
performance
    
    WAN/LAN equipment and base stationEnhanced BGA (EBGA)
    
    159-1140
    
    High pin count, thermally enhanced BGA suitable for
high power applications which utilize heat sinks for
thermal dissipation
    
    WAN/LAN equipment and base stationLow Profile Fine Pitch BGA (LFBGA)
    
    16-450
    
    Smaller and thinner BGA designed for applications
which are space constrained and require electrical
performance
    
    Mobile phone, PDA, GPS and multimediaPlastic Ball Grid Array
(PBGA)
    
    169-1152
    
    Electrically enhanced BGA package designed for high
I/O replacement
    
    Access/LAN equipment, PC/graphics
and base stationThin Fine Pitch BGA (TFBGA)
    
    41-280
    
    CSP BGA characterized by a thin core laminate substrate
    
    Mobile phone, PDA and multimediaExposed Drop-in Heat Spreader
Plastic BGA (PBGA-H)
    
    208-841
    
    Thermally Enhanced PBGA with 20% greater thermal
dissipation than PBGA
    
    Access/LAN/PC/graphics and base
station equipmentMulti Chip Module Plastic BGA
(PBGA-MC)
    
    80-600
    
    BGA integrated with two or more multiple die within a
PBGA
    
    Access/LAN/PC/graphics and base
station equipment
    Wafer Process Services.
 Test Services
  29




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##### Table of Contents



Mixed-signal Testing. Bluetooth tm Bluetooth tm Bluetooth tm
 Digital Testing.
 Memory Testing.
 Test-Related Services.
 
    
    Burn-in process support.Burn-in is the process of electrically stressing
semiconductors, usually at high temperature and voltage, for a period of time long enough to
cause the failure of marginal semiconductors. During burn-in process support, we perform an
analysis of burn-in rejects in order to determine the cause of failure.
    
    Reliability testing.Reliability testing is the process of testing a semiconductor to
evaluate its life span. It is performed on a sample of devices that have passed final
testing.
    
    Thermal and electrical characterization.Thermal and electrical characterization is the
process of testing a semiconductor for performance consistency under thermal and electrical
stress.
    
    Dry pack.Dry pack is the process of baking the semiconductors in order to prevent the
failure of any semiconductors due to exposure to moisture during shipping. We dry pack
many of our packaged integrated circuits in specially sealed, environmentally secure
containers.
 30




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##### Table of Contents




    
    Tape and reel.Many electronic assembly lines utilize tape and reel methods in which
semiconductors are placed into a pocket tape to enable faster attachment to the printed
circuit board. We offer a service in which we ship packaged and tested devices on a tape and
reel mechanism, in a tray or in a tube in accordance with our customers post-test
requirements.
 Pre-production and Post-production Services
  Package Development
  Test Software and Hardware Development
   31




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##### Table of Contents



Warehousing and Drop Shipment Services
  Research and Development
  Packaging Services
      
    
    Land Grid Array (LGA);
    
    System-in-Package LFBGA (LFBGA-SiP);
    
    System-in-Package LGA (LGA-SiP);
 32




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##### Table of Contents




    
    Flip-Chip BGA with Buildup Substrate and Heat Sink (fcBGA-H);
    
    Lead free Flip-Chip Land Grid Array (fcLGA);
    
    Wafer Level CSP (WLCSP);
    
    Thin Quad Leadless Package (UQLPp);
    
    Chip Scale Module Package (LFBGA-CSMP, fcLGA-CSMP, QLP-CSMP);
    
    Low profile, Fine pitch BGA with Heatspreader (LFBGA-H);
    
    Redistributed wafer bumping (RDL);
    
    Dual Row Leadframe CSP (LFCSP-dr);
    
    0.4mm Leadframe CSP;
    
    Power Leadframe CSP;
    
    Stacked Die Leadframe CSP;
    
    Dual Row Quad Leadless Package (QLPp-dr);
    
    Molded multi-die chip scale package family with the following chip-stack combinations in
package profile thickness ranging from 0.8 to 1.4mm (LF/TF/VFBGA):
      Two-chip stack, same chip size;     Three-chip stack, pyramid stack;     Three-chip stack with the two chip same size;     Four-chip stack, pyramid stack;     Four-chip stack with two chips same size;     Five-chip stack, pyramid stack;     Five-chip stack with three chips same size;     Six-chip stack, pyramid stack;     Six-chip stack with three chips same size; and     Seven-chip stack with four chips same size;
 
    
    Lead-frame chip scale package (LFCSPtm);
    
    Bumped Chip Carrier package family (BCC, BCC+, BCC++);
    
    Stacked Die Bumped Chip Carrier package (BCC++ -SD2);
    
    Gigabit-Green-Gold-to-Gold flip chip interconnection package family of CSPs and BGAs (G4TM);
    
    Higher thermal performance PBGA with embedded heatslug (PBG-H);
    
    Thermally enhanced ball grid array family with integrated passive components (PBGA-H-SiP);
 33




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##### Table of Contents




    
    Stacked Die System-in-Package PBGA (PBGA-SiP-SD);
    
    Flip-Chip Multi Package Module family module (fcBGA-MP);
    
    Flip-Chip BGA with High Lead bumping (fcBGA-Hi Lead);
    
    Enhanced BGA with Multi Cavity (EBGA-MC);
    
    Flip-Chip on lead-frame substrate (fcLFCSPs);
    
    Package-in-Package (PiP) stacking  LFBGA-PiP;
    
    Package-on-Package (PoP)  LFBGA-PoP;
    
    Stacked Die System-in-Package Multi Package Module  TFLGA-SiP-SD2-MP;
    
    Stacked Die System-in-Package LGA  VFLGA-SiP-SD4;
    
    Bond on Chip Fine Ball Grid Array  TFBGA-BOC;
    
    Stacked Die Bond on Chip Fine Ball Grid Array  TFBGA-BOC-SD2;
    
    Extremely Thin Fine Ball Grid Array (XFBGA);
    
    Extremely Thin Fine Land Grid Array (XFLGA);
    
    Flip-Chip Quad Leadless Package (fcQLPp); and
    
    Stacked Die Thin Small Outline Package (TSOP-SD7).
  Test Services
  Customers
  34




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##### Table of Contents



STATS
    
    STATS ChipPACHistorical
    
    Historical
    
    Pro Forma
    
    HistoricalYear Ended
    
    Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,2003
    
    2004
    
    2004
    
    2005Communications
    
    
    58.3
    %
    
    
    60.1
    %
    
    
    57.9
    %
    
    
    55.2
    %Personal computers
    
    
    29.9
    
    
    
    22.8
    
    
    
    21.1
    
    
    
    21.5Consumer, multi-applications and others
    
    
    11.8
    
    
    
    17.1
    
    
    
    21.0
    
    
    
    23.3Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  STATS
    
    STATS ChipPACHistorical
    
    Historical
    
    Pro Forma
    
    HistoricalYear Ended
    
    Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,2003
    
    2004
    
    2004
    
    2005United States of America
    
    
    81.3
    %
    
    
    77.2
    %
    
    
    77.4
    %
    
    
    76.5
    %Europe
    
    
    4.7
    
    
    
    4.6
    
    
    
    4.3
    
    
    
    2.3Asia
    
    
    14.0
    
    
    
    18.2
    
    
    
    18.3
    
    
    
    21.2Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
   35




---



##### Table of Contents



Sales and Marketing
    Pricing Policy
   Customer Service
  36




---



##### Table of Contents



Suppliers
 Raw Materials
  Equipment
   Packaging Equipment.
 Testing Equipment.
  37




---



##### Table of Contents



Quality Control
    Competition
   
    
    Advanced Semiconductor Engineering, Inc.  South Korea, Taiwan, Malaysia, Hong Kong and the United States;
    
    Amkor Technology, Inc.  South Korea, Japan, Taiwan, China, the Philippines and the United States;
    
    ASE Test Limited  South Korea, Taiwan, Malaysia, Hong Kong and the United States; and
    
    Siliconware Precision Industries Co., Ltd.  Taiwan.
   
    
    their desire to realize higher utilization of their existing packaging or test capacity;
    
    their unwillingness to disclose proprietary technology;
    
    their possession of more advanced packaging or testing technologies; and
    
    the guaranteed availability of their own packaging or test capacity.
 38




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##### Table of Contents



Intellectual Property
       Insurance
  39




---



##### Table of Contents



Environmental Matters and Compliance
   C. Corporate Structure
  
 
 Notes:(1)
    
    Incorporated in November 2005 in Song Jiang
district, Shanghai, China.(2)
    
    Incorporated in September 2005 in Hsin Chu
district, Taiwan.(3)
    
    STATS ChipPAC, Inc. (formerly ST Assembly
Test Services, Inc.) was merged into ChipPAC, Inc. effective as of
January 20, 2005, and the entity surviving the merger was renamed
STATS ChipPAC, Inc.
 40




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##### Table of Contents



D. Property, Plants and Equipment
  AreaProperty/Location(1)
    
    (Sq. Feet)
    
    Functions/Services
    
    Principal Packaging or Services ProvidedYishun, Singapore(2)
    
    
    594,036
    
    
    Turnkey packaging and test
services, research and
development, warehousing
services, and drop shipment
services
    
    Test services, including mixed- signal
and high performance testing, wafer
sort and probe, traditional and
advanced leaded and array packaging,
including BGA, flip-chip packaging,
wafer level packaging and CSP, and drop
shipment servicesIcheon, South Korea
    
    
    587,273
    
    
    Turnkey packaging and test
services, research and
development, warehousing
services, and drop shipment
services
    
    Advanced array packaging such as
stacked die, SiP and flip- chip,
standard array packaging such as BGA
and CSP and test servicesKuala Lumpur, Malaysia(3)
    
    
    488,448
    
    
    Turnkey packaging and test
services, research and
development, warehousing
services, and drop shipment
services
    
    Advanced lead frame packages such as
LFCSP and BCC, discrete power packages,
and test servicesQing Pu, Shanghai,
China(4)
    
    
    421,748
    
    
    Turnkey packaging and test
services, research and
development, warehousing
services, and drop shipment
services
    
    Packaging of leaded packages, CSP, BGA,
memory card, wafer probe, test and
distribution servicesHsin-Chu Hsien, Taiwan(5)
    
    
    220,000
    
    
    Test services, research and
development, warehousing
services, and drop shipment
services
    
    Test development, final test, wafer
probe and distribution servicesFremont, California,
United States
    
    
    56,320
    
    
    Sales, marketing,
administration and research
and development
    
    Sales, marketing, administration and
design review servicesMilpitas, California,
United States
    
    
    34,000
    
    
    Test facility and sales office
    
    Sales, marketing, administration,
design and test engineering servicesAng Mo Kio, Singapore
    
    
    31,261
    
    
    Corporate executive,
administrative, sales and
marketing and finance office
    
    Corporate administration and finance,
sales and marketingPu Dong, Shanghai, China
    
    
    20,736
    
    
    Test facility
    
    Wafer probe and distribution servicesSan Diego, California,
United States(6)
    
    
    20,000
    
    
    Test facility
    
    Test engineering servicesSong Jiang, Shanghai, China
    
    
    15,000
    
    
    LCD driver, IC bumping and
assembly turnkey services
    
    Gold bumping, CP testing, COG assembly
and COF assembly for LCD driver ICTempe, Arizona,
United States
    
    
    9,300
    
    
    Package design, research and
development and sales office
    
    Sales, marketing, administration,
design and characterization servicesHsin-Chu Hsien, Taiwan
    
    
    7,000
    
    
    Solder bump services for
flip-chip assembly
    
    Eutectic/High-lead/Lead-free solder
bump for 300mm wafers
 41




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##### Table of Contents



(1)
    
    We lease all of our facilities except where otherwise noted.(2)
    
    We own the production assets but lease the land from the statutory housing development board
of the Government of Singapore under a long-term lease with an initial term expiring in March
2026 with an option to renew.(3)
    
    We own the building and improvements and lease the land from the State Government of
Malaysia, but the land and all buildings on the land will revert to the lessor upon the
expiration of the long-term lease in 2086.(4)
    
    We own the building and improvements and lease the land, but the land and all buildings on
the land will revert to the lessor upon the expiration of the long-term lease in 2044. In
December 2005, we commenced construction of additional buildings next to our existing facility
in Qing Pu, Shanghai, at an estimated cost of $53.4 million in order to increase floor space
for business expansion. Upon completion, the new facilities will increase the total floor
space by approximately 500,000 square feet. The construction is expected to be completed in
November 2006.(5)
    
    Winstek owns the land and building, which is subject to mortgages and certain other security
interests.(6)
    
    Situated within the campus of Conexant Systems Inc. 
 ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
  Overview
   42




---



##### Table of Contents



Factors Affecting Our Results of Operations
 Cyclicality of the Semiconductor Industry
  Declining Prices.
 Cost of Revenues.
 Capacity Utilization.
 Goodwill and Intangible Assets.
 43




---



##### Table of Contents




    
    longer than expected slow-down in the industry beginning late 2004 as customers
corrected excess inventory position. This reduction in demand, coupled with the
competitive pressures in the testing and packaging business, affected our short-term
earnings expectation; and
    
    a revision of the industry outlook beyond 2005 compared to the time the merger was
announced.
   Critical Accounting Policies
  Revenue Recognition, Allowance For Doubtful Debts, Trade Discounts and Allowances and Sales Returns
      44




---



##### Table of Contents



Valuation of Inventory
   Depreciation and Amortization
     
    
    expected economic life of assets;
    
    equipments potential re-use among product lines;
    
    historical experience for equipment in our factories;
    
    prevailing industry practice; and
    
    consultation with equipment manufacturers.
  45




---



##### Table of Contents



Valuation of Property, Plant and Equipment
    Deferred Tax Asset
    Valuation of Goodwill
   46




---



##### Table of Contents



Results of Operations
  Year Ended December 31,2003
    
    
    2004
    
    
    2005Net revenuesPackaging  array
    
    
    20.6
    %
    
    
    40.6
    %
    
    
    50.2
    %Packaging  leaded
    
    
    26.9
    
    
    
    20.9
    
    
    
    22.0Test and other services
    
    
    52.5
    
    
    
    38.5
    
    
    
    27.8Total net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Year Ended December 31,2003
    
    2004
    
    2005Total net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit
    
    
    13.8
    
    
    
    16.3
    
    
    
    16.4Selling, general and administrative
    
    
    9.6
    
    
    
    11.0
    
    
    
    11.7Research and development
    
    
    4.0
    
    
    
    2.3
    
    
    
    2.3Goodwill impairment
    
    
    0.0
    
    
    
    58.9
    
    
    
    0.0Restructuring charges
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.1Others general expenses (income), net
    
    
    0.1
    
    
    
    0.0
    
    
    
    0.0Operating income (loss)
    
    
    0.1
    
    
    
    (55.9
    )
    
    
    2.3Other income (expense), net
    
    
    0.0
    
    
    
    (3.4
    )
    
    
    (3.2
    )Income tax expense
    
    
    (0.1
    )
    
    
    (1.0
    )
    
    
    (0.8
    )Minority interest
    
    
    (0.4
    )
    
    
    (0.5
    )
    
    
    (0.6
    )Net income (loss)
    
    
    (0.4
    )%
    
    
    (60.8
    )%
    
    
    (2.3
    )%
 Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Net Revenues
    47




---



##### Table of Contents



Gross Profit
  Selling, General and Administrative
  Research and Development
  Restructuring Charges
  Goodwill Impairment
  48




---



##### Table of Contents



Net Interest Income (Expense)
  Foreign Currency Exchange Gain (Loss)
  Other Non-Operating Income (Expense)
  Income Taxes
  Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
 Net Revenues
    49




---



##### Table of Contents



Gross Profit
  Selling, General and Administrative
  Research and Development
  Goodwill Impairment
  Net Interest Income (Expense)
  Foreign Currency Exchange Gain (Loss)
  50




---



##### Table of Contents



Income Taxes
  Quarterly Results
  Fiscal Quarter EndedMarch
    
    
    June
    
    
    September
    
    
    December
    
    
    March
    
    
    June
    
    
    September
    
    
    December31, 2004
    
    
    30, 2004
    
    
    30, 2004
    
    
    30, 2004
    
    
    31, 2005
    
    
    30, 2005
    
    
    30, 2005
    
    
    31, 2005(In thousands)Net revenues
    
    $
    132,328
    
    
    $
    138,995
    
    
    $
    231,951
    
    
    $
    265,847
    
    
    $
    234,146
    
    
    $
    264,346
    
    
    $
    301,298
    
    
    $
    357,463Cost of revenues
    
    
    (111,949
    )
    
    
    (114,358
    )
    
    
    (193,600
    )
    
    
    (223,634
    )
    
    
    (209,748
    )
    
    
    (228,541
    )
    
    
    (250,588
    )
    
    
    (279,146
    )Gross profit
    
    
    20,379
    
    
    
    24,637
    
    
    
    38,351
    
    
    
    42,213
    
    
    
    24,398
    
    
    
    35,805
    
    
    
    50,710
    
    
    
    78,317Operating expenses:Selling, general and administrative
    
    
    10,252
    
    
    
    11,648
    
    
    
    28,286
    
    
    
    34,778
    
    
    
    32,285
    
    
    
    33,766
    
    
    
    34,041
    
    
    
    35,679Research and development
    
    
    3,086
    
    
    
    2,903
    
    
    
    5,781
    
    
    
    5,867
    
    
    
    5,942
    
    
    
    6,536
    
    
    
    6,243
    
    
    
    7,350Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    453,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    830
    
    
    
    
    
    
    
    
    
    
    
    Other general expenses (income), net
    
    
    (37
    )
    
    
    (511
    )
    
    
    11
    
    
    
    73
    
    
    
    (39
    )
    
    
    (5
    )
    
    
    (7
    )
    
    
    31Total operating expenses
    
    
    13,301
    
    
    
    14,040
    
    
    
    34,078
    
    
    
    493,718
    
    
    
    39,018
    
    
    
    40,297
    
    
    
    40,277
    
    
    
    43,060Operating income (loss)
    
    
    7,078
    
    
    
    10,597
    
    
    
    4,273
    
    
    
    (451,505
    )
    
    
    (14,620
    )
    
    
    (4,492
    )
    
    
    10,433
    
    
    
    35,257Other income (expenses), net:Interest income (expenses), net
    
    
    (3,328
    )
    
    
    (3,620
    )
    
    
    (8,365
    )
    
    
    (9,073
    )
    
    
    (9,447
    )
    
    
    (8,283
    )
    
    
    (9,148
    )
    
    
    (9,337
    )Foreign currency exchange gain (loss)
    
    
    1,026
    
    
    
    (1,299
    )
    
    
    151
    
    
    
    (1,000
    )
    
    
    (391
    )
    
    
    71
    
    
    
    880
    
    
    
    (29
    )Other non-operating income
(expenses), net
    
    
    81
    
    
    
    (435
    )
    
    
    (438
    )
    
    
    (144
    )
    
    
    (1,544
    )
    
    
    157
    
    
    
    227
    
    
    
    84Total other income (expenses), net
    
    
    (2,221
    )
    
    
    (5,354
    )
    
    
    (8,652
    )
    
    
    (10,217
    )
    
    
    (11,382
    )
    
    
    (8,055
    )
    
    
    (8,041
    )
    
    
    (9,282
    )Income (loss) before income taxes
    
    
    4,857
    
    
    
    5,243
    
    
    
    (4,379
    )
    
    
    (461,722
    )
    
    
    (26,002
    )
    
    
    (12,547
    )
    
    
    2,392
    
    
    
    25,975Income tax expense
    
    
    (509
    )
    
    
    (123
    )
    
    
    (1,713
    )
    
    
    (5,549
    )
    
    
    (1,139
    )
    
    
    (1,159
    )
    
    
    (1,247
    )
    
    
    (6,144
    )Income (loss) before minority interest
    
    
    4,348
    
    
    
    5,120
    
    
    
    (6,092
    )
    
    
    (467,271
    )
    
    
    (27,141
    )
    
    
    (13,706
    )
    
    
    1,145
    
    
    
    19,831Minority interest
    
    
    (282
    )
    
    
    (463
    )
    
    
    (1,352
    )
    
    
    (1,731
    )
    
    
    22
    
    
    
    (1,357
    )
    
    
    (2,156
    )
    
    
    (2,949
    )Net income (loss)
    
    $
    4,066
    
    
    $
    4,657
    
    
    $
    (7,444
    )
    
    $
    (469,002
    )
    
    $
    (27,119
    )
    
    $
    (15,063
    )
    
    $
    (1,011
    )
    
    $
    16,882
 51




---



##### Table of Contents



Fiscal Quarter Ended(As a Percentage of Revenues)March
    
    
    June
    
    
    September
    
    
    December
    
    
    March
    
    
    June
    
    
    September
    
    
    December31, 2004
    
    
    30, 2004
    
    
    30, 2004
    
    
    30, 2004
    
    
    31, 2005
    
    
    30, 2005
    
    
    30, 2005
    
    
    31, 2005Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    (84.6
    )
    
    
    (82.3
    )
    
    
    (83.5
    )
    
    
    (84.1
    )
    
    
    (89.6
    )
    
    
    (86.5
    )
    
    
    (83.2
    )
    
    
    (78.1
    )Gross profit
    
    
    15.4
    
    
    
    17.7
    
    
    
    16.5
    
    
    
    15.9
    
    
    
    10.4
    
    
    
    13.5
    
    
    
    16.8
    
    
    
    21.9Operating expenses:Selling, general and administrative
    
    
    7.7
    
    
    
    8.5
    
    
    
    12.2
    
    
    
    13.1
    
    
    
    13.8
    
    
    
    12.8
    
    
    
    11.2
    
    
    
    9.9Research and development
    
    
    2.3
    
    
    
    2.1
    
    
    
    2.5
    
    
    
    2.2
    
    
    
    2.5
    
    
    
    2.4
    
    
    
    2.1
    
    
    
    2.1Goodwill impairment
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    170.4
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Restructuring charges
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.3
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Other general expenses (income), net
    
    
    0.1
    
    
    
    (0.5
    )
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Total operating expenses
    
    
    10.1
    
    
    
    10.1
    
    
    
    14.7
    
    
    
    185.7
    
    
    
    16.6
    
    
    
    15.2
    
    
    
    13.3
    
    
    
    12.0Operating income (loss)
    
    
    5.3
    
    
    
    7.6
    
    
    
    1.8
    
    
    
    (169.8
    )
    
    
    (6.2
    )
    
    
    (1.7
    )
    
    
    3.5
    
    
    
    9.9Other income (expenses), net:Interest income (expenses) net
    
    
    (2.5
    )
    
    
    (2.6
    )
    
    
    (3.6
    )
    
    
    (3.4
    )
    
    
    (4.0
    )
    
    
    (3.1
    )
    
    
    (3.0
    )
    
    
    (2.6
    )Foreign currency exchange gain (loss)
    
    
    0.8
    
    
    
    (0.9
    )
    
    
    0.1
    
    
    
    (0.4
    )
    
    
    (0.2
    )
    
    
    0.0
    
    
    
    0.3
    
    
    
    0.0Other non-operating income (expenses), net
    
    
    0.1
    
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.7
    )
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.0Total other income (expenses), net
    
    
    (1.6
    )
    
    
    (3.8
    )
    
    
    (3.7
    )
    
    
    (3.9
    )
    
    
    (4.9
    )
    
    
    (3.0
    )
    
    
    (2.6
    )
    
    
    (2.6
    )Income (loss) before income taxes
    
    
    3.7
    
    
    
    3.8
    
    
    
    (1.9
    )
    
    
    (173.7
    )
    
    
    (11.1
    )
    
    
    (4.7
    )
    
    
    0.9
    
    
    
    7.3Income tax expense
    
    
    (0.4
    )
    
    
    (0.1
    )
    
    
    (0.7
    )
    
    
    (2.1
    )
    
    
    (0.5
    )
    
    
    (0.5
    )
    
    
    (0.4
    )
    
    
    (1.7
    )Income (loss) before minority interest
    
    
    3.3
    
    
    
    3.7
    
    
    
    (2.6
    )
    
    
    (175.8
    )
    
    
    (11.6
    )
    
    
    (5.2
    )
    
    
    0.5
    
    
    
    5.6Minority interest
    
    
    (0.2
    )
    
    
    (0.3
    )
    
    
    (0.6
    )
    
    
    (0.6
    )
    
    
    (0.0
    )
    
    
    (0.5
    )
    
    
    (0.7
    )
    
    
    (0.8
    )Net income (loss)
    
    
    3.1
    %
    
    
    3.4
    %
    
    
    (3.2
    )%
    
    
    (176.4
    )%
    
    
    (11.6
    )%
    
    
    (5.7
    )%
    
    
    (0.2
    )%
    
    
    4.8
    %
 Liquidity and Capital Resources
    52




---



##### Table of Contents



Total Borrowings
       Off-Balance Sheet Arrangements
  Contractual Obligations
  53




---



##### Table of Contents



Payments DueWithin
    
    
    
    
    
    
    
    
    
    
    More Than1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    Total(In thousands)On balance sheet commitments:1.75% convertible notes due 2007(1)
    
    $
    
    
    
    $
    35,589
    
    
    $
    
    
    
    $
    
    
    
    $
    35,589Zero coupon convertible notes due 2008(1)(2)
    
    
    
    
    
    
    125,874
    
    
    
    
    
    
    
    
    
    
    
    125,8742.5% convertible subordinated notes due 2008
    
    
    
    
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    150,0008% convertible subordinated notes due 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    50,0006.75% senior notes due 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215,000
    
    
    
    215,0007.50% senior notes due 2010
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    
    
    
    
    150,000Capital lease obligations
    
    
    7,091
    
    
    
    3,680
    
    
    
    
    
    
    
    
    
    
    
    10,771Long-term loans
    
    
    18,651
    
    
    
    41,041
    
    
    
    7,921
    
    
    
    
    
    
    
    67,613Short-term loans
    
    
    16,891
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,891Total on balance sheet commitments
    
    $
    42,633
    
    
    $
    356,184
    
    
    $
    157,921
    
    
    $
    265,000
    
    
    $
    821,738Off balance sheet commitments:Operating leases
    
    $
    13,795
    
    
    $
    19,878
    
    
    $
    17,156
    
    
    $
    61,819
    
    
    $
    112,648Royalty/licensing agreements
    
    
    4,640
    
    
    
    9,282
    
    
    
    9,282
    
    
    
    
    
    
    
    23,204Contingent payments to Cirrus
    
    
    875
    
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    1,625Purchase obligations: Capital commitments
    
    
    147,373
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147,373 Inventory purchase commitments
    
    
    121,822
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,822Total off balance sheet commitments
    
    
    288,505
    
    
    
    29,910
    
    
    
    26,438
    
    
    
    61,819
    
    
    
    406,672Total commitments
    
    $
    331,138
    
    
    $
    386,094
    
    
    $
    184,359
    
    
    $
    326,819
    
    
    $
    1,288,410
 
 (1)
    
    On maturity of the 1.75% convertible notes due 2007 and zero coupon convertible notes due
2008, we are required to pay the note holders 117.665% and 123.4% of the principal amounts,
respectively.(2)
    
    Holders of our zero coupon convertible notes due 2008 have the right to require us to
repurchase all or a portion of their convertible notes on November 7, 2007. Contingencies
    54




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##### Table of Contents



Cash Flows From Operating Activities
   Cash Flows From Investing Activities
   55




---



##### Table of Contents



Cash Flows From Financing Activities
   Special Tax Status
  Derivative Financial Instruments
    56




---



##### Table of Contents



Foreign Currency Risk
   Research and Development
  Recent Accounting Pronouncements
   SFAS 123(R) SFAS 123(R) SFAS 123(R)
   57




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##### Table of Contents



ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. Directors and Senior Management
  Name
    
    Age
    
    PositionBoard of DirectorsCharles R. Wofford(1)(2)(3)(4)
    
    
    72
    
    
    Chairman of our Board of DirectorsLim Ming Seong(5)
    
    
    58
    
    
    Deputy Chairman of our Board of DirectorsTan Lay Koon
    
    
    47
    
    
    Director, President and Chief Executive OfficerPeter Seah Lim Huat(6)(7)
    
    
    59
    
    
    DirectorTay Siew Choon(8)(9)
    
    
    58
    
    
    DirectorSteven H. Hamblin(1)(6)(9)(10)
    
    
    57
    
    
    DirectorRichard J. Agnich(1)(7)(11)
    
    
    62
    
    
    DirectorRobert W. Conn(1)
    
    
    63
    
    
    DirectorR. Douglas Norby(1)(10)
    
    
    70
    
    
    DirectorPark Chong Sup(1)(8)
    
    
    58
    
    
    DirectorSenior ManagementWan Choong Hoe
    
    
    52
    
    
    Corporate Vice President, Chief Operating OfficerMichael G. Potter
    
    
    39
    
    
    Corporate Vice President, Chief Financial OfficerHan Byung Joon
    
    
    46
    
    
    Corporate Vice President, Chief Technology OfficerJeffrey R. Osmun
    
    
    42
    
    
    Corporate Vice President, Worldwide Sales and MarketingNg Tiong Gee
    
    
    43
    
    
    Corporate Vice President, Chief Information OfficerScott J. Jewler
    
    
    40
    
    
    Corporate Vice President, Chief Strategy OfficerDennis W. Daniels
    
    
    51
    
    
    Corporate Vice President, Human ResourcesJanet T. Taylor
    
    
    48
    
    
    Corporate Vice President, General Counsel
 
 (1)
    
    Determined by our Board of Directors to be independent under
Rule 4200 of the Nasdaq Marketplace Rules.(2)
    
    Chairman of the Executive Committee.(3)
    
    Chairman of the Executive Resource & Compensation Committee.(4)
    
    Chairman of the Nominating and Corporate Governance Committee.(5)
    
    Chairman of the Budget Committee.(6)
    
    Member of the Executive Resource & Compensation Committee.(7)
    
    Member of the Nominating and Corporate Governance Committee.(8)
    
    Member of the Budget Committee.(9)
    
    Member of the Executive Committee.(10)
    
    Member of the Audit Committee.(11)
    
    Chairman of the Audit Committee.   58




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Board of Directors
 Charles R. Wofford
  Lim Ming Seong
  Tan Lay Koon
  Peter Seah Lim Huat
  Tay Siew Choon
  59




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##### Table of Contents



Steven H. Hamblin
  Richard J. Agnich
  Robert W. Conn
  R. Douglas Norby
  60




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##### Table of Contents



Park Chong Sup
  Senior Management
 Wan Choong Hoe
  Michael G. Potter
  Han Byung Joon
  Jeffrey R. Osmun
  Ng Tiong Gee
  61




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##### Table of Contents



Scott J. Jewler
  Dennis W. Daniels
  Janet T. Taylor
  B. Compensation of Directors and Senior Management
  Executive
    
    
    Non executiveDirectors
    
    
    Directors(1)
    
    
    Total(2)Charles R. Wofford
    
    
    
    
    
    $
    110,840
    
    
    $
    110,840Lim Ming Seong
    
    
    
    
    
    
    58,000
    
    
    
    58,000Tan Lay Koon
    
    $
    1,079,518
    (3)
    
    
    
    
    
    
    1,097,518Peter Seah Lim Huat
    
    
    
    
    
    
    47,160
    
    
    
    47,160Tay Siew Choon
    
    
    
    
    
    
    41,000
    
    
    
    41,000Steven H. Hamblin
    
    
    
    
    
    
    70,000
    
    
    
    70,000Richard J. Agnich
    
    
    
    
    
    
    45,000
    
    
    
    45,000Robert W. Conn
    
    
    
    
    
    
    35,000
    
    
    
    35,000R. Douglas Norby
    
    
    
    
    
    
    41,000
    
    
    
    41,000Park Chong Sup
    
    
    
    
    
    
    41,000
    
    
    
    41,000Senior management (excluding our Executive Director) as a group
    
    
    
    
    
    
    
    
    
    
    3,129,007$
    1,079,518
    
    
    $
    489,000
    
    
    $
    4,697,525
 
 (1)
    
    We will seek approval at our annual general meeting in 2006 for the payment of directors
fees of approximately $489,000 for the financial year ended December 31, 2005.(2)
    
    Does not include compensation given in the form of stock options. For more information on
share options granted to our directors and senior management, see   E. Share
Ownership for Directors and Senior Management.(3)
    
    Includes bonus in the amount of $601,332 paid in 2005 with respect to services rendered in 2004. 62




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.
     63




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C. Board Practices
 Board of Directors
  64




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Committees of our Board of Directors
 (i) Audit Committee
   (ii) Executive Resource & Compensation Committee
    
    
    Review and approve the compensation policies and incentive programs for key
management executives;
    
    Consider, review and approve the entire specific remuneration package and service
contract terms for each key management executive, except that the compensation of the
Chief Executive Officer was further required to be approved by our Board; and
 65




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##### Table of Contents




    
    Review and approve all our option plans, stock plans and other equity based plans.
   
    
    The Executive Resource & Compensation Committee is comprised entirely of
non-executive directors, the majority of whom, including the Chairman, qualify as
independent directors under the Nasdaq Marketplace Rules and the Singapore code of
corporate governance. Mr. Peter Seah Lim Huat does not qualify as an independent
director under the Nasdaq Marketplace Rules or the Singapore code of corporate
governance.
    
    The Executive Resource & Compensation Committee is responsible for reviewing,
considering and approving the compensation policies, incentive programs, specific
compensation (including each award and total proposed awards under each equity based
plan) of each senior management executive. The Executive Resource & Compensation
Committee also reviews and approves all our option plans, stock plans and other equity
based plans.
   
    
    Review and approve our Companys policy for determining executive remuneration
including the remuneration policy with regard to key management executives;
    
    Consider, review, vary and make recommendations the board with respect to the entire
specific remuneration package and service contract terms for each key management
executive;
    
    Review and approve all our option plans, stock plans and other equity based plans; and
    
    Approve the remuneration framework, including directors fees for our non-executive directors
  (iii) Budget Committee
   66




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(iv) Executive Committee
   (v) Nominating and Corporate Governance Committee
     
    
    The Nominating and Corporate Governance Committee comprises not less than three
members, the majority of whom, including the Chairman, qualify as independent directors
under the Nasdaq Marketplace Rules and the Singapore code of corporate governance. Mr.
Seah does not qualify as an independent director under the Nasdaq Marketplace Rules or
the Singapore code of corporate governance.
    
    The Nominating and Corporate Governance Committees duties and responsibilities
include the following:
 (i)
    
    the identification of qualified candidates to become Board members;(ii)
    
    the selection of nominees for election as directors at the next annual
meeting of shareholders (or extraordinary general meeting of shareholders at which
directors are to be elected);(iii)
    
    the selection of candidates to fill any vacancies on our Board;(iv)
    
    the development and recommendation to our Board of a set of corporate
governance guidelines and principles applicable to our Company (being our Code of
Business Conduct and Ethics); and(v)
    
    oversight of the evaluation of our Board and Board committees.
  67




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D. Employees
    STATS
    
    
    STATS ChipPACas of December 31,
    
    
    as of December 31,2003
    
    
    2004
    
    
    2005FunctionDirect and Indirect Labor (Manufacturing)
    
    
    3,596
    
    
    
    10,398
    
    
    
    11,376Indirect Labor (Administration)
    
    
    279
    
    
    
    653
    
    
    
    1,535Research and Development
    
    
    129
    
    
    
    229
    
    
    
    231Total(1)
    
    
    4,004
    
    
    
    11,280
    
    
    
    13,142LocationSingapore
    
    
    3,461
    
    
    
    3,828
    
    
    
    3,896China
    
    
    16
    
    
    
    2,459
    
    
    
    3,540Malaysia
    
    
    
    
    
    
    2,310
    
    
    
    2,462South Korea
    
    
    
    
    
    
    2,031
    
    
    
    2,424Taiwan
    
    
    376
    
    
    
    443
    
    
    
    562United States
    
    
    145
    
    
    
    198
    
    
    
    245Others
    
    
    6
    
    
    
    11
    
    
    
    13Total(1)
    
    
    4,004
    
    
    
    11,280
    
    
    
    13,142
 
 (1)
    
    The approximate 182% increase in headcount was the result of additional hires in 2004 to
support the increase in the volume of our operations and the addition of ChipPAC employees as
a result of the merger with ChipPAC. E. Share Ownership for Directors and Senior Management
    Share Options for Directors
  Number of Ordinary Shares
    
    Per Share ExerciseIssuable on Exercise of Option
    
    Price (S$)
    
    Exercisable PeriodCharles R. Wofford
    
    
    50,000
    
    
    
    1.592
    
    
    04/24/2002 to 04/23/200670,000
    
    
    
    2.885
    
    
    04/29/2003 to 04/28/2007100,000
    
    
    
    1.99
    
    
    08/06/2004 to 08/05/200850,000
    
    
    
    1.91
    
    
    02/17/2005 to 02/16/2009
 68




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Number of Ordinary Shares
    
    Per Share ExerciseIssuable on Exercise of Option
    
    Price (S$)
    
    Exercisable Period50,000
    (1)
    
    
    1.06
    
    
    08/11/2005 to 08/10/200957,500
    (1)
    
    
    1.01
    
    
    05/03/2006 to 05/02/201057,500
    (1)
    
    
    0.925
    
    
    10/31/2006 to 10/30/2010Lim Ming Seong
    
    
    200,000
    
    
    
    1.592
    
    
    04/24/2002 to 04/23/201170,000
    
    
    
    2.885
    
    
    04/29/2003 to 04/28/200770,000
    
    
    
    1.99
    
    
    08/06/2004 to 08/05/200835,000
    
    
    
    1.91
    
    
    02/17/2005 to 02/16/200935,000
    
    
    
    1.06
    
    
    08/11/2005 to 08/10/200942,500
    
    
    
    1.01
    
    
    05/03/2006 to 05/02/201042,500
    
    
    
    0.925
    
    
    10/31/2006 to 10/30/2010Tan Lay Koon
    
    
    500,000
    
    
    
    6.93
    
    
    04/20/2001 to 04/19/2010700,000
    
    
    
    2.826
    
    
    10/19/2001 to 10/18/2010449,000
    
    
    
    1.592
    
    
    04/24/2002 to 04/23/2011325,000
    
    
    
    2.885
    
    
    04/29/2003 to 04/28/20122,000,000
    
    
    
    2.2
    
    
    06/26/2003 to 06/25/2012700,000
    
    
    
    1.99
    
    
    08/06/2004 to 08/05/2013500,000
    
    
    
    1.91
    
    
    02/17/2005 to 02/16/2014500,000
    
    
    
    1.06
    
    
    08/11/2005 to 08/10/2014600,000
    
    
    
    1.01
    
    
    05/03/2006 to 05/02/2015600,000
    
    
    
    0.925
    
    
    10/31/2006 to 10/30/2015Peter Seah Lim Huat
    
    
    70,000
    
    
    
    1.99
    
    
    08/06/2004 to 08/05/201335,000
    
    
    
    1.91
    
    
    02/17/2005 to 02/16/201435,000
    
    
    
    1.06
    
    
    08/11/2005 to 08/10/201440,000
    
    
    
    1.01
    
    
    05/03/2006 to 05/02/201040,000
    
    
    
    0.925
    
    
    10/31/2006 to 10/30/2010Tay Siew Choon
    
    
    70,000
    
    
    
    1.99
    
    
    08/06/2004 to 08/05/201335,000
    
    
    
    1.91
    
    
    02/17/2005 to 02/16/201435,000
    
    
    
    1.06
    
    
    08/11/2005 to 08/10/200937,500
    
    
    
    1.01
    
    
    05/03/2006 to 05/02/201037,500
    
    
    
    0.925
    
    
    10/31/2006 to 10/30/2010Steven H. Hamblin
    
    
    50,000
    
    
    
    1.592
    
    
    04/24/2002 to 04/23/200670,000
    
    
    
    2.885
    
    
    04/29/2003 to 04/28/200770,000
    
    
    
    1.99
    
    
    08/06/2004 to 08/05/200835,000
    
    
    
    1.91
    
    
    02/17/2005 to 02/16/200935,000
    (1)
    
    
    1.06
    
    
    08/11/2005 to 08/10/200937,500
    (1)
    
    
    1.01
    
    
    05/03/2006 to 05/02/201037,500
    (1)
    
    
    0.925
    
    
    10/31/2006 to 10/30/2010Richard J. Agnich
    
    
    20,000
    
    
    
    1.298
    
    
    10/23/2002 to 10/22/200650,000
    
    
    
    2.885
    
    
    04/29/2003 to 04/28/200750,000
    
    
    
    1.99
    
    
    08/06/2004 to 08/05/200825,000
    
    
    
    1.91
    
    
    02/17/2005 to 02/16/200925,000
    (1)
    
    
    1.06
    
    
    08/11/2005 to 08/10/200942,500
    (1)
    
    
    1.01
    
    
    05/03/2006 to 05/02/201042,500
    (1)
    
    
    0.925
    
    
    10/31/2006 to 10/30/2010Robert W. Conn
    
    
    174,000
    (2)
    
    
    1.88
    
    
    04/15/2003 to 08/04/2009130,500
    (2)
    
    
    0.50
    
    
    03/17/2004 to 08/04/2009130,500
    (2)
    
    
    1.36
    
    
    02/05/2005 to 08/04/200937,500
    (1)
    
    
    1.01
    
    
    05/03/2006 to 05/02/201037,500
    (1)
    
    
    0.925
    
    
    10/31/2006 to 10/30/2010R. Douglas Norby
    
    
    174,000
    (2)
    
    
    1.88
    
    
    04/15/2003 to 08/04/2009130,500
    (2)
    
    
    0.50
    
    
    03/17/2004 to 08/04/2009130,500
    (2)
    
    
    1.36
    
    
    02/05/2005 to 08/04/200937,500
    (1)
    
    
    1.01
    
    
    05/03/2006 to 05/02/201037,500
    (1)
    
    
    0.925
    
    
    10/31/2006 to 10/30/2010Park Chong Sup
    
    
    130,500
    (2)
    
    
    1.57
    
    
    10/20/2001 to 08/04/200943,500
    (2)
    
    
    0.38
    
    
    09/27/2002 to 08/04/2009130,500
    (2)
    
    
    0.50
    
    
    03/17/2004 to 08/04/2009130,500
    (2)
    
    
    1.36
    
    
    02/05/2005 to 08/04/200937,500
    (1)
    
    
    1.01
    
    
    05/03/2006 to 05/02/201037,500
    (1)
    
    
    0.925
    
    
    10/31/2006 to 10/30/2010
 69




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(1)
    
    The exercise prices for these options are denominated in U.S. dollars and are presented here
in Singapore dollars for comparability purposes using the exchange rate based on the Bloomberg
Close Quote on the respective dates of grant.(2)
    
    The exercise prices for these options are denominated in U.S. dollars and presented here in
Singapore dollars for comparability purposes using the exchange rate based on Bloomberg Close
Quote on August 5, 2004 of S$1.7214 per $1.00. Employees Share Ownership Scheme
    Share Option Plan
 STATS ChipPAC Ltd. Substitute Purchase and Option Plan (Substitute Option Plan) and STATS
ChipPAC Ltd. Substitute Equity Incentive Plan (the Substitute EIP and collectively with the
Substitute Option Plan, the Substitute Plans).
 STATS ChipPAC Ltd. Share Option Plan, as amended.
  70




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##### Table of Contents



STATS ChipPAC Ltd. Employee Share Purchase Plan 2004.
     
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. Major Shareholders
    
    
    the election of directors;
    
    the merger or consolidation of us with any other entity;
    
    any sale of all or substantially all of our assets; and
    
    the timing and payment of dividends.
  71




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Name of Beneficial Owner
    
    Number of Shares Beneficially Owned
    
    Percentage Beneficially Owned(3)Temasek Holdings(1)
    
    712,228,050
    
    36.03%FMR Corp.(2)
    
    291,832,700
    
    14.76%
 
 (1)
    
    Temasek Holdings, wholly-owned by the Minister of Finance (Incorporated) for Singapore, a
statutory body constituted by the Minister of Finance (Incorporation) Act (Cap. 183), owns
100% of the ordinary shares of STSPL. Temasek Holdings is deemed to beneficially own our
ordinary shares, which are owned directly by STSPL. Includes 5.32% of shares lent to Deutsche
Bank AG, Singapore Branch, and Morgan Stanley Stanley & Co. International Limited as of
January 31, 2006 pursuant to a Global Master Securities Lending Agreement in connection with
the issue of convertible notes due 2008 by STATS ChipPAC.(2)
    
    FMR Corp. wholly owns Fidelity Management & Research Company. FMR Corp. is deemed to
beneficially own our ordinary shares, which are owned directly by Fidelity Management &
Research Company. Members of the family of Edward C. Johnson, III, Chairman of FMR Corp., are
the predominant owners, directly or through trusts, of Series B shares of common stock of FMR
Corp., representing 49% of the voting power of FMR Corp.(3)
    
    Based on an aggregate 1,976,627,005 ordinary shares outstanding as of January 31, 2006.      B. Related Party Transactions
    72




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C. Interest of Experts and Counsel
  
 ITEM 8. FINANCIAL INFORMATION
 A. Consolidated Statements and Other Financial Information
  Legal Proceedings
    Dividend Policy
  73




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B. Significant Changes
  74




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ITEM 9. THE OFFER AND LISTING
 A. Offer and Listing Details
 Price range of our ordinary shares and ADSs
  Price per Ordinary Shareon the SGX-ST
    
    Price per ADS on Nasdaq(in S$)
    
    (in US$)High
    
    Low
    
    High
    
    LowAnnual for 2001
    
    
    2.84
    
    
    
    0.99
    
    
    
    16.00
    
    
    
    5.60Annual for 2002
    
    
    3.16
    
    
    
    0.87
    
    
    
    17.25
    
    
    
    4.89Annual for 2003
    
    
    2.73
    
    
    
    1.05
    
    
    
    15.75
    
    
    
    6.16Annual for 2004
    
    
    2.45
    
    
    
    0.92
    
    
    
    14.74
    
    
    
    5.40Annual for 2005
    
    
    1.34
    
    
    
    0.88
    
    
    
    8.16
    
    
    
    5.30Quarterly highs and lows: quarter ending March 31, 2004
    
    
    2.45
    
    
    
    1.64
    
    
    
    14.74
    
    
    
    9.51 quarter ending June 30, 2004
    
    
    1.88
    
    
    
    1.30
    
    
    
    10.71
    
    
    
    7.38 quarter ending September 30, 2004
    
    
    1.43
    
    
    
    1.00
    
    
    
    7.84
    
    
    
    5.50 quarter ending December 31, 2004
    
    
    1.12
    
    
    
    0.92
    
    
    
    6.61
    
    
    
    5.40 quarter ending March 31, 2005
    
    
    1.16
    
    
    
    0.88
    
    
    
    7.25
    
    
    
    5.37 quarter ending June 30, 2005
    
    
    1.26
    
    
    
    0.97
    
    
    
    7.43
    
    
    
    5.75 quarter ending September 30, 2005
    
    
    1.34
    
    
    
    1.00
    
    
    
    8.16
    
    
    
    6.10 quarter ending December 31, 2005
    
    
    1.21
    
    
    
    0.90
    
    
    
    7.02
    
    
    
    5.30Monthly highs and lows:August 2005
    
    
    1.16
    
    
    
    1.00
    
    
    
    7.07
    
    
    
    6.11September 2005
    
    
    1.16
    
    
    
    1.03
    
    
    
    6.84
    
    
    
    6.10October 2005
    
    
    1.06
    
    
    
    0.90
    
    
    
    6.25
    
    
    
    5.30November 2005
    
    
    1.13
    
    
    
    0.94
    
    
    
    6.65
    
    
    
    5.50December 2005
    
    
    1.21
    
    
    
    1.04
    
    
    
    7.02
    
    
    
    6.27January 2006
    
    
    1.17
    
    
    
    1.01
    
    
    
    7.50
    
    
    
    6.19February 2006 (up to February 21, 2006)
    
    
    1.15
    
    
    
    1.06
    
    
    
    7.17
    
    
    
    6.50
 B. Plan of Distribution
  C. Markets
  D. Selling Shareholders
  E. Dilution
  F. Expenses of the Issue
  75




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ITEM 10. ADDITIONAL INFORMATION
 A. Share Capital
  B. Memorandum and Articles of Association
  Objects
   Board of Directors
       Ordinary Shares
  76




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New Ordinary Shares
  Shareholders
  Transfer of Ordinary Shares
  General Meetings of Shareholders
  77




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Voting Rights
  Dividends
  Bonus and Rights Issue
  Take-Overs
   78




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Liquidation or Other Return of Capital
  Indemnity
  Limitations on Rights to Hold or Vote Shares
  Substantial Shareholdings
    79




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Minority Rights
   C. Material Contracts
     80




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81




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D. Exchange Controls
  82




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Exchange Rates
   Singapore Dollars per US$1.00 Noon Buying RateAverage(1)
    
    Low
    
    High
    
    Period EndYear Ended December 31,2001
    
    
    1.80
    
    
    
    1.73
    
    
    
    1.85
    
    
    
    1.852002
    
    
    1.79
    
    
    
    1.73
    
    
    
    1.85
    
    
    
    1.742003
    
    
    1.74
    
    
    
    1.70
    
    
    
    1.78
    
    
    
    1.702004
    
    
    1.69
    
    
    
    1.63
    
    
    
    1.73
    
    
    
    1.632005
    
    
    1.66
    
    
    
    1.62
    
    
    
    1.71
    
    
    
    1.66MonthAugust 2005
    
    
    
    
    
    
    1.65
    
    
    
    1.69
    
    
    
    1.68September 2005
    
    
    
    
    
    
    1.67
    
    
    
    1.69
    
    
    
    1.68October 2005
    
    
    
    
    
    
    1.68
    
    
    
    1.70
    
    
    
    1.70November 2005
    
    
    
    
    
    
    1.69
    
    
    
    1.70
    
    
    
    1.69December 2005
    
    
    
    
    
    
    1.66
    
    
    
    1.69
    
    
    
    1.66January 2006
    
    
    
    
    
    
    1.62
    
    
    
    1.65
    
    
    
    1.62February 2006 (up to February 21)
    
    
    
    
    
    
    1.62
    
    
    
    1.64
    
    
    
    1.63
 
 (1)
    
    The average of the daily noon buying rates on the last business day of each month during
the year. E. Taxation
 Singapore Taxation
  83




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Income Tax
 General
    Dividend Distributions
  Dividends paid out of Tax-Exempt Income or Income subject to Concessionary Tax Rate
  Dividends paid out of Income subject to Normal Corporate Taxation
 Imputation System
   84




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New One-tier Corporate Tax System
     Capital Gains on Disposal of Ordinary Shares and ADSs
  Stamp Duty
  85




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Estate Duty
   United States Federal Income Taxation
  Distributions on Ordinary Shares or ADSs
    86




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Sale or Exchange of the Ordinary Shares or ADSs
  Passive Foreign Investment Company
   United States Information Reporting and Backup Withholding
   87




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F. Dividends and Paying Agents
  G. Statements by Experts
  H. Documents on Display
  I. Subsidiary Information
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Investment and Interest Rates
  Currency Exchange Rates
   88




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Limitations
  
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures
  Changes to internal controls
  
 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
 http://www.statschippac.com.
 
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
   89




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##### Table of Contents



December 31,2004
    
    
    2005(In thousands)Audit Fees
    
    $
    918
    
    
    $
    849Audit-Related Fees
    
    
    160
    
    
    
    33Tax Fees
    
    
    42
    
    
    
    124All Other Fees
    
    
    35
    
    
    
    229Total
    
    $
    1,155
    
    
    $
    1,235
 Audit Fees.
 Audit-Related Fees.
 Tax Fees.
 All Other Fees.
 Audit Committee Pre-approval Process
 de
minimus
 
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
  
 ITEM 16E. ISSUER PURCHASES OF EQUITY SECURITIES
  
 ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
  90




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##### Table of Contents



ITEM 19. EXHIBITS
  1.1
    
    Memorandum and Articles of Association of STATS ChipPAC Ltd.  incorporated by reference to
Exhibit 3.2 to Form F-4 (File No. 333-114232)of STATS ChipPAC Ltd., as filed with the
Securities and Exchange Commission on April 6, 20042.1
    
    Form of specimen certificate representing STATS ChipPAC Ltd.s ordinary shares 
incorporated by reference to Exhibit 4.1 of Amendment No. 1 to Form F-1 (File No.
333-93661) of ST Assembly Test Services Ltd filed with the Securities and Exchange
Commission on January 3, 20002.2
    
    Deposit Agreement dated February 8, 2000 among ST Assembly Test Services Ltd, Citibank,
N.A., as depositary, and the holders from time to time of ADRs issued thereunder (including
the form of ADR)  incorporated by reference to Exhibit 2.2 of Form 20-F (File No.
333-93661) of ST Assembly Test Services Ltd filed with the Securities and Exchange
Commission on March 30, 20014.1
    
    Lease Agreement dated November 18, 1996 by and between the Housing and Development Board
and ST Assembly Test Services Ltd  incorporated by reference to Exhibit 10.4 of Amendment
No. 1 to Form F-1 (File No. 333-93661) of ST Assembly Test Services Ltd filed with the
Securities and Exchange Commission on January 3, 20004.2
    
    Program Agreement dated January 10, 2002 by and between Citicorp Investment Bank
(Singapore) Limited and ST Assembly Test Services Ltd establishing a S$500,000,000
Multicurrency Medium Term Note Program  incorporated by reference to Exhibit 4.6 of Form
20-F (File No. 333-75080) of ST Assembly Test Services Ltd filed with the Securities and
Exchange Commission on February 28, 20024.3
    
    Trust Deed dated January 10, 2002 by and between British and Malayan Trustees Limited and
ST Assembly Test Services Ltd establishing a S$500,000,000 Multicurrency Medium Term Note
Program incorporated by reference to Exhibit 4.7 of Form 20-F (File No. 333-75080) of ST
Assembly Test Services Ltd filed with the Securities and Exchange Commission on February
28, 20024.4
    
    Agency Agreement dated January 10, 2002 by and between British and Malayan Trustees
Limited, Citicorp Investment Bank (Singapore) Limited and ST Assembly Test Services Ltd
establishing a S$500,000,000 Multicurrency Medium Term Note Program  incorporated by
reference to Exhibit 4.8 of Form 20-F (File No. 333-75080) of ST Assembly Test Services Ltd
filed with the Securities and Exchange Commission on February 28, 20024.5
    
    Indenture dated March 18, 2002 by and between ST Assembly Test Services Ltd and the Bank of
New York relating to the 1.75% Convertible Notes Due 2007  incorporated by reference to
Exhibit 4.10 of Form 20-F (File No. 333-75080) of ST Assembly Test Services Ltd filed with
the Securities and Exchange Commission on March 31, 20034.6
    
    US$168 Million Reg S Global Note issued by ST Assembly Test Services Ltd in relation to the
1.75% Convertible Notes Due 2007  incorporated by reference to Exhibit 4.11 of Form 20-F
(File No. 333-75080) of ST Assembly Test Services Ltd filed with the Securities and
Exchange Commission on March 31, 2003
 91




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##### Table of Contents



4.7
    
    US$25 Million Reg S Global Note issued by ST Assembly Test Services Ltd in relation to the
1.75% Convertible Notes Due 2007  incorporated by reference to Exhibit 4.12 of Form 20-F
(File No. 333-75080) of ST Assembly Test Services Ltd filed with the Securities and
Exchange Commission on March 31, 20034.8
    
    US$7 Million Restricted Global Note issued by ST Assembly Test Services Ltd in relation to
the 1.75% Convertible Notes Due 2007  incorporated by reference to Exhibit 4.13 of Form
20-F (File No. 333-75080) of ST Assembly Test Services Ltd filed with the Securities and
Exchange Commission on March 31, 20034.9
    
    ChipPAC, Inc. Employee Retention and Severance Plan  incorporated by reference to Exhibit
10.41 to the annual report on Form 10-K (File No. 000-31173) of ChipPAC, Inc. for the
fiscal year ended December 31, 2003, as filed with the Securities and Exchange Commission
on March 12, 20044.10
    
    Separation Agreement, dated as of February 10, 2004, among ST Assembly Test Services Ltd,
ChipPAC, Inc. and Dennis P. McKenna  incorporated by reference to Exhibit 10.33 to the
annual report on Form 10-K (File No. 000-31173) of ChipPAC, Inc. for the fiscal year ended
December 31, 2003, as filed with the Securities and Exchange Commission on March 12, 20044.11
    
    Amendment Agreement dated April 22, 2003 renewing the Immunity Agreement dated October 18,
1996 by and between Motorola Inc. and ST Assembly Test Services Ltd  incorporated by
reference to Exhibit 4.12 of Form 20-F (File No. 333-75080) of ST Assembly Test Services
Ltd filed with the Securities and Exchange Commission on March 19, 20044.12
    
    Securities Pledge Agreement dated January 16, 2004 by and between ST Assembly Test Services
Ltd as Pledgor and Deutsche Bank AG, London Branch as Pledgee  incorporated by reference
to Exhibit 4.13 of Form 20-F (File No. 333-75080) of ST Assembly Test Services Ltd filed
with the Securities and Exchange Commission on March 19, 20044.13
    
    Confirmation Letter Agreement dated January 8, 2004 by and between ST Assembly Test
Services Ltd and Deutsche Bank AG, London Branch  incorporated by reference to Exhibit
4.14 of Form 20-F (File No. 333-75080) of ST Assembly Test Services Ltd filed with the
Securities and Exchange Commission on March 19, 20044.14
    
    Agreement and Plan of Merger and Reorganization dated February 10, 2004 by and between ST
Assembly Test Services Ltd, ChipPAC, Inc. and Camelot Merger, Inc.  incorporated by
reference to Exhibit 4.15 of Form 20-F (File No. 333-75080) of ST Assembly Test Services
Ltd filed with the Securities and Exchange Commission on March 19, 20044.15
    
    Strategic Assistance Loan Agreement dated June 20, 2003 by and between ST Assembly Test
Services Ltd and Simmtech Co Ltd  incorporated by reference to Exhibit 4.16 of Form 20-F
(File No. 333-75080) of ST Assembly Test Services Ltd filed with the Securities and
Exchange Commission on March 19, 20044.16
    
    The Yangdo Tambo Agreement dated June 20, 2003 by and between ST Assembly Test Services Ltd
and Simmtech Co. Ltd  incorporated by reference to Exhibit 4.17 of Form 20-F (File No.
333-75080) of ST Assembly Test Services Ltd filed with the Securities and Exchange
Commission on March 19, 20044.17
    
    Pledge Agreement dated June 20, 2003 by and between ST Assembly Test Services Ltd and
Simmtech Co. Ltd  incorporated by reference to Exhibit 4.18 of Form 20-F (File No.
333-75080) of ST Assembly Test Services Ltd filed with the Securities and Exchange
Commission on March 19, 20044.18
    
    Loan Agreement dated December 26, 2003 by and between ST Assembly Test Services Ltd and
Simmtech Co. Ltd and Se-Ho Chun  incorporated by reference to Exhibit 4.19 of Form 20-F
(File No. 333-75080) of ST Assembly Test Services Ltd filed with the Securities and
Exchange Commission on March 19, 20044.19
    
    Yangdo Tambo Agreement dated December 26, 2003 by and between ST Assembly Test Services Ltd
and Simmtech Co. Ltd  incorporated by reference to Exhibit 4.20 of Form 20-F (File No.
333-75080) of ST Assembly Test Services Ltd filed with the Securities and Exchange
Commission on March 19, 2004
 92




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4.20
    
    Share Pledge Agreement dated December 26, 2003 by and between ST Assembly Test Services Ltd
and Se-Ho Chun  incorporated by reference to Exhibit 4.21 of Form 20-F (File No.
333-75080) of ST Assembly Test Services Ltd filed with the Securities and Exchange
Commission on March 19, 20044.21
    
    Factory Kun Mortgage Agreement dated December 26, 2003 by and between ST Assembly Test
Services Ltd and Simmtech Co. Ltd  incorporated by reference to Exhibit 4.22 of Form 20-F
(File No. 333-75080) of ST Assembly Test Services Ltd filed with the Securities and
Exchange Commission on March 19, 20044.22
    
    Base Capacity and Continuing Support Agreement dated December 26, 2003 by and between ST
Assembly Test Services Ltd and Simmtech Co. Ltd  incorporated by reference to Exhibit 4.23
of Form 20-F (File No. 333-75080) of ST Assembly Test Services Ltd filed with the
Securities and Exchange Commission on March 19, 20044.23
    
    Indenture dated November 7, 2003 by and between ST Assembly Test Services Ltd and the Bank
of New York relating to the $115 million zero-rated Convertible Notes Due 2008 
incorporated by reference to Exhibit 4.24 of Form 20-F (File No. 333-75080) of ST Assembly
Test Services Ltd filed with the Securities and Exchange Commission on March 19, 20044.24
    
    US$115 Million Reg S Global Note issued by ST Assembly Test Services Ltd under the
Indenture relating to the zero-rate Convertible Notes Due 2008  incorporated by reference
to Exhibit 4.25 of Form 20-F (File No. 333-75080) of ST Assembly Test Services Ltd filed
with the Securities and Exchange Commission on March 19, 20044.25
    
    Purchase Agreement, dated as of May 22, 2003, by and between ChipPAC, Inc. and Lehman
Brothers Inc.  incorporated by reference to Exhibit 4.5 of Form S-3 (File No. 333-108236)
of ChipPAC, Inc. filed with the Securities and Exchange Commission on August 26, 20034.26
    
    Registration Rights Agreement, dated March 28, 2003, by and between ChipPAC, Inc. and
Lehman brothers Inc.  incorporated by reference to Exhibit 10.39 of Form 10-Q (File No.
000-31173) of ChipPAC, Inc. filed with the Securities and Exchange Commission on August 8,
2003 for the period ended June 30, 20034.27
    
    Indenture, dated as of May 28, 2003, by and between ChipPAC, Inc. and U.S. Bank National
Association, as trustee incorporated by reference to Exhibit 10.40 of Form 10-Q (File No.
000-31173) of ChipPAC, Inc. filed with the Securities and Exchange Commission on August 8,
2003 for the period ended June 30, 20034.28
    
    Employment Agreement, dated as of February 26, 2004, among ST Assembly Test Services Ltd,
ChipPAC, Inc. and Dennis Daniels  incorporated by reference to Exhibit 4.7 of Form F-4
(File No. 333-114232) of STATS ChipPAC Ltd., as filed with the Securities and Exchange
Commission on April 6, 20044.29
    
    Employment Agreement, dated as of March 17, 2004, among ST Assembly Test Services Ltd,
ChipPAC, Inc. and Michael G. Potter  incorporated by reference to Exhibit 4.8 of Form F-4
(File No. 333-114232) of STATS ChipPAC Ltd., as filed with the Securities and Exchange
Commission on April 6, 20044.30
    
    Retention Agreement, entered into on April 18, 2004, among ST Assembly Test Services Ltd,
ChipPAC, Inc. and Robert Krakauer  incorporated by reference to Exhibit 10.42 to the
Quarterly Report on Form 10-Q (File No. 000-31173) of ChipPAC, Inc. for the three months
ended March 31, 2004, as filed with the Securities and Exchange Commission on May 10, 20044.31
    
    Retention Agreement, dated as of May 11, 2004, between ChipPAC, Inc. and Patricia McCall 
incorporated by reference to Exhibit 10.44 to the Quarterly Report on Form 10-Q (File No.
000-31173) of ChipPAC, Inc. for the three months ended June 30, 3002, as filed with the
Securities and Exchange Commission on July 30, 20044.32
    
    First Supplemental Indenture among ChipPAC Inc., as Company, ST Assembly Test Services Ltd,
as Parent, and U.S. Bank National Association, as Trustee, dated August 4, 2004 
incorporated by reference to Exhibit 4.2 of Form F-3 (File No. 333-119705) of STATS
ChipPAC, Inc. filed with the Securities and Exchange Commission on October 13, 20044.33
    
    STATS ChipPAC Ltd. Substitute Share Purchase and Option Plan  incorporated by reference to
Exhibit 4.4 to Form S-8 POS (File No. 333-114232) of STATS ChipPAC Ltd. of August 25, 2004
 93




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4.34
    
    STATS ChipPAC Ltd. Substitute Equity Incentive Plan  incorporated by reference to Exhibit
4.5 to Form S-8 POS (File No. 333-114232) of STATS ChipPAC Ltd. of August 25, 20044.35
    
    STATS ChipPAC Ltd. Share Option Plan  incorporated by reference to Exhibit 4.3 to Form S-8
(File No. 333-118555) of STATS ChipPAC Ltd. of August 25, 20044.36
    
    STATS ChipPAC Ltd. Employee Share Purchase Plan 2004  incorporated by reference to Exhibit
4.4 to Form S-8 (File No. 333-118555) of STATS ChipPAC Ltd. of August 25, 20044.37
    
    Indenture, dated November 18, 2004, by and between STATS ChipPAC Ltd. and U.S. Bank
National Association  incorporated by reference to Exhibit 4.40 to the annual report on
Form 20-F (File No. 333-75080) for fiscal year ended December 31, 2004 of STATS ChipPAC
Ltd., as filed with the Securities and Exchange Commission on March 18, 2005 (Form 20-F
FY2004)4.38
    
    Purchase Agreement, dated as of November 5, 2004 by and between STATS ChipPAC Ltd, Deutsche
Bank AG, Singapore Branch and Lehman Brothers International (Europe)  incorporated by
reference to Exhibit 4.41 to the Form 20-F FY20044.39
    
    Registration Rights Agreement, dated November 18, 2004, by and between STATS ChipPAC Ltd.
and STATS ChipPAC, Inc., STATS ChipPAC Test Services, Inc., STATS Holdings Limited,
ChipPAC, Inc., ChipPAC International Company Limited, ChipPAC Luxembourg S.a.R.L., ChipPAC
Liquidity Management Hungary Limited Liability Company, STATS ChipPAC (Barbados) Ltd.,
STATS ChipPAC (BVI) Limited, STATS ChipPAC Malaysia Sdn. Bhd., and STATS ChipPAC Korea Ltd.
(collectively, referred to as the Subsidiary Guarantors) and Deutsche Bank AG, Singapore
Branch and Lehman Brothers International (Europe)  incorporated by reference to Exhibit
4.42 to the Form 20-F FY20044.40
    
    Subsidiary Guarantee Agreement, dated November 18, 2004, by and between STATS ChipPAC Ltd.,
the Subsidiary Guarantors party thereto and U.S. Bank National Association, as Trustee 
incorporated by reference to Exhibit 4.43 to the Form 20-F FY20044.41
    
    Second Supplemental Indenture among ChipPAC International Company Limited, as Issuer,
ChipPAC, Inc., as Guarantor, and U.S. Bank National Association as Trustee, dated October
7, 2004  incorporated by reference to Exhibit 4.44 to the Form 20-F FY20044.42
    
    Second Supplemental Indenture among ChipPAC Inc., as Company, STATS ChipPAC Ltd., as
Parent, and U.S. Bank National Association, as Trustee, dated October 11, 2004 
incorporated by reference to Exhibit 4.45 to the Form 20-F FY20044.43
    
    Third Supplemental Indenture among ChipPAC Inc., as Company, STATS ChipPAC Ltd., as Parent,
and U.S. Bank National Association, as Trustee, dated November 2, 2004  incorporated by
reference to Exhibit 4.46 to the Form 20-F FY20044.44
    
    Indenture dated as of July 19, 2005 by and between STATS ChipPAC Ltd. and U.S. Bank
National Association relating to the 7.5% Senior Notes Due 2010  incorporated by reference
to Exhibit 4.1 to Form 6-K (File No. 333-75080) of STATS ChipPAC Ltd., as filed with the
Securities and Exchange Commission on August 25, 20054.45
    
    Registration Rights Agreement dated as of July 19, 2005 by and among STATS ChipPAC Ltd. and
STATS ChipPAC, Inc., STATS ChipPAC Test Services, Inc., STATS Holdings Limited, ChipPAC,
Inc., ChipPAC International Company Limited, ChipPAC Luxembourg S.a.R.L., ChipPAC Liquidity
Management Hungary Limited Liability Company, STATS ChipPAC (Barbados) Ltd., STATS ChipPAC
(BVI) Limited and STATS ChipPAC Malaysia Sdn. Bhd. (collectively referred to as the 2005
Subsidiary Guarantors) and Credit Suisse First Boston (Singapore) Limited and Deutsche Bank
AG, Singapore Branch  incorporated by reference to Exhibit 4.2 to Form 6-K (File No.
333-75080) of STATS ChipPAC Ltd., as filed with the Securities and Exchange Commission on
August 25, 2005
 94




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##### Table of Contents



4.46
    
    Terms and Conditions of Appointment of Tan Lay Koon as President and Chief Executive
Officer of STATS ChipPAC Ltd. dated August 5, 2004 by and between Tan Lay Koon and STATS
ChipPAC Ltd.4.47
    
    Subsidiary Guarantee Agreement dated as of July 19, 2005, by and between STATS ChipPAC
Ltd., the Subsidiary Guarantors party thereto and U.S. Bank National Association, as
Trustee incorporated by reference to Exhibit 4.3 to Form 6-K (File No. 333-75080) of STATS
ChipPAC Ltd., as filed with the Securities and Exchange Commission on August 25, 20054.48
    
    Supplemental Subsidiary Guarantee Agreement, dated as of February 21, 2006, by and between
STATS ChipPAC Ltd., the Subsidiary Guarantors party thereto and U.S. Bank National
Association, as Trustee with respect to the 7.5% Senior Notes due 20104.49
    
    Supplemental Subsidiary Guarantee Agreement, dated as of February 21, 2006, by and between
STATS ChipPAC Ltd., the Subsidiary Guarantors party thereto and U.S. Bank National
Association, as Trustee with respect to the 63/4% Senior Notes due 20118.1
    
    List of subsidiaries12.1
    
    Certification by the Chief Executive Officer pursuant to 17 CFR 240. 15d-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2
    
    Certification by the Chief Financial Officer pursuant to 17 CFR 240. 15D-14(a), as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1
    
    Certification by the 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 the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 200215.1
    
    Consent of Pricewaterhouse Coopers, Singapore, independent registered public accounting firm15.2
    
    Consent of KPMG, independent registered public accounting firm
 95




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##### Table of Contents



SIGNATURES
   STATS CHIPPAC LTD.By:

    /s/Tan Lay KoonName:
    Tan Lay KoonTitle:
    President and Chief Executive OfficerBy:
    /s/Michael G. PotterName:
    Michael G. PotterTitle:
    Corporate Vice President,
Chief Financial Officer 96




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 
 INDEX TO FINANCIAL STATEMENTS
 PageFINANCIAL STATEMENTSReports of Independent Registered Public Accounting Firms
    
    F-2Consolidated Balance Sheets
    
    F-4Consolidated Statements of Operations
    
    F-5Consolidated Statements of Comprehensive Loss
    
    F-6Consolidated Statements of Shareholders Equity
    
    F-7Consolidated Statements of Cash Flows
    
    F-8Notes to the Consolidated Financial Statements
    
    F-9
  F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
   
 F-2




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 F-3




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 AS OF DECEMBER 31
 In thousands of U.S. Dollars (except per share data)
 Note
    
    
    2004
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    
    3
    
    
    $
    227,509
    
    
    $
    224,720Short-term marketable securities
    
    
    4
    
    
    
    2,060
    
    
    
    17,648Accounts receivable, net
    
    
    5
    
    
    
    149,650
    
    
    
    240,990Amounts due from affiliates
    
    
    2
    
    
    
    2,623
    
    
    
    6,810Other receivables
    
    
    6
    
    
    
    16,813
    
    
    
    11,336Inventories
    
    
    7
    
    
    
    54,690
    
    
    
    79,483Prepaid expenses and other current assets
    
    
    8
    
    
    
    38,836
    
    
    
    26,727Total current assets
    
    
    
    
    
    
    492,181
    
    
    
    607,714Long-term marketable securities
    
    
    4
    
    
    
    18,121
    
    
    
    17,803Property, plant and equipment, net
    
    
    9
    
    
    
    1,035,803
    
    
    
    1,107,031Intangible assets
    
    
    10
    
    
    
    125,830
    
    
    
    72,780Goodwill
    
    
    11
    
    
    
    523,598
    
    
    
    522,625Prepaid expenses and other non-current assets
    
    
    8
    
    
    
    76,169
    
    
    
    65,429Total assets
    
    
    
    
    
    $
    2,271,702
    
    
    $
    2,393,382LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts and other payable
    
    
    
    
    
    $
    68,573
    
    
    $
    136,058Payables related to property, plant and equipment purchases
    
    
    
    
    
    
    51,638
    
    
    
    79,425Accrued operating expenses
    
    
    13
    
    
    
    63,899
    
    
    
    96,932Income taxes payable
    
    
    
    
    
    
    2,038
    
    
    
    2,235Short-term borrowings
    
    
    15
    
    
    
    19,874
    
    
    
    16,891Amounts due to affiliates
    
    
    2
    
    
    
    137
    
    
    
    62Current obligations under capital leases
    
    
    16
    
    
    
    7,587
    
    
    
    7,091Current installments of long-term debts
    
    
    17
    
    
    
    154,407
    
    
    
    18,651Total current liabilities
    
    
    
    
    
    
    368,153
    
    
    
    357,345Obligations under capital leases, excluding current installments
    
    
    16
    
    
    
    10,771
    
    
    
    3,680Long-term debts, excluding current installments
    
    
    17
    
    
    
    642,175
    
    
    
    775,425Other non-current liabilities
    
    
    19
    
    
    
    50,362
    
    
    
    66,611Total liabilities
    
    
    
    
    
    
    1,071,461
    
    
    
    1,203,061Minority interest
    
    
    
    
    
    
    40,891
    
    
    
    48,669Share capital:Ordinary shares  par value S$0.25, Authorized 3,200,000,000
shares
Issued ordinary shares  1,944,330,450 in 2004 and
1,976,292,025 in 2005
    
    
    20
    
    
    
    298,233
    
    
    
    303,052Additional paid-in capital
    
    
    21
    
    
    
    1,507,612
    
    
    
    1,517,118Accumulated other comprehensive loss
    
    
    22
    
    
    
    (2,860
    )
    
    
    (8,572
    )Accumulated deficit
    
    
    
    
    
    
    (643,635
    )
    
    
    (669,946
    )Total shareholders equity
    
    
    
    
    
    
    1,159,350
    
    
    
    1,141,652Commitments and contingencies
    
    
    24Total liabilities and shareholders equity
    
    
    
    
    
    $
    2,271,702
    
    
    $
    2,393,382
  F-4




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE YEARS ENDED DECEMBER 31
 In thousands of U.S. Dollars (except per share data)
 Note
    
    
    2003
    
    
    2004
    
    
    2005Net revenues
    
    
    
    
    
    $
    380,691
    
    
    $
    769,121
    
    
    $
    1,157,253Cost of revenues
    
    
    
    
    
    
    (328,014
    )
    
    
    (643,540
    )
    
    
    (968,023
    )Gross profit
    
    
    
    
    
    
    52,677
    
    
    
    125,581
    
    
    
    189,230Operating expenses:Selling, general and administrative
    
    
    
    
    
    
    36,475
    
    
    
    84,965
    
    
    
    135,771Research and development
    
    
    
    
    
    
    15,295
    
    
    
    17,637
    
    
    
    26,071Restructuring charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    830Goodwill impairment
    
    
    11
    
    
    
    
    
    
    
    453,000
    
    
    
    Other general expenses (income), net
    
    
    
    
    
    
    374
    
    
    
    (464
    )
    
    
    (20
    )Total operating expenses
    
    
    
    
    
    
    52,144
    
    
    
    555,138
    
    
    
    162,652Operating income (loss)
    
    
    
    
    
    
    533
    
    
    
    (429,557
    )
    
    
    26,578Other income (expense), net:Interest income
    
    
    
    
    
    
    4,785
    
    
    
    4,430
    
    
    
    6,414Interest expense
    
    
    
    
    
    
    (13,994
    )
    
    
    (28,816
    )
    
    
    (42,629
    )Foreign currency exchange gain (loss)
    
    
    
    
    
    
    1,634
    
    
    
    (1,122
    )
    
    
    531Other non-operating income (expense), net
    
    
    25
    
    
    
    7,570
    
    
    
    (936
    )
    
    
    (1,076
    )Total other income (expense), net
    
    
    
    
    
    
    (5
    )
    
    
    (26,444
    )
    
    
    (36,760
    )Income (loss) before income taxes
    
    
    
    
    
    
    528
    
    
    
    (456,001
    )
    
    
    (10,182
    )Income tax expense
    
    
    14
    
    
    
    (705
    )
    
    
    (7,894
    )
    
    
    (9,689
    )Loss before minority interest
    
    
    
    
    
    
    (177
    )
    
    
    (463,895
    )
    
    
    (19,871
    )Minority interest
    
    
    
    
    
    
    (1,539
    )
    
    
    (3,828
    )
    
    
    (6,440
    )Net loss
    
    
    
    
    
    $
    (1,716
    )
    
    $
    (467,723
    )
    
    $
    (26,311
    )Basic and diluted net loss per ordinary share
    
    
    
    
    
    $
    (0.00
    )
    
    $
    (0.33
    )
    
    $
    (0.01
    )Basic and diluted net loss per ADS
    
    
    
    
    
    $
    (0.02
    )
    
    $
    (3.27
    )
    
    $
    (0.13
    )Ordinary shares (in thousands) used in per ordinary
share calculation: basic and diluted
    
    
    
    
    
    
    1,005,374
    
    
    
    1,428,954
    
    
    
    1,961,950ADS (in thousands) used in per ADS calculation: basic and diluted
    
    
    
    
    
    
    100,537
    
    
    
    142,895
    
    
    
    196,195
  F-5




---



##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 FOR THE YEARS ENDED DECEMBER 31
 In thousands of U.S. Dollars
 2003
    
    
    2004
    
    
    2005Net loss
    
    $
    (1,716
    )
    
    $
    (467,723
    )
    
    $
    (26,311
    )Other comprehensive loss:Unrealized gain (loss) on
available-for-sale marketable
securities
    
    
    3,687
    
    
    
    (548
    )
    
    
    (247
    )Realized (gain) loss on
available-for-sale marketable
securities included in net loss
    
    
    (5,040
    )
    
    
    537
    
    
    
    Unrealized gain on hedging instruments
    
    
    
    
    
    
    3,953
    
    
    
    133Realized gain on hedging instruments
included in net loss
    
    
    
    
    
    
    (168
    )
    
    
    (3,143
    )Foreign currency translation adjustment
    
    
    698
    
    
    
    3,287
    
    
    
    (2,455
    )Comprehensive loss
    
    $
    (2,371
    )
    
    $
    (460,662
    )
    
    $
    (32,023
    )
  F-6




---



##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
 In thousands of U.S. Dollars
 AccumulatedAdditional
    
    
    Other
    
    
    
    
    
    
    TotalPaid-in
    
    
    Comprehensive
    
    
    Accumulated
    
    
    ShareholdersOrdinary Shares
    
    
    Capital
    
    
    Loss
    
    
    Deficit
    
    
    EquityNo.(In thousands)
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Balances at January 1, 2003
    
    
    992,115
    
    
    
    160,295
    
    
    
    389,679
    
    
    
    (9,266
    )
    
    
    (174,196
    )
    
    
    366,512Share issuances
    
    
    84,505
    
    
    
    12,139
    
    
    
    99,579
    
    
    
    
    
    
    
    
    
    
    
    111,718Stock compensation
    
    
    
    
    
    
    
    
    
    
    97
    
    
    
    
    
    
    
    
    
    
    
    97Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,716
    )
    
    
    (1,716
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (655
    )
    
    
    
    
    
    
    (655
    )Balances at December 31, 2003
    
    
    1,076,620
    
    
    
    172,434
    
    
    
    489,355
    
    
    
    (9,921
    )
    
    
    (175,912
    )
    
    
    475,956Share issuances
    
    
    5,802
    
    
    
    856
    
    
    
    1,112
    
    
    
    
    
    
    
    
    
    
    
    1,968Share issuances and
assumption of share options
in connection with
acquisition
    
    
    861,908
    
    
    
    124,943
    
    
    
    1,016,549
    
    
    
    
    
    
    
    
    
    
    
    1,141,492Stock compensation
    
    
    
    
    
    
    
    
    
    
    658
    
    
    
    
    
    
    
    
    
    
    
    658Effect of subsidiarys
equity transaction
    
    
    
    
    
    
    
    
    
    
    (62
    )
    
    
    
    
    
    
    
    
    
    
    (62
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (467,723
    )
    
    
    (467,723
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,061
    
    
    
    
    
    
    
    7,061Balances at December 31, 2004
    
    
    1,944,330
    
    
    
    298,233
    
    
    
    1,507,612
    
    
    
    (2,860
    )
    
    
    (643,635
    )
    
    
    1,159,350Share issuances
    
    
    31,962
    
    
    
    4,819
    
    
    
    8,702
    
    
    
    
    
    
    
    
    
    
    
    13,521Stock compensation
    
    
    
    
    
    
    
    
    
    
    743
    
    
    
    
    
    
    
    
    
    
    
    743Effect of subsidiarys
equity transaction
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    61Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,311
    )
    
    
    (26,311
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,712
    )
    
    
    
    
    
    
    (5,712
    )Balances at December 31, 2005
    
    
    1,976,292
    
    
    
    303,052
    
    
    
    1,517,118
    
    
    
    (8,572
    )
    
    
    (669,946
    )
    
    
    1,141,652
  F-7




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED DECEMBER 31
 In thousands of U.S. Dollars
 2003
    
    
    2004
    
    
    2005Cash Flows From Operating ActivitiesNet loss
    
    $
    (1,716
    )
    
    $
    (467,723
    )
    
    $
    (26,311
    )Adjustments to reconcile net loss to net cash provided
by operating activities:Depreciation and amortization
    
    
    120,610
    
    
    
    188,683
    
    
    
    254,138Goodwill impairment
    
    
    
    
    
    
    453,000
    
    
    
    Amortization of leasing prepayments
    
    
    11,732
    
    
    
    25,718
    
    
    
    25,790Debt issuance cost amortization
    
    
    1,155
    
    
    
    1,913
    
    
    
    1,961Loss (gain) on sale of property, plant and equipment
    
    
    100
    
    
    
    (656
    )
    
    
    1,529Accretion of discount on convertible notes
    
    
    7,366
    
    
    
    11,437
    
    
    
    7,414Loss from repurchase and redemption of senior and
convertible notes
    
    
    
    
    
    
    797
    
    
    
    1,653Foreign currency exchange (gain) loss
    
    
    (3,367
    )
    
    
    (830
    )
    
    
    (134
    )Deferred income taxes
    
    
    (1,246
    )
    
    
    15,005
    
    
    
    9,351Minority interest in income of subsidiary
    
    
    1,539
    
    
    
    3,828
    
    
    
    6,440(Gain) loss on sale of marketable securities
    
    
    (5,040
    )
    
    
    537
    
    
    
    Others
    
    
    (54
    )
    
    
    1,029
    
    
    
    1,278Changes in operating working capital:Accounts receivable
    
    
    (30,277
    )
    
    
    8,149
    
    
    
    (91,340
    )Amounts due from affiliates
    
    
    (2,932
    )
    
    
    4,427
    
    
    
    (4,187
    )Inventories
    
    
    (10,095
    )
    
    
    (1,171
    )
    
    
    (24,793
    )Other receivables, prepaid expenses and other assets
    
    
    (16,783
    )
    
    
    (64,421
    )
    
    
    3,516Accounts payable, accrued operating expenses and other
payables
    
    
    11,769
    
    
    
    (41,406
    )
    
    
    104,499Amounts due to affiliates
    
    
    (213
    )
    
    
    (1,699
    )
    
    
    (75
    )Net cash provided by operating activities
    
    
    82,548
    
    
    
    136,617
    
    
    
    270,729Cash Flows From Investing ActivitiesProceeds from sales
of marketable securities
    
    $
    77,566
    
    
    $
    130,497
    
    
    $
    15,726Proceeds from maturity of marketable securities
    
    
    5,753
    
    
    
    46,687
    
    
    
    787Purchases of marketable securities
    
    
    (43,850
    )
    
    
    (160,943
    )
    
    
    (32,017
    )Acquisition of intangible assets
    
    
    
    
    
    
    (1,428
    )
    
    
    (4,853
    )Acquisition of subsidiary, net of cash acquired
    
    
    (467
    )
    
    
    7,208
    
    
    
    Purchases of property, plant and equipment
    
    
    (209,326
    )
    
    
    (287,574
    )
    
    
    (245,775
    )Others, net
    
    
    (3,946
    )
    
    
    729
    
    
    
    3,139Net cash used in investing activities
    
    
    (174,270
    )
    
    
    (264,824
    )
    
    
    (262,993
    )Cash Flows From Financing ActivitiesRepayment of
short-term debts
    
    $
    (27,419
    )
    
    $
    (72,006
    )
    
    $
    (143,276
    )Repayment of long-term debts
    
    
    (19,713
    )
    
    
    (8,982
    )
    
    
    (37,670
    )Proceeds from issuance of shares, net of expenses
    
    
    117,477
    
    
    
    1,968
    
    
    
    13,521Proceeds from issuance of senior and convertible notes,
net of expenses
    
    
    112,345
    
    
    
    210,458
    
    
    
    146,535Repurchase and redemption of senior and convertible notes
    
    
    
    
    
    
    (193,647
    )
    
    
    (167,263
    )Proceeds from bank borrowings
    
    
    49,839
    
    
    
    107,620
    
    
    
    188,085(Increase) decrease in restricted cash
    
    
    8,223
    
    
    
    2,927
    
    
    
    (1,487
    )Grants received
    
    
    6,784
    
    
    
    
    
    
    
    246Capital lease payments
    
    
    (12,862
    )
    
    
    (7,210
    )
    
    
    (11,737
    )Contribution by minority interest in subsidiary, net
    
    
    
    
    
    
    
    
    
    
    3,623Net cash provided by financing activities
    
    
    234,674
    
    
    
    41,128
    
    
    
    (9,423
    )Net increase in cash and cash equivalents
    
    
    142,952
    
    
    
    (87,079
    )
    
    
    (1,687
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    2,550
    
    
    
    1,425
    
    
    
    (1,102
    )Cash and cash equivalents at beginning of the year
    
    
    167,661
    
    
    
    313,163
    
    
    
    227,509Cash and cash equivalents at end of the year
    
    $
    313,163
    
    
    $
    227,509
    
    
    $
    224,720Supplementary Cash Flow InformationInterest paid
    
    $
    5,580
    
    
    $
    21,974
    
    
    $
    40,738Income taxes paid
    
    $
    669
    
    
    $
    1,023
    
    
    $
    185Non-cash itemsIssuance of shares and assumption of share options in
connection with acquisition
    
    $
    
    
    
    $
    1,066,994
    
    
    $
    Equipment acquired under capital leases
    
    $
    2,663
    
    
    $
    
    
    
    $
    4,150
  F-8




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
In thousands of U.S. Dollars (except per share data)
 1. Background and Summary of Significant Accounting Policies
 (a) Business and Organization
      (b) Fiscal Year
  (c) Accounting Principles
  (d) Principles of Consolidation
  F-9




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 (e) Issuances of Stock by Subsidiaries
  (f) Use of Estimates
  (g) Reclassifications
  (h) Foreign Currency Transactions
   (i) Certain Risks and Concentrations
   F-10




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
    (j) Cash and Cash Equivalents
  (k) Derivative Instruments and Hedging Activities
   (l) Marketable Securities
   F-11




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
  (m) Inventories
  (n) Business Combination
  (o) Goodwill
   (p) Intangible Assets
  F-12




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
  Tradenames
    
    7 yearsTechnology and intellectual property
    
    10 yearsCustomer relationships
    
    2 yearsSoftware and licenses
    
    
    3 to 5 years
 (q) Property, Plant and Equipment
  Land use rights
    
    
    50 to 99 yearsBuilding, mechanical and electrical installation
    
    
    3 to 25 yearsEquipment
    
    
    2 to 8 years
    (r) Long-Lived Assets
   (s) Comprehensive Loss
  (t) Revenue Recognition
  F-13




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
      For the Year EndedDecember 31,2003
    
    
    2004
    
    
    2005%
    
    
    %
    
    
    %Revenue packaging  array
    
    
    20.6
    
    
    
    40.6
    
    
    
    50.2 packaging  leaded
    
    
    26.9
    
    
    
    20.9
    
    
    
    22.0 test and other services
    
    
    52.5
    
    
    
    38.5
    
    
    
    27.8Total
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
  (u) Grants
    F-14




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 (v) Stock-Based
Employee Compensation
   For the Year Ended December 31,2003
    
    
    2004
    
    
    2005Net loss as reported
    
    $
    (1,716
    )
    
    $
    (467,723
    )
    
    $
    (26,311
    )Add: Total stock-based employee
compensation expenses included in
reported net loss, net of related
tax effects
    
    
    97
    
    
    
    658
    
    
    
    743Deduct: Total stock-based employee
compensation expenses determined
under fair value method for all
awards, net of related tax effects
    
    
    (10,496
    )
    
    
    (18,492
    )
    
    
    (19,612
    )Pro forma net loss
    
    $
    (12,115
    )
    
    $
    (485,557
    )
    
    $
    (45,180
    )Basic and diluted net loss per share:As reported
    
    $
    (0.00
    )
    
    $
    (0.33
    )
    
    $
    (0.01
    )Pro forma
    
    $
    (0.01
    )
    
    $
    (0.34
    )
    
    $
    (0.02
    )Basic and diluted net loss per ADS:As reported
    
    $
    (0.02
    )
    
    $
    (3.27
    )
    
    $
    (0.13
    )Pro forma
    
    $
    (0.12
    )
    
    $
    (3.40
    )
    
    $
    (0.23
    )
  For the Year Ended December 31,2003
    
    2004
    
    2005Expected lives
    
    5  10 years
    
    5  10 years
    
    9 yearsDividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Risk free interest rate
    
    
    2.5%  3.6
    %
    
    
    0.8%  4.3
    %
    
    
    2.6%  3.3
    %Expected volatility
    
    
    59.7%  67.4
    %
    
    
    55.9%  64.9
    %
    
    
    55.0%  57.1
    %
  For the Year EndedDecember 31,2005Expected lives
    
    0.5 yearsDividend yield
    
    
    0.0
    %Risk free interest rate
    
    
    1.3  1.9
    %Expected volatility
    
    
    38.0  42.8
    %
 F-15




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 (w) Employee Benefit Plans
     (x) Operating Leases
  (y) Product Warranties
  F-16




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 (z) Research and Development
  (aa) Income Taxes
  (bb) Net Loss Per Share
    Year Ended December 31,2003
    
    2004
    
    2005Convertible debt
    
    
    172,513
    
    
    
    369,235
    
    
    
    287,999Stock options
    
    
    61,022
    
    
    
    131,997
    
    
    
    124,175
  (cc) New Accounting Pronouncements
   F-17




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
     2. Related Party Transactions
   F-18




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
      December 31,2004
    
    
    2005Amounts due from affiliatesAccounts receivable, net of allowance for sales returns
    
    $
    2,623
    
    
    $
    6,810Amounts due to affiliatesAccounts payable
    
    $
    (137
    )
    
    $
    (62
    )
 3. Cash and Cash Equivalents
  December 31,2004
    
    
    2005Cash at banks and on hand
    
    $
    37,100
    
    
    $
    29,126Cash equivalentsBank fixed deposits
    
    
    152,849
    
    
    
    153,991Money market funds
    
    
    37,560
    
    
    
    39,891Foreign government treasury bills
    
    
    
    
    
    
    1,712$
    227,509
    
    
    $
    224,720
 F-19




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 4. Marketable Securities
  December 31,2004
    
    
    2005Gross
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-sale
corporate debt securities
    
    $
    20,961
    
    
    $
    
    
    
    $
    (780
    )
    
    $
    20,181
    
    
    $
    27,562
    
    
    $
    
    
    
    $
    (1,027
    )
    
    $
    26,535Held-to-maturity
certificates of deposit
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8,916
    
    
    $
    
    
    
    $
    
    
    
    $
    8,916
  December 31,2004
    
    
    2005Marketable securities:Due in one year or less
    
    $
    2,060
    
    
    $
    17,648Due after one year through five years
    
    
    18,121
    
    
    
    17,803$
    20,181
    
    
    $
    35,451
  5. Accounts Receivable
  December 31,2004
    
    
    2005Accounts receivable  third parties
    
    $
    151,549
    
    
    $
    243,830Allowance for sales returns
    
    
    (1,899
    )
    
    
    (2,840
    )$
    149,650
    
    
    $
    240,990
  2003
    
    
    2004
    
    
    2005Beginning
    
    $
    1,625
    
    
    $
    1,362
    
    
    $
    1,899Utilized during the year
    
    
    (1,102
    )
    
    
    (4,511
    )
    
    
    (1,094
    )Charged during the year
    
    
    839
    
    
    
    5,048
    
    
    
    2,517Writeback during the year
    
    
    
    
    
    
    
    
    
    
    (482
    )Ending
    
    $
    1,362
    
    
    $
    1,899
    
    
    $
    2,840
 F-20




---



##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 6. Other Receivables
  December 31,2004
    
    
    2005Deposits and staff advances
    
    $
    580
    
    
    $
    1,229Grants receivable
    
    
    1,322
    
    
    
    1,313Forward contract receivable
    
    
    3,785
    
    
    
    1,051Taxes receivable
    
    
    9,492
    
    
    
    3,796Other receivables
    
    
    1,634
    
    
    
    3,947$
    16,813
    
    
    $
    11,336
 7. Inventories
  December 31,2004
    
    
    2005Raw materials
    
    $
    42,267
    
    
    $
    63,079Work-in-progress
    
    
    11,472
    
    
    
    15,727Finished goods
    
    
    951
    
    
    
    677$
    54,690
    
    
    $
    79,483
 8. Prepaid Expenses and Other Assets
  December 31,2004
    
    
    2005Leasing prepayments
    
    $
    27,137
    
    
    $
    10,054Other prepayments and assets
    
    
    4,004
    
    
    
    9,543Deferred income tax assets
    
    
    2,422
    
    
    
    1,425Loans to vendors
    
    
    4,879
    
    
    
    5,329Fixed deposits pledged for bank loans
    
    
    394
    
    
    
    376$
    38,836
    
    
    $
    26,727
  December 31,2004
    
    
    2005Leasing prepayments
    
    $
    7,071
    
    
    $
    2,623Deferred income tax assets
    
    
    33,992
    
    
    
    38,879Fixed deposits pledged for bank loans
    
    
    727
    
    
    
    2,232Other deposits
    
    
    5,225
    
    
    
    289Loans to vendors
    
    
    13,771
    
    
    
    8,441Debt issuance cost, net of accumulated
amortization of $3,481 and $3,026
    
    
    10,677
    
    
    
    10,895Others
    
    
    4,706
    
    
    
    2,070$
    76,169
    
    
    $
    65,429
 F-21




---



##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
   9. Property, Plant and Equipment
  December 31,2004
    
    
    2005Cost:Freehold land
    
    $
    6,147
    
    
    $
    5,857Land and land use rights
    
    
    19,864
    
    
    
    19,864Buildings, mechanical and electrical installation
    
    
    164,083
    
    
    
    170,206Equipment
    
    
    1,404,959
    
    
    
    1,660,504Total cost
    
    $
    1,595,053
    
    
    $
    1,856,431Total accumulated depreciation
    
    $
    559,250
    
    
    $
    749,400Property, plant and equipment, net
    
    $
    1,035,803
    
    
    $
    1,107,031
      F-22




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 10. Intangible Assets
  December 31, 2004
    
    
    December 31, 2005Gross
    
    
    Accumulated
    
    
    Net
    
    
    Gross
    
    
    Accumulated
    
    
    NetAssets
    
    
    Amortization
    
    
    Assets
    
    
    Assets
    
    
    Amortization
    
    
    AssetsTradenames
    
    $
    7,700
    
    
    $
    (458
    )
    
    $
    7,242
    
    
    $
    7,700
    
    
    $
    (1,558
    )
    
    $
    6,142Technology and intellectual
property
    
    
    32,000
    
    
    
    (1,333
    )
    
    
    30,667
    
    
    
    32,000
    
    
    
    (4,533
    )
    
    
    27,467Customer relationships
    
    
    99,300
    
    
    
    (20,688
    )
    
    
    78,612
    
    
    
    99,300
    
    
    
    (70,338
    )
    
    
    28,962Software, licenses and others
    
    
    13,180
    
    
    
    (3,871
    )
    
    
    9,309
    
    
    
    18,528
    
    
    
    (8,319
    )
    
    
    10,209$
    152,180
    
    
    $
    (26,350
    )
    
    $
    125,830
    
    
    $
    157,528
    
    
    $
    (84,748
    )
    
    $
    72,780
  For the Year Ended December 31,2003
    
    
    2004
    
    
    2005Tradenames
    
    $
    
    
    
    $
    458
    
    
    $
    1,100Technology and intellectual property
    
    
    
    
    
    
    1,333
    
    
    
    3,200Customer relationships
    
    
    
    
    
    
    20,688
    
    
    
    49,650Software, licenses and others
    
    
    512
    
    
    
    2,229
    
    
    
    4,265$
    512
    
    
    $
    24,708
    
    
    $
    58,215
  2006
    
    $
    36,3302007
    
    
    6,6942008
    
    
    6,1632009
    
    
    5,2022010
    
    
    4,658Thereafter
    
    
    13,733Total
    
    $
    72,780
 11. Goodwill
  December 31,2004
    
    
    2005Beginning
    
    $
    2,209
    
    
    $
    523,598Goodwill related to acquisitions
    
    
    974,389
    
    
    
    Impairment charges
    
    
    (453,000
    )
    
    
    Purchase adjustments
    
    
    
    
    
    
    (973
    )Ending
    
    $
    523,598
    
    
    $
    522,625
 F-23




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
     (a)
    
    longer than expected slow-down in the industry beginning late 2004 as customers corrected
excess inventory position. This reduction in demand, coupled with the competitive pressures in
the testing and packaging business had affected the short-term earnings expectation of the
Company; and
 (b)
    
    a revision of the industry outlook beyond 2005 as compared to the time the merger was
announced.
  12. Business Combination
     F-24




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
  Value of STATS ChipPAC ADSs issued
    
    $
    1,068,955Value of STATS ChipPAC substitute options
    
    
    74,548Total value of STATS ChipPAC securities
    
    
    1,143,503Estimated direct transaction costs
    
    
    9,369Total estimated purchase price
    
    $
    1,152,872
  Current and other assets
    
    $
    170,332Property, plant and equipment
    
    
    447,568Current liabilities
    
    
    (161,203
    )Long-term debts
    
    
    (375,519
    )Other long-term liabilities
    
    
    (51,924
    )Net assets
    
    
    29,254Amortizable intangible assets:Tradenames
    
    
    7,700Technology and intellectual property
    
    
    32,000Customer relationships
    
    
    99,300Software and licenses
    
    
    8,218Unearned compensation on unvested options
    
    
    2,011Goodwill
    
    
    974,389$
    1,152,872
    F-25




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
        For the Year EndedDecember 31,2003
    
    
    2004Revenues
    
    $
    809,880
    
    
    $
    1,084,165Net loss
    
    
    (75,154
    )
    
    
    (484,695
    )Net loss per ordinary share:Basic and diluted
    
    $
    (0.04
    )
    
    $
    (0.25
    )Net loss per ADS:Basic and diluted
    
    $
    (0.41
    )
    
    $
    (2.52
    )
  F-26




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 13. Accrued Operating Expenses
  December 31,2004
    
    
    2005Staff costs
    
    $
    22,609
    
    
    $
    31,324Purchase of raw materials
    
    
    12,789
    
    
    
    25,082Maintenance fees, license fees and royalties
    
    
    2,832
    
    
    
    5,378Interest expense
    
    
    3,060
    
    
    
    7,780Provision for vacation liability
    
    
    3,511
    
    
    
    4,732Others
    
    
    19,098
    
    
    
    22,636$
    63,899
    
    
    $
    96,932
 14. Income Taxes
  For the Year Ended December 31,2003
    
    
    2004
    
    
    2005Singapore
    
    $
    (122
    )
    
    $
    6,674
    
    
    $
    6,698Foreign
    
    
    650
    
    
    
    (462,675
    )
    
    
    (16,880
    )$
    528
    
    
    $
    (456,001
    )
    
    $
    (10,182
    )
  For the Year Ended December 31,2003
    
    
    2004
    
    
    2005Current:Singapore
    
    $
    (1,706
    )
    
    $
    7,283
    
    
    $
    (72
    )Foreign
    
    
    (225
    )
    
    
    (172
    )
    
    
    (373
    )$
    (1,931
    )
    
    $
    7,111
    
    
    $
    (445
    )Deferred:Singapore
    
    $
    741
    
    
    $
    (9,145
    )
    
    $
    (617
    )Foreign
    
    
    485
    
    
    
    (5,860
    )
    
    
    (8,627
    )$
    1,226
    
    
    $
    (15,005
    )
    
    $
    (9,244
    )$
    (705
    )
    
    $
    (7,894
    )
    
    $
    (9,689
    )
  F-27




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
  For the Year Ended December 31,2003
    
    
    2004
    
    
    2005Income tax expense (benefit) computed at Singapore
statutory rate of 20.0% (2004: 20.0%, 2003: 22.0%)
    
    $
    116
    
    
    $
    (91,200
    )
    
    $
    (2,036
    )Non-deductible expenses, including goodwill
impairment charges
    
    
    175
    
    
    
    91,488
    
    
    
    1,989Non-taxable income
    
    
    (253
    )
    
    
    (1,212
    )
    
    
    (2,194
    )Differences in tax rates
    
    
    (121
    )
    
    
    6,898
    
    
    
    15,434Effect of recognizing deferred tax assets at
concessionary tax rate and tax credits
    
    
    (5,781
    )
    
    
    (13,199
    )
    
    
    (6,539
    )Tax benefits from employee stock option plans
    
    
    
    
    
    
    
    
    
    
    (2,084
    )Reinvestment allowance
    
    
    
    
    
    
    (10,415
    )
    
    
    (5,755
    )Change in valuation allowance
    
    
    6,383
    
    
    
    23,137
    
    
    
    30,133Effect of tax loss carryforwards and unutilized
capital allowance previously not recognized
    
    
    
    
    
    
    
    
    
    
    (21,685
    )Benefit of tax status change
    
    
    
    
    
    
    (935
    )
    
    
    Taxable foreign exchange adjustment
    
    
    
    
    
    
    2,639
    
    
    
    1,283All other items, net
    
    
    186
    
    
    
    693
    
    
    
    1,143Income tax expense
    
    $
    705
    
    
    $
    7,894
    
    
    $
    9,689
   December 31,2004
    
    
    2005Deferred income tax assets:Operating loss carryforwards
    
    $
    29,372
    
    
    $
    34,787Investment, and research and development tax credits
    
    
    45,656
    
    
    
    50,136Reinvestment allowance
    
    
    23,581
    
    
    
    29,336Property, plant and equipment
    
    
    18,276
    
    
    
    32,551Others
    
    
    67
    
    
    
    4,165116,952
    
    
    
    150,975Valuation allowance
    
    
    (80,538
    )
    
    
    (110,671
    )$
    36,414
    
    
    $
    40,304Deferred income tax liabilities:Property, plant and equipment
    
    $
    17,855
    
    
    $
    26,386Allowances and reserves
    
    
    15,908
    
    
    
    20,61833,763
    
    
    
    47,004Net deferred income tax assets (liabilities)
    
    $
    2,651
    
    
    $
    (6,700
    )
  F-28




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
    15. Short-Term Borrowings
   F-29




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##### Table of Contents





STATS CHIPPAC LTD. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)


16. Capital Leases




Payable in year ending December 31,2006
    
    $
    7,4282007
    
    
    3,7292008
    
    
    2009
    
    
    Thereafter
    
    
    Total minimum obligations
    
    
    11,157Less amounts representing interest at rates ranging from
4.4% to 7.1% per annum
    
    
    (386
    )Present value of minimum obligations
    
    
    10,771Current installments of obligations under capital leases
    
    
    (7,091
    )Obligations under capital leases, excluding current
installments
    
    $
    3,680




17. Long-term Debts




December 31,2004
    
    
    20051.75% convertible senior fixed-rate notes
    
    $
    183,500
    
    
    $
    31,5000% convertible senior fixed-rate notes
    
    
    115,000
    
    
    
    115,0002.5% convertible subordinated fixed-rate notes
    
    
    150,000
    
    
    
    150,0008% convertible subordinated fixed-rate notes
    
    
    50,000
    
    
    
    50,0006.75% senior fixed-rate notes
    
    
    215,000
    
    
    
    215,0007.5% senior fixed-rate notes
    
    
    
    
    
    
    150,000U.S. dollars bank loan at floating rates
    
    
    
    
    
    
    2,760Taiwan dollar loans at floating rates
    
    
    51,951
    
    
    
    53,987Taiwan dollar loans and commercial papers at fixed rates
    
    
    8,342
    
    
    
    10,866Accrued yield-to-maturity interest on notes
    
    
    22,789
    
    
    
    14,963796,582
    
    
    
    794,076Less current amounts
    
    
    (154,407
    )
    
    
    (18,651
    )$
    642,175
    
    
    $
    775,425




F-30



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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
     F-31




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
      F-32




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
        F-33




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
      Payable in year ending December 31,2006
    
    $
    18,6512007
    
    
    51,2752008
    
    
    301,2292009
    
    
    7,9212010
    
    
    150,000Thereafter
    
    
    265,000$
    794,076
  18. Unutilized Credit Facilities
   F-34




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 19. Other Non-Current Liabilities
  December 31,2004
    
    
    2005Deferred grant
    
    $
    268
    
    
    $
    Deferred tax liabilities
    
    
    33,763
    
    
    
    46,654Others
    
    
    16,331
    
    
    
    19,957$
    50,362
    
    
    $
    66,611
  20. Share Capital
     21. Additional Paid-in Capital
   F-35




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 22. Accumulated Other Comprehensive Loss
  December 31,2004
    
    
    2005Currency translation loss
    
    $
    5,865
    
    
    $
    8,320Unrealized gain on hedging instruments
    
    
    (3,785
    )
    
    
    (775
    )Unrealized loss on available-for-sale marketable securities
    
    
    780
    
    
    
    1,027$
    2,860
    
    
    $
    8,572
 23. Share Options and Incentive Plans
      F-36




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
  WeightedAverageOptions
    
    
    Exercise Price(In thousands)Options outstanding at January 1, 2003
    
    
    54,275
    
    
    
    1.65Granted during the year
    
    
    10,956
    
    
    
    1.17Lapsed during the year
    
    
    (3,094
    )
    
    
    1.69Exercised during the year
    
    
    (1,115
    )
    
    
    0.62Options outstanding at December 31, 2003
    
    
    61,022
    
    
    
    1.58Assumed through ChipPAC acquisition
    
    
    76,493
    
    
    
    0.55Granted during the year
    
    
    11,523
    
    
    
    0.87Lapsed during the year
    
    
    (11,239
    )
    
    
    1.16Exercised during the year
    
    
    (5,802
    )
    
    
    0.33Options outstanding at December 31, 2004
    
    
    131,997
    
    
    
    1.01Granted during the year
    
    
    27,299
    
    
    
    0.59Lapsed during the year
    
    
    (16,972
    )
    
    
    1.03Exercised during the year
    
    
    (18,149
    )
    
    
    0.35Options outstanding at December 31, 2005
    
    
    124,175
    
    
    $
    1.01Exercisable at December 31, 2003
    
    
    33,728
    
    
    $
    1.66Exercisable at December 31, 2004
    
    
    66,097
    
    
    $
    1.13Exercisable at December 31, 2005
    
    
    62,785
    
    
    $
    1.30
   Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    WeightedNumber
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    WeightedRange of Exercise
    
    Outstanding at
    
    
    Contractual
    
    
    Exercise
    
    
    Exercisable at
    
    
    AveragePrices
    
    12/31/2005
    
    
    Life
    
    
    Price
    
    
    12/31/2005
    
    
    Exercise Price(In thousands)
    
    
    
    
    
    
    
    
    
    
    (In thousands)$0.14 to $0.15
    
    
    143
    
    
    3.8 years
    
    $
    0.15
    
    
    
    143
    
    
    $
    0.15$0.21 to $0.29
    
    
    12,272
    
    
    6.8 years
    
    $
    0.27
    
    
    
    6,780
    
    
    $
    0.25$0.32 to $0.47
    
    
    5,093
    
    
    5.3 years
    
    $
    0.43
    
    
    
    4,999
    
    
    $
    0.43$0.53 to $0.89
    
    
    62,614
    
    
    8.2 years
    
    $
    0.69
    
    
    
    16,957
    
    
    $
    0.79$0.91 to $1.09
    
    
    1,761
    
    
    6.7 years
    
    $
    0.96
    
    
    
    1,117
    
    
    $
    0.97$1.16 to $1.66
    
    
    33,420
    
    
    6.4 years
    
    $
    1.38
    
    
    
    23,917
    
    
    $
    1.43$2.01 to $2.61
    
    
    3,122
    
    
    4.0 years
    
    $
    2.06
    
    
    
    3,122
    
    
    $
    2.06$3.99
    
    
    5,750
    
    
    4.3 years
    
    $
    3.99
    
    
    
    5,750
    
    
    $
    3.99124,175
    
    
    
    
    
    
    
    
    
    
    
    62,785
  F-37




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 24. Commitments and Contingencies
 (a) Commitments
  December 31,2004
    
    
    2005Capital commitmentsBuilding, mechanical and electrical installation
    
    $
    1,598
    
    
    $
    3,204Plant and machinery
    
    
    34,717
    
    
    
    144,169Other commitmentsInventories
    
    $
    47,210
    
    
    $
    121,822
     Payable in year ending December 31,2006
    
    $
    13,7952007
    
    
    10,4882008
    
    
    9,3902009
    
    
    8,6002010
    
    
    8,556Thereafter
    
    
    61,819$
    112,648
 (b) Contingent liabilities
  F-38




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
    25. Other Non-Operating Income (Expense), net
 For the Year EndedDecember 31,2003
    
    
    2004
    
    
    2005Government grant income
    
    $
    2,347
    
    
    $
    
    
    
    $
    Gain (loss) on sale and maturity
of marketable securities
    
    
    5,040
    
    
    
    (537
    )
    
    
    Loss from repurchase and
redemption of senior and convertible notes
    
    
    
    
    
    
    (797
    )
    
    
    (1,653
    )Other income, net
    
    
    183
    
    
    
    398
    
    
    
    577$
    7,570
    
    
    $
    (936
    )
    
    $
    (1,076
    )
 F-39




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 26. Fair Value of Financial Instruments
 December 31,2004
    
    2005Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair Value$
    
    $
    
    $
    
    $Financial Assets:Cash and cash equivalents
    
    
    227,509
    
    
    
    227,509
    
    
    
    224,720
    
    
    
    224,720Marketable securities
    
    
    20,181
    
    
    
    20,181
    
    
    
    35,451
    
    
    
    35,451Pledged fixed deposits
    
    
    1,121
    
    
    
    1,121
    
    
    
    2,608
    
    
    
    2,608Financial Liabilities:Short-term borrowings
    
    
    19,874
    
    
    
    19,874
    
    
    
    16,891
    
    
    
    16,891Long-term debts, excluding
senior and convertible
notes
    
    
    60,293
    
    
    
    60,163
    
    
    
    67,613
    
    
    
    67,476Senior and convertible notes
    
    
    736,289
    
    
    
    748,907
    
    
    
    726,463
    
    
    
    708,110
   Cash and cash equivalents
  Marketable securities
  Pledged fixed deposits
  Short-term borrowings and long-term debts
  Senior and convertible notes
  F-40




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 Limitations
  27. Business Segment, Geographic and Major Customer Data
  F-41




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
  For the Year Ended December 31,2003
    
    
    2004
    
    
    2005Singapore packaging 
array
    
    $
    1
    
    
    $
    6
    
    
    $
     packaging  leaded
    
    
    638
    
    
    
    830
    
    
    
    189 test and other services
    
    
    13,301
    
    
    
    17,708
    
    
    
    12,45913,940
    
    
    
    18,544
    
    
    
    12,648United States packaging 
array
    
    
    76,485
    
    
    
    253,595
    
    
    
    444,066 packaging  leaded
    
    
    93,841
    
    
    
    145,511
    
    
    
    230,462 test and other services
    
    
    139,388
    
    
    
    195,082
    
    
    
    210,511309,714
    
    
    
    594,188
    
    
    
    885,039Rest of Asia packaging 
array
    
    
    998
    
    
    
    49,500
    
    
    
    129,082 packaging  leaded
    
    
    3,895
    
    
    
    8,585
    
    
    
    17,038 test and other services
    
    
    34,200
    
    
    
    63,197
    
    
    
    86,27739,093
    
    
    
    121,282
    
    
    
    232,397Europe packaging  array
    
    
    932
    
    
    
    9,264
    
    
    
    7,672 packaging  leaded
    
    
    4,015
    
    
    
    6,172
    
    
    
    6,750 test and other services
    
    
    12,997
    
    
    
    19,671
    
    
    
    12,74717,944
    
    
    
    35,107
    
    
    
    27,169Total packaging  array
    
    
    78,416
    
    
    
    312,365
    
    
    
    580,820 packaging  leaded
    
    
    102,389
    
    
    
    161,098
    
    
    
    254,439 test and other services
    
    
    199,886
    
    
    
    295,658
    
    
    
    321,994$
    380,691
    
    
    $
    769,121
    
    
    $
    1,157,253
  For the Year EndedDecember 31,2004
    
    
    2005Singapore
    
    $
    391,522
    
    
    $
    350,960United States
    
    
    24,704
    
    
    
    25,574Rest of Asia
    
    
    619,577
    
    
    
    730,497Total
    
    $
    1,035,803
    
    
    $
    1,107,031
  For the Year EndedDecember 31,2004
    
    
    2005Singapore
    
    $
    689,100
    
    
    $
    531,141United States
    
    
    23,190
    
    
    
    6,843Rest of Asia
    
    
    447,060
    
    
    
    603,668Total
    
    $
    1,159,350
    
    
    $
    1,141,652
 F-42




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
  For the Year EndedDecember 31,2003
    
    2004
    
    2005%
    
    
    
    %
    
    
    
    %Customer A
    
    
    31.6
    
    
    
    20.6
    
    
    
    11.6Customer B
    
    
    12.0
    
    
    
    11.1
    
    
    
    10.4Customer C
    
    
    13.6
    
    
    
    8.5
    
    
    
    10.1Others
    
    
    42.8
    
    
    
    59.8
    
    
    
    67.9100.0
    
    
    
    100.0
    
    
    
    100.0
 28. Condensed Consolidating Financial Information
     F-43




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2003
 Non-STATS
    
    
    Guarantor
    
    
    GuarantorChipPAC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    337,934
    
    
    $
    12,137
    
    
    $
    31,041
    
    
    $
    (421
    )
    
    $
    380,691Cost of revenues
    
    
    (291,769
    )
    
    
    (12,546
    )
    
    
    (23,908
    )
    
    
    209
    
    
    
    (328,014
    )Gross profit (loss)
    
    
    46,165
    
    
    
    (409
    )
    
    
    7,133
    
    
    
    (212
    )
    
    
    52,677Operating expenses:Selling, general and administrative
    
    
    32,228
    
    
    
    2,307
    
    
    
    2,264
    
    
    
    (324
    )
    
    
    36,475Research and development
    
    
    14,808
    
    
    
    
    
    
    
    672
    
    
    
    (185
    )
    
    
    15,295Other general expenses, net
    
    
    502
    
    
    
    536
    
    
    
    
    
    
    
    (664
    )
    
    
    374Total operating expenses
    
    
    47,538
    
    
    
    2,843
    
    
    
    2,936
    
    
    
    (1,173
    )
    
    
    52,144Operating income (loss)
    
    
    (1,373
    )
    
    
    (3,252
    )
    
    
    4,197
    
    
    
    961
    
    
    
    533Other income (expense), net:Interest income
    
    
    4,618
    
    
    
    
    
    
    
    167
    
    
    
    
    
    
    
    4,785Interest expense
    
    
    (12,474
    )
    
    
    
    
    
    
    (1,520
    )
    
    
    
    
    
    
    (13,994
    )Foreign currency exchange gain (loss)
    
    
    1,496
    
    
    
    
    
    
    
    138
    
    
    
    
    
    
    
    1,634Equity loss from investment in subsidiaries
    
    
    (1,590
    )
    
    
    
    
    
    
    
    
    
    
    1,590
    
    
    
    Other non-operating income (expense), net
    
    
    7,611
    
    
    
    
    
    
    
    (41
    )
    
    
    
    
    
    
    7,570Total other income (expense), net
    
    
    (339
    )
    
    
    
    
    
    
    (1,256
    )
    
    
    1,590
    
    
    
    (5
    )Income (loss) before income taxes
    
    
    (1,712
    )
    
    
    (3,252
    )
    
    
    2,941
    
    
    
    2,551
    
    
    
    528Income tax benefit (expense)
    
    
    (965
    )
    
    
    774
    
    
    
    (514
    )
    
    
    
    
    
    
    (705
    )Loss before minority interest
    
    
    (2,677
    )
    
    
    (2,478
    )
    
    
    2,427
    
    
    
    2,551
    
    
    
    (177
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,539
    )
    
    
    (1,539
    )Net income (loss)
    
    $
    (2,677
    )
    
    $
    (2,478
    )
    
    $
    2,427
    
    
    $
    1,012
    
    
    $
    (1,716
    )
 F-44




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2003
 Non STATS
    
    
    Guarantor
    
    
    GuarantorChipPAC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash Flows From Operating ActivitiesNet income
(loss)
    
    $
    (2,677
    )
    
    $
    (2,478
    )
    
    $
    2,427
    
    
    $
    1,012
    
    
    $
    (1,716
    )Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    98,823
    
    
    
    5,761
    
    
    
    16,235
    
    
    
    (209
    )
    
    
    120,610Amortization of leasing prepayments
    
    
    11,732
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,732Debt issuance cost amortization
    
    
    1,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,155Loss (gain) on sale of property, plant and equipment
    
    
    503
    
    
    
    307
    
    
    
    42
    
    
    
    (752
    )
    
    
    100Accretion of discount on convertible notes
    
    
    7,366
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,366Foreign currency exchange gain
    
    
    (2,875
    )
    
    
    
    
    
    
    (492
    )
    
    
    
    
    
    
    (3,367
    )Deferred income taxes
    
    
    (741
    )
    
    
    
    
    
    
    (505
    )
    
    
    
    
    
    
    (1,246
    )Minority interest in loss of subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,539
    
    
    
    1,539Loss (gain) on sale and maturity of marketable
securities
    
    
    (5,025
    )
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (5,040
    )Equity loss from investment in subsidiaries
    
    
    1,590
    
    
    
    
    
    
    
    
    
    
    
    (1,590
    )
    
    
    Others
    
    
    
    
    
    
    
    
    
    
    (54
    )
    
    
    
    
    
    
    (54
    )Changes in operating working capital:Accounts receivable
    
    
    (27,196
    )
    
    
    (865
    )
    
    
    (2,216
    )
    
    
    
    
    
    
    (30,277
    )Amounts due from affiliates
    
    
    (2,827
    )
    
    
    (643
    )
    
    
    1
    
    
    
    537
    
    
    
    (2,932
    )Inventories
    
    
    (10,095
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,095
    )Other receivables, prepaid expenses and other assets
    
    
    (15,854
    )
    
    
    604
    
    
    
    (1,533
    )
    
    
    
    
    
    
    (16,783
    )Accounts payable, accrued operating expenses and
other payables
    
    
    9,640
    
    
    
    368
    
    
    
    1,761
    
    
    
    
    
    
    
    11,769Amounts due to affiliates
    
    
    1,010
    
    
    
    (743
    )
    
    
    57
    
    
    
    (537
    )
    
    
    (213
    )Net cash provided by operating activities
    
    $
    64,529
    
    
    $
    2,311
    
    
    $
    15,708
    
    
    $
    
    
    
    $
    82,548Cash Flows From Investing ActivitiesProceeds from sales of marketable securities
    
    $
    70,238
    
    
    $
    
    
    
    $
    7,328
    
    
    $
    
    
    
    $
    77,566Proceeds from maturity of marketable securities
    
    
    5,753
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,753Purchases of marketable securities
    
    
    (32,924
    )
    
    
    
    
    
    
    (10,926
    )
    
    
    
    
    
    
    (43,850
    )Acquisition of subsidiary, net of cash acquired
    
    
    (15,533
    )
    
    
    
    
    
    
    3,092
    
    
    
    12,441
    
    
    
    Purchase of additional shares in subsidiary
    
    
    (467
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (467
    )Purchases of property, plant and equipment
    
    
    (168,968
    )
    
    
    (2,172
    )
    
    
    (38,186
    )
    
    
    
    
    
    
    (209,326
    )Others, net
    
    
    (4,136
    )
    
    
    1
    
    
    
    189
    
    
    
    
    
    
    
    (3,946
    )Net cash used in investing activities
    
    $
    (146,037
    )
    
    $
    (2,171
    )
    
    $
    (38,503
    )
    
    $
    12,441
    
    
    $
    (174,270
    )Cash Flows From Financing ActivitiesRepayment of short-term debts
    
    $
    
    
    
    $
    
    
    
    $
    (27,419
    )
    
    $
    
    
    
    $
    (27,419
    )Repayment of long-term debts
    
    
    (14,768
    )
    
    
    
    
    
    
    (4,945
    )
    
    
    
    
    
    
    (19,713
    )Proceeds from issuance of shares, net of expenses
    
    
    112,245
    
    
    
    
    
    
    
    17,673
    
    
    
    (12,441
    )
    
    
    117,477Proceeds from issuance of convertible notes, net of
expenses
    
    
    112,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,345Proceeds from bank borrowings
    
    
    
    
    
    
    
    
    
    
    49,839
    
    
    
    
    
    
    
    49,839Decrease in restricted cash
    
    
    3,500
    
    
    
    
    
    
    
    4,723
    
    
    
    
    
    
    
    8,223Grants received
    
    
    6,784
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,784Capital lease payments
    
    
    (7,405
    )
    
    
    (317
    )
    
    
    (5,140
    )
    
    
    
    
    
    
    (12,862
    )Net cash provided by (used in) financing activities
    
    $
    212,701
    
    
    $
    (317
    )
    
    $
    34,731
    
    
    $
    (12,441
    )
    
    $
    234,674Net increase (decrease) in cash and cash equivalents
    
    $
    131,193
    
    
    $
    (177
    )
    
    $
    11,936
    
    
    $
    
    
    
    $
    142,952Effect of exchange rate changes on cash and cash
equivalents
    
    
    2,326
    
    
    
    
    
    
    
    224
    
    
    
    
    
    
    
    2,550Cash and cash equivalents at beginning of the year
    
    
    163,646
    
    
    
    398
    
    
    
    3,617
    
    
    
    
    
    
    
    167,661Cash and cash equivalents at end of the year
    
    $
    297,165
    
    
    $
    221
    
    
    $
    15,777
    
    
    $
    
    
    
    $
    313,163
 F-45




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2004
 STATS
    
    
    
    
    
    
    Non STATS
    
    
    
    
    
    
    ChipPAC
    
    
    Guarantor
    
    
    GuarantorChipPAC
    
    
    ChipPAC
    
    
    Korea
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    184,824
    
    
    $
    533
    
    
    $
    1,976
    
    
    $
    19,002
    
    
    $
    21,174
    
    
    $
    
    
    
    $
    227,509Short-term marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    787
    
    
    
    1,273
    
    
    
    
    
    
    
    2,060Accounts receivable, net
    
    
    66,875
    
    
    
    
    
    
    
    
    
    
    
    70,444
    
    
    
    12,331
    
    
    
    
    
    
    
    149,650Amounts due from affiliates
    
    
    250,479
    
    
    
    194,605
    
    
    
    13,002
    
    
    
    66,326
    
    
    
    3,719
    
    
    
    (525,508
    )
    
    
    2,623Other receivables
    
    
    8,022
    
    
    
    70
    
    
    
    7,620
    
    
    
    863
    
    
    
    238
    
    
    
    
    
    
    
    16,813Inventories
    
    
    19,916
    
    
    
    
    
    
    
    23,868
    
    
    
    4,572
    
    
    
    6,334
    
    
    
    
    
    
    
    54,690Prepaid expenses and other current assets
    
    
    32,971
    
    
    
    1,525
    
    
    
    273
    
    
    
    740
    
    
    
    3,327
    
    
    
    
    
    
    
    38,836Total current assets
    
    
    563,087
    
    
    
    196,733
    
    
    
    46,739
    
    
    
    162,734
    
    
    
    48,396
    
    
    
    (525,508
    )
    
    
    492,181Long-term marketable securities
    
    
    18,097
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    18,121Property, plant and equipment, net
    
    
    391,523
    
    
    
    4,912
    
    
    
    199,234
    
    
    
    176,780
    
    
    
    263,530
    
    
    
    (176
    )
    
    
    1,035,803Investment in subsidiaries
    
    
    750,620
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (750,620
    )
    
    
    Intangible assets
    
    
    1,398
    
    
    
    2,802
    
    
    
    1,816
    
    
    
    118,358
    
    
    
    1,456
    
    
    
    
    
    
    
    125,830Goodwill
    
    
    
    
    
    
    
    
    
    
    312,758
    
    
    
    102,591
    
    
    
    106,040
    
    
    
    2,209
    
    
    
    523,598Prepaid expenses and other non-current
assets
    
    
    41,686
    
    
    
    487
    
    
    
    28,242
    
    
    
    184
    
    
    
    5,570
    
    
    
    
    
    
    
    76,169Total assets
    
    $
    1,766,411
    
    
    $
    204,934
    
    
    $
    588,789
    
    
    $
    560,647
    
    
    $
    425,016
    
    
    $
    (1,274,095
    )
    
    $
    2,271,702LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts and other payables
    
    $
    7,957
    
    
    $
    2,314
    
    
    $
    41,448
    
    
    $
    2,148
    
    
    $
    14,714
    
    
    $
    (8
    )
    
    $
    68,573Payables related to property, plant and
equipment purchases
    
    
    20,028
    
    
    
    4
    
    
    
    9,610
    
    
    
    8,268
    
    
    
    13,728
    
    
    
    
    
    
    
    51,638Accrued operating expenses
    
    
    36,773
    
    
    
    8,307
    
    
    
    4,382
    
    
    
    6,953
    
    
    
    7,484
    
    
    
    
    
    
    
    63,899Income taxes payable
    
    
    
    
    
    
    13
    
    
    
    1,555
    
    
    
    450
    
    
    
    20
    
    
    
    
    
    
    
    2,038Short-term borrowings
    
    
    
    
    
    
    
    
    
    
    19,874
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,874Amounts due to affiliates
    
    
    4,941
    
    
    
    173
    
    
    
    50,205
    
    
    
    437,110
    
    
    
    33,216
    
    
    
    (525,508
    )
    
    
    137Current obligations under capital leases
    
    
    805
    
    
    
    
    
    
    
    6,782
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,587Short-term debts and current
installments of long-term debts
    
    
    137,107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,300
    
    
    
    
    
    
    
    154,407Total current liabilities
    
    
    207,611
    
    
    
    10,811
    
    
    
    133,856
    
    
    
    454,929
    
    
    
    86,462
    
    
    
    (525,516
    )
    
    
    368,153Obligations under capital leases,
excluding current installments
    
    
    
    
    
    
    
    
    
    
    10,771
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,771Long-term debts, excluding current
installments
    
    
    399,182
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    42,993
    
    
    
    
    
    
    
    642,175Other non-current liabilities
    
    
    268
    
    
    
    
    
    
    
    35,792
    
    
    
    10,189
    
    
    
    4,113
    
    
    
    
    
    
    
    50,362Total liabilities
    
    
    607,061
    
    
    
    210,811
    
    
    
    180,419
    
    
    
    465,118
    
    
    
    133,568
    
    
    
    (525,516
    )
    
    
    1,071,461Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,891
    
    
    
    40,891Total shareholders equity
    
    
    1,159,350
    
    
    
    (5,877
    )
    
    
    408,370
    
    
    
    95,529
    
    
    
    291,448
    
    
    
    (789,470
    )
    
    
    1,159,350Total liabilities and shareholders equity
    
    $
    1,766,411
    
    
    $
    204,934
    
    
    $
    588,789
    
    
    $
    560,647
    
    
    $
    425,016
    
    
    $
    (1,274,095
    )
    
    $
    2,271,702
 F-46




---



##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2004
 STATS
    
    
    
    
    
    
    Non STATS
    
    
    
    
    
    
    ChipPAC
    
    
    Guarantor
    
    
    GuarantorChipPAC
    
    
    ChipPAC
    
    
    Korea
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    462,697
    
    
    $
    9,703
    
    
    $
    148,382
    
    
    $
    259,785
    
    
    $
    83,382
    
    
    $
    (194,828
    )
    
    $
    769,121Cost of revenues
    
    
    (390,673
    )
    
    
    (203
    )
    
    
    (130,630
    )
    
    
    (243,295
    )
    
    
    (73,690
    )
    
    
    194,951
    
    
    
    (643,540
    )Gross profit
    
    
    72,024
    
    
    
    9,500
    
    
    
    17,752
    
    
    
    16,490
    
    
    
    9,692
    
    
    
    123
    
    
    
    125,581Operating expenses:Selling, general and administrative
    
    
    42,877
    
    
    
    7,682
    
    
    
    3,271
    
    
    
    25,862
    
    
    
    5,273
    
    
    
    
    
    
    
    84,965Research and development
    
    
    10,811
    
    
    
    1,047
    
    
    
    2,933
    
    
    
    1,952
    
    
    
    894
    
    
    
    
    
    
    
    17,637Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    271,734
    
    
    
    89,135
    
    
    
    92,131
    
    
    
    
    
    
    
    453,000Other general expenses (income), net
    
    
    (618
    )
    
    
    121
    
    
    
    
    
    
    
    33
    
    
    
    (44
    )
    
    
    44
    
    
    
    (464
    )Total operating expenses
    
    
    53,070
    
    
    
    8,850
    
    
    
    277,938
    
    
    
    116,982
    
    
    
    98,254
    
    
    
    44
    
    
    
    555,138Operating income (loss)
    
    
    18,954
    
    
    
    650
    
    
    
    (260,186
    )
    
    
    (100,492
    )
    
    
    (88,562
    )
    
    
    79
    
    
    
    (429,557
    )Other income (expense), net:Interest income
    
    
    7,774
    
    
    
    9
    
    
    
    59
    
    
    
    3,596
    
    
    
    123
    
    
    
    (7,131
    )
    
    
    4,430Interest expense
    
    
    (19,173
    )
    
    
    (2,875
    )
    
    
    (1,399
    )
    
    
    (10,944
    )
    
    
    (1,556
    )
    
    
    7,131
    
    
    
    (28,816
    )Foreign currency exchange gain (loss)
    
    
    (206
    )
    
    
    
    
    
    
    (1,915
    )
    
    
    881
    
    
    
    118
    
    
    
    
    
    
    
    (1,122
    )Equity loss from investment in
subsidiaries
    
    
    (472,535
    )
    
    
    (67,882
    )
    
    
    
    
    
    
    (87,677
    )
    
    
    
    
    
    
    628,094
    
    
    
    Other non-operating income
(expense), net
    
    
    (675
    )
    
    
    12
    
    
    
    11
    
    
    
    (542
    )
    
    
    258
    
    
    
    
    
    
    
    (936
    )Total other income (expense), net
    
    
    (484,815
    )
    
    
    (70,736
    )
    
    
    (3,244
    )
    
    
    (94,686
    )
    
    
    (1,057
    )
    
    
    628,094
    
    
    
    (26,444
    )Income (loss) before income taxes
    
    
    (465,861
    )
    
    
    (70,086
    )
    
    
    (263,430
    )
    
    
    (195,178
    )
    
    
    (89,619
    )
    
    
    628,173
    
    
    
    (456,001
    )Income tax benefit (expense)
    
    
    (1,862
    )
    
    
    (14
    )
    
    
    (6,500
    )
    
    
    (515
    )
    
    
    997
    
    
    
    
    
    
    
    (7,894
    )Income (loss) before minority interest
    
    
    (467,723
    )
    
    
    (70,100
    )
    
    
    (269,930
    )
    
    
    (195,693
    )
    
    
    (88,622
    )
    
    
    628,173
    
    
    
    (463,895
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,828
    )
    
    
    (3,828
    )Net income (loss)
    
    $
    (467,723
    )
    
    $
    (70,100
    )
    
    $
    (269,930
    )
    
    $
    (195,693
    )
    
    $
    (88,622
    )
    
    $
    624,345
    
    
    $
    (467,723
    )
 F-47




---



##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2004
 STATS
    
    
    
    
    
    
    Non-STATS
    
    
    
    
    
    
    ChipPAC
    
    
    Guarantor
    
    
    GuarantorChipPAC
    
    
    ChipPAC
    
    
    Korea
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash Flows From Operating ActivitiesNet income (loss)
    
    $
    (467,723
    )
    
    $
    (70,100
    )
    
    $
    (269,930
    )
    
    $
    (195,693
    )
    
    $
    (88,622
    )
    
    $
    624,345
    
    
    $
    (467,723
    )Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    104,141
    
    
    
    628
    
    
    
    17,008
    
    
    
    37,312
    
    
    
    29,638
    
    
    
    (44
    )
    
    
    188,683Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    271,734
    
    
    
    89,135
    
    
    
    92,131
    
    
    
    
    
    
    
    453,000Amortization of leasing prepayments
    
    
    25,718
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,718Debt issuance cost amortization
    
    
    1,741
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    1,913Loss (gain) on sale of property, plant and equipment
    
    
    (631
    )
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    (30
    )
    
    
    
    
    
    
    (656
    )Accretion of discount on convertible notes
    
    
    11,923
    
    
    
    
    
    
    
    
    
    
    
    (486
    )
    
    
    
    
    
    
    
    
    
    
    11,437Loss from repurchase and redemption of senior and
convertible notes
    
    
    266
    
    
    
    
    
    
    
    
    
    
    
    531
    
    
    
    
    
    
    
    
    
    
    
    797Foreign currency exchange gain
    
    
    (516
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (314
    )
    
    
    
    
    
    
    (830
    )Deferred income taxes
    
    
    9,145
    
    
    
    
    
    
    
    6,204
    
    
    
    461
    
    
    
    (805
    )
    
    
    
    
    
    
    15,005Minority interest in income of subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,828
    
    
    
    3,828Equity loss from investment in subsidiaries
    
    
    472,535
    
    
    
    67,882
    
    
    
    
    
    
    
    87,677
    
    
    
    
    
    
    
    (628,094
    )
    
    
    Gain on sale and maturity of marketable securities
    
    
    503
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    537Others
    
    
    1,162
    
    
    
    127
    
    
    
    
    
    
    
    (193
    )
    
    
    (32
    )
    
    
    (35
    )
    
    
    1,029Changes in operating working capital:Accounts receivable
    
    
    3,670
    
    
    
    
    
    
    
    
    
    
    
    8,789
    
    
    
    (4,310
    )
    
    
    
    
    
    
    8,149Amounts due from affiliates
    
    
    (242,237
    )
    
    
    26,486
    
    
    
    (1,171
    )
    
    
    6,976
    
    
    
    15,986
    
    
    
    198,387
    
    
    
    4,427Inventories
    
    
    (77
    )
    
    
    
    
    
    
    (632
    )
    
    
    (314
    )
    
    
    (148
    )
    
    
    
    
    
    
    (1,171
    )Other receivables, prepaid expenses and other assets
    
    
    (64,078
    )
    
    
    (1,442
    )
    
    
    (2,459
    )
    
    
    2,683
    
    
    
    875
    
    
    
    
    
    
    
    (64,421
    )Accounts payable, accrued operating expenses and
other payables
    
    
    (2,709
    )
    
    
    (23,934
    )
    
    
    3,506
    
    
    
    (14,644
    )
    
    
    (3,625
    )
    
    
    
    
    
    
    (41,406
    )Amounts due to affiliates
    
    
    (2,918
    )
    
    
    (85
    )
    
    
    94
    
    
    
    191,182
    
    
    
    8,415
    
    
    
    (198,387
    )
    
    
    (1,699
    )Net cash provided by operating activities
    
    
    (150,085
    )
    
    
    (438
    )
    
    
    24,354
    
    
    
    213,421
    
    
    
    49,365
    
    
    
    
    
    
    
    136,617Cash Flows From Investing ActivitiesProceeds from sales of marketable securities
    
    $
    101,323
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    29,174
    
    
    $
    
    
    
    $
    130,497Proceeds from maturity of marketable securities
    
    
    46,687
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,687Purchases of marketable securities
    
    
    (137,124
    )
    
    
    
    
    
    
    
    
    
    
    222
    
    
    
    (24,041
    )
    
    
    
    
    
    
    (160,943
    )Acquisition of intangible assets
    
    
    
    
    
    
    (399
    )
    
    
    (45
    )
    
    
    (510
    )
    
    
    (474
    )
    
    
    
    
    
    
    (1,428
    )Acquisition of subsidiary, net of cash acquired
    
    
    (9,369
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,577
    
    
    
    7,208Cash injection in subsidiary
    
    
    (4,680
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,680
    
    
    
    Purchases of property, plant and equipment
    
    
    (172,320
    )
    
    
    (1,090
    )
    
    
    (35,893
    )
    
    
    (24,434
    )
    
    
    (81,225
    )
    
    
    27,388
    
    
    
    (287,574
    )Others, net
    
    
    20,926
    
    
    
    33
    
    
    
    133
    
    
    
    3,011
    
    
    
    4,014
    
    
    
    (27,388
    )
    
    
    729Net cash used in investing activities
    
    
    (154,557
    )
    
    
    (1,456
    )
    
    
    (35,805
    )
    
    
    (21,711
    )
    
    
    (72,552
    )
    
    
    21,257
    
    
    
    (264,824
    )Cash Flows From Financing ActivitiesRepayment of short-term debts
    
    $
    (50,000
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (22,006
    )
    
    
    
    
    
    $
    (72,006
    )Repayment of long-term debts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,982
    )
    
    
    
    
    
    
    (8,982
    )Proceeds from issuance of shares, net of expenses
    
    
    1,968
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,680
    
    
    
    (4,680
    )
    
    
    1,968Proceeds from issuance of senior notes, net of
expenses
    
    
    210,458
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    210,458Repurchase and redemption of senior and convertible
notes
    
    
    (18,083
    )
    
    
    
    
    
    
    
    
    
    
    (175,564
    )
    
    
    
    
    
    
    
    
    
    
    (193,647
    )Proceeds from bank borrowings
    
    
    50,000
    
    
    
    
    
    
    
    8,016
    
    
    
    
    
    
    
    49,604
    
    
    
    
    
    
    
    107,620Decrease in restricted cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,927
    
    
    
    
    
    
    
    2,927Capital lease payments
    
    
    (2,042
    )
    
    
    
    
    
    
    (1,727
    )
    
    
    (2,663
    )
    
    
    (778
    )
    
    
    
    
    
    
    (7,210
    )Net cash provided by (used in) financing activities
    
    
    192,301
    
    
    
    
    
    
    
    6,289
    
    
    
    (178,227
    )
    
    
    25,445
    
    
    
    (4,680
    )
    
    
    41,128Net increase (decrease) in cash and cash equivalents
    
    
    (112,341
    )
    
    
    (1,894
    )
    
    
    (5,162
    )
    
    
    13,483
    
    
    
    2,258
    
    
    
    16,577
    
    
    
    (87,079
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,425
    
    
    
    
    
    
    
    1,425Cash and cash equivalents at beginning of the year
    
    
    297,165
    
    
    
    2,427
    
    
    
    7,138
    
    
    
    5,519
    
    
    
    17,491
    
    
    
    (16,577
    )
    
    
    313,163Cash and cash equivalents at end of the year
    
    $
    184,824
    
    
    $
    533
    
    
    $
    1,976
    
    
    $
    19,002
    
    
    $
    21,174
    
    
    $
    
    
    
    $
    227,509
 F-48




---



##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 CONDENSED CONSOLIDATING BALANCE SHEETS
As of December 31, 2005
 STATS
    
    
    
    
    
    
    NonSTATS
    
    
    
    
    
    
    ChipPAC
    
    
    Guarantor
    
    
    GuarantorChipPAC
    
    
    ChipPAC
    
    
    Korea
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    144,841
    
    
    $
    635
    
    
    $
    32,291
    
    
    $
    9,865
    
    
    $
    37,088
    
    
    $
    
    
    
    $
    224,720Short-term marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,648
    
    
    
    
    
    
    
    17,648Accounts receivable, net
    
    
    90,825
    
    
    
    
    
    
    
    
    
    
    
    130,129
    
    
    
    20,036
    
    
    
    
    
    
    
    240,990Amounts due from affiliates
    
    
    360,343
    
    
    
    202,224
    
    
    
    8,575
    
    
    
    96,148
    
    
    
    13,612
    
    
    
    (674,092
    )
    
    
    6,810Other receivables
    
    
    3,936
    
    
    
    245
    
    
    
    6,047
    
    
    
    204
    
    
    
    904
    
    
    
    
    
    
    
    11,336Inventories
    
    
    25,365
    
    
    
    
    
    
    
    32,024
    
    
    
    4,621
    
    
    
    17,473
    
    
    
    
    
    
    
    79,483Prepaid expenses and other current assets
    
    
    15,096
    
    
    
    1,357
    
    
    
    3,468
    
    
    
    1,216
    
    
    
    5,590
    
    
    
    
    
    
    
    26,727Total current assets
    
    
    640,406
    
    
    
    204,461
    
    
    
    82,405
    
    
    
    242,183
    
    
    
    112,351
    
    
    
    (674,092
    )
    
    
    607,714Long-term marketable securities
    
    
    17,803
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,803Property, plant and equipment, net
    
    
    350,960
    
    
    
    4,800
    
    
    
    261,650
    
    
    
    218,202
    
    
    
    271,504
    
    
    
    (85
    )
    
    
    1,107,031Investment in subsidiaries
    
    
    738,852
    
    
    
    12,186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (751,038
    )
    
    
    Intangible assets
    
    
    1,998
    
    
    
    2,281
    
    
    
    1,615
    
    
    
    63,990
    
    
    
    2,896
    
    
    
    
    
    
    
    72,780Goodwill
    
    
    
    
    
    
    
    
    
    
    312,337
    
    
    
    102,385
    
    
    
    105,694
    
    
    
    2,209
    
    
    
    522,625Prepaid expenses and other non-current
assets
    
    
    28,850
    
    
    
    369
    
    
    
    28,931
    
    
    
    202
    
    
    
    7,077
    
    
    
    
    
    
    
    65,429Total assets
    
    $
    1,778,869
    
    
    $
    224,097
    
    
    $
    686,938
    
    
    $
    626,962
    
    
    $
    499,522
    
    
    $
    (1,423,006
    )
    
    $
    2,393,382LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts and other payables
    
    $
    23,665
    
    
    $
    477
    
    
    $
    63,150
    
    
    $
    11,302
    
    
    $
    37,464
    
    
    $
    
    
    
    $
    136,058Payables related to property, plant and
equipment purchases
    
    
    22,404
    
    
    
    
    
    
    
    23,980
    
    
    
    12,694
    
    
    
    20,347
    
    
    
    
    
    
    
    79,425Accrued operating expenses
    
    
    56,620
    
    
    
    10,377
    
    
    
    10,317
    
    
    
    9,334
    
    
    
    10,284
    
    
    
    
    
    
    
    96,932Income taxes payable
    
    
    
    
    
    
    68
    
    
    
    1,555
    
    
    
    612
    
    
    
    
    
    
    
    
    
    
    
    2,235Short-term borrowings
    
    
    
    
    
    
    
    
    
    
    16,891
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,891Amounts due to affiliates
    
    
    8,065
    
    
    
    1,882
    
    
    
    89,351
    
    
    
    542,979
    
    
    
    31,877
    
    
    
    (674,092
    )
    
    
    62Current obligations under capital leases
    
    
    
    
    
    
    
    
    
    
    7,091
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,091Current installments of long-term debts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,651
    
    
    
    
    
    
    
    18,651Total current liabilities
    
    
    110,754
    
    
    
    12,804
    
    
    
    212,335
    
    
    
    576,921
    
    
    
    118,623
    
    
    
    (674,092
    )
    
    
    357,345Obligations under capital leases,
excluding current installments
    
    
    
    
    
    
    
    
    
    
    3,680
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,680Long-term debts, excluding current
installments
    
    
    526,463
    
    
    
    200,000
    
    
    
    2,760
    
    
    
    
    
    
    
    46,202
    
    
    
    
    
    
    
    775,425Other non-current liabilities
    
    
    
    
    
    
    
    
    
    
    50,112
    
    
    
    11,763
    
    
    
    4,736
    
    
    
    
    
    
    
    66,611Total liabilities
    
    
    637,217
    
    
    
    212,804
    
    
    
    268,887
    
    
    
    588,684
    
    
    
    169,561
    
    
    
    (674,092
    )
    
    
    1,203,061Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    48,669
    
    
    
    48,669Total shareholders equity
    
    
    1,141,652
    
    
    
    11,293
    
    
    
    418,051
    
    
    
    38,278
    
    
    
    329,961
    
    
    
    (797,583
    )
    
    
    1,141,652Total liabilities and shareholders equity
    
    $
    1,778,869
    
    
    $
    224,097
    
    
    $
    686,938
    
    
    $
    626,962
    
    
    $
    499,522
    
    
    $
    (1,423,006
    )
    
    $
    2,393,382
 F-49




---



##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
For the Year Ended December 31, 2005
 STATS
    
    
    
    
    
    
    NonSTATS
    
    
    
    
    
    
    ChipPAC
    
    
    Guarantor
    
    
    GuarantorChipPAC
    
    
    ChipPAC
    
    
    Korea
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    435,630
    
    
    $
    40,268
    
    
    $
    387,830
    
    
    $
    684,290
    
    
    $
    163,870
    
    
    $
    (554,635
    )
    
    $
    1,157,253Cost of revenues
    
    
    (363,092
    )
    
    
    (384
    )
    
    
    (347,964
    )
    
    
    (612,676
    )
    
    
    (142,909
    )
    
    
    499,002
    
    
    
    (968,023
    )Gross profit
    
    
    72,538
    
    
    
    39,884
    
    
    
    39,866
    
    
    
    71,614
    
    
    
    20,961
    
    
    
    (55,633
    )
    
    
    189,230Operating expenses:Selling, general and administrative
    
    
    44,488
    
    
    
    24,862
    
    
    
    9,007
    
    
    
    94,774
    
    
    
    9,635
    
    
    
    (46,995
    )
    
    
    135,771Research and development
    
    
    10,779
    
    
    
    5,556
    
    
    
    6,986
    
    
    
    10,015
    
    
    
    1,452
    
    
    
    (8,717
    )
    
    
    26,071Restructuring charges
    
    
    734
    
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    
    
    
    
    830Other general expenses (income), net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    (20
    )Total operating expenses
    
    
    56,001
    
    
    
    30,418
    
    
    
    15,993
    
    
    
    104,865
    
    
    
    11,087
    
    
    
    (55,712
    )
    
    
    162,652Operating income (loss)
    
    
    16,537
    
    
    
    9,466
    
    
    
    23,873
    
    
    
    (33,251
    )
    
    
    9,874
    
    
    
    79
    
    
    
    26,578Other income (expense), net:Interest income
    
    
    24,292
    
    
    
    17
    
    
    
    226
    
    
    
    2,531
    
    
    
    229
    
    
    
    (20,881
    )
    
    
    6,414Interest expense
    
    
    (31,358
    )
    
    
    (8,240
    )
    
    
    (3,372
    )
    
    
    (18,827
    )
    
    
    (1,713
    )
    
    
    20,881
    
    
    
    (42,629
    )Foreign currency exchange gain (loss)
    
    
    (1,125
    )
    
    
    (3
    )
    
    
    (535
    )
    
    
    1,529
    
    
    
    665
    
    
    
    
    
    
    
    531Equity gain (loss) from investment
in subsidiaries
    
    
    (32,320
    )
    
    
    414
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,906
    
    
    
    Other non-operating income
(expense), net
    
    
    (1,648
    )
    
    
    (91
    )
    
    
    (19
    )
    
    
    93
    
    
    
    589
    
    
    
    
    
    
    
    (1,076
    )Total other income (expense), net
    
    
    (42,159
    )
    
    
    (7,903
    )
    
    
    (3,700
    )
    
    
    (14,674
    )
    
    
    (230
    )
    
    
    31,906
    
    
    
    (36,760
    )Income (loss) before income taxes
    
    
    (25,622
    )
    
    
    1,563
    
    
    
    20,173
    
    
    
    (47,925
    )
    
    
    9,644
    
    
    
    31,985
    
    
    
    (10,182
    )Income tax benefit (expense)
    
    
    (689
    )
    
    
    (56
    )
    
    
    (7,767
    )
    
    
    (1,909
    )
    
    
    732
    
    
    
    
    
    
    
    (9,689
    )Income (loss) before minority interest
    
    
    (26,311
    )
    
    
    1,507
    
    
    
    12,406
    
    
    
    (49,834
    )
    
    
    10,376
    
    
    
    31,985
    
    
    
    (19,871
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,440
    )
    
    
    (6,440
    )Net income (loss)
    
    $
    (26,311
    )
    
    $
    1,507
    
    
    $
    12,406
    
    
    $
    (49,834
    )
    
    $
    10,376
    
    
    $
    25,545
    
    
    $
    (26,311
    )
 F-50




---



##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)
 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 2005
 STATS
    
    
    
    
    
    
    Non-STATS
    
    
    
    
    
    
    ChipPAC
    
    
    Guarantor
    
    
    GuarantorChipPAC
    
    
    ChipPAC
    
    
    Korea
    
    
    Subsidiaries
    
    

Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash Flows From Operating ActivitiesNet income (loss)
    
    $
    (26,311
    )
    
    $
    1,507
    
    
    $
    12,406
    
    
    $
    (49,834
    )
    
    $
    10,376
    
    
    $
    25,545
    
    
    $
    (26,311
    )Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    81,823
    
    
    
    2,073
    
    
    
    41,982
    
    
    
    86,275
    
    
    
    42,064
    
    
    
    (79
    )
    
    
    254,138Amortization of leasing prepayments
    
    
    25,790
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,790Debt issuance cost amortization
    
    
    1,848
    
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,961Loss (gain) on sale of property, plant and equipment
    
    
    445
    
    
    
    
    
    
    
    220
    
    
    
    (62
    )
    
    
    926
    
    
    
    
    
    
    
    1,529Accretion of discount on convertible notes
    
    
    7,414
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,414Loss from repurchase and redemption of convertible
notes
    
    
    1,653
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,653Foreign currency exchange loss (gain)
    
    
    48
    
    
    
    
    
    
    
    
    
    
    
    168
    
    
    
    (350
    )
    
    
    
    
    
    
    (134
    )Deferred income taxes
    
    
    617
    
    
    
    
    
    
    
    7,767
    
    
    
    1,574
    
    
    
    (607
    )
    
    
    
    
    
    
    9,351Minority interest in income of subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,440
    
    
    
    6,440Equity loss (gain) from investment in subsidiaries
    
    
    32,320
    
    
    
    (414
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,906
    )
    
    
    Others
    
    
    698
    
    
    
    134
    
    
    
    344
    
    
    
    311
    
    
    
    (209
    )
    
    
    
    
    
    
    1,278Changes in operating working capital:Accounts receivable
    
    
    (23,950
    )
    
    
    
    
    
    
    
    
    
    
    (59,685
    )
    
    
    (7,705
    )
    
    
    
    
    
    
    (91,340
    )Amounts due from affiliates
    
    
    (109,865
    )
    
    
    (4,564
    )
    
    
    4,426
    
    
    
    (16,358
    )
    
    
    (9,893
    )
    
    
    132,067
    
    
    
    (4,187
    )Inventories
    
    
    (5,449
    )
    
    
    
    
    
    
    (8,156
    )
    
    
    (49
    )
    
    
    (11,139
    )
    
    
    
    
    
    
    (24,793
    )Other receivables, prepaid expenses and other assets
    
    
    7,357
    
    
    
    315
    
    
    
    (1,667
    )
    
    
    (153
    )
    
    
    (2,336
    )
    
    
    
    
    
    
    3,516Accounts payable, accrued operating expenses and
other payables
    
    
    35,737
    
    
    
    89
    
    
    
    30,918
    
    
    
    12,200
    
    
    
    25,555
    
    
    
    
    
    
    
    104,499Amounts due to affiliates
    
    
    3,124
    
    
    
    1,709
    
    
    
    39,146
    
    
    
    89,352
    
    
    
    (1,339
    )
    
    
    (132,067
    )
    
    
    (75
    )Net cash provided by operating activities
    
    
    33,299
    
    
    
    962
    
    
    
    127,386
    
    
    
    63,739
    
    
    
    45,343
    
    
    
    
    
    
    
    270,729Cash Flows From Investing ActivitiesProceeds from sales of marketable securities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    15,726
    
    
    $
    
    
    
    $
    15,726Proceeds from maturity of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    787
    
    
    
    
    
    
    
    
    
    
    
    787Purchases of marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,017
    )
    
    
    
    
    
    
    (32,017
    )Cash injection in subsidiary
    
    
    (25,587
    )
    
    
    
    
    
    
    
    
    
    
    (25,500
    )
    
    
    
    
    
    
    51,087
    
    
    
    Acquisition of intangible assets
    
    
    (787
    )
    
    
    (698
    )
    
    
    (812
    )
    
    
    (837
    )
    
    
    (1,719
    )
    
    
    
    
    
    
    (4,853
    )Purchases of property, plant and equipment
    
    
    (53,718
    )
    
    
    (187
    )
    
    
    (94,163
    )
    
    
    (78,419
    )
    
    
    (61,648
    )
    
    
    42,360
    
    
    
    (245,775
    )Others, net
    
    
    18,726
    
    
    
    10
    
    
    
    4,927
    
    
    
    9,629
    
    
    
    12,207
    
    
    
    (42,360
    )
    
    
    3,139Net cash used in investing activities
    
    
    (61,366
    )
    
    
    (875
    )
    
    
    (90,048
    )
    
    
    (94,340
    )
    
    
    (67,451
    )
    
    
    51,087
    
    
    
    (262,993
    )Cash Flows From Financing ActivitiesRepayment of short-term debts
    
    $
    (100,464
    )
    
    $
    
    
    
    $
    (35,779
    )
    
    $
    
    
    
    $
    (7,033
    )
    
    $
    
    
    
    $
    (143,276
    )Repayment of long-term debts
    
    
    
    
    
    
    
    
    
    
    (7,101
    )
    
    
    
    
    
    
    (30,569
    )
    
    
    
    
    
    
    (37,670
    )Proceeds from issuance of shares, net of expenses
    
    
    13,521
    
    
    
    
    
    
    
    
    
    
    
    21,479
    
    
    
    33,231
    
    
    
    (54,710
    )
    
    
    13,521Proceeds from issuance of convertible notes, net of
expenses
    
    
    146,535
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146,535Repurchase and redemption of convertible notes
    
    
    (167,263
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (167,263
    )Proceeds from bank borrowings
    
    
    100,464
    
    
    
    
    
    
    
    42,657
    
    
    
    
    
    
    
    44,964
    
    
    
    
    
    
    
    188,085Increase in restricted cash
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    (1,469
    )
    
    
    
    
    
    
    (1,487
    )Grants received
    
    
    246
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    246Capital lease payments
    
    
    (4,955
    )
    
    
    
    
    
    
    (6,782
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,737
    )Contribution by minority interest in subsidiary, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,623
    
    
    
    3,623Net cash provided by (used in) financing activities
    
    
    (11,916
    )
    
    
    
    
    
    
    (7,023
    )
    
    
    21,479
    
    
    
    39,124
    
    
    
    (51,087
    )
    
    
    (9,423
    )Net increase (decrease) in cash and cash equivalents
    
    
    (39,983
    )
    
    
    87
    
    
    
    30,315
    
    
    
    (9,122
    )
    
    
    17,016
    
    
    
    
    
    
    
    (1,687
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,102
    )
    
    
    
    
    
    
    (1,102
    )Cash and cash equivalents at beginning of the year
    
    
    184,824
    
    
    
    548
    
    
    
    1,976
    
    
    
    18,987
    
    
    
    21,174
    
    
    
    
    
    
    
    227,509Cash and cash equivalents at end of the year
    
    $
    144,841
    
    
    $
    635
    
    
    $
    32,291
    
    
    $
    9,865
    
    
    $
    37,088
    
    
    $
    
    
    
    $
    224,720
 F-51