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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 1934For the fiscal year ended
December 31, 2004
 or o
    
    Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934For the transition period from
            
to
 Commission file number 000-29103 STATS ChipPAC Ltd.  10 Ang Mo Kio Street 65,#05-17/20 Techpoint,Republic of Singapore
    
    Singapore 569059(Jurisdiction of Incorporation or Organization)
    
    (Address of Principal Executive Offices)
 Securities registered or to be registered pursuant to Section 12(b) of the Act:None Securities registered or to be registered pursuant to Section 12(g) of the Act: Ordinary Shares, par value S$0.25 per share, including Ordinary Shares
represented by American Depositary Shares
(Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report. 1,944,330,450 Ordinary Shares (par value S$0.25 per Ordinary Share) of Registrant outstanding as of
December 31, 2004. Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes  þ                    No  o Indicate by check mark which financial statement item the registrant has elected to follow. Item 17  o                    Item 18 þ




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Table of Contents PageITEM 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    4ITEM 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    4ITEM 3.
    
    KEY INFORMATION
    
    
    4ITEM 4.
    
    INFORMATION ON OUR COMPANY
    
    
    23ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    48ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    64ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    77ITEM 8.
    
    FINANCIAL INFORMATION
    
    
    80ITEM 9.
    
    THE OFFER AND LISTING
    
    
    80ITEM 10.
    
    ADDITIONAL INFORMATION
    
    
    81ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    96ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    96ITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    97ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    97ITEM 15.
    
    CONTROLS AND PROCEDURES
    
    
    97ITEM 16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    98ITEM 16B.
    
    CODE OF ETHICS
    
    
    98ITEM 16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    98ITEM 16D.
    

EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE
    
    
    99ITEM 16E.
    
    ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    99ITEM 17.
    
    FINANCIAL STATEMENTS
    
    
    99ITEM 18.
    
    FINANCIAL STATEMENTS
    
    
    99ITEM 19.
    
    EXHIBITS
    
    
    100SIGNATURES
    
    
    
    
    105INDEX TO FINANCIAL STATEMENTSEx-4.40 Indenture, dated November 18, 2004, by and between STATS ChipPAC Ltd. and U.S. Bank National AssociationEx-4.41 Purchase Agreement, dated as of November 5, 2004 by and between STATS ChipPAC Ltd., Deutsche Bank AG, Singapore Branch and Lehman Brothers International (Europe)Ex- 4.42 Registration Rights Agreement, dated November 18, 2004Ex- 4.43 Subsidiary Guarantee Agreement, dated November 18, 2004, by and between STATS ChipPAC Ltd.,the Subsidiary Guarantors and U.S. Bank National Association, as TrusteeEx- 4.44 Second Supplemental Indenture among ChipPAC International, as Issuer, ChipPAC, Inc., as Guarantor, and U.S. Bank National Association as Trustee, dated October 7, 2004Ex- 4.45 Second Supplemental Indenture among ChipPAC Inc., as Company, STATS ChipPAC Ltd., as Parent, and U.S.Bank National Association, as Trustee, dated October 11, 2004Ex- 4.46 Third Supplemental Indenture among ChipPAC Inc., as Company, STATS ChipPAC Ltd., as Parent, and U.S. Bank National Association, as Trustee, dated November 2, 2004Ex-8.1 List of SubsidiariesEx-12.1 Certification by CEO pursuant to Section 302Ex-12.2 Certification by CFO pursuant to Section 302Ex-13.1 Certification by CEO & CFO pursuant to Section 906Ex-15.1 Consent of PWC, Singapore, independent registered public accounting firmEx-15.2 Consent of KPMG, independent registered public accounting firm




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GENERAL INFORMATION References to Singapore dollars and S$ in this Annual Report mean Singapore dollars, the legal
currency of the Republic of Singapore. References to U.S. dollars, $ and US$ mean United
States dollars, the legal currency of the Unites States. References to South Korean Won and KRW
mean Korean Republic Won, the legal currency of the Republic of Korea. References to Chinese
Renminbi and RMB mean Chinese Renminbi, the legal currency of Peoples Republic of China.
References to Malaysian Ringgit and MYR mean Malaysian Ringgit, the legal currency of Malaysia.
References to New Taiwan Dollar and NT$ mean New Taiwan dollars, the legal currency of Taiwan.
For your convenience, unless otherwise indicated, translations of certain Singapore dollar, New
Taiwan dollar and South Korean Won amounts to U.S. dollars were made at the noon buying rate in the
City of New York on December 31, 2004 which was S$1.63 per $1.00 for cable transfers in Singapore
dollars, NT$31.74 per $1.00 for cable transfers in New Taiwan dollars and was KRW1035.10 per $1.00
for cable transfers in South Korean Won, as certified for customs purposes by the Federal Reserve
Bank of New York. No representation is made that the Singapore dollar, U.S. dollar, New Taiwan dollar or South Korean
Won amounts shown in this Annual Report could have been or could be converted at such rate or at
any other rate. When used in this annual report, the terms we, our, and us refer to STATS ChipPAC Ltd. and
its consolidated subsidiaries after the consummation of the merger described herein, the term
STATS refers to ST Assembly Test Services Ltd, a Singapore company, and its consolidated
subsidiaries prior to the consummation of the merger, the term ChipPAC refers to ChipPAC, Inc., a
Delaware corporation, and its consolidated subsidiaries prior to the consummation of the merger and
ChipPAC, Inc. as a wholly-owned subsidiary of ours after the consummation of the merger.
On January 20, 2005, STATS ChipPAC, Inc. (formerly known as ST Assembly Test Services, Inc.) was
merged into ChipPAC, Inc. The entity surviving the merger was renamed STATS ChipPAC, Inc. Following the consummation of the merger of STATS and ChipPAC, we have included in our financial
results for the year ended December 31, 2004, the financial results of STATS for the full year and
the financial results of ChipPAC from August 5, 2004. The term pro forma for the merger as used
in this document gives effect to the merger as if it had been consummated on January 1 of that
particular year and reflects ChipPACs financial data for the twelve months ended December 31 for
that particular year. FORWARD-LOOKING STATEMENTS Certain of the statements in this Annual Report on Form 20-F are forward-looking statements that
are based on managements current views and assumptions and involve a number of risks and
uncertainties which could cause actual results to differ materially. These include statements on
our financial condition and results of operations, plans, business strategies, operating
efficiencies and synergies, capital and other expenditures, outcome of litigation, industry growth
and other statements on underlying assumptions, other than statements of historical fact, including
but not limited to those that are identified by the use of words such as anticipates, believes,
estimates, expects, intends, plans, predicts, projects and similar expressions. Factors that could cause actual results to differ include general business and economic conditions
and the state of the semiconductor industry; the impact of our merger with ChipPAC, including our
ability to integrate and obtain the anticipated results and synergies from our merger with ChipPAC;
demand for end-use applications products such as communications equipment and personal computers;
reliance on a small group of principal customers; decisions by customers to discontinue outsourcing
of packaging and test services; changes in customer order patterns; rescheduling or canceling of
customer orders; changes in product mix; capacity utilization; level of competition; pricing
pressures including declines in average selling prices; continued success in technological
innovations; ability to develop and protect our intellectual property; delays in acquiring or
installing new equipment; shortages in supply of key components; availability of financing on
acceptable terms or at all; exchange rate fluctuations; litigation and other risks described in
Item 3. Key Information  D. Risk Factors. 3




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You should not unduly rely on such statements. We do not intend, and do not assume any obligation,
to update any industry information or forward-looking statements set forth in this annual report to
reflect subsequent events or circumstances. 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable 
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable 
 ITEM 3. KEY INFORMATION  A.

Selected Financial Data You should read the following selected consolidated financial data in conjunction with our
consolidated financial statements and the related notes and Item 5. Operating and Financial Review
and Prospects included elsewhere in this Annual Report. The selected consolidated financial data
as of December 31, 2003 and 2004 and for the fiscal years ended December 31, 2002, 2003 and 2004,
are derived from our consolidated financial statements which have been audited by KPMG (for years
ended December 31, 2002 and 2003) and PricewaterhouseCoopers (PwC) (for year ended December 31,
2004), independent registered public accounting firms, and are included in Item 18. Financial Statements. The selected
consolidated financial data as of December 31, 2000, 2001 and 2002 and for the fiscal years ended
December 31, 2000 and 2001 are derived from our audited consolidated financial statements, which
are not included in this Annual Report. Our consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP). Following the consummation of the merger of STATS and ChipPAC, we have included in our financial
results for the year ended December 31, 2004, the financial results of STATS for the full year and
the financial results of ChipPAC from August 5, 2004. The financial results prior to the year
ended December 31, 2004 reflect the financial results of STATS and do not include the financial
results of ChipPAC. 4




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Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(in thousands of US$, except per ordinary share and per ADS data)Income Statement Data:Net revenues
    
    $
    331,271
    
    
    $
    145,866
    
    
    $
    225,738
    
    
    $
    380,691
    
    
    $
    769,121Cost of revenues
    
    
    (231,944
    )
    
    
    (217,789
    )
    
    
    (247,943
    )
    
    
    (328,014
    )
    
    
    (643,540
    )Gross profit (loss)
    
    
    99,327
    
    
    
    (71,923
    )
    
    
    (22,205
    )
    
    
    52,677
    
    
    
    125,581Operating expenses:Selling, general and administrative
(1)
    
    
    41,246
    
    
    
    37,065
    
    
    
    36,693
    
    
    
    36,475
    
    
    
    84,965Research and development
    
    
    14,636
    
    
    
    15,160
    
    
    
    18,856
    
    
    
    15,295
    
    
    
    17,637Goodwill impairment (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    453,000Equipment impairments (3)
    
    
    
    
    
    
    23,735
    
    
    
    14,666
    
    
    
    
    
    
    
    Prepaid leases written off (4)
    
    
    
    
    
    
    3,145
    
    
    
    764
    
    
    
    
    
    
    
    Other general expenses (income), net
    
    
    (22
    )
    
    
    101
    
    
    
    548
    
    
    
    374
    
    
    
    (464
    )Total operating expenses
    
    
    55,860
    
    
    
    79,206
    
    
    
    71,527
    
    
    
    52,144
    
    
    
    555,138Operating income (loss)
    
    
    43,467
    
    
    
    (151,129
    )
    
    
    (93,732
    )
    
    
    533
    
    
    
    (429,557
    )Other income (expense):Interest income (expense), net
    
    
    8,214
    
    
    
    5,222
    
    
    
    (5,143
    )
    
    
    (9,209
    )
    
    
    (24,386
    )Foreign currency exchange gain (loss)
    
    
    2,018
    
    
    
    775
    
    
    
    (512
    )
    
    
    1,634
    
    
    
    (1,122
    )Other non-operating income (expense),
net
    
    
    3,525
    
    
    
    1,990
    
    
    
    3,419
    
    
    
    7,570
    
    
    
    (936
    )Total other income (expense), net
    
    
    13,757
    
    
    
    7,987
    
    
    
    (2,236
    )
    
    
    (5
    )
    
    
    (26,444
    )Income (loss) before income taxes
    
    
    57,224
    
    
    
    (143,142
    )
    
    
    (95,968
    )
    
    
    528
    
    
    
    (456,001
    )Income tax benefit (expense)
    
    
    (2,865
    )
    
    
    8,810
    
    
    
    7,163
    
    
    
    (705
    )
    
    
    (7,894
    )Income (loss) before minority interest
    
    $
    54,359
    
    
    $
    (134,332
    )
    
    $
    (88,805
    )
    
    $
    (177
    )
    
    $
    (463,895
    )Minority interest
    
    
    
    
    
    $
    313
    
    
    $
    (514
    )
    
    $
    (1,539
    )
    
    $
    (3,828
    )Net income (loss)
    
    $
    54,359
    
    
    $
    (134,019
    )
    
    $
    (89,319
    )
    
    $
    (1,716
    )
    
    $
    (467,723
    )Net income (loss) per ordinary share:Basic
    
    $
    0.06
    
    
    $
    (0.14
    )
    
    $
    (0.09
    )
    
    $
    (0.00
    )
    
    $
    (0.33
    )Diluted
    
    $
    0.06
    
    
    $
    (0.14
    )
    
    $
    (0.09
    )
    
    $
    (0.00
    )
    
    $
    (0.33
    )Net income (loss) per ADS:Basic
    
    $
    0.56
    
    
    $
    (1.36
    )
    
    $
    (0.90
    )
    
    $
    (0.02
    )
    
    $
    (3.27
    )Diluted
    
    $
    0.56
    
    
    $
    (1.36
    )
    
    $
    (0.90
    )
    
    $
    (0.02
    )
    
    $
    (3.27
    )Ordinary shares (in thousands) used in per
ordinary share calculation:Basic
    
    
    962,828
    
    
    
    989,083
    
    
    
    991,549
    
    
    
    1,005,374
    
    
    
    1,428,954Diluted
    
    
    970,631
    
    
    
    989,083
    
    
    
    991,549
    
    
    
    1,005,374
    
    
    
    1,428,954ADSs (in thousands) used in per ADS
calculation:Basic
    
    
    96,283
    
    
    
    98,908
    
    
    
    99,155
    
    
    
    100,537
    
    
    
    142,895Diluted
    
    
    97,063
    
    
    
    98,908
    
    
    
    99,155
    
    
    
    100,537
    
    
    
    142,895
 5




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Year Ended December 31,2000
    
    
    2001
    
    
    2002
    
    
    2003
    
    
    2004(in thousands of US$, except share data)Balance Sheet Data:Cash and cash equivalents
    
    $
    141,733
    
    
    $
    115,214
    
    
    $
    167,661
    
    
    $
    313,163
    
    
    $
    227,509Working capital (deficit)
    
    
    188,521
    
    
    
    109,447
    
    
    
    165,851
    
    
    
    328,583
    
    
    
    124,028Total assets
    
    
    711,758
    
    
    
    576,578
    
    
    
    721,968
    
    
    
    993,852
    
    
    
    2,271,702Current installments of
obligations under
capital leases
    
    
    
    
    
    
    2,564
    
    
    
    6,558
    
    
    
    5,296
    
    
    
    7,587Short-term borrowings and
current installments
of long-term debt
    
    
    14,799
    
    
    
    14,045
    
    
    
    21,588
    
    
    
    6,841
    
    
    
    174,281Obligation under capital leases,
excluding
current installments
    
    
    
    
    
    
    7,689
    
    
    
    5,520
    
    
    
    812
    
    
    
    10,771Long-term debt, excluding current
installments
    
    
    29,599
    
    
    
    14,045
    
    
    
    218,370
    
    
    
    358,789
    
    
    
    642,175Shareholders equity
    
    
    585,197
    
    
    
    452,795
    
    
    
    366,512
    
    
    
    475,956
    
    
    
    1,159,350Share capital
    
    
    159,461
    
    
    
    159,961
    
    
    
    160,295
    
    
    
    172,434
    
    
    
    298,233Ordinary shares outstanding (in thousands)
    
    
    986,172
    
    
    
    989,683
    
    
    
    992,115
    
    
    
    1,076,620
    
    
    
    1,944,330
    (1)

Includes stock-based compensation expenses of $448,000, $1,024,000, $60,000, $97,000 and
$658,000 in
2000, 2001, 2002, 2003 and 2004, 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 for which we had no expectation of future use.B.

Capitalization and Indebtedness Not applicable  C.

Reasons for the Offer and Use of Proceeds Not applicable  D.

Risk Factors In addition to the other information and risks described elsewhere in this Annual Report, our
business is subject to the following risks: We may be unable to integrate our operations successfully and may not realize the full anticipated
benefits of the combination of STATS and ChipPAC. We may not be successful in integrating the businesses of STATS and ChipPAC. Integrating the two
companies operations and personnel is a complex process. The integration may not be completed
rapidly and may not achieve 6




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the anticipated benefits of the combination of STATS and ChipPAC. The
successful integration of the two companies businesses will require, among other things, the
following:  

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;

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 successful integration of STATS and ChipPAC will involve considerable risks and may not be
successful. These risks include:  

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;

the difficulty of incorporating acquired technology and rights into the products and
service offerings of the combined company; and

unanticipated expenses and potential delays related to the integration of STATS and
ChipPAC. We may not succeed in addressing these risks or any other problems encountered in connection with
the combination of STATS and ChipPAC. The diversion of the attention of management and any
difficulties encountered in the process of combining STATS and ChipPAC could cause the disruption
of, or a loss of momentum in, the activities of the combined companys business. Further, the
process of combining ChipPACs business with STATS business could negatively affect employee
morale and STATS ability to retain some key STATS and ChipPAC employees after the merger. If the
anticipated benefits of the merger are not realized or the combined company is unsuccessful in
addressing the risks related to the integration, the combined companys business, financial
condition and results of operations may be negatively impacted. 7




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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. Prior to the merger, STATS and ChipPAC each maintained separate and distinct customer bases and
business partners specific to their respective businesses. As a result of the merger, we intend to
take advantage of the customer bases of the formerly separate businesses in order to promote and
sell the products and services of one company to the traditional customers and business partners of
the other company. In the event that the traditional customers and business partners of either
STATS or ChipPAC are not receptive to the products and services of the other, we may not realize
some of the expected benefits of the merger, and our business may be harmed. We have experienced substantial losses in the past and may continue to do so in the future. For the year ended December 31, 2004, we suffered an operating loss of $429.6 million and a net
loss of $467.7 million. STATS achieved operating income of $0.5 million in 2003, but suffered net
losses of $1.7 million. Similarly, ChipPAC achieved operating income of $0.4 million in 2003, but
suffered net losses of $28.8 million. We cannot assure you that we will not continue to incur
operating losses and net losses in the future due to a variety of factors, including if the
semiconductor industry does not recover from the downturn or makes only a partial recovery. We recorded an impairment charge of $453.0 million to our earnings for the year ended December 31,
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. As a result of accounting for the merger using the purchase accounting method, we recorded goodwill
and other intangible assets upon the merger of approximately $974.4 million and $147.2 million,
respectively. Under U.S. GAAP, we are required to review our goodwill and intangible assets for
impairment when events or changes in circumstances indicate the carrying value may not be
recoverable. In addition, goodwill and other intangible assets with indefinite lives are required
to be tested for impairment at least annually. We performed an impairment review at the end of 2004
and recorded an impairment charge of $453.0 million to our earnings for the year ended December 31,
2004. We may be required in the future to record a significant charge to earnings in our financial
statements during the period in which any impairment of our goodwill or other intangible assets is
determined. Such charges will likely have a significant adverse impact on our results of
operations. Downturns in the semiconductor industry have adversely affected our operating results, and may
continue to adversely affect, our operating results. Our results of operations and the results from operations of STATS and ChipPAC have been and will
be significantly affected by conditions in the semiconductor industry. The market for
semiconductors is characterized by:  

rapid technological change;

evolving industry standards;

intense competition; and

fluctuations in end-user demand. Beginning in the fourth quarter of the calendar year 2000, the industry experienced a downturn
which continued through 2001 and 2002. This downturn had a significant adverse impact on our sales
and financial performance, as customers reduced purchase orders to reflect inventory corrections
and lower demand experienced in their end-user 8




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markets. The semiconductor industry started a modest recovery in late 2002 and continued its
recovery momentum throughout 2003 and the first half of 2004. In late 2004, however,
we experienced a softening of our business as our customers corrected their excess inventory
positions. Industry outlook for 2005 published by recognized industry research analysts and
associations are highly mixed, with some projecting growth rates of up to 5% and others projecting
declines of up to 5% as compared to 2004. If we are unable to increase our capacity utilization rates, our profitability will be adversely
affected. As a result of the capital intensive nature of our business, our operations are characterized by
high fixed costs. Consequently, high capacity utilization allows us to maintain higher gross
margins because it allows us to allocate fixed costs over a greater number of units tested and
assembled. Insufficient utilization of installed capacity can have a material adverse effect on
our profitability. In 2001, our capacity utilization rates declined substantially from prior
levels, primarily as a result of a decrease in demand for their packaging and test services
resulting from a downturn in the overall semiconductor industry, particularly for communications
applications. Due to the high level of fixed costs, we suffered substantial net losses in 2001 and
2002. While capacity utilization rates increased in 2002, 2003 and 2004, they have not returned to
their former levels and our net losses continued in 2004. Our ability to restore or increase our profitability and enhance our gross margins will continue to
be dependent, in large part, upon our ability to restore high capacity utilization rates. Capacity
utilization rates may be affected by a number of factors and circumstances, including:  

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 cannot assure you that our capacity utilization rates will be able to return to their former
high levels or that we will not be materially adversely affected by a continued decline or future
declines in the semiconductor industry, declines in industries that purchase semiconductors or
other factors. Any inability on our part to increase our capacity utilization rates could have a
material adverse effect on our business, financial condition and results of operations. 9




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A decrease in demand for communications equipment and personal computers would significantly
decrease the demand of our services. A significant portion of our net revenues are derived from customers who use our test or packaging
services for semiconductors used in communications equipment and personal computers. Net revenues
from packaging or testing of semiconductors used in such applications comprised 82.8% of our net
revenues in 2004 and 88.2% of STATS net revenues and 61.0% of ChipPACs net revenues in 2003. Any
significant decrease in the demand for communications equipment or personal computers may decrease
the demand for our services and could seriously harm our company. In addition, the declining
average selling prices of communications equipment and personal computers places significant
pressure on the prices of the components that are used in this equipment. If the average selling
prices of communications equipment and personal computers continue to decrease, the pricing
pressure on services provided by us may reduce our net revenues and therefore significantly reduce
our gross profit margin. Our operating results have fluctuated, and may continue to fluctuate, from quarter to quarter,
which may make it difficult to predict our future performance. Our operating results have fluctuated and our operating results may continue to fluctuate
substantially from quarter to quarter due to a wide variety of factors, including:  

general economic conditions in the semiconductor industry;

a shift by integrated device manufacturers, or 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; 10




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

weakness in the supply of wafers;

loss of key personnel or the shortage of available skilled workers; and

changes in effective tax rates. As a result of all of these factors, we believe that period-to-period comparisons of our operating
results are not meaningful, and that using such comparisons to predict our future performance may
not be meaningful. In addition, unfavorable changes in any of the above factors may adversely
affect our business, financial condition and results of operations. 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. Decreases in the average selling prices of our packaging and test services can have a material
adverse effect on our profitability. The average selling prices of packaging and test services
have declined historically, with packaging services in particular experiencing severe pricing
pressure. This pricing pressure for packaging and test services is likely to continue. Our
ability to maintain or increase our profitability will continue to be dependent, in large part,
upon our ability to offset decreases in average selling prices by improving production efficiency,
increasing unit volumes tested or assembled, or by shifting to higher margin packaging and test
services. If we are unable to do so, our business, financial condition and results of operations
could be materially adversely affected. 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. We are dependent on a small group of customers for substantially all of our net revenues. In the
year ended December 31, 2004, proforma for the merger, our ten largest customers represented 67.0%
of our net revenues. STATS ten largest customers accounted for 79.8% and 78.8% of STATS net
revenues in 2002 and 2003, respectively. ChipPACs ten largest customers accounted for 88.6% and
79.1% of ChipPACs net revenues in 2002 and 2003, respectively. In the year ended December 31,
2004, our two largest customers, Analog Devices, Inc. and Broadcom Corporation, each represented in
excess of 10% of our net revenues and in the aggregate represented 31.7% of the net revenues. Although no one customer is expected to account for more than 25% of the combined companys
revenue, we anticipate that our ten largest customers will continue to account for a significant
portion of our net revenues for the foreseeable future. Our ability to retain these and other
customers, and to add new customers, is important to our ongoing success. The loss of one or more
key customers, or reduced demand from any key customers, could have a material adverse effect on
our business, financial condition and results of operations. In line with industry practice, new customers usually require us to pass a lengthy and rigorous
qualification process that can take up to six months at a significant cost to the customer. As a
result, customers are reluctant to qualify new packaging and test service providers and it may be
difficult for us to attract new major customers and/or break into new markets. In addition, if we
fail to qualify packages with potential customers or customers with which we have recently become
qualified do not use our services, then our customer base could become more concentrated with an
even more limited number of customers accounting for a significant portion of our revenues.
Furthermore, we believe that once a semiconductor company has selected a particular packaging and
test companys services, the semiconductor company generally relies on that vendors packages for
specific applications and, to the extent possible, subsequent generations of that vendors
packages. Accordingly, it may be difficult to achieve significant 11




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sales from a customer once it selects another vendors packaging and test services. See Item 4.
Information on Our Company  Customers. Decisions by our integrated device manufacturer, or IDM, customers to curtail outsourcing may
adversely affect our business. Historically, we have been dependent on the trend in outsourcing of packaging and test services by
IDMs. Our IDM customers continually evaluate the outsourced services against their own in-house
packaging and test services. As a result, at any time, IDMs may decide to shift some or all of
their outsourced packaging and test services to internally sourced capacity. Any such shift or a
slowdown in this trend of outsourcing packaging and test services is likely to adversely affect our
business, financial condition and results of operations. In a downturn in the semiconductor industry, IDMs may respond by shifting some outsourced packaging
and test services to internally serviced capacity on a short term basis. This would have a
material adverse effect on our business, financial condition and results of operations, especially
during a prolonged industry downturn. We do not have any significant backlog because our customers do not place purchase orders far in
advance, which makes us vulnerable to sudden changes in customer demand. Our customers generally do not place purchase orders far in advance, and our contracts with major
domestic customers do not generally require minimum purchase of our products or services. In
addition, our customers purchase orders have varied significantly from period to period because
demand for their products is often volatile. As a result, we do not typically operate with any
significant backlog. The lack of a significant backlog makes it difficult for us to forecast our
net operating revenues in future periods and causes our operating results to fluctuate from period
to period. Moreover, our expense levels are based in part on our expectations of future revenue and
we may be unable to adjust costs in a timely manner to compensate for revenue shortfalls. For
example, in 1999 and early 2000, we incurred significant costs in expectation of strong demand in
the semiconductor market, but this demand did not fully materialize because of the market downturn
between late 2000 and early 2003. We expect that in the future our net operating revenues in any
quarter will continue to be substantially dependent upon purchase orders received in that quarter.
We cannot assure you that any of our customers will continue to place orders with us in the future
at the same levels as in prior periods. We also cannot assure you that our customers orders will
be consistent with our expectations when we made or will make the necessary investments in raw
materials, labor and equipment. We may not be able to develop or access leading technology which may affect our ability to compete
effectively. The semiconductor packaging and test markets are characterized by rapid technological change and
increasing complexity. We must be able to offer our customers packaging and test services based
upon the most advanced technology. This requirement could result in significant research and
development expenditures and capital expenditures in the future. We periodically review our
equipment for obsolescence and impairment. If we determine that, due to technological advances,
reduced demand in certain end markets or otherwise, the anticipated future usage of any of our
equipment has been diminished, we will write-down such equipment. In 2002, STATS wrote-down $15.4
million of equipment and made zero write-downs in 2003. In 2002 and 2003, ChipPAC made zero
write-downs and wrote-down $11.7 million of impaired assets, respectively. In 2004, we made zero
write-down. If we fail to develop advanced test and packaging services or to access those developed by others
in a timely manner, we could lose existing customers or miss potential customers demanding these
advanced services. Developing new technology may result in longer sales cycles and product
implementations, which may cause revenue and operating income to fluctuate or fail to meet
expectations. Also, we would miss the opportunity to benefit from the higher average selling
prices which are derived from newer and emerging packaging and test services. In addition, our 12




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choice of test equipment is important because obtaining the wrong test equipment or failing to
understand market requirements will make us less competitive and will lower our asset utilization.
In order to remain competitive, we must be able to upgrade or migrate our test equipment to respond
to changing technological requirements. 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. Semiconductor packaging and testing are complex processes that require significant technological
and process expertise. Semiconductor testing involves sophisticated testing equipment and computer
software. We develop computer software which is used to test our customers semiconductors. We
also develop conversion software programs which enable us to test semiconductors on different types
of testers. Similar to most software programs, these software programs are complex and may contain
programming errors or bugs. In addition, the testing process is subject to operator error by our
employees who operate our testing equipment and related software. Any significant defect in our
testing or conversion software, malfunction in our testing equipment or operator error could reduce
our production yields, damage our customer relationships and materially harm our business. The packaging process is complex and involves a number of precise steps. Defective packages
primarily result from:  

contaminants in the manufacturing environment;

human error;

equipment malfunction;

defective raw materials; or

defective plating services. These and other factors have, from time to time, contributed to lower production yields. They may
do so in the future, particularly as we expand our capacity or change our processing steps. In
addition, to be competitive, we must continue to expand our offering of packages. Our production
yields on new packages typically are significantly lower than our production yields on our more
established packages. Our failure to maintain high standards or acceptable production yields, if significant and
prolonged, could result in loss of customers, increased costs of production, delays, substantial
amounts of returned goods and claims by customers relating thereto. Any of these problems could
have a material adverse effect on our business, financial condition and results of operations. 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. The semiconductor packaging and test business is capital intensive and requires investment in
expensive capital equipment manufactured by a limited number of suppliers, which are located
principally in the United States, Singapore, Europe, Korea and Japan. The market for capital
equipment used in semiconductor testing is characterized, from time to time, by intense demand,
limited supply and long delivery cycles. Our operations and expansion plans are highly dependent
upon our ability to obtain a significant amount of such capital equipment from a limited number of
suppliers. If we are unable to obtain certain equipment, such as testers and wire bonders, in a
timely manner, we may be unable to fulfill our customers orders which would negatively impact our
business, financial condition and results of operations. 13




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Generally, we have no binding supply agreements with any of our suppliers and we acquire our
equipment on a purchase order basis, which exposes us to substantial risks. For example, increased
levels of demand for the type of capital equipment required in our business may cause an increase
in the price of such equipment and may lengthen delivery cycles, which could have a material
adverse effect on our business, financial condition and results of operations. In addition,
adverse fluctuations in foreign currency exchange rates, particularly the Japanese yen, could
result in increased prices for certain equipment purchased by us, which could have a material
adverse effect on our business, financial condition and results of operations. 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. Our capital expenditures are largely driven by the demand for our services. Our combined capital
expenditures increased from $366.2 million in 2003 to $392.0 million in 2004 primarily as a result
of an increase in demand for our services. In 2005, we expect that our capital expenditures will
be approximately $300.0 million. To grow our business, we will need to increase our packaging and
test capacity as well as replace existing equipment from time to time. This will require
substantial capital expenditures for additional equipment and further expenditure to recruit and
train new employees. These expenditures will likely be made in advance of increased sales. We
cannot assure you that our net revenues will increase after these expenditures. Failure to
increase our net revenues after these expenditures could have a material adverse effect on our
business, financial condition and results of operations. We may need to obtain additional debt or equity financing to fund our capital expenditures.
Additional debt financing may be required which, if obtained, may:  

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. We cannot assure you that we will be able to obtain the additional financing on terms that are
acceptable to us or at all. 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. Our ability to make payments on and to refinance our indebtedness and to fund planned capital
expenditures and research and development efforts will depend on our ability to generate cash in
the future. This, to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. We believe that our cash
flow from operations together with our existing liquid assets will be sufficient to meet our cash
flow needs for at least the next 12 months. However, our business may not generate sufficient cash
flow from operations and future borrowings may not be available to us in an amount sufficient to
enable us to pay our indebtedness or to fund our other liquidity needs. 14




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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. The terms of our 6.75% senior notes, zero coupon convertible notes, 1.75% convertible notes, 8.0%
convertible subordinated notes, 2.5% convertible subordinated notes and Multicurrency Medium Term
Notes program (the MTN Program) contain restrictions applicable to us that limit our ability to,
among other things:  

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. As a result of these limitations, we may encounter difficulties obtaining the required consents
from our existing lenders to conduct our business, in particular, to obtain the necessary financing
to maintain or grow our business, on a timely basis or at all. This could have a material adverse
effect on our business, financial condition and results of operations. A breach of any of the covenants or restrictions contained in any of the indentures could result in
an event of default. Such default could allow our debt holders to accelerate the related debt as
well as any other debt to which a cross-acceleration or cross-default provision applies, and/or to
declare all borrowings outstanding thereunder to be due and payable. If our debt is accelerated,
our assets may not be sufficient to repay such debt in full. Our substantial indebtedness could adversely affect our financial health. We have a substantial amount of indebtedness. As of December 31, 2004, we had total indebtedness
of $834.8 million, consisting of $215.0 million of unsecured senior notes, $521.3 million of
unsecured convertible notes, $78.6 million of senior secured debt (including capital lease
obligations) and $19.9 million of unsecured short-term debt. Our substantial indebtedness may impact us by:  

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; 15




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

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. In addition, the holders of our various notes may, in certain circumstances, including a change in
control of our company, in each case as defined in the respective indenture relating to such notes,
require us to redeem all or a portion of the holders notes. Further, certain holders of our
$200.0 million of 1.75% convertible notes due 2007 have required us to and the holders of our
$115.0 million of zero coupon convertible notes due 2008 may require us to repurchase all or a
portion of the holders convertible notes on March 18, 2005 and November 7, 2007, respectively. We
have received demands for the redemption of $125,420,000 aggregate amount of the 1.75% convertible
notes due 2007, and the total amount payable in respect of these notes, including interest, is
$139,813,590. We may be required to refinance our debt in order to make such payments. If such an
event were to occur, or at maturity of each series of convertible notes, we cannot assure you that
we will have sufficient funds or would be able to arrange financing on terms that are acceptable to
us or at all or to obtain waivers of prohibitions from lenders under our other financing
arrangements to make the required purchase or redemption. If we do not have sufficient funds or
are unable to obtain adequate financing or waivers to repurchase or redeem such notes, we will be
in default under the terms of those notes. 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. We obtain the materials we need for our packaging services from outside suppliers. We purchase all
of our materials on a purchase order basis and have not generally entered into long-term contracts
with our suppliers. If we cannot obtain sufficient quantities of materials at reasonable prices or
if we are not able to pass on higher materials costs to our customers, this could have a material
adverse effect on our business, financial condition and results of operations. We may not be successful in our acquisitions and investments in other companies and businesses. From time to time, we may make acquisitions of, or investments in, other companies or businesses.
In August 2004, we completed our merger with ChipPAC. In 2003, we set up a new manufacturing
facility in Shanghai, China as a first step of its strategic plan to establish a significant
manufacturing presence in China to service its existing international customers as well as engage
the indigenous Chinese foundries and design houses. In 2001, we acquired a majority interest in
Winstek Semiconductor Corporation, or Winstek, to enhance our position in the Taiwanese market. The success of any acquisitions and investments depends on a number of factors, including:  

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;

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; 16




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

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. If we are unsuccessful in our acquisitions and investments, our financial condition may be
materially adversely affected and we may be unable to realize the anticipated results or synergies
from these acquisitions or investments. We may not be able to compete successfully in our industry. The independent semiconductor test and assembly service, or SATS, industry is very competitive and
diverse and requires us to be capable of testing increasingly complex semiconductors as well as
bringing the most technologically advanced packages to market as quickly as our competitors. The
industry comprises both large multi-national companies and small niche market competitors. We face
substantial competition from a number of competitors, including, among others, Advanced
Semiconductor Engineering, Inc., Amkor Technology, Inc., ASE Test Limited, and Siliconware
Precision Industries Co., Ltd. Their facilities are primarily located in Asia. Each of these companies has significant manufacturing capacity, financial resources, research and
development operations, marketing and other capabilities and has been in operation for some time.
Such companies have also established relationships with many of our current or potential customers. We also face competition from the internal capabilities and capacity of many of our current and
potential IDM customers. Many IDMs have greater financial, technical and other resources than we
have and may rely on internal sources for packaging and test services for a number of reasons
including due to:  

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. We cannot assure you that we will be able to compete successfully in the future against our
existing or potential competitors or that our customers will not rely on internal sources for test
and packaging services, or that our business, financial condition and results of operations will
not be adversely affected by such increased competition. Our intellectual property is important to our ability to succeed in our business but may be
difficult to obtain and protect. Our ability to compete successfully and achieve future growth in net revenues will depend, in part,
on our ability to develop and to protect our intellectual property and the intellectual property of
our customers. We seek to protect proprietary information and know-how through patents, the use of
confidentiality and non-disclosure agreements and limited access to and distribution of proprietary
information. As of January 31, 2005, we held a total of approximately 300 patents comprising
patents issued and pending patent applications. We have approximately 71 patents granted and
allowed by the US Patent and Trademark office and approximately 55 patents registered or allowed in
Singapore, Korea or other countries. We cannot assure you that any of our pending applications for patents will be granted, or, if
granted, will not be challenged, invalidated or circumvented or will offer us any meaningful
protection. Further, we cannot assure you 17




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that the Asian countries in which we market our products will protect our intellectual property
rights in the same manner or to the same extent as the United States. Additionally, we cannot
assure you that our competitors will not challenge our rights in such intellectual property, or
develop, patent or gain access to similar know-how and technology, or reverse engineer our
packaging services, or that any confidentiality and non-disclosure agreements upon which we rely to
protect our trade secrets and other proprietary information will be adequate protection. The
occurrence of any such events could have a material adverse effect on our business, financial
condition and results of operations. We have licenses to use third party patents, patent applications and other technology rights, as
well as trademark rights, in the operation of our business. To the extent these licenses are not
perpetual and irrevocable, we believe that these licenses will be renewable under normal or
reasonable commercial terms upon their expiration. However, we may be unable to utilize the
technologies under these licenses if they are not extended or otherwise renewed or if any of these
licenses are terminated by the licensor. Alternatively, if we are able to renew these licenses, we
cannot assure you that they will be renewed on the same terms as currently exist. Any termination
of, or failure to extend or renew, these licenses could cause us to incur substantial liabilities
and to suspend the services and processes that utilize these technologies. We may be subject to intellectual property rights disputes which could materially adversely affect
our business. Our ability to compete successfully will depend, in part, on our ability to operate without
infringing the proprietary rights of others. However, we may not be aware of the intellectual
property rights of others or whether such rights conflict with our rights, or be familiar with the
laws governing such rights in certain countries in which our products and services are or may be
sold. As the number of patents, copyrights and other intellectual property rights in our industry
increases, and as the coverage of these rights increases, we may face more frequent patent and
other intellectual property infringement claims brought by third parties. In the event that any valid claim is made against us, we could be required to:  

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. It is the nature of the semiconductor industry that, from time to time, we may receive
communications alleging that we have infringed intellectual property rights of others. We may
also, from time to time, receive from customers, requests for indemnification against pending or
threatened infringement claims brought against such customers. We do not currently have any
material third party allegations of or claims for indemnification against intellectual property
infringement. However, we cannot assure you that the resolution of any future allegation or
request for indemnification will not have a material adverse effect on our business or financial
condition. Although we may seek licenses from or enter into agreements with third parties covering the
intellectual property that we are allegedly infringing, we cannot assure you that any such licenses
could be obtained on acceptable terms, if at all. We may also have to commence lawsuits against
companies who infringe our intellectual property rights. Such claims could result in substantial
costs and diversion of our resources. 18




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Should any of the disputes described above occur, our business, financial condition and results of
operations could be materially adversely affected. We are exposed to certain risks as a result of the significant ownership by Temasek Holdings
(Private) Limited (Temasek Holdings), through its wholly-owned subsidiary. Temasek Holdings
interests may conflict with your interests. Following a restructuring of the Temasek Holdings group of companies on December 31, 2004, Temasek
Holdings acquired all of the shareholdings in Singapore Technologies Semiconductors Pte Ltd (STSPL)
held by Temasek Holdings wholly-owned subsidiary, Singapore Technologies Pte Ltd. As of January
31, 2005, Temasek Holdings, through STSPL, beneficially owns approximately 36.69% of our
outstanding ordinary shares. Temasek Holdings is the principal holding company through which the
corporate investments of the Government of Singapore are held. As a result, Temasek Holdings will
have significant influence over matters requiring the approval of our shareholders. Matters that typically require the approval of our shareholders include, among other things:  

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. The actions of Temasek and STSPL, particularly through the election of directors and subsequent
selection of management by those directors, can affect our strategic decisions, our legal and
capital structure and our day-to-day operations. This concentration of ownership may also delay,
deter or prevent acts that would result in a change of control, which may be against the interests
of holders of our ADSs and ordinary shares. We may have conflicts of interest with our affiliates which may not be resolved in our favor. In the past, a substantial portion of our financing, as well as certain amounts of our net
revenues, came from our affiliates, and we paid a management fee to Singapore Technologies Pte Ltd
(STPL) for certain services. We have certain contractual and other business relationships and may
engage in material transactions with the Government of Singapore, companies within the Temasek
Holdings group, including Chartered Semiconductor Manufacturing Ltd (Chartered), which is one of
our key customers. Although all new material related party transactions generally will require the
approval of the audit committee of our Board of Directors and in certain circumstances may also
require separate approval of a majority of our Board of Directors, circumstances may arise in which
the interests of our affiliates may conflict with the interests of our other shareholders. In
addition, Temasek Holdings and their affiliates make investments in various companies. They have
invested in the past, and may invest in the future, in entities that compete with us. For example,
affiliates of Temasek Holdings have investments in United Test & Assembly Center Ltd, a
Singapore-based provider of semiconductor packaging and testing services for semiconductor
logic/application  specific integrated circuits (ASICs) and memory products. In the context of
negotiating commercial arrangements with affiliates, conflicts of interest have arisen in the past
and may arise, in this or other contexts, in the future. We cannot assure you that any such
conflicts of interest will be resolved in our favor. 19




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Loss of our key management and other personnel, or an inability to attract such management and
other personnel, could impact our business. We depend on our key senior management to run our business. We do not maintain key man life
insurance on any of our personnel. The loss of these persons could have a material adverse effect
on our business, financial condition and results of operations, particularly if we are unable to
find, relocate and integrate adequate replacements for any of these persons. Further, in order to
develop or grow our business, we will require experienced technical, customer support, sales and
management personnel and other skilled employees. We may be unable to attract or retain these
persons. This could disrupt our operations or materially adversely affect the success of our
business. 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 are subject to the SECs reporting obligations. The SEC, as directed by Section 404 of the
Sarbanes-Oxley Act of 2002, adopted rules requiring public companies to include a report of
management on the companys internal control over financial reporting in its Annual Report on Form
10-K or Form 20-F, as the case may be, that contains an assessment by management of the
effectiveness of the companys internal control over financial reporting. In addition, the
companys independent registered public accounting firm must attest to and report on managements
assessment of the effectiveness of the companys internal control over financial reporting. These
requirements will first apply to our Annual Report on Form 20-F for the fiscal year ending December
31, 2006. Management may not conclude that our internal control over our financial reporting is
effective. Moreover, even if management does conclude that our internal control over our financial
reporting is effective, if our independent registered public accounting firm is not satisfied with
our internal control over our financial reporting or the level at which our controls are
documented, designed, operated or reviewed, or if the independent registered public accounting firm
interprets the requirements, rules or regulations differently from us, then they may decline to
attest to managements assessment or may issue a report that is qualified. Any of these possible
outcomes could result in an adverse reaction in the financial marketplace due to a loss of investor
confidence in the reliability of our financial statements, which ultimately could negatively impact
the market price of ADSs and ordinary shares. 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. Our packaging and testing operations take place in areas where air purity, temperature and humidity
are controlled. If we are unable to control our packaging or testing environment, our packaging or
test equipment may become nonfunctional or the tested and packaged semiconductors may be defective.
If we experience prolonged interruption in our operations due to problems in the clean room
environment, this could have a material adverse effect on our business, financial condition and
results of operations. Liabilities and obligations under certain environmental laws and regulations could require us to
spend additional funds and could adversely affect our financial condition and results of
operations. We are subject to a variety of environmental laws and regulations in the countries in which we have
operations, including laws and regulations relating to the use, storage, discharge and disposal of
hazardous materials and the chemical by-products of, and waste water discharges from, our packaging
and testing processes. We may also be subject to liability under such laws and regulations for the
investigation or cleanup of contamination caused by, or other damages associated with, the release
of hazardous materials in connection with current or historical operations at our facilities or
off-site locations. While we believe that we are currently in material compliance with such laws
and regulations, failure to comply with such laws and regulations in the future could subject us to
liabilities that may have an adverse effect on our financial condition and results of operations.
While we believe that we do not face material liabilities associated with contamination conditions
and that in some cases we have contractual 20




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indemnification agreements with predecessors relating to such conditions, should these predecessors
become unable or unwilling to address these conditions, or should other yet unknown conditions be
identified in the future that are not subject to such indemnification agreements, we could face
environmental liabilities that may have an adverse effect on our financial condition and results of
operations. A fire or other calamity at one of our facilities could adversely affect us. We conduct our packaging and testing operations at a limited number of facilities. Significant
damage at any of these facilities as a result of a fire or other calamity would have a material
adverse effect on our business, financial conditions and results of operations. Some of the
processes that we utilize in our operations place us at risk of fire and other damage. For example,
highly flammable gases are used in the preparation of wafers holding semiconductor devices for
flip-chip packaging. While we maintain insurance policies covering losses, including losses due to
fire, which we consider to be adequate, we cannot assure you that it would be sufficient to cover
all of our potential losses. Our insurance policies cover our buildings, machinery and equipment. 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 invest significant resources in our research and development. However, research and development
efforts may not yield commercially viable packages or test services. The qualification process for
new packages and test services is conducted in various stages which may take one or more years to
complete, and during each stage there is a substantial risk that we will have to abandon a
potential package or test service which is no longer marketable and in which we have invested
significant resources. In the event we are able to qualify new packages or test services, a
significant amount of time will have elapsed between our investment in new packages or test
services and the receipt of any related revenues. In addition, from time to time, our customers
have requested, and may request, research and development services relating to the development of
packages and/or services. These customers generally do not, and may not, reimburse us for our
research and development expenses if the developed package or service does not achieve expected
levels of demand or utilization. Significant fluctuations in exchange rates may affect our financial condition and results of
operations. Our financial statements are prepared in U.S. dollars. Our net revenues are generally denominated
in U.S. dollars and operating expenses are generally incurred in U.S. dollars, Singapore dollars,
Japanese yen, South Korean Won, Malaysian Ringgit, Chinese Renminbi and the New Taiwan dollar. Our
capital expenditures are generally denominated in U.S. dollars, Singapore dollars, South Korean
won, Japanese yen and other currencies. As a result, we are affected by significant fluctuations in
foreign currency exchange rates among the U.S. dollar, the Singapore dollar, the Japanese yen and
other currencies, including the South Korean Won, the Malaysian Ringgit, the Chinese Renminbi and
the New Taiwan dollar. Our ability to make further investments in our subsidiaries may be dependent on regulatory
approvals. Our subsidiaries may require future equity-related financing, and any capital contributions to
certain of our subsidiaries, including, but not limited to, Winstek and our China subsidiaries, may
require the approval of the relevant authorities in the jurisdiction in which the subsidiary is
incorporated. The approvals are required from the investment commissions or similar agency of the
particular jurisdiction and relate to any initial or additional equity investment by foreign
entities in local corporations. We may not be able to obtain any such approval in the future in a
timely manner or at all. 21




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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. The employees at our Icheon, South Korea facility are represented by the STATS ChipPAC Korea Labor
Union and are covered by collective bargaining and wage agreements. The wage agreement is renewed
every year, and the collective bargaining agreement, which covers basic union activities, working
conditions and welfare programs, among other things, is renewed every other year. ChipPAC entered
into a new wage agreement with the union in July 2004, which was retroactive to May 1, 2004, and is
effective through April 30, 2005. As of January 31, 2005, approximately 67.9% of our South Korean
employees were represented by the STATS ChipPAC Korea Labor Union. We cannot assure you that issues
with the labor union or other employees will be resolved favorably for us in the future, that we
will not experience significant work stoppages in future years or that we will not record
significant charges related to those work stoppages. Because a significant portion of Winsteks business and operations, 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 operation
and adversely affect our earnings. Taiwan is susceptible to earthquakes. For example, on March 31, 2002, Taiwan experienced a severe
earthquake that caused significant property damage and loss of life, particularly in central
Taiwan. This earthquake damaged production facilities and adversely affected the operations of many
companies involved in the semiconductor and other industries. Our 54.5% owned subsidiary, Winstek,
experienced no structural damage to its facilities and no damage to its machinery and equipment as
a result of this earthquake. There were, however, interruptions to our production schedule
primarily as a result of power outage caused by the earthquake. The production facilities of many
of our suppliers and customers and providers of complementary semiconductor manufacturing services,
including foundries, are located in Taiwan. If our customers are affected, it could result in a
decline in the demand for our testing and packaging services. If suppliers and providers of
complementary semiconductor manufacturing services are affected, our production schedule could be
interrupted or delayed. As a result, a major earthquake in Taiwan could severely disrupt the normal
operation of business, in particular Winsteks business, and may have a material adverse effect on
our financial condition and results of operations. 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. A significant portion of our unit shipments are sent out to and substantially all of our packaging
and test facilities are located in Singapore, South Korea, China, Malaysia and Taiwan. In
addition, we believe that the end markets for certain of our key customers are located in Asia. We
cannot determine if our future operations and earnings will be affected by new laws, new
regulations, a volatile political climate, changes in or new interpretations of existing laws or
regulations or other consequences of doing business outside the United States, particularly in
these countries. Furthermore, the following are some of the risks inherent in doing business internationally:  

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; 22




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

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. If future operations are negatively affected by these changes, our sales or profits may suffer. We could suffer adverse tax and other financial consequences if taxing authorities do not agree
with our interpretation of applicable tax laws. ChipPAC is our wholly-owned subsidiary. ChipPACs corporate structure and operations are based, in
part, on interpretations of various tax laws, including withholding tax, and other relevant laws of
applicable taxing jurisdictions. We cannot assure you that the taxing authorities will agree with
our interpretations or that they will reach the same conclusions. For example, the South Korean
National Tax Service (NTS) has informed ChipPAC that it has made an assessment of approximately KRW
18.7 billion (approximately $18.1 million) against ChipPAC relating to withholding tax that it
asserts should have been collected on interest paid on a loan from ChipPACs Hungarian subsidiary
to its South Korean subsidiary. We believe that no withholding on the transaction in question is
required under the prevailing tax treaty. We have appealed this assessment and believe that such
assessment should be overturned. In the event that we are not successful with our appeal, we
estimate that the maximum amount payable including potential interest and local surtax as at
December 31, 2004 is estimated to be KRW 28.2 billion (approximately $27.2 million). However, our
interpretations are not binding on any taxing authority and, if these foreign jurisdictions were to
change or to modify the relevant laws, we could suffer adverse tax and other financial consequences
or the anticipated benefits of ChipPACs corporate structure
could be materially impaired. See Item 5.
Operating and Financial Review and Prospects  Liquidity and Capital Resources 
Contingencies. Failure to receive necessary governmental consents and approvals or the imposition of restrictions
or conditions by governmental authorities may limit the expected benefits of the combination of
STATS and ChipPAC. Notwithstanding the successful completion of the combination of STATS and ChipPAC, governmental
authorities could seek to block or challenge the merger as they deem necessary or desirable in the
public interest. The governmental authorities also may impose restrictions or conditions on the
merger that may seriously harm the combined company. These conditions could include a complete or
partial license, divestiture, spin-off or the holding separate of assets or businesses. In
addition, in some jurisdictions, a competitor, customer or other third party could initiate a
private action under the antitrust laws challenging or seeking to enjoin the merger. We may not
prevail, or may incur significant costs, in defending or settling any action under such antitrust
laws. 
 ITEM 4. INFORMATION ON OUR COMPANY  A.

History and Development of Our Company We were incorporated in Singapore as a limited liability company on October 31, 1994 and began
operations in January 1995. In February 2000, we completed our initial public offering. Our ordinary shares are listed on the
Singapore Exchange Securities Trading Limited or SGX-ST (SGX-ST: STATSChP) and our ADSs are quoted
on the Nasdaq National Market or Nasdaq (NASDAQ: STTS). Our registered office is at No. 5, Yishun
Street 23, Singapore 768442, Republic of Singapore, and our telephone and facsimile numbers at that
address is (65) 6824 7888 and (65) 6720 7829, respectively. Our principal executive offices are
located at 10 Ang Mo Kio Street 65, #05-17/20 Techpoint, 23




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Singapore 569059, Republic of Singapore. Our website address is: www.statschippac.comand our
agent for service in the United States is the current Company Secretary of STATS ChipPAC, Inc.,
located at 47400 Kato Road, Fremont, CA 94538, United States of America; Telephone: (1 510)
979-8000; Facsimile: (1 510) 979-8001. We are headquartered in Singapore and our global operations
are mainly carried out in Singapore, South Korea, China, Malaysia, Taiwan, United States, United
Kingdom, the Netherlands and Japan. On August 5, 2004, we completed our merger with ChipPAC a Delaware corporation, which resulted in
ChipPAC becoming our wholly-owned subsidiary. In connection with the merger, we changed our name
from ST Assembly Test Services Ltd to STATS ChipPAC Ltd. In the merger, former ChipPAC
stockholders received 0.87 ADS for each share of ChipPAC Class A common stock owned by such
stockholder. Each ADS represents the right to receive ten ordinary shares, par value S$0.25 per
share, of our company. Following the consummation of the merger, STATS and ChipPACs former
shareholders owned approximately 56% and 44%, respectively, of our total shares outstanding. For information concerning the merger of our company with ChipPAC, see Item 10. Additional
Information  Material Contracts. B. Business Overview We are a leading service provider of semiconductor packaging design, assembly, test and
distribution solutions. We have the scale to provide a comprehensive range of semiconductor
packaging and test solutions to a diversified global customer base servicing the computing,
communications, consumer, automotive and industrial markets. Our services include:  

Packaging services:for leaded, power and array packages designed to provide customers
with a broad range of packaging solutions and full backend turnkey services for a wide
variety of electronics applications. We also provide redistribution and wafer bumping
services. 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
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. We have a leadership position in providing advanced packages, such as stacked die,
System-in-Package (SiP) and flip-chip, as well as ball grid array packages (BGA) and chip scale
packages (CSP). We are a leader in high-volume assembly, test and distribution of discrete and
analog power packages. We are also a leader in testing mixed-signal semiconductors or semiconductors combining the use of
analog and digital circuits in a chip. Mixed-signal semiconductors are used extensively in
fast-growing communications applications. We have strong expertise in testing a wide range of
high-performance digital devices. We have been successful in attracting new customers with our packaging and test capabilities and
then expanding our relationship with such customers to provide full turnkey solutions tailored to
their needs. Our merger with ChipPAC, which significantly broadened our capabilities in both
packaging and test services, enabled us to take advantage of 24




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the customer bases of the formerly separate businesses in order to promote and sell the products
and services to an enlarged customer base of the combined company. We are headquartered in Singapore and our manufacturing facilities are strategically located in
Singapore, South Korea, China, Malaysia and Taiwan (through our 54.5% owned subsidiary, Winstek).
We also have test pre-production facilities in the United States. We market our services through
our direct sales force located across the globe in Singapore, South Korea, China, Malaysia, Taiwan,
the United States, the United Kingdom, the Netherlands and Japan. With an established presence in
the countries where strategic semiconductor markets are located, we are in close proximity to the
major hubs of wafer fabrication which allows us to provide customers with fully-integrated,
multi-site, end-to-end packaging and test services. Our Industry Semiconductors are critical components used in an increasingly wide variety of applications such as
computer systems, communications equipment and systems, automobiles, consumer products and
industrial automation and control systems. As the performance of electronic systems has improved
and their size and cost have decreased, the use of semiconductors in these applications has grown
significantly. The semiconductor industry is highly cyclical mainly due to the cyclicality of demand in the
markets of the products that use semiconductors. This is significantly exacerbated by the capital
intensive nature of the semiconductor industry and the time required to set up new capacity that
results in periods of high capacity utilization when demand is robust, followed by periods of
underutilization and accelerated price erosion when new capacities are commissioned and demand
growth slows. Historically, IDMs conducted most of the semiconductor manufacturing process in their own
facilities, outsourcing only the lower-technology aspects of the process and keeping advanced or
proprietary technology in-house. Fabless semiconductor companies, which concentrated their efforts and resources on the design,
marketing and sale of semiconductors, emerged in the mid-1980s. Fabless companies outsource
virtually every step of the production process  fabrication, packaging and testing  to
independent companies, allowing them to utilize the latest production, packaging and test
technologies without committing significant amounts of capital and other resources to
manufacturing. The demand for quick delivery to market of increasingly smaller semiconductors with greater
functionality, which may be used in a wide array of electronic applications, has led to increased
requirements for technical expertise and capital spending in the semiconductor production process.
In addition to fabless companies, IDMs outsource packaging and test requirements as a means of
obtaining cost-effective access to backend state-of-the-art technology, and a faster time to
market. Historically, outsourced semiconductor manufacturing services have grown faster than the
semiconductor market as a whole. We believe that the reduced investments in packaging and test
capacity by semiconductor manufacturers in the past two years will better position outsource
providers to capture a greater percentage of future volume levels. Beginning in the fourth quarter of the calendar year 2000, the industry experienced a downturn
which continued through 2001 and 2002. This downturn had a significant adverse impact on our sales
and financial performance, as customers reduced purchase orders to reflect inventory corrections
and lower demand experienced in their end-user markets. The semiconductor industry started a modest
recovery in late 2002 and continued its recovery momentum throughout 2003 and the first half of
2004. In late 2004, however, we experienced a softening of our business as our
customers corrected their excess inventory positions. Industry outlook for 2005 published by
recognized industry research analysts and associations are highly mixed, with some projecting
growth rates of up to 5% and others projecting declines of up to 5%. 25




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Semiconductor Manufacturing Process The production of a semiconductor is a complex process that requires increasingly sophisticated
engineering and manufacturing expertise. The production process can be broadly divided into three
primary stages:  

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.The wafer fabrication process begins with the generation of a mask defining the
circuit patterns for the transistors and interconnect layers that will be formed on the raw silicon
wafer. The transistors and other circuit elements are formed by repeating a series of process steps
where photosensitive material is deposited onto the wafer. The material is then exposed to light
through the mask in a photolithography process and the unwanted material is removed through an
etching process, leaving only the desired circuit pattern on the wafer. Wafer Probe.Wafer probe is a process whereby each individual die on the wafer is electrically
tested in order to identify the operable semiconductors for assembly. Assembly.The assembly process packages the semiconductor to protect it, facilitate its
integration into electronic systems and enable the dissipation of heat. In the assembly process,
the wafer is diced into individual dies that are then attached to a substrate with an epoxy
adhesive. Typically leads on the substrate are then connected by extremely fine gold wires to the
input/output (I/O) terminals on the die through the use of automated equipment known as wire
bonders. Finally, each die is encapsulated in a molding compound, thus forming the package. Final Testing.Final testing is conducted to ensure that the packaged semiconductor meets
performance specifications. Final testing involves using complex processes that require the use of
sophisticated testing equipment and customized software programs to electrically test a number of
attributes of assembled semiconductors, including functionality, speed, predicted endurance, power
consumption and electrical characteristics. Our Strengths and Strategy Our goal is to strengthen our position as a leading global provider of a full range of
semiconductor packaging and test services. The key elements of our strengths and strategy include
the following: Leverage our broad portfolio of packaging and test services to provide full turnkey solutions.We
offer one of the broadest portfolios of comprehensive end-to-end packaging and test services in the
semiconductor industry. Increasingly, our customers are looking for supply chain semiconductor
manufacturing solutions from value-added design to packaging, test and delivery to their designated
locations. We intend to leverage our strong packaging and test capabilities to provide a full
turnkey solution consisting of integrated packaging, testing and direct shipment to end customers.
We believe that the scale and scope of our technical capabilities and global reach will enable us
to provide our customers with seamless cost-effective solutions that will simplify their supply
chain management. Leverage our established presence in the major hubs of wafer fabrication.We have manufacturing
facilities located in Singapore, South Korea, China, Malaysia and Taiwan and test pre-production
facilities in the United States. We intend to leverage our strategic proximity to the major hubs of
wafer fabrication to provide customers with fully-integrated, multi-site, end-to-end packaging and
test services. 26




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Capitalize on our research and development capabilities to drive accelerated growth.We have over
200 employees in our research and development department which focuses on developing advanced
technologies to meet our customers needs. We believe this will enable us to capture potential
opportunities and accelerate our growth. Continue to cultivate our strong customer relationships.We have a broad and diversified customer
base that includes most of the worlds leading semiconductor companies across the fast-growing
communications, computing and power markets. No single customer accounted for more than
25% of the combined companys net revenues for 2004. We seek to strengthen these relationships and
build new relationships by providing our customers with an integrated supply chain solution. Continue to focus on high-quality customer service.Our customers demand increasingly high levels
of service. Our close interactions with our customers enable us to better anticipate and meet their
requirements on a timely basis. We focus on developing and delivering to our customers
semiconductor designs that are developed, packaged, tested and delivered on time and as specified
to any of their global locations. Our flexible manufacturing model allows us to better address
periodic, product-specific capacity constraints that negatively affect smaller players. We have
implemented information technology platforms to enable the seamless integration of our customers
systems into ours, to enable them to obtain real-time information on their works in progress and
thereby facilitate their production planning processes. We believe that offering high-quality
customer service is critical to attracting and retaining leading semiconductor companies as our
customers. We intend to continue to foster a service-oriented and customer-focused environment. Leverage our financial position.Our financial strength provides us with robust financial
resources and flexibility to invest in customers anticipated needs and withstand the downturns of
industry cycles. We intend to leverage our financial position to continue to make prudent
investments in research and development efforts even through downturns in the semiconductor
industry and be better positioned to take advantage of potential opportunities right at the start
of an upturn cycle. Our Services We offer semiconductor packaging and test services to the semiconductor industry for applications
in communications, computing, consumer, automotive and industrial end markets. We offer full
backend turnkey services from wafer probe to final test and drop ship. The services we offer are
customized to the needs of our individual customers. Pro forma for the merger, for the year ended
December 31, 2004, 68.2% of our net revenues were from packaging
services and 31.8%, of our net
revenues were from test and other services. The following table sets forth, for the periods indicated, the percentage of net revenues by
packaging product group and testing and other services for STATS and for the combined company on a
pro forma basis. Our historical data for the year ended December 31, 2004 includes the data for
ChipPAC from August 5, 2004. STATS ChipPACSTATS Historical
    
    
    
    
    
    
    Pro Forma
    
    
    Historical
    
    
    Pro FormaYear Ended
    
    
    
    
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2001
    
    
    2002
    
    
    2003
    
    
    2003
    
    
    2004
    
    
    2004Packaging  array
    
    
    12.1
    %
    
    
    14.8
    %
    
    
    20.6
    %
    
    
    40.9
    %
    
    
    40.6
    %
    
    
    47.2
    %Packaging  leaded
    
    
    41.7
    
    
    
    34.0
    
    
    
    26.9
    
    
    
    27.1
    
    
    
    20.9
    
    
    
    21.0Test and other
services
    
    
    46.2
    
    
    
    51.2
    
    
    
    52.5
    
    
    
    32.0
    
    
    
    38.5
    
    
    
    31.8Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 27




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##### Table of Contents



Packaging Services We offer a broad range of leaded, power and advanced array packages designed to provide customers
with a full range of packaging solutions and full backend turnkey services for a wide variety of
electronics applications. Packaging serves to protect the die and facilitate electrical connection
and heat dissipation. As part of customer support on packaging services, we also offer complete
package design, electrical and thermal simulation, measurement and design of lead-frames and
substrates. Our two key types of packaging services, lead-frame and array, contributed
approximately 21.0% and 47.2%, respectively, of our pro forma net revenues for the year ended
December 31, 2004. Leaded Packaging.Leaded or lead-frame package is the most widely used package type and is
used in almost every electronic application, including automobiles, household appliances, desktop
and notebook computers and telecommunications. Leaded packages have been in existence since
semiconductors were first produced and are characterized by a semiconductor die encapsulated in a
plastic mold compound with metal leads surrounding the perimeter of the package. With leaded
packages, the die is attached to a lead-frame (a flat lattice of leads) and very fine gold wires
are bonded (welded) to the chip and then welded to the leads to provide the interconnect. The chip
is then encapsulated in plastic to form a package, with the ends of the lead-frame leads protruding
from the edges of the package to enable connection to a printed circuit board. Specific packaging
customization and improvements are continually being engineered to improve electrical and thermal
performance, shrink package sizes and enable multi-chip capability. Standard Lead-frame Packages.Our standard lead-frame packages are used in a variety of
applications, including mobile phones, notebook computers and networking systems. We focus on
high-performance, thin profile and near chip scale lead-frame packages. The following table summarizes our 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 computer (PC),
access equipment and
multimedia
 28




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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
    
    PC, 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
    
    PC, 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
 29




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##### Table of Contents



Enhanced Lead-frame Packages.Our enhanced lead-frame packages are similar in design to our
standard lead-frame packages but are generally thinner and smaller and have advanced thermal and
electrical characteristics which are necessary for many of the leading-edge semiconductors designed
for communications applications. We believe we are a leader in offering chip stack technology that provides the flexibility of
stacking up to seven dies in a single package to improve package performance and functionality
while reducing overall package size and cost. These solutions provide us with a significant
competitive advantage when servicing clients who need to reduce the form factor of their devices
while increasing product functionality, for instance in mobile handheld and phone applications. The following table summarizes our 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 CSP (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 phoneExposed 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/graphics
 30




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##### Table of Contents



NumberPackage Format
    
    of Leads
    
    Description
    
    Typical ApplicationsExposed 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.Power semiconductors are used in a variety of end-markets, including
telecommunications and networking systems, computers and computer peripherals, consumer
electronics, electronic office equipment, automotive systems and industrial products. These end
markets increasingly depend upon power regulation and control in the trend toward smaller devices
and longer operating times. Packaging manufacturers are left to contend with shrinking chip
geometries owing to continued emphasis upon greater mobility and portability. Power semiconductors
typically involve higher current and voltage levels than memory, logic and microprocessor devices.
The high current involved in switching high voltages on and off and the phase control of AC signals
result in considerable power dissipated internally that produces heat. Thus our power packages are
designed in such a way as to conduct the resultant heat away from the chip as power is dissipated,
preventing the power device from being destroyed. Power package assembly is somewhat different from assembly of non-power integrated circuit as it
employs special solder die attach and heavy aluminum wire bonding machines. Higher current levels
of power semiconductors likewise require larger diameter aluminum and gold wire than non-power
integrated circuits to carry the load. Our facility in Malaysia maintains a vast array of these
special machines needed for power semiconductor assembly and test. With a current capacity of over
12.25 million units per week, we believe we are the industry leader in power package assembly
supporting a number of the worlds major power semiconductor manufacturers, whose products are
designed and used in power supplies, battery chargers, ignition modules, voltage regulators, motor
controllers, ignition controllers and power management devices. 31




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Array Packaging.Array substrate based packaging represents one of the fastest growing areas in the
semiconductor packaging industry and is used primarily in computing platforms, networking,
hand-held consumer products, wireless communications devices, personal digital assistants, video
cameras, home electronic devices such as DVDs and home video game machines. Benefits of array packaging over leaded packaging include:  

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. BGA technology was first introduced as a solution to problems associated with the increasingly high
lead counts required for advanced semiconductors used in applications such as portable computers
and wireless telecommunications. As the number of leads surrounding the integrated circuit
increased, high lead count packages experienced significant electrical shorting problems. The BGA
technology solved this problem by effectively creating leads on the bottom surface of the package
in the form of small bumps or solder balls. In a typical BGA, the semiconductor die is placed on
top of a plastic or tape laminate substrate rather than a lead-frame. The die is connected to the
circuitry in the substrate by a series of fine gold wires that are bonded to the top of the
substrate near its edges. On the bottom of the substrate is a grid of solder balls that connect the
packaged device to a printed circuit board. These balls can be evenly distributed across the entire
bottom surface of the package, allowing greater distance between the individual balls. For the
highest lead count devices, the BGA format can be manufactured less expensively and requires less
delicate handling. Our BGA are typically used in semiconductors that require enhanced performance, including DSPs,
microprocessors and microcontrollers, ASICs, FPGAs, memory and PC chipsets. Our BGA typically have
between 16 and 900 balls. Several of these packages have been developed as CSPs. The emphasis of these packages is on low
profile, small footprint and lightweight characteristics. These are ideal for medium pin-count
applications which require dense arrays in very small package sizes such as hand-held wireless
equipment, mobile base stations and digital photography. We supply our customers with substantially the entire family of BGA packaging services offered in
the marketplace today, including:  

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. 32




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

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. While we believe that flip-chip BGA represents the next generation of BGA packaging technology, we
believe that standard BGA and chip-scale BGA packaging will experience long life cycles as have
many of our leaded packaging solutions. Our array packages (including CSPs) are described below: NumberPackage Format
    
    of 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
multimediaStacked 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
station
 33




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##### Table of Contents



NumberPackage Format
    
    of Balls
    
    Description
    
    Typical ApplicationsLow 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
 In response to ongoing government regulation and the industry trend towards environmentally
friendly products, our packaging operations introduced a green molding compound and set up a
dedicated lead-free pure tin plating machine for leadframe based products since 2001. In June 2004, we announced the offering of lead-free and green material options for our entire
package portfolio. These lead-free and green packages are qualified with enhanced moisture
sensitivity level to withstand the higher reflow temperature at board packaging that is required
for lead-free solders, complying with current Joint Electron Device Engineering Council and Japan
Electronics & Information Technology Industries Association standards for lead-free reflow profile
with a peak temperature of 260 degrees Celsius. Our green initiative is developed in accordance
with a number of international standards including the European Commissions Directive on Waste
from Electrical and Electronic Equipment and Restriction on Hazardous Substances. In response to industry trends toward fine line and space wafer fabrication technology, we have
improved our fine pitch wire bonding capability to handle up to 40 micron in-line bond pad pitch
and 50/25 micron staggered bond pitch. We have also established complete handling and packaging
processes for gallium arsenide (GaAs) semiconductors. Wafer Process Services.In 2003, we introduced Flex-On-Cap (FOC) wafer bumping services, with and
without redistribution layers (RDL) for 6 inch and 8 inch wafers as part of our efforts to be a
total turnkey packaging and test solutions provider for high-end products, including products
requiring wafer bumping, probe and flip-chip packaging and test solutions. 34




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Test Services We provide our customers with semiconductor test services for a number of device types, including
mixed-signal, digital logic, memory, power and radio frequency devices. Semiconductor testing
measures and ensures the performance, functionality and reliability of a packaged device, and
requires knowledge of the specific applications and functions of the devices being tested. In order
to enable semiconductor companies to improve their time-to-market, streamline their operations and
reduce costs, there has been an increasing trend toward outsourcing both packaging and test
services. We have capitalized on this trend by enhancing our test service capabilities. Proforma
for the merger, our test revenue increased 32.5% from $259.4 million in the year ended December 31,
2003 to $343.8 million in the year ended December 31, 2004. We offer wafer probe and final testing on many different platforms, covering the major test
platforms in the industry. Wafer probe is the step immediately prior to the packaging of
semiconductors and involves electrical testing of the processed wafer for defects. Wafer probe
services require similar expertise and testing equipment to that used in final testing. We probe
wafers at either ambient or elevated temperature in accordance with our customers test
requirement. Wafers are probed either as bumped or un-bumped wafers. For bumped wafers, we can
probe both peripheral or array bumped wafers. We believe this wafer probe capability is very
important to customers who require known-good-die for flip-chip packaging. Final testing involves using sophisticated test equipment and device-specific software programs to
electrically test a number of attributes of packaged semiconductors for functionality and
performance in accordance with a test plan or test list. The test plan or test list varies from
device to device and customer to customer. For final testing, we have either gravity feed handlers
or pick-and-place handlers. We also offer strip testing for mixed-signal and RF applications. We
believe strip testing offers some advantages over the conventional method, including allowing large
numbers of devices to be tested at the same time, improved first pass yield, a more effective and
efficient handling of smaller form factor devices and increased overall throughput. In order to test the capability of a semiconductor device, our customers generally will provide us
with their proprietary test programs and specify the test equipment to run those programs. Our
customers at times may consign their test equipment to us. Alternatively, our customers may engage
us to develop the test program and test hardware required to test their device. The devices to be
tested are placed into a socket-custom load board by an automated handling system, which is
connected to the test equipment, which then tests the devices using software programs developed and
supplied by our customers or by us. The cost of any specific test and the time required to conduct
it, ranging from a few milliseconds to several seconds, varies depending on the complexity of the
semiconductor device and the customers test program. We have invested in state-of-the-art testing equipment that allows us to test a broad variety of
semiconductors, especially the more complex testing of mixed-signal and high-performance digital
devices. Mixed-signal Testing.We test a variety of mixed-signal semiconductors, including those used in
communications applications such as network routers, switches and interface cards; broadband
products such as cable modem set-top boxes; and for wireless telecommunications products such as
cellular phones, base stations, WLAN and Bluetooth(TM) devices, personal computer and consumer
applications. Bluetooth(TM) is a technology that enables short range wireless communication between
different electronic appliances. We are a member of the Bluetooth(TM) Special Interest Group. We
also test mixed-signal semiconductors for computer and consumer components including audio devices,
CD-ROM, hard disk drive controllers, DVD players and game consoles. Digital Testing.We test a variety of digital semiconductors, including high-performance
semiconductors used in PCs, disk drives, modems and networking systems. Specific digital
semiconductors tested include DSPs, FPGAs, microcontrollers, central processing units, bus
interfaces, digital ASICs and application specific standard products. 35




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Memory Testing.We provide wafer probe services covering a limited type of memory devices
including static and non-volatile memories. Test-Related Services.We offer a variety of other value-added test-related services, including:  

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. 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 We have developed and enhanced our pre-production and post-production services to provide a total
solution for our customers. Our pre-production services for packaging include package development,
and for testing include software and hardware development. In 2001, we established STATS ChipPAC
Test Services, Inc. (formerly STATS FastRamp Test Services, Inc.), which provides an extended range
of pre-production volume testing services. We also provide post-production drop shipment services
for our customers. Package Development.Our package development group interacts with customers early in the design
process to optimize package design and manufacturability including through selection, design and
development of the appropriate package, lead-frame or substrate for that device by simulating the
semiconductors performance and end-use environment. For each project, our engineers create a
design strategy in consultation with each customer to address the customers requirements, package
attributes, design guidelines and previous experience with similar products. After a design is
finished, we provide quick-turn prototype services. By offering package design and prototype
services, we can reduce our customers development costs, accelerate time-to-volume production and
ensure that new designs can be properly packaged at a reasonable cost. We offer these services at
our facilities in Singapore, South Korea, China, Malaysia and the United States. Test Software and Hardware Development.We work closely with our customers to provide
sophisticated software engineering services, including test program development, platform
conversion, multi-site conversion, test optimization and strip testing implementation. Generally,
testing requires customized software to be developed for each particular semiconductor device.
Software is typically provided by the customer. We also provide test development services where we
will develop a total test solution for the customer. The test development process is divided into
five phases. We will first create a test plan based on the customers specifications. Once the test
plan is approved by the customer, we create the engineer designs and develop the layout for the
test fixtures, generate the check-plot for the customer and, upon the customers approval, proceed
to hardware fabrication. In conjunction with 36




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hardware fabrication, we develop the test program and convert all simulation vectors to the desired
tester format. Once the test program is developed, we debug the program, the hardware and the
device. We then correlate the software and hardware with the bench data provided by the customer.
Thereafter, we perform device characterization to enable our customer to understand the device
performance over different voltage and temperature ranges. This enables the customer to determine
the optimum conditions for their device performance and also to achieve optimum test yield. In some cases, test program and hardware provided by the customer may be converted by us for use on
one or more of our tester platforms. Once a test program has been converted, we correlate the test
software and hardware using the correlation units or devices provided by the customer. Upon the
customers approval of the results of the correlation of the test software and hardware, actual
production testing begins. On an on-going basis, a dedicated group of our product engineers will
then assist our customers in collecting and analyzing the test results and develop engineering
solutions to improve their test robustness and production efficiency. We offer these services at
our facility in Singapore. STATS ChipPAC Test Services, Inc. In October 2001, we established our wholly-owned subsidiary, STATS ChipPAC Test Services, Inc. in
Milpitas, California, which is in Silicon Valley, to deliver an extended range of high-end
pre-production test services to new and existing customers. STATS ChipPAC Test Services, Inc.
commenced operations in January 2002, providing test hardware and software development,
pre-production volume testing services, tester rentals and a unique customer-to-lab-to-factory
relay for fast production offloads and capacity coordination. At our customers request, certain
finished and piloted test programs are then transferred to our facility in Singapore for full
production. As STATS ChipPAC Test Services, Inc. offers a similarly configured and substantial range of tester
platforms, handlers, probers, interface hardware and manufacturing processes as our Singapore
facility, this transfer is relatively seamless. In December 2002, STATS ChipPAC Test Services, Inc.
acquired the San Diego test facility from Conexant Systems Inc. for cash and in connection with the
acquisition, assumed certain liabilities associated with the San Diego facility. STATS ChipPAC Test
Services, Inc. began operations immediately in the San Diego facility and offers the same range of
high-end preproduction test services that are offered in its facilities in Silicon Valley. Warehousing and Drop Shipment Services.In order to enable semiconductor companies to improve
their time-to-market and reduce supply chain and handling costs, we offer warehousing and drop
shipment services in which we ship packaged semiconductor devices directly to our customers
end-customers. We either directly bill our customers for the cost of drop shipment or incorporate
this into the price of our services. Research and Development Our research and development efforts are focused on developing new packages, design, assembly and
test services and technologies required by our existing customers and that are necessary to attract
new customers. We have invested considerable resources and we are among the leaders in new product
and technology development. STATS spent approximately $18.9 million in 2002 and $15.3 million in
2003 on research and development and ChipPAC spent approximately $10.1 million in 2002 and $11.7
million in 2003. Our expenditure for research and development for 2004 is $17.6 million. As of
January 31, 2005, we employed over 220 dedicated professionals for packaging and test development.
We consider this a core element of our total service offering and expect to continue to invest
significant resources in research and development. Packaging Services.We have established a dedicated group of engineers whose primary focus is the
development and improvement of materials and process technology as well as development of new and
advanced packages. We work closely with our existing customers to better understand their immediate
and future packaging needs. As a result, we focus our packaging research and development efforts in
part on developing packages tailored to their 37




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individual requirements. Our web-based proprietary design and performance characterization provides
the shortest time-to-market with predictable performance. These efforts take place at our package
design development centers located in Singapore, South Korea, Malaysia and the United States. We have a number of advanced packages under development to support our customers needs for
high-performance packages. Our development roadmap includes flip-chip technology and comprises
build-up substrate, wafer bumping and passive integration technology components. Flip-chip
technology can be used in both low pin count as well as high pin count packages and is particularly
suitable for devices that require more than 1,000 interconnects in a relatively small die. Build-up
substrates deliver even higher interconnect density without compromising thermal and electrical
performance. We believe flip-chip packages will find increasing application in high-end
communications equipment such as switches and routers as well as high-end PCs. Furthermore, we have
built capabilities to provide SiP solutions for the radio frequency, wireless and cellular markets. We also have next generation CSPs both under development and in qualification which incorporate
lead-frame, laminate and tape technologies, along with multiple die stacking capabilities. The
emphasis in the development of such packages is the integration of more silicon chips in the same
low-profile, small footprint and light weight package. This requires development of many enabling
technologies in order to thin and stack dies in very low profile packages. We continually seek to
develop and improve stacked die, stacked packages or three-dimensional packages such as
Package-in-Package (PiP) and Package-on-Package (PoP) to meet customer needs. These packages are
used particularly in hand-held wireless communications equipment and are extremely useful for all
hand-held devices including mobile phones, PDA, base station modems, base-band circuits and
memories. We continue to develop total SiP solutions to meet market demand for next generation
devices with higher levels of integration, increased functionality and compact sizes. In addition, we continue to increase our support functions for thermal, electrical, stress and
package to board level reliability characterization. We offer a full range of thermal simulation
and actual testing for all of our existing packages and packages under development. We have a full
service reliability laboratory that can stress test assembled semiconductors. In conjunction with
local institutes and laboratories, we can also perform board level reliability testing of surface
mount assembled packages. During the past two years, we developed and introduced a number of new packages, including:  

Land Grid Array (LGA);

System-in-Package LFBGA (LFBGA-SiP);

System-in-Package LGA (LGA-SiP);

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);

Low profile, Fine pitch BGA with Heatspreader (LFBGA-H);

Redistributed wafer bumping (RDL); 38




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##### Table of Contents





Dual Row Leadframe CSP (LFCSP-dr);

0.4mm 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 (LFCSP(TM));

Bumped Chip Carrier package family (BCC, BCC+, BCC++);

Gigabit-Green-Gold-to-Gold flip chip interconnection package family of CSPs and BGAs
(G4(TM));

Higher thermal performance PBGA with embedded heatslug (PBG-H);

Thermally enhanced ball grid array family with integrated passive components
(PBGA-H-SiP);

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; and

Package-on-Package (PoP)  LFBGA-PoP. We will continue to develop and introduce advanced packaging that meets the requirements of our
customers. 39




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Test Services.We focus on developing new technologies, software and processes to enhance
efficiency and reliability and to shorten test times. These include multi-site testing, strip
testing, test program optimization and hardware improvements designed to permit improved
utilization of existing test equipment. When necessary we also design and build specialized
equipment that is not available from outside vendors. Our test development center is an important
part of our research and development efforts and is utilized to develop and debug test software
prior to production, complete test software conversions and offer our customers continuous access
to our development capabilities. Our test development center is located in Singapore. Customers Our customers include some of the largest semiconductor companies in the world. Since the beginning
of 2003, each of STATS and ChipPAC has been seeking to diversify and broaden their respective
customer bases. STATS ten largest customers accounted for 79.8% and 78.8% of its net revenues in
2002 and 2003, respectively. ChipPACs ten largest customers accounted for 88.6% and 79.1% of its
net revenues in 2002 and 2003, respectively with year ended December 31, 2004, proforma for the
merger, our ten largest customer represented 67.0% of our revenues. In 2004, our two largest
customers, Analog Devices, Inc. and Broadcom Corporation each represented in excess of 10% of our
net revenues and in the aggregate represented 31.7% of our net revenues. As a result of the merger,
we expect that we will enjoy a well-diversified and broad customer base. We anticipate that
customer concentration will decrease as our business grows with an increase in engagements from a
large number of customers comprising our existing customer base and the addition of new customers
with whom we have already become qualified or with whom we are currently undergoing qualification. The following table sets forth, for the periods indicated, the percentage of net revenues derived
from packaging and test of semiconductors used in communications, personal computers and other
applications for STATS and for the combined company on a pro forma basis. Our historical data for
the year ended December 31, 2004 includes the data for ChipPAC from August 5, 2004. STATS ChipPACSTATS Historical
    
    
    
    
    
    
    Pro Forma
    
    
    Historical
    
    
    Pro FormaYear Ended
    
    
    
    
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2001
    
    
    2002
    
    
    2003
    
    
    2003
    
    
    2004
    
    
    2004Communications
    
    
    61.3
    %
    
    
    53.4
    %
    
    
    58.3
    %
    
    
    50.2
    %
    
    
    60.1
    %
    
    
    57.9
    %Personal computers
    
    
    34.9
    
    
    
    31.2
    
    
    
    29.9
    
    
    
    23.6
    
    
    
    22.8
    
    
    
    21.1Consumer and others
    
    
    3.8
    
    
    
    15.4
    
    
    
    11.8
    
    
    
    26.2
    
    
    
    17.1
    
    
    
    21.0Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Our customers are located around the world, but are principally headquartered in the United States
of America. We report geographic distribution of revenue based on the location of our customers
headquarters which is not indicative of shipment destination or end market for our services. The
following table details, for the periods indicated, the percentage of net revenues received from
the United States, Europe and Asia by STATS and by the combined company on a pro forma basis. Our
historical data for the year ended December 31, 2004 includes the data for ChipPAC from August 5,
2004. 40




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STATS ChipPACSTATS Historical
    
    
    
    
    
    
    Pro Forma
    
    
    Historical
    
    
    Pro FormaYear Ended
    
    
    
    
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2001
    
    
    2002
    
    
    2003
    
    
    2003
    
    
    2004
    
    
    2004United States of
America
    
    
    78.4
    %
    
    
    80.8
    %
    
    
    81.3
    %
    
    
    83.7
    %
    
    
    77.2
    %
    
    
    77.4
    %Europe
    
    
    13.0
    
    
    
    6.2
    
    
    
    4.7
    
    
    
    3.3
    
    
    
    4.6
    
    
    
    4.3Asia
    
    
    8.6
    
    
    
    13.0
    
    
    
    14.0
    
    
    
    13.0
    
    
    
    18.2
    
    
    
    18.3Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 In general, we believe the factors that our customers take into account in choosing their packaging
and test service providers include the ability of the provider to provide packaging and test
services for a wide range of semiconductor devices and the close proximity of the packaging and
test house to their wafer fabrication plant. Close proximity between the wafer foundry and the
packaging and test house enhances overall communication, simplifies supply chain logistics and
results in increased yield. Semiconductor companies require packaging and test service providers to undergo a qualification
process before selecting them as their packager or tester. The qualification process for a
packaging service company is a lengthy and rigorous process that typically takes three to six
months, and typically costs the customer approximately $250,000 to $300,000. In the case of a test
service company, the test company must, in addition to ensuring that the requisite tester platform
is used, have the requisite production engineering expertise to pass a highly specialized and
rigorous test qualification process. The test qualification process typically takes one to two
months where the test house already has the tester technology and three to six months where the
tester technology is a new test platform, and typically costs the customer approximately $20,000 to
$100,000. Once a primary packager or tester has been selected, that packager or tester gains
insight into its customers business operations and an understanding of its products as part of the
overall working relationship. The packaging and test service providers familiarity with the
customers requirements and accordingly, their ability to better meet those requirements, combined
with the pressures of a semiconductor company to meet the time-to-market demands of its customers,
help to assure continuity of relationship with their providers. We have been successful in
attracting new customers because we are one of only a few independent packaging and test companies
that offers full turnkey packaging, test and distribution services for a broad portfolio of
packages in strategic manufacturing locations. Sales and Marketing We market our services through direct sales forces strategically located at centers in close
proximity to our customers, in Singapore, South Korea, China, Malaysia, Taiwan, the United States,
the United Kingdom, the Netherlands and Japan. Our account managers, applications engineers,
customer service representatives and sales support personnel form teams that focus on specific
customers or geographic regions. Customers generally deliver rolling six month forecasts and release production die to us in daily
or weekly increments for packaging, test and distribution. These near-term forecasts guide us as to
anticipated volumes, but provide no meaningful backlog statistics. Substantially all of our
materials inventory is purchased based on customer forecasts. We carry relatively small quantities
of raw material inventory and we have relatively low levels of finished goods inventory. Our marketing efforts focus on creating a brand awareness and familiarity with our advanced device
packaging technologies and an understanding of our end-user market applications in wireless handset
and PDA graphics, PC chipsets, wireless LAN, memory, storage and networking. We market our
leadership in advanced packaging, test technology, and distribution and our ability to supply a
broad line of packaging and test services to the semiconductor industry. We target engineers and
executive level decision makers through a direct sales force, the delivery of white papers at
industry conferences, mailings of technical brochures and newsletters, advertisements in trade
journals and our website. 41




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Pricing Policy.We price our test services principally on the length of tester CPU time used,
typically referred to as test time on per-second basis. The price of test time is a function of
tester platform and hardware configuration, which are usually determined by our customers based on
the function and complexity of a particular semiconductor device. In general, the test time for a
complex semiconductor device will be longer than a less complex semiconductor device. Wafer probe
pricing is determined by similar factors. Any reduction in test time resulting from optimization of
test program or optimum hardware configuration will mean savings for our customers. Packaging services are priced competitively against the market and vary depending on such factors
as package complexity and material cost. Design costs are not material but when incurred may be
charged to a customer separately or built into the unit price. Customer Service We place strong emphasis on quality customer service. Our broad service offerings, dedicated
customer account teams and commitment to finding solutions to our customers needs and problems
have enabled us to develop important relationships with many of our customers. We have implemented
an information technology architecture that seeks to achieve our objective of creating a virtual
manufacturing environment for our customers and making it easier for them to work with us. Our
system includes Business to Business links to some of our customers systems and an internet
portal, the mySTATSChipPAC portal, which may be directly accessed by our customers. These features
enable our customers to obtain real-time information on our works-in-progress, inventory and
shipment status, as well as other information relating to our operations. Our system also includes
a design collaboration system that enables us to engage the customer at the design stage for ease
of working collaboratively on design changes. Suppliers Raw Materials Our packaging operations depend upon obtaining adequate supplies of raw materials on a timely
basis. The principal materials used in our packaging process are lead-frames or laminate
substrates, gold wire, molding compound, epoxy, tubes and trays. We purchase materials based on the
regular monthly forecasts of our customers. Our customers are generally responsible for most or all
of the costs of unique materials that we purchase but do not use, particularly those lead-frames
and substrates that are ordered on the basis of customer-supplied forecasts. We manage inventory
with automated materials management processes using enterprise resource planning systems. We work
closely with our primary materials suppliers to ensure the timely availability of materials
supplies, and we are not dependent on any one supplier for a substantial portion of our materials
requirements. The materials we procure are normally available and we are able to meet our
production requirements from multiple sources through new materials qualifications, periodic
negotiation and placement of written purchase orders. We typically combine our global requirements
into centrally negotiated agreements to gain economies of scale in procurement and more significant
volume discounts. Should materials become scarce, we would look to enter into long-term supply
agreements with key suppliers. The major suppliers of our substrate material are located in South
Korea, Japan and Taiwan. Equipment Our operations and expansion plans depend on us being able to obtain an adequate supply of
packaging and test equipment on a timely basis. We work closely with our major equipment suppliers
to ensure that equipment meets our performance specifications and is delivered on time. With the exception of a few key suppliers that provide reserved equipment delivery slots and price
discount structures, we have no binding supply agreements with any of our suppliers. A reserved
equipment delivery slot is one which allows us to obtain an accelerated delivery of the equipment
over and above the delivery schedule 42




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previously committed to by the supplier. Typically, price discounts are offered for volume
purchases. We leverage our large volume of orders for testers, probers, handlers and other
equipment with our equipment suppliers to secure favorable terms for our equipment purchases,
including pricing and accelerated delivery times. We acquire our packaging and test equipment on a
purchase order basis, which exposes us to substantial risks. A portion of our equipment is held
under capital lease. The unavailability of new test or packaging equipment, the failure of such
equipment or other equipment acquired by us to operate in accordance with our specifications or
requirements or delays in the delivery of such equipment, could delay implementation of our
expansion plans and could materially and adversely affect our results of operations or financial
condition. See Risk Factors  Risks Related to Our Business  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. Packaging Equipment.The primary equipment used in packaging includes die saw, die attach, wire
bonders and mold systems. Certain of our wire bonders allow for interchangeability between
lead-frame and array packages. We purchase die attach and wire bonders from major international
manufacturers, including Kulicke & Soffa Industries, Inc., Shinkawa Ltd, ASM Technology and Unaxis
(formerly known as ESEC S.A.). We purchase mold systems from major international manufacturers,
including Apic Yamada Corporation, Asahi Engineering Co Ltd and Dai-Ichi Seiko Co Ltd. Testing Equipment.Testing equipment is one of the most critical components of the wafer probing
and device testing process. We generally seek to maintain testers from different vendors with
similar functionality and the ability to test a variety of different semiconductors. In general,
certain semiconductors can only be tested on a limited number of specially configured testers. Our
major suppliers of testing equipment are Teradyne Inc., Agilent Technologies and LTX Corporation. As of January 31, 2005, we operated 881 testers, comprising 619 mixed-signal testers, 150 digital
testers, 92 memory testers and 20 discrete power testers. In certain cases where a customer has
specified testing equipment that is not widely applicable to other products that we test, we have
required that the customer provide the equipment on a consignment basis. Of the 881 testers, 134
are on consignment from customers. In addition to testing equipment, we maintain a variety of other
types of equipment, such as automated handlers and probers (with special handlers for wafer
probing), scanners, reformers and PC workstations for use in software development. Quality Control We maintain a team of quality control staff comprising engineers, technicians, inspection
specialists and other employees whose responsibilities are to monitor our packaging and test
processes to ensure high quality. Our quality assurance systems impose strict process controls,
statistical in-line monitors, supplier control, data review and management, quality controls and
corrective action systems. Our in-house laboratory is equipped with advanced analytical tools and
provides the necessary equipment and resources for our research and development and engineering
staff to continuously enhance product quality and process improvement. Our packaging and test operations are undertaken in clean rooms where air purity, temperature and
humidity are controlled. To ensure the stability and integrity of our operations, we maintain clean
rooms at our facilities that meet U.S. Federal 209E class 1,000, 10,000 and 100,000 standards. Our packaging and test operations in Singapore are ISO 9000, Semiconductor Assembly Council (SAC)
level 1, ISO 14001, TS16949 and OHSAS 18001 certified. Our facilities located in Icheon, South
Korea (founded in 1985), Shanghai, China (founded in 1994) and Kuala Lumpur, Malaysia are ISO
14001, ISO 9001 and TS16949 certified. In addition, our Kuala Lumpur, Malaysia facility is OHSAS
18001 certified. ISO 9000 is an international standard on the requirements for production of
quality products and services. It also sets forth quality management systems for product design,
product development, installation and servicing. TS16949 is a quality management system that
addresses the specific production needs of automotive customers. SAC certification is one of the
most prestigious 43




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certifications in the semiconductor manufacturing industry. ISO 14001 is an international standard
on environmental management systems to ensure environmental protection and prevention of pollution
in balance with socio-economic needs while OHSAS 18001 is the standard for implementation of an
occupational health and safety management system (OHSMS). Competition The independent SATS industry is very competitive and highly fragmented. In order to compete, we
must offer state-of-the-art testing services and bring the most technologically advanced packages
to market as quickly as our competitors and at comparable prices. Packaging and test services are
provided by both large multi-national companies and small niche market competitors. We face
substantial competition from a number of competitors, whose facilities are primarily located in
Asia. Our primary competitors and their primary locations are as follows:  

Advanced Semiconductor Engineering, Inc.  South Korea, Taiwan, Malaysia, Hong Kong and
the United States;

Amkor Technology, Inc.  South Korea, Japan, Taiwan, 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. Each of these companies has significant packaging capacity, financial resources, research and
development operations, marketing and other capabilities, as well as some degree of operating
experience. These companies also have established relationships with many large semiconductor
companies, which are current or potential customers of ours. We also compete with the internal capabilities and capacity of many of our current and potential
IDM customers. Many IDMs have greater financial and other resources than we do and may rely on
internal sources for packaging and test services for reasons including:  

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. The principal elements of competition in the independent semiconductor packaging industry include
variety of packages offered, price, location, available capacity, cycle time, engineering
capability, technical competence, customer service and flexibility. In the area of test services,
we compete on the basis of quality, cycle time, pricing, location, available capacity, software
development, engineering capability, technical competence, customer service and flexibility. We
believe that we compete favorably in these areas. In addition, we also compete in the independent testing market with smaller niche companies, which
offer limited services and compete principally on the basis of engineering capability, location and
available capacity. 44




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Intellectual Property Our ability to develop and provide advanced packaging technologies and designs for our customers
depends in part on our proprietary know-how, trade secrets and other patented and non-patented
technologies, which we either own or license from third parties. We have licenses to use numerous
third party patents, patent applications and other technology rights, as well as trademark and
other intellectual property rights, in the operation of our business. We believe that the material
licenses should be renewable under normal or reasonable commercial terms once they expire. Our ability to compete successfully and achieve future growth in net revenues will depend, in part,
on our ability to develop and to protect our intellectual property and the intellectual property of
our customers. We seek to protect proprietary information and know-how through patents, the use of
confidentiality and non-disclosure agreements and limited access to and distribution of proprietary
information. As of January 31, 2005, we held a total of approximately 300 patents comprising
issued patents and pending patent applications. We have approximately 71 patents granted and
allowed by the US Patent and Trademark office and approximately 55 patents registered or allowed in
Singapore, Korea and other countries. When we are aware of intellectual property of others that may pertain to or affect our business, we
attempt to either avoid processes protected by existing patents, or cross-license or otherwise
obtain certain process or package technologies. In addition, we execute confidentiality and
non-disclosure agreements with our customers and consultants and limit access to and distribution
of our proprietary information. Our ability to compete successfully and achieve future growth will rely in part on the
technological skills and innovation of our personnel and our ability to develop, maintain and
protect proprietary technologies. The departure of any of our key management or technical personnel
or the breach of their confidentiality and non-disclosure obligations or our failure to achieve our
intellectual property objectives or avoid infringement could have a material adverse effect on our
business, financial condition and results of operations. Our primary registered trademarks and trade names are STATS and ChipPAC and have commenced
registration of our trade name STATSChipPAC after the merger of STATS and ChipPAC. We also own
or are licensed to use other trademarks. Insurance We maintain insurance policies covering losses, including losses due to business interruption and
losses due to fire, which we consider to be adequate. Our insurance policies cover our buildings,
machinery and equipment. Significant damage to our production facilities, whether as a result of
fire or other causes, would have a material adverse effect on our business, financial condition and
results of operations. We are not insured against the loss of any of our key personnel. Environmental Matters and Compliance Our operations are subject to regulatory requirements and potential liabilities arising under laws
and regulations governing, among other things, air emissions, waste water discharges, waste
storage, treatment and disposal of wastes, and remediation of releases of hazardous materials. We
have implemented an environmental monitoring system. We send samples of our air emissions, treated
water and sludge to third party accredited laboratories for testing to ensure our compliance with
the environmental laws and regulations that apply to us. We believe that we are in substantial
compliance with all applicable environmental laws and regulations. Expenditures on environmental
compliance currently represent an insignificant portion of our operating expenses. We are certified
ISO 14001 by Spring Singapore (Standards, Productivity and Innovation Board) (formerly known as the
Productivity and Standards Board (Singapore)) and the Japan Audit Compliance Organization. 45




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C.

Organizational Structure The diagram below summarizes our corporate structure. We may from time to time make acquisitions
of, or investments in, other companies or businesses. (CHART)    (1)
    
    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.  D.

Property, Plants and Equipment Our packaging and test network is comprised of eleven facilities throughout Asia and the United
States. The following chart provides information regarding our facilities: Area
    
    
    
    Principal Packaging orProperty/Location(1)
    
    (Sq. Feet)
    
    Functions/Services
    
    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 services
 46




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Area
    
    
    
    Principal Packaging orProperty/Location(1)
    
    (Sq. Feet)
    
    Functions/Services
    
    Services ProvidedIcheon, South Korea
    
    
    504,086
    
    
    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
    
    Packaging of discrete power,
integrated circuits, leaded
packages, test and distribution
servicesQing Pu, Shanghai, China(4)
    
    
    421,748
    
    
    Turnkey packaging and
test
services, research and
development, warehousing
services, and drop
shipment services
    
    Packaging of memory card,
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
    
    
    Package design, 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
services
 47




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Area
    
    
    
    Principal Packaging orProperty/Location(1)
    
    (Sq. Feet)
    
    Functions/Services
    
    Services ProvidedSan Diego, California(6),
United
States
    
    
    20,000
    
    
    Test facility
    
    Test engineering servicesTempe, Arizona, United
States
    
    
    9,300
    
    
    Package design, research
and development and sales
office
    
    Sales, marketing,
administration, design and
characterization services
    (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.(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 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion of our business, financial condition and results of operations should be
read in conjunction with our consolidated financial statements and the related notes included
elsewhere in this Annual Report. This discussion contains forward-looking statements that reflect
our current views with respect to future events and financial performance. Our actual results may
differ materially from those anticipated in these forward-looking statements as a result of certain
factors, such as those set forth under Item 3. Key
Information  D. Risk Factors and elsewhere
in this Annual Report. Our consolidated financial statements are reported in U.S. dollars and have
been prepared in accordance with U.S. GAAP. Certain items in the comparative figures have been
reclassified to conform to the current years presentation. Overview STATS ChipPAC is a leading service provider of semiconductor packaging design, assembly, test and
distribution solutions. We have the scale to provide comprehensive range of semiconductor packaging
and test solutions to a diversified global customer base servicing the computing, communications,
consumer, automotive and industrial markets. In August 2004, we completed the merger with ChipPAC, Inc. which resulted in ChipPAC, Inc. becoming
a wholly-owned subsidiary of STATS. The merger was accounted for using the purchase method. Under
the purchase method of accounting, the cost of approximately $1.1 billion to acquire ChipPAC,
including transaction costs, was allocated to ChipPACs net assets based on their respective
estimated fair values. The excess of the purchase price over the estimated fair values of the net
assets acquired was recorded as goodwill. The financial results for the combined company reflect
the financial results of STATS for the full period and the financial results of ChipPAC 48




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from August 5, 2004. As a result, changes in our operating results for 2004 as compared with 2003
and 2002 are due generally to the acquisition of ChipPAC and the inclusion of ChipPACs operating
results in 2004. Further, because ChipPACs operating results have not been included for the full
year 2004, and in any case for the reasons mentioned in Item 3.D. Risk Factors  our operating
results have fluctuated, and may continue to fluctuate, from quarter to quarter, which may make it
difficult to predict our future performance and elsewhere in this annual report, the
period-to-period comparisons of our operating results are not meaningful and you should not use
such comparisons to predict our future performance. Factors Affecting Our Results of Operations Cyclicality of the Semiconductor Industry.Our results of operations are influenced by the state
of the global semiconductor industry which is highly cyclical. Beginning in the fourth quarter of
the calendar year 2000, the industry experienced a downturn which continued through 2001 and 2002.
This downturn had a significant adverse impact on our sales and financial performance, as customers
reduced purchase orders to reflect inventory corrections and lower demand experienced in their
end-user markets. The semiconductor industry started a modest recovery in late 2002 and continued
its recovery momentum throughout 2003 and the first half of 2004. In
late 2004,
however, we experienced a softening of our business as our customers corrected their excess
inventory positions. Industry outlook for 2005 published by recognized industry research analysts
and associations are highly mixed, with some projecting growth rates of up to 5% and others
projecting declines of up to 5%. Our net revenues decreased 56.0% in 2001 due to the 2001
downturn. Our net revenues consequently increased 54.8% to $225.7 million in 2002. In 2003, our net
revenues grew 68.6% over 2002 to $380.7 million and in 2004, our revenues grew further by 102.0% to
$769.1 million (although this increase was to a large extent, also due to our acquisition of
ChipPAC). We continue to expect that the cyclicality of the semiconductor industry will impact our
results of operations. Declining Prices.The semiconductor industry is characterized by price erosion which can have a
material adverse effect on our revenues and gross margins, particularly when coupled with declining
capacity utilization. Prices of our products at a given level of technology decline over the
product life cycle, commanding a premium in the earlier stages and declining towards the end of the
cycle. To maintain our profitability, we offset decreases in average selling prices by improving
our capacity utilization rates and production efficiency, or by shifting to higher margin test and
packaging services. In addition, we continue to develop and offer test and packaging services which
command higher margins. We expect average selling prices to fluctuate depending on our product mix
in any given period. Cost of Revenues.Our results of operations are generally affected by the capital-intensive nature
of our business. Our cost of revenues include depreciation expense, attributed overhead such as
facility rental, operating costs and property taxes and insurance, cost of labor and materials and
cost of leasing equipment. Our fixed cost comprised largely the expenses related to our test and
packaging equipment. Depreciation of our equipment and machinery is generally provided on a
straight -line basis over their estimated useful lives of eight years. We routinely review the
remaining estimated useful lives of our equipment and machinery to determine if such lives should
be adjusted due to changes in technology, production techniques and our customer base. However,
due to the nature of our testing operations, which may include sudden changes in demand in the end
markets, and due to the fact that certain equipment are dedicated to specific customers, we may not
be able to accurately anticipate declines in the utility of our machinery and equipment.
Consequently, impairment charges on our equipment and machinery may be necessary in the future. Our
variable costs comprised cost of materials, payroll and operating supplies. The cost of our
packaging services will typically include a higher proportion of variable costs. Our variable
costs may be subject to various global economic factors such as gold prices, oil prices and
fluctuations in foreign exchange rates. Capacity Utilization Rates.Increases or decreases in capacity utilization rates can have a
significant effect on gross profit margins since the unit cost of test and packaging services
generally decreases as fixed charges, such as depreciation expense and equipment leasing costs, are
allocated over a larger number of units. We expanded our test and packaging capabilities in 2000
and significantly increased the number of testers and wire 49




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bonders. The expansion of our test and packaging capabilities by the end of 2000 allowed a
significant increase in our net revenues. However, the capacity utilization of our facilities
decreased significantly in 2001 as a result of the downturn in the semiconductor industry. The
semiconductor industry is still recovering from the worst downturn in its history and our
utilization has improved year over year from 2001 to 2004. Our ability to manage our gross profit
margins will continue to depend in part on our ability to effectively manage utilization rates. Goodwill and Intangible Assets.As a result of accounting for the merger using the purchase
accounting method, we recorded goodwill and other intangible assets upon the merger with ChipPAC
amounting to $974.4 million and $147.2 million, respectively. Goodwill is recorded when the cost of
an acquisition exceeds the fair market value of the net tangible and identifiable intangible assets
acquired. Goodwill and indefinite-lived intangible assets are tested for impairment at least
annually. These tests are performed more frequently whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Impairment losses are recorded when the
carrying amount of goodwill and intangible assets exceeds their respective implied fair values. We
performed an impairment review at the end of 2004 and recorded an impairment charge of $453.0
million to our results of operations for the year ended December 31, 2004 on our goodwill
associated with the acquisition of ChipPAC, as determined by an independent appraiser using a
combination of market multiples and fair values. We believe that the decline in the fair values of the ChipPAC reporting
units were due primarily to:-  (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, affected our short-term
earnings expectation; and(b)

a revision of the industry outlook beyond 2005 as compared to the time the merger was
announced. We may be required in the future to record a significant charge to earnings in our financial
statements during the period in which any impairment of our goodwill or other intangible assets is
determined. Should an impairment be determined to have occurred, such impairment losses are
recorded as a part of income from continuing operations and this will likely have a significant
adverse effect on our results of operations. Critical Accounting Policies We believe the following accounting policies are critical to its business operations and the
understanding of its results of operations. Our preparation of our financial statements requires us
to make estimates and assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of its financial statements and the
reported amounts of revenues and expenses during the reporting period. If actual results differ
significantly from the estimates and assumptions, there could be a material adverse effect on our
financial statements. Revenue Recognition, Allowance For Doubtful Debts, Trade Discounts and Allowances and Sales
Returns.We derive revenue primarily from wafer probe, packaging and testing of semiconductor
integrated circuits. Net revenues represent the invoiced value of services rendered, net of
returns, trade discounts and allowances, and excluding goods and services tax. Revenue is recognized when there is evidence of an arrangement, fees are fixed or determinable,
collectibility is reasonably assured, the service has been rendered, the revenue to be recognized
is billable under the terms of the arrangement and not contingent upon completion of undelivered
services, and, where applicable, delivery has occurred and risk of loss has passed to the customer.
Such policies are consistent with the provisions in Securities Exchange Commissions Staff Account
Bulletin No. 104 Revenue Recognition in Financial Statements. Our sales arrangement include
probe, packaging or test services sold on a standalone basis, as
well as multiple-element arrangements where probe, packaging, test,
and in some cases, pre-production and post-production services are
provided together. The allocation of revenue to each unit of
accounting based on
fair value, determined by reference to prices of services sold on a
standalone basis, is critical judgement and estimate. Changes in the
determination of the allocation could impact the timing of such
revenue. We generally do not take ownership of customer supplied semiconductors as these materials are sent
to us on a consignment basis. Accordingly, the value of the customer supplied materials are
neither reflected in revenue nor in cost of revenue. 50




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We make estimates of potential sales returns and discounts which we allow for volume purchases and
early payments as a deduction from gross revenue based on our historical experience and
expectations of our customers ultimate purchase levels and payment timing. Actual revenues may
differ from our estimates if future customer purchases or payment timing differ from our estimates,
which may happen as a result of changes in general economic conditions, market demand for our
customers products, or desire by our customers interest in achieving payment timing discounts.
Our actual returns and discounts have not historically been significantly different from our
estimates. Similarly, we make estimates of the collectibility of our accounts receivable. We review the
accounts receivable on a periodic basis and make specific allowance when there is doubt as to the
collectibility of individual accounts. In evaluating the collectibility of individual receivable
balances, we consider the age of the balance, the customers historical payment history, its
current creditworthiness and current economic trends. We believe that we adequately manage our
credit risk through our credit evaluation process, credit policies and credit control and
collection procedures. Additional allowances may be required in the future if the financial
condition of our customers or general economic conditions deteriorate. Our actual uncollectible
accounts have not historically been significantly different from our estimates. Valuation of Inventory.The valuation of inventory requires us to estimate obsolete or excess
inventory as well as inventory that is not of saleable quality. The determination of obsolete or
excess inventory requires us to estimate the future demand from our customers within specific time
horizons, generally six months or less. The estimates of future demand that we use in the valuation
of inventories are the forecasts provided by our customers. If our inventory for specific customer
forecast is greater than actual demand, we may be required to record additional inventory reserves,
which would have a negative impact on our gross margin. Our inventories are stated at the lower of cost, determined on the weighted average basis, and
market value, as estimated by us. Cost is generally computed on a standard cost basis, based on
normal capacity utilization, with unrecovered costs arising from underutilization of capacity
expensed when incurred. Depreciation and Amortization.Our operations are capital intensive and we have significant
investment in testing and packaging equipment. We depreciate our property, plant and equipment
based on our estimate of the period that we expect to derive economic benefits from their use. Our
estimates of economic useful lives are set based on historical experience, future expectations and
the likelihood of technological obsolescence arising from changes in production techniques or in
market demand for the use of our equipment and machinery. However, business conditions, underlying
technology and customers requirements may change in the future which could cause a change in the
useful lives. Any change in useful lives could have a significant effect on our future operating
results. In the third quarter of 2003, we completed a review of the estimated useful lives of our packaging
equipment. As a result, effective from July 1, 2003, the lives used to depreciate certain packaging
equipment were changed prospectively from five years to seven years. The change reflects longer
actual service periods being achieved and expected to be achieved from similar new equipment. The
impact of this change was a reduction to depreciation expense of $6.8 million for the year ended
December 31, 2003. In the third quarter of 2004, following the consummation of the merger, we adopted ChipPACs policy
to depreciate equipment and machinery on a straight line basis over eight years. The impact of this
change is depreciation savings of $23.7 million for year ended December 31, 2004. Our decision to
change the estimated useful lives of the packaging and test equipment was based on the following:  

historical experience for equipment in the China and Malaysia factories

expected economic life of assets

equipments potential re-use among product lines 51




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

prevailing industry practice

consultation with equipment manufacturers We believe that our principal competitors depreciate their packaging assets over periods of six to
eight years. Valuation of Property, Plant and Equipment.We review property, plant and equipment for impairment
whenever events or changes in market conditions indicate that the carrying amounts may not be
recoverable. Management judgment is critical in assessing whether events have occurred that may
impact the carrying value of property, plant and equipment. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of
the asset to the future undiscounted net cash flows expected to be generated from the asset. If the
carrying amount of the asset exceeds the future undiscounted net cash flows, such assets are
considered to be impaired and an impairment charge is recognized for the amount that the carrying
value of the asset exceeds its fair value. In determining the fair value of machinery and
equipment, we consider offers to purchase such equipment and expected future discounted cash flows.
Due to the nature of our business, which may include sudden changes in demand in the end markets
and due to the fact that certain equipment is dedicated to specific customers, we may not be able
to anticipate declines in the utility of our machinery and equipment. Generally, we consider
consecutive quarterly utilization rates declines or projected utilization deterioration as
principal factors for our impairment review. Consequently, additional impairment charges may be
necessary in the future and this could have a significant negative impact on its future operating
results. We recorded asset impairment charges of $23.7 million and $14.7 million in 2001 and 2002,
respectively. Similar assessments were performed in respect of operating lease prepayments
resulting in the write-offs of prepaid leases of $3.1 million and $0.8 million in 2001 and 2002,
respectively. We did not record any impairment changes in 2003 and 2004. Deferred Tax Asset.We record a deferred tax asset when we believes that it is more likely than
not that the deferred tax asset will be realized. The deferred tax effects of the tax losses,
unutilized capital allowances carried forward and temporary differences arising primarily from
property, plant and equipment are recognized because they are expected to be offset against future
taxable income. In assessing the realizability of deferred tax assets, we consider whether it is more likely than
not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible. We consider the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies
in making this assessment. Based upon the level of historical taxable income and projections for
future taxable income over the periods in which the deferred tax assets are deductible, the
assessment will be made if it is more likely than not that the deferred tax assets will realized.
The amount of the deferred tax asset considered realizable could be reduced in the near term if
estimates of future taxable income during the carry forward period differ materially from current
estimates. In the event that we are not able to realize the deferred tax assets, an adjustment to
the deferred tax asset would be charged to income in the period such determination was made which
would result in a reduction of our net income. For a discussion of significant items in deferred tax asset, see Note 14. Income Taxes in the
notes to our audited financial statements. Valuation of Goodwill.We review goodwill for impairment annually and whenever events or changes
in circumstances indicate the carrying value of an asset may not be recoverable. We determine the
fair value based on a weighting of income and market approaches. Under the income approach, we
calculate the fair value of a reporting unit based on the present value of estimated future cash
flows. Under the market approach, we estimate the fair value 52




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based on market multiples of revenue or earnings for comparable companies. If the fair value of the
reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not
impaired and we are not required to perform further testing. If the carrying value of the net
assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we must
perform the second step of the impairment test in order to determine the implied fair value of the
reporting units goodwill. If the carrying value of a reporting units goodwill exceeds its implied
fair value, then we record an impairment loss equal to the difference. Determining the fair value of a reporting unit is judgmental in nature and involves the use of
significant estimates and assumptions. These estimates and assumptions include revenue growth rates
and operating margins used to calculate projected future cash flows, risk-adjusted discount rates,
future economic and market conditions, and determination of appropriate market comparables. We base
our fair value estimates on assumptions we believe to be reasonable but that are unpredictable and
inherently uncertain. Actual future results may differ from those estimates. We performed an impairment review of the goodwill associated with the acquisition of ChipPAC at the
end of 2004 with the determination of fair value supplemented by independent appraisal and recorded
an impairment charge of $453.0 million to our results of operations for the year ended December 31,
2004. Results of Operations The following table sets forth certain operating data as a percentage of net revenues for the
periods indicated: Year ended December 31,2002
    
    
    2003
    
    
    2004Net revenuesPackaging  array
    
    
    14.8
    
    
    
    20.6
    
    
    
    40.6Packaging  leaded
    
    
    34.0
    
    
    
    26.9
    
    
    
    20.9Test and other services
    
    
    51.2
    
    
    
    52.5
    
    
    
    38.5Total net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross profit (loss)
    
    
    (9.8
    )
    
    
    13.8
    
    
    
    16.3Selling, general and administrative
    
    
    16.3
    
    
    
    9.6
    
    
    
    11.0Research and development
    
    
    8.4
    
    
    
    4.0
    
    
    
    2.3Goodwill and
asset impairments
    
    
    6.5
    
    
    
    0.0
    
    
    
    58.9Prepaid leases written off
    
    
    0.3
    
    
    
    0.0
    
    
    
    0.0Others, net
    
    
    0.2
    
    
    
    0.1
    
    
    
    (0.1
    )Operating income (loss)
    
    
    (41.5
    )%
    
    
    0.1
    %
    
    
    (55.9
    )%
 Year Ended December 31, 2004 Compared to Year ended December 31, 2003 Net Revenues.We derive revenues primarily from test and packaging of array and leaded packages.
Net revenues were $769.1 million for the year ended December 31, 2004, an increase of 102.0%
compared to $380.7 million for the year ended December 31, 2003. The increase was mainly from
ChipPACs operations which were consolidated on August 5, 2004 and increase in unit shipments.
Effective our merger, revenue attributable to ChipPACs operations has had a relatively larger
impact on our packaging revenues than on our test revenues. Unit volumes of our total packaging increased 244.9% in 2004 as compared to 2003. Test revenue for
the year ended December 31, 2004 increased 47.9% compared to the year ended December 31, 2003. Our
packaging revenue in 2004 increased 161.6% compared to 2003. Average selling prices for our
services have generally declined over product life cycles. Average selling prices per pin for
packaging services for the year ended December 31, 2004 increased 5.3% compared to the year ended
December 31, 2003, primarily due to changes in product mix. 53




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For the year ended December 31, 2004, revenues from communications market increased by 108.2% over
the year ended December 31, 2003, and contributed 60.1% of our revenues in the year ended December
31, 2004 as compared to 58.3% of our revenues in the year ended December 31, 2003. The revenue from
communications remained relatively strong with continued demand for more complex, higher
functionality mobile phone and infrastructure products. Revenue from personal computers market
contributed 22.7% of our revenue in the year ended December 31, 2004 and represented an increase of
53.8% over the year ended December 31, in 2003. We expect to continue to be dependent on the
communications and personal computer markets for substantially all of our revenues. Gross profit.Gross profit during the year ended December 31, 2004 was $125.6 million, an increase
of $72.9 million as compared to $52.7 million for the year ended December 31, 2003. Gross margin as
a percent of revenue was 16.3% as compared to 13.8% in 2003. For the year ended December 31, 2004,
gross profit improved primarily as a result of higher equipment utilization, depreciation savings
from the change in equipment useful lives and continued cost control measures. Overall equipment
utilization was approximately 69% for the year ended December 31, 2004 as compared to 66% for the
year ended December 31, 2003. We continued to see pressure to reduce average selling prices in
2004. Our cost of revenues consists principally of fixed costs such as depreciation and leasing
expenses and variable costs such as direct and indirect labor, materials and overhead expenses.
We also experienced continued higher cost as a result of external global economic factors such as
higher gold prices, higher oil prices, and the adverse effect of the strengthening of the Singapore
dollar, South Korean won and Japanese yen against the U.S. dollar when compared to 2003. Selling, general and administrative expenses. Selling, general and administrative expenses were
$85.0 million for the year ended December 31, 2004, as compared to $36.5 million in 2003, an
increase of 132.9% from the year ended December 31, 2003. As a percentage of revenues, selling,
general and administrative expenses were 11.0% for the year ended December 31, 2004, compared to
9.6% for the year ended December 31, 2003. The increase in selling, general and administrative
expenses was due primarily to the inclusion of merger and integration expenses and ChipPAC expenses
which amounted to $41.2 million, inclusive of the amortization of the intangible assets which
amounted to $21.1 million for the year ended December 31, 2004 and stock-based compensation
expenses of $0.7 million mainly resulting from the expensing of the unearned compensation on
unvested options recorded in the ChipPAC acquisition. Continued measures to control costs and
manage discretionary expenses in 2004, were partially offset by the additional headcount employed
in 2004. Research and development.Research and development expenses for the year ended December 31, 2004
were $17.6 million versus $15.3 million for the year ended December 31, 2003, an increase of $2.3
million. Research and development expenses had increased primarily due to the inclusion of ChipPAC
expenses which amounted to $6.1 million, inclusive of the amortization of the acquired intangible
assets which amounted to $1.3 million, for the year ended December 31, 2004. However, expenses were
partially offset by a reduction in expenses due to higher government grant income, depreciation
savings from the change in equipment useful lives and continued cost control. Asset impairment.As required by US GAAP, we performed our annual valuation of goodwill. Based
on the valuation, we took a special, non-cash charge of $453.0 million in our operating results.
This charge does not affect operating results of prior periods and will have no future cash impact.
The goodwill arose from the purchase accounting for the acquisition of ChipPAC. The majority of
the purchase price was derived from share values near the announcement date as required by US GAAP
and resulted in $974 million of goodwill. In the future, we will perform a test for goodwill
impairment at least annually as required by US GAAP. Net interest income(expense).Net interest expense was $24.4 million compared to $9.2 million in
2003. Net interest expense consisted of interest income of $4.4 million and interest expense of
$28.8 million in 2004 and interest income of $4.8 million and interest expense of $14.0 million in
2003. The decrease in interest income for the year ended December 31, 2004 was primarily due to
lower yields on the marketable debt held by us. The increase in interest expense was primarily due
to interest on debts assumed as a result of our merger with ChipPAC and our 54




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accrued interest on the $215.0 million 6.75% senior subordinated notes . Total outstanding
interest-bearing debt was $834.8 million and $371.7 million as of December 31, 2004 and 2003,
respectively. Foreign currency exchange gain (loss).Net foreign currency exchange loss was $1.1 million for the
year ended December 31, 2004, as compared to net foreign currency exchange gain of $1.6 million for
the year ended December 31, 2003. These non-cash losses and gains were primarily due to the
fluctuations between the exchange rate of the United States dollar and the Singapore dollar, the
South Korean won and the Japanese yen. Income taxes.We have recorded a valuation allowance to reduce deferred tax assets to the amount
we believe is more likely than not to be realized. In the event that deferred tax assets would be
realizable in the future in excess of the net recorded amount, an adjustment to the deferred tax
asset would increase income in the period such determination was made. We have a mix of tax rates
across the various jurisdictions in which we do business. Our primary tax jurisdictions are
Singapore, South Korea, China, Malaysia, Taiwan and the United States of America. Our consolidated
income taxes were $7.9 million for the year ended December 31, 2004 as compared to $0.7 million for
the year ended December 31, 2003. Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Net revenues.We derive revenues primarily from test and packaging of array and leaded
packages. Net revenues increased 68.6% from $225.7 million in 2002 to $380.7 million in 2003. Net
revenues from test services increased 73.2% from $115.4 million in 2002 to $199.9 million in 2003
mainly due to a 60.0%, or $78.2 million, increase in unit shipments from 2002, and a 4.8%, or $6.2
million, increase in average selling prices. Net revenues from packaging services increased 63.9%
from $110.3 million in 2002 to $180.8 million in 2003 mainly due to a 67.1%, or $99.0 million,
increase in unit shipments from 2002 partially offset by a 2.9%, or $28.5 million, decline due
principally to a change in product mix. Contribution from Winstek also increased from $17.6
million in 2002 to $31.0 million in 2003. STATS ChipPAC Test Services, Inc. (formerly STATS
FastRamp), which commenced operations in January 2002 contributed $11.7 million to net revenues and
primarily to our test revenue. Revenues from the communications segment increased more than revenues from other segments,
contributing 58.3% of our net revenues, followed by the personal computers segment at 29.9% of our
net revenues. The increase in the communications segment was largely due to shipments to the mobile
phone and infrastructure markets. We expect to continue to be dependent on the communications and
personal computers segments for a substantial portion of our net revenues. We derived 80.8% and
81.3% of our net revenues for 2002 and 2003, respectively, from customers headquartered in the
United States and expect to continue to depend on such customers for a substantial portion of our
net revenues in the foreseeable future. Average selling prices for our services generally have declined over product life cycles,
particularly for our packaging services. Average selling prices of our packaging services for 2003
declined 3% as compared to an 11% decline in average selling prices in 2002. We expect that
average selling prices for our packaging and test services will continue to decline in the future.
Historically, we have been able to partially offset the effect of price declines by successfully
developing and marketing new higher margin products, such as advanced leaded and array packages, by
negotiating lower prices with our materials vendors, and by implementing engineering and
technological changes in our packaging and test processes which resulted in reduced manufacturing
costs. To the extent that we are not able to offset any price increases in the future, our gross
margins would be negatively affected. Gross profit.Gross profit in 2003 was $52.7 million, or a gross margin of 13.8%, as compared to
gross loss of $22.2 million, or gross margin of negative 9.8%, in 2002. The improvement in gross
margin from 2002 was principally due to higher capacity utilization and cost control that was
partially offset by the appreciation of the Singapore dollar against the United States dollar. Our
cost of revenues consists principally of fixed costs such as depreciation and leasing expense, and
variable costs such as direct and indirect labor, materials and overhead expenses. Because a
substantial portion of our costs at our factories is fixed, relatively small increases or decreases
in capacity utilization 55




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may have a significant effect on our profitability. Aggregate capacity utilization improved
throughout 2003. In the second half of 2003, we began to experience increases in substrate
material costs as a result of supply shortages, although as a percentage of revenues, the total
cost of materials declined in 2003 as a result of some pricing benefits we leveraged with the
increased volume purchases in 2003. We have enhanced our supply base, including by entering into a
supply arrangement with Simmtech (as a result of which we expect Simmtech to be a major supplier of
our substrate requirements in 2004) and alliances with certain substrate suppliers, and do not
expect substrate materials availability to be a significant issue in the near future. However, our
performance in 2004 will be dependent upon our ability to procure materials, such as substrates, at
a reasonable cost. Cost of revenue as a percentage of revenue decreased from 109.8% in 2002 to
86.2% in 2003, resulting in a gross profit in 2003. Selling, general and administrative expenses.Selling, general and administrative expenses
mainly consist of salaries and benefits for sales, marketing, general and administrative employees,
depreciation of non-production equipment and professional fees. Selling, general and administrative
expenses decreased marginally by 0.6% from $36.7 million in 2002 to $36.5 million in 2003 and
decreased as a percentage of net revenues from 16.3% in 2002 to 9.6% in 2003. We lowered our
discretionary spending and other expenses in 2003. This decrease in expenses was offset by higher
bonus provisions in 2003 and higher insurance premiums in 2003. The 2002 selling, general and
administrative expenses included a one-time payment of $1.0 million to our former Chairman in 2002
in recognition of his past services. Research and development expenses.Research and development expenses mainly consist of salaries
and benefits of research and development personnel, depreciation of research and development
equipment and related supplies. Research and development expenses decreased 18.9% from $18.9
million in 2002, or 8.4% of net revenues in 2002, to $15.3 million in 2003, or 4.0% of net revenues
in 2003. The decrease in 2003 was mainly due to lower headcount as we transferred the personnel to
production upon completion of a wafer process project. Asset impairment and prepaid leases written-down.We recognized asset impairment charges of
$14.7 million for 2002, of which $11.1 million was for tester equipment held for use and $3.6
million was for equipment held for sale. The carrying values of these assets were written down to
the estimated fair value and will continue to be depreciated over their remaining useful lives.
There were no asset impairment charges recognized in 2003. We wrote-down prepaid leases of tester equipment of $0.8 million in 2002. The impairments and
write-downs were taken because continued softness in demand in the end-markets to which certain of
our equipment was dedicated had reduced the anticipated future usage of such equipment. There were
no write-downs of prepaid leases of tester equipment in 2003. Net interest income (expense).Net interest expense was $5.1 million in 2002 compared to $9.2
million in 2003. Net interest expense consisted of interest income of $5.3 million and interest
expense of $10.4 million in 2002 and interest income of $4.8 million and interest expense of $14.0
million in 2003. The interest income was earned on our marketable debt securities and fixed-term
time deposits with various financial institutions. The lower interest income earned in 2003 was
due primarily to the general decline in interest rates. Interest expense primarily comprised
interest accrued and paid on our convertible notes and bank borrowings by Winstek. The increase in
interest expense in 2003 was primarily due to our fixed-interest convertible notes issued in
October 2003 as well as an increase in bank borrowings drawn by Winstek of $23.2 million. Foreign currency exchange gain (loss).We recognized an exchange gain of $1.6 million in 2003
compared to an exchange loss of $0.5 million in 2002, due primarily to currency fluctuations of the
U.S. dollar against the Singapore dollar, the Japanese yen and the New Taiwan dollar. Other non-operating income (expenses).Other non-operating income was $3.4 million in 2002 and
$7.6 million in 2003. The increase was due to gains from sales of marketable securities and
amortization for the deferred grant for 56




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development activities from the Singapore Economic Development Board, or EDB, under its Research
and Incentive Scheme for Companies. Income Taxes.Income tax benefit was $7.2 million in 2002 and income tax expense was $0.7 million
in 2003. The income tax benefit of $7.2 million in 2002 comprised income tax expense of $1.0
million and deferred tax benefit of $8.2 million. The income tax expense of $0.7 million in 2003
comprised income tax expense of $1.9 million and a deferred tax benefit of $1.2 million. The
income tax expense for both years was principally due to Singapore tax on interest income generated
principally from the investment of excess cash in fixed-term time deposits and marketable debt
securities. The deferred tax benefit of $8.2 million in 2002 and $1.2 million in 2003 resulted
principally from recognizing the deferred tax benefit associated with tax losses, unutilized
capital allowances carried forward and temporary differences arising primarily from property, plant
and equipment. Quarterly Results The following table sets forth our unaudited results of operations, including as a percentage of
net revenue, for the eight fiscal quarters ended December 31, 2004. We believe that all necessary
adjustments, consisting only of normal recurring adjustments, have been included in the amounts
stated below to present fairly the selected quarterly information when read in conjunction with our
consolidated financial statements and the related notes included elsewhere in this Annual Report.
Our results of operations have varied and may continue to vary significantly from quarter to
quarter and are not necessarily indicative of the results of any future periods. QUARTER ENDEDMar-03
    
    
    Jun-03
    
    
    Sep-03
    
    
    Dec-03
    
    
    Mar-04
    
    
    Jun-04
    
    
    Sep-04
    
    
    Dec-04(in thousands of US $)Net revenues
    
    
    75,531
    
    
    
    87,602
    
    
    
    97,922
    
    
    
    119,636
    
    
    
    132,328
    
    
    
    138,995
    
    
    
    231,951
    
    
    
    265,847Cost of revenues
    
    
    72,015
    
    
    
    77,680
    
    
    
    81,517
    
    
    
    96,802
    
    
    
    111,949
    
    
    
    114,358
    
    
    
    193,600
    
    
    
    223,634Gross profit
    
    
    3,516
    
    
    
    9,922
    
    
    
    16,405
    
    
    
    22,834
    
    
    
    20,379
    
    
    
    24,637
    
    
    
    38,351
    
    
    
    42,213Operating expenses:Selling, general and
administrative
    
    
    8,704
    
    
    
    8,273
    
    
    
    9,288
    
    
    
    10,210
    
    
    
    10,252
    
    
    
    11,648
    
    
    
    28,286
    
    
    
    34,778Research and development
    
    
    4,492
    
    
    
    4,033
    
    
    
    3,550
    
    
    
    3,220
    
    
    
    3,086
    
    
    
    2,903
    
    
    
    5,781
    
    
    
    5,867Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    453,000Others, net
    
    
    (387
    )
    
    
    281
    
    
    
    77
    
    
    
    403
    
    
    
    (37
    )
    
    
    (511
    )
    
    
    11
    
    
    
    73Total operating expenses
    
    
    12,809
    
    
    
    12,587
    
    
    
    12,915
    
    
    
    13,833
    
    
    
    13,301
    
    
    
    14,040
    
    
    
    34,078
    
    
    
    493,718Operating income (loss)
    
    
    (9,293
    )
    
    
    (2,665
    )
    
    
    3,490
    
    
    
    9,001
    
    
    
    7,078
    
    
    
    10,597
    
    
    
    4,273
    
    
    
    (451,505
    )Other income (expenses):Interest income
(expenses) net
    
    
    (1,666
    )
    
    
    (1,911
    )
    
    
    (2,467
    )
    
    
    (3,165
    )
    
    
    (3,328
    )
    
    
    (3,620
    )
    
    
    (8,365
    )
    
    
    (9,073
    )Foreign currency
exchange gain (loss)
    
    
    (236
    )
    
    
    389
    
    
    
    (132
    )
    
    
    1,613
    
    
    
    1,026
    
    
    
    (1,299
    )
    
    
    151
    
    
    
    (1,000
    )Other non-operating
income (expenses), net
    
    
    990
    
    
    
    5,176
    
    
    
    1,022
    
    
    
    383
    
    
    
    81
    
    
    
    (435
    )
    
    
    (438
    )
    
    
    (144
    )Total other income
(expenses)
    
    
    (912
    )
    
    
    3,654
    
    
    
    (1,577
    )
    
    
    (1,169
    )
    
    
    (2,221
    )
    
    
    (5,354
    )
    
    
    (8,652
    )
    
    
    (10,217
    )Income (loss) before
income taxes
    
    
    (10,205
    )
    
    
    989
    
    
    
    1,913
    
    
    
    7,832
    
    
    
    4,857
    
    
    
    5,243
    
    
    
    (4,379
    )
    
    
    (461,722
    )Income tax benefit
(expense)
    
    
    1,111
    
    
    
    (1,273
    )
    
    
    (565
    )
    
    
    22
    
    
    
    (509
    )
    
    
    (123
    )
    
    
    (1,713
    )
    
    
    (5,549
    )Income (loss) before
minority interest
    
    
    (9,094
    )
    
    
    (284
    )
    
    
    1,348
    
    
    
    7,854
    
    
    
    4,348
    
    
    
    5,120
    
    
    
    (6,092
    )
    
    
    (467,271
    )Minority interest
    
    
    (533
    )
    
    
    (418
    )
    
    
    (572
    )
    
    
    (16
    )
    
    
    (282
    )
    
    
    (463
    )
    
    
    (1,352
    )
    
    
    (1,731
    )Net income (loss)
    
    
    (9,627
    )
    
    
    (702
    )
    
    
    776
    
    
    
    7,838
    
    
    
    4,066
    
    
    
    4,657
    
    
    
    (7,444
    )
    
    
    (469,002
    )
 57




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##### Table of Contents



AS A PERCENTAGE OF REVENUESMar-03
    
    
    Jun-03
    
    
    Sep-03
    
    
    Dec-03
    
    
    Mar-04
    
    
    Jun-04
    
    
    Sep-04
    
    
    Dec-04Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    95.3
    %
    
    
    88.7
    %
    
    
    83.2
    %
    
    
    80.9
    %
    
    
    84.6
    %
    
    
    82.3
    %
    
    
    83.5
    %
    
    
    84.1
    %Gross profit
    
    
    4.7
    %
    
    
    11.3
    %
    
    
    16.8
    %
    
    
    19.1
    %
    
    
    15.4
    %
    
    
    17.7
    %
    
    
    16.5
    %
    
    
    15.9
    %Operating expenses:Selling, general and
administrative
    
    
    11.5
    %
    
    
    9.4
    %
    
    
    9.5
    %
    
    
    8.5
    %
    
    
    7.7
    %
    
    
    8.5
    %
    
    
    12.2
    %
    
    
    13.1
    %Research and development
    
    
    5.9
    %
    
    
    4.6
    %
    
    
    3.6
    %
    
    
    2.7
    %
    
    
    2.3
    %
    
    
    2.1
    %
    
    
    2.5
    %
    
    
    2.2
    %Goodwill impairment
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    170.4
    %Others, net
    
    
    (0.4
    )%
    
    
    0.3
    %
    
    
    0.2
    %
    
    
    0.4
    %
    
    
    0.1
    %
    
    
    (0.5
    )%
    
    
    0.0
    %
    
    
    0.0
    %Total operating expenses
    
    
    17.0
    %
    
    
    14.3
    %
    
    
    13.3
    %
    
    
    11.6
    %
    
    
    10.1
    %
    
    
    10.1
    %
    
    
    14.7
    %
    
    
    185.7
    %Operating income (loss)
    
    
    (12.3
    )%
    
    
    (3.0
    )%
    
    
    3.5
    %
    
    
    7.5
    %
    
    
    5.3
    %
    
    
    7.6
    %
    
    
    1.8
    %
    
    
    (169.8
    )%Other income (expenses):Interest income (expenses) net
    
    
    (2.2
    )%
    
    
    (2.2
    )%
    
    
    (2.5
    )%
    
    
    (2.6
    )%
    
    
    (2.5
    )%
    
    
    (2.6
    )%
    
    
    (3.6
    )%
    
    
    (3.4
    )%Foreign currency
exchange gain (loss)
    
    
    (0.3
    )%
    
    
    0.4
    %
    
    
    (0.1
    )%
    
    
    1.3
    %
    
    
    0.8
    %
    
    
    (0.9
    )%
    
    
    0.1
    %
    
    
    (0.4
    )%Other non-operating
income (expenses), net
    
    
    1.3
    %
    
    
    5.9
    %
    
    
    1.1
    %
    
    
    0.3
    %
    
    
    0.1
    %
    
    
    (0.3
    )%
    
    
    (0.2
    )%
    
    
    (0.1
    )%Total other income
(expenses)
    
    
    (1.2
    )%
    
    
    4.1
    %
    
    
    (1.5
    )%
    
    
    (1.0
    )%
    
    
    (1.6
    )%
    
    
    (3.8
    )%
    
    
    (3.7
    )%
    
    
    (3.9
    )%Income (loss) before
income taxes
    
    
    (13.5
    )%
    
    
    1.1
    %
    
    
    2.0
    %
    
    
    6.5
    %
    
    
    3.7
    %
    
    
    3.8
    %
    
    
    (1.9
    )%
    
    
    (173.7
    )%Income tax benefit
(expense)
    
    
    1.5
    %
    
    
    (1.4
    )%
    
    
    (0.6
    )%
    
    
    0.1
    %
    
    
    (0.4
    )%
    
    
    (0.1
    )%
    
    
    (0.7
    )%
    
    
    (2.1
    )%Income (loss) before
minority interest
    
    
    (12.0
    )%
    
    
    (0.3
    )%
    
    
    1.4
    %
    
    
    6.6
    %
    
    
    3.3
    %
    
    
    3.7
    %
    
    
    (2.6
    )%
    
    
    (175.8
    )%Minority interest
    
    
    (0.7
    )%
    
    
    (0.5
    )%
    
    
    (0.6
    )%
    
    
    0.0
    %
    
    
    (0.2
    )%
    
    
    (0.3
    )%
    
    
    (0.6
    )%
    
    
    (0.6
    )%Net income (loss)
    
    
    (12.7
    )%
    
    
    (0.8
    )%
    
    
    0.8
    %
    
    
    6.6
    %
    
    
    3.1
    %
    
    
    3.4
    %
    
    
    (3.2
    )%
    
    
    (176.4
    )%
 Liquidity and Capital Resources Our principal source of liquidity as of December 31, 2004 consisted of $247.7 million of cash,
cash equivalents and marketable securities. Our liquidity needs primarily arise from the
outstanding debts of STATS ChipPAC, working capital needs and the funding of capital expenditures.
Our capital expenditures are largely driven by the demand for our services, primarily to increase
our packaging and testing capacity and to replace packaging and testing equipment from
time-to-time. We expect this to be about $300.0 million in 2005 as our capital expenditure
spending continues to be targeted at demand we see from our customers. We spent $270.8 million on
capital expenditures during the year ended December 31, 2004, as compared to $231.9 million in
capital expenditures during the year ended December 31, 2003. 58




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##### Table of Contents



Total Borrowings In August 2004, in connection with the merger of ChipPAC, we consolidated all the outstanding
borrowings of ChipPAC. The face value of ChipPACs borrowings consisted of $165.0 million of 12.75%
senior subordinated notes due 2009, $50.0 million of 8.0% convertible subordinated notes due 2011,
$150.0 million of 2.5% convertible subordinated notes due 2008, $12.2 million of capital lease
obligations and $11.8 million of foreign lines of credit with rates ranging from 2.1% to 2.9%. The
borrowings had an aggregate fair value of $399.5 million on the acquisition date. As of December 31, 2004, our total debt outstanding consisted of $834.8 million of borrowings,
which included $182.5 million of 1.75% convertible notes due 2007, $115.0 million of zero coupon
convertible notes due 2008, $215.0 million of 6.75% senior subordinated notes due 2011, $50.0
million of 8.0% convertible subordinated notes due 2011, $150.0 million of 2.5% convertible
subordinated notes due 2008 and other long- and short- term borrowings. On October 7, 2004, we drew down $50.0 million under a multi-currency line of credit with
Oversea-Chinese Banking Corporation Limited, to pay part of the purchase price for the repurchase
of ChipPACs 12.75% senior subordinated notes due 2009. On November 18, 2004, we repaid the $50.0
million outstanding under the multi-currency line of credit with Oversea-Chinese Banking
Corporation Limited with proceeds from our offering of the 6.75% senior notes described below. In October 2004, we completed the tender offer and consent solicitation of any and all of the
outstanding 12.75% senior subordinated notes due 2009 (the 12.75% Senior Notes) issued by our
indirect wholly-owned subsidiary ChipPAC International Company Limited (ChipPAC International).
ChipPAC International received valid tenders of 12.75% Senior Notes and deliveries of related
consents from holders of approximately 62.1%, or $102.5 million aggregate principal amount, of
12.75% Senior Notes outstanding. ChipPAC International paid approximately $109.1 million, plus
accrued and unpaid interest, for the 12.75% Senior Notes validly tendered and related consents
validly delivered. In October 2004, ChipPAC solicited consents from holders of the 2.5% convertible subordinated notes
due 2008 (the Notes) to amend certain provisions of the indenture pursuant to which the Notes
were issued. The consents from the majority of the outstanding principal amount of the Notes were
received in November 2004 and resulted in the effectiveness of the supplemental indenture. ChipPAC
paid approximately $0.3 million to Note holders who delivered consents in November 2004. The Notes
are guaranteed by us, but not any of our direct or indirect subsidiaries, on a subordinated basis. On November 18, 2004, we offered $215.0 million of 6.75% senior notes due 2011 in a private
placement. We received approximately $209.3 million after deducting debt issuance costs. The net
proceeds were used to redeem or repurchase the remaining 37.9%, or $62.5 million aggregate
principal amount, of the 12.75% Senior Notes outstanding at the redemption price of 106.375% of the
principal amount thereof, plus accrued and unpaid interest, as permitted under the indenture
governing such notes and to repay the $50.0 million outstanding with Oversea-Chinese Banking
Corporation Limited. The remaining proceeds will be used for general corporate purposes and
pending such use, we have invested the proceeds in short-term investments. Between December 9 to 15, 2004, we repurchased $16.5 million aggregate principal of the 1.75%
convertible notes due 2007 with our existing cash on hand. Pursuant to the indenture governing
our 1.75% convertible notes due 2007, we received demands for redemption of $125.4 million
aggregate principal amount of our 1.75% convertible notes due 2007 from the note holders. The total
amount payable in respect of the redeemed 1.75% convertible notes due 2007, including interest is
$139.8 million. We expect to finance the redemption from cash and
lines of credit. As of December 31, 2004, we had available lines of credit (excluding the MTN program), including
those available to our consolidated subsidiaries, amounting to an aggregate of $296.7 million, of
which $99.2 million was utilized. We believe that our cash on hand, existing credit facilities and
anticipated cash flows from operations will be 59




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##### Table of Contents



sufficient to meet our currently anticipated capital requirements, as well as capital lease and
debt service repayment obligations for 2005. If our capital requirements exceed our expectations as a result of higher than anticipated growth
in the semiconductor industry, acquisition or investment opportunities, the expansion of our
business or otherwise, or if our cash flows from operations are lower than anticipated, including
as a result of an unexpected decrease in demand for our services due to a downturn in the
semiconductor industry or otherwise, we may be required to obtain additional debt or equity
financing from time to time depending on prevailing market conditions. In such events, there can be
no assurance that additional financing will be available or, if available, that such financings
will be obtained on terms favorable to us. We will continue to be exposed to fluctuations in currency exchange rates and interest rates and we
may continue to employ derivative instruments such as forward foreign currency swaps, foreign
currency contracts and options and interest rate swaps to manage our foreign exchange and interest
rate exposures employed historically. Off-Balance Sheet Arrangements We do not have any off-balance sheet transactions, as defined in Item 5.E. of Form 20-F. Other than the guarantee provided on our 2.5% convertible notes and 6.75% senior notes (see Note
28: Condensed Consolidating Financial Information) and the tax guarantee to the South Korean Tax
Authorities as discussed below, we have no performance guarantees. We also have no investment in
any unconsolidated entities. Our off-balance sheet commitments are limited to operating leases,
royalty/license agreements, purchase obligations and contingent payments to Cirrus Logic, Inc.,
assumed in the merger with ChipPAC, with respect to the purchase of test assets. Our total
off-balance sheet obligations are approximately $161.1 million as of December 31, 2004. Our total commitments on our loans, capital lease, operating leases, and other agreements as of
December 31, 2004, were as follows (in thousands): Payments DueWithin 1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    More Than 5 Years
    
    
    TotalOn balance sheet commitments:1.75% convertible notes due 2007
    
    $
    137,107
    
    
    $
    63,492
    
    
    $
    
    
    
    $
    
    
    
    $
    200,599Zero coupon convertible notes
due 2008
    
    
    
    
    
    
    
    
    
    
    120,690
    
    
    
    
    
    
    
    120,6902.5% 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
    
    
    
    215,000Capital lease obligations
    
    
    7,587
    
    
    
    10,771
    
    
    
    
    
    
    
    
    
    
    
    18,358Long-term loans
    
    
    17,300
    
    
    
    34,099
    
    
    
    8,894
    
    
    
    
    
    
    
    60,293Short-term loans
    
    
    19,874
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,874Total on balance sheet
commitments
    
    
    181,868
    
    
    
    108,362
    
    
    
    279,584
    
    
    
    265,000
    
    
    
    834,814
 60




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Payments DueWithin 1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    More Than 5 Years
    
    
    TotalOff balance sheet commitments:Operating leases
    
    
    12,792
    
    
    
    18,906
    
    
    
    10,226
    
    
    
    30,908
    
    
    
    72,832Royalty/licensing agreements
    
    
    476
    
    
    
    1,100
    
    
    
    634
    
    
    
    
    
    
    
    2,210Contingent payments to Cirrus
    
    
    1,000
    
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    2,500Purchase obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
     Capital commitments
    
    
    36,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,315 Inventory purchase commitments
    
    
    47,210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,210Total off balance sheet
commitments
    
    
    97,793
    
    
    
    21,506
    
    
    
    10,860
    
    
    
    30,908
    
    
    
    161,067Total commitments
    
    $
    279,661
    
    
    $
    129,868
    
    
    $
    290,444
    
    
    $
    295,908
    
    
    $
    995,881
 Contingencies In connection with the merger with ChipPAC, we assumed certain contingent liabilities. In 2002, an
assessment of approximately 16.0 billion South Korean Won (approximately $15.5 million) made by the
South Korean National Tax Service, or NTS, relating to withholding tax not collected on the
interest income on the loan between the ChipPACs subsidiaries in South Korea and Hungary for the
period from 1999 to September 2001. The prevailing tax treaty does not require withholding on the
transactions in question. ChipPAC has appealed the assessment through the NTSs Mutual Agreement
Procedure (MAP) and believes that the assessment will be overturned. On July 18, 2002, the
Icheon tax office of the NTS approved a suspension of the proposed assessment until resolution of
the disputed assessment. The NTS required a corporate guarantee amounting to the tax assessment in
exchange for the suspension. ChipPAC complied with the guarantee request on July 10, 2002. A
further assessment of 2.7 billion South Korean Won (approximately $2.6 million) was made on January
9, 2004, for the interest from October 2001 to May 2002. ChipPAC has applied for the MAP and
obtained an approval for a suspension of the proposed assessment by providing a corporate guarantee
amounting to the additional taxes. In the event that we are not successful with the appeal, the
maximum amount payable including potential interest and local surtax as of December 31, 2004 is
estimated to be 28.2 billion South Korean Won (approximately $27.2 million). We do not believe that
the outcome of the resolution of this matter will have a material adverse effect on our financial
position, results of operations or cash flows. As of December 31, 2004, no accrual has been made.
However, our evaluation of the likely impact of the above contingent liabilities could change in
the future and may result in additional liability assumed in the initial purchase of ChipPAC. Cash Flows From Operating Activities For the year ended December 31, 2004, cash provided by operations was $136.6 million as compared to
$82.5 million for the year ended December 31, 2003. Cash provided and used by operations is
calculated by adjusting our net income (loss) by non-cash related items such as depreciation and
amortization, accretion of discount (premium) on certain of our outstanding notes, amortization of
debt issuance cost, impairment of goodwill, loss (gain) from sale of assets, deferred income taxes,
foreign currency exchange loss (gain), minority interest and by changes in assets and liabilities.
During the year ended December 31, 2004, non-cash related items
included $453.0 million of goodwill impairment charges, $216.3
million related to depreciation and amortization, $11.4 million from the accretion of discount and
premium, $0.1 million 61




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##### Table of Contents



from loss on sale of assets, $15.0 million from the deferred taxes and $3.8 million from the
minority interest in income of our subsidiary. Working capital uses of cash included increases in
inventories, other receivables, prepaid expenses and other assets and decreases in accounts
payable, accrued operating expenses and other payables. Working capital source of cash included
decrease in accounts receivable and amounts due from affiliates. Cash Flows From Investing Activities For the year ended December 31, 2004, cash used in investing activities was $264.8 million versus
$174.3 million for the year ended December 31, 2003. The primary usage of cash in investing
activities were related to the acquisition of property and equipment of $287.6 million during 2004
and $209.3 million during 2003. The increase in capital expenditure is directly related to our
increase in revenues and forecasted demand from customers. In the year ended December 31, 2004 and
2003, we invested in marketable securities which amounted to $160.9 million and $43.9 million
respectively and received proceeds from the sale or maturity of our marketable securities of $177.2
million and $83.3 million, respectively. In the year ended December 31, 2004, we recorded $7.2
million of net cash acquired in the merger with ChipPAC. Cash Flows From Financing Activities For the year ended December 31, 2004, cash provided by financing activities was $41.1 million as
compared to cash provided by financing activities of $234.7 million for the year ended December 31,
2003. During the year ended December 31, 2004, $107.6 million was borrowed and $81.0 million was
repaid on our borrowings and debts as compared to $49.8 million and $47.1 million respectively for
the year ended December 31, 2003. For the year ended December 31, 2004, we raised $210.5 million
from the issue of our 6.75% senior notes due 2011, net of expenses and repurchased the $165.0
million face value 12.75% ChipPAC senior notes at an aggregate consideration of $175.5 million and
repurchased $16.5 million aggregate principal of our 1.75% convertible notes at an aggregate
consideration of $18.1 million. For the year ended
December 31, 2003, we raised $112.3 million
from the issue of a $115 million zero coupon notes due 2008, net of expenses. In addition, $7.2 million and $12.9 million of capital lease payments
were made during the year ended December 31, 2004 and 2003, respectively. During the year ended
December 31, 2004 and 2003, $2.0 million and $117.5 million respectively was provided by the issuance
of new shares. Special Tax Status We were previously granted pioneer status under The Economic Expansion Incentives (Relief from
Income Tax) Act, Chapter 86 of Singapore, for Subcontract Assembly And Testing Of Integrated
Circuits Including Wafer Probing Services for an incentive period from January 1, 1996 to December
31, 2003. In December 2003, an application was submitted to the Singapore Economic Development
Board (EDB) to revoke retroactively our pioneer status granted from January 1, 1996 to December
31, 2003. The impact on our statement of operations, if this
incentive had not been granted, would have been increases in deferred
tax benefits of $8.1 million, $7.8 million
and $0.6 million in 2001, 2002 and 2003, respectively. Income derived from non-pioneer activities during the pioneer period, however is subject to income tax at the
prevailing enacted tax rate. The impact on our statement of operations if this incentive had not been granted, would have been
reductions in income tax expense of $1.1 million,
$0.9 million and $1.7 million in 2001, 2002 and 2003, respectively.
If we had not been granted pioneer status, trade and non trade income, such as interest income, would have been subjected to income tax
at the prevailing enacted rate. Our pioneer trade is in a tax loss position due to the substantial amount of capital
allowances claimed arising from capital expenditure on our plant and machinery and trade losses in
certain years. As a result, we had not enjoyed any tax exemption in respect of its income arising
from the pioneer activities. On the other hand, we have paid taxes in respect of its interest and
rental income, as losses arising from the pioneer trade cannot be set-off against the
non-qualifying income during the pioneer incentive period due to the application of the law in
respect of the pioneer incentive. In September 2004, the application for the revocation was
approved by EDB. Accordingly, we expect to receive a refund of taxes amounting to $5.0 million paid
previously on interest and rental income as the unutilized tax losses and capital allowances
arising from the trading activities would then be allowed to set-off against the income derived in
the previous years. We are in the process of working with the EDB for a new tax incentive for our
Singapore operations. 62




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Derivative Financial Instruments From time to time, we have used derivative instruments such as forward foreign currency swaps,
foreign forward contracts and options and interest rate swaps to mitigate the financial risks
associated with certain assets and liabilities. In 2003, hedge accounting has not been applied as the contracts entered into do not qualify
as hedges under generally accepted accounting principles in the United States. Gains and losses on
these contracts have been recorded as foreign currency gains or losses. As of December 31, 2003,
we had no foreign currency forward contracts outstanding or any other derivative financial
instruments, except for a premium deposit of $10.0 million denominated in Singapore dollars. The
premium deposit is entered with Citibank, whereby interest earned on the deposit is at an enhanced
rate of 3.95%. Upon its maturity on January 26, 2004, Citibank redeemed the principal and interest
in U.S. dollars at the pre-determined strike price. We entered into foreign currency contracts to mitigate financial risks associated with payroll
costs, materials costs and other costs denominated in Singapore dollars, South Korean won and
Malaysian Ringgit and to benefit from our expectations of future exchange rate fluctuations. In February 2004, STATS ChipPAC Korea entered into a series of foreign currency forward contracts
with Korea Exchange Bank. The total forward contracts of $55.0 million have been structured such
that two contracts of $5.0 million in total have been settled each month from February to December
2004. The purpose of the forward contracts is to hedge the first $5.0 million of monthly operating
expenses denominated in South Korean Won in order to limit the exposure to fluctuations in the
foreign currency exchange rate against the U.S. Dollar. All forward contracts qualify for hedge
accounting as defined by SFAS No.133, Accounting for Derivative Instruments and Hedging
Activities. During the year ended December 31, 2004, the Company recorded a realized gain of
$1.63 million in the statement of operations. In November and December 2004, STATS ChipPAC Korea entered into a series of foreign currency
forward contracts with Korea Exchange Bank and Cho Hung Bank. The total forward contracts with
Korea Exchange Bank and Cho Hung Bank amounted to $30.0 million and $40.0 million respectively.
During the year ended December 31, 2004, the Company recorded unrealized gains of $3.78 million in
other comprehensive loss. In June 2004, STATS ChipPAC Malaysia Sdn. Bhd. entered into a series of foreign currency forward
contracts with Southern Bank Bhd. The total forward contracts of $39.5 million have been
structured such that two contracts of either $5.5 million or $6.0 million in total will be settled
each month from June to December 2004. The purpose of the forward contracts is to hedge the first
$5.5 million to $6.0 million of monthly operating expenses denominated in Malaysian Ringgit in
order to limit the exposure to fluctuations in the foreign currency exchange rate against the U.S.
Dollar. All forward contracts qualify for hedge accounting as defined by SFAS No.133. During the
year ended December 31, 2004, the Company recorded an unrealized gain of $0.2 million in other
comprehensive loss. Foreign Currency Risk A portion of our costs is denominated in foreign currencies, like the Singapore dollar, the South
Korean Won, the Malaysian Ringgit, the Chinese Renminbi and the Japanese yen. As a result, changes
in the exchange rates of these currencies or any other applicable currencies to the U.S. dollar
will affect our cost of goods sold and operating margins and could result in exchange losses. We
cannot fully predict the impact of future exchange rate fluctuations on our profitability. From time to time, we may have engaged in, and may continue to engage in exchange rate hedging
activities in an effort to mitigate the impact of exchange rate fluctuations. However, we cannot
assure you that any hedging technique we implement will be effective. If it is not effective, we
may experience reduced net income. 63




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Research and Development See Item 4. Information on our Company  B. Business Overview  Research & Development. Recent Accounting Pronouncements In March 2004, the EITF reached a consensus on recognition and measurement guidance previously
discussed under EITF Issue No. 03-01, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments (EITF 03-01). The consensus clarifies the meaning of
other-than-temporary impairment and its application to investments in debt and equity securities,
in particular investments within the scope of FASB Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities, and investments accounted for under the cost method.
This consensus is to be applied to other-than-temporary impairment evaluations in reporting periods
beginning after June 15, 2004. The application of this consensus does not have a material impact on
our consolidated results of operations as our current policies are consistent with the consensus. In April 2004, the EITF issued Statement No. 03-06 Participating Securities and the Two-Class
Method Under FASB Statement No. 128, Earnings Per Share (EITF 03-06). EITF 03-06 addresses a
number of questions regarding the computation of earnings per share by companies that have issued
securities other than common stock that contractually entitle the holder to participate in
dividends and earnings of the company when, and if, it declares dividends on its common stock. The
issue also provides further guidance as in applying the two-class method of calculating earnings per
share, clarifying what constitutes a participating security and how to apply the two-class method
of computing earnings per share once it is determined that a security is participating, including
how to allocate undistributed earnings to such a security. EITF 03-06 became effective during the
quarter ended June 30, 2004, the adoption of which did not have an impact on STATS or ChipPACs
calculation of earnings per share. In December 2004, the
FASB issued SFAS No. 123(R), Share-Based Payment.
(SFAS 123 (R)) This statement revises SFAS No. 123, Accounting for Stock-Based Compensation, amends SFAS No. 95,
Statement of Cash Flows, and supersedes Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. SFAS 123(R) requires companies to apply a fair-value based
measurement method in accounting for share-based payment transactions with employees and to record
compensation expense for all stock awards granted, and to awards modified, repurchased or cancelled
after the required effective date. In addition, we are required to record compensation expense (as
previous awards continue to vest) for the unvested portion of previously granted awards that remain
outstanding at the date of adoption. SFAS No. 123(R) will be effective for quarterly periods
beginning after June 15, 2005, which is our third quarter of fiscal 2005. We are currently
evaluating the impact from this standard on its results of operations and financial position. 
 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES  A.

Directors and Senior Management The following table sets forth the name, age (as at January 31, 2005) and position of each director
and member of senior management: Name
    
    Age
    
    PositionBoard of DirectorsCharles Richard Wofford (1)(2)(3)
    
    
    71
    
    
    Chairman of the Board of DirectorsLim Ming Seong (2)(3)(4)
    
    
    57
    
    
    Deputy Chairman of the Board of DirectorsTan Lay Koon
    
    
    46
    
    
    Director, President & Chief
Executive OfficerPeter Seah Lim Huat (5)(6)
    
    
    58
    
    
    Director
 64




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Name
    
    Age
    
    PositionTay Siew Choon (7)(8)
    
    
    57
    
    
    DirectorSteven Hugh Hamblin (8)(9)
    
    
    56
    
    
    DirectorRichard John Agnich (10)
    
    
    61
    
    
    DirectorRobert W. Conn
    
    
    62
    
    
    DirectorR. Douglas Norby (9)
    
    
    69
    
    
    DirectorPark Chong Sup (7)
    
    
    57
    
    
    DirectorSenior ManagementWan Choong Hoe
    
    
    51
    
    
    Chief Operating OfficerMichael G. Potter
    
    
    38
    
    
    Chief Financial OfficerHan Byung Joon
    
    
    45
    
    
    Chief Technology OfficerJeffrey R. Osmun
    
    
    41
    
    
    Vice President, Worldwide Sales and
MarketingNg Tiong Gee
    
    
    42
    
    
    Chief Information OfficerScott J. Jewler
    
    
    39
    
    
    Chief Strategy OfficerDennis W. Daniels
    
    
    50
    
    
    Vice President, Corporate Human Resources
    (1)

Chairman of the Executive Committee.(2)

Member of the Executive Resource & Compensation Committee.(3)

Member of the Nominating Committee.(4)

Chairman of the Budget Committee.(5)

Chairman of the Executive Resource & Compensation Committee.(6)

Chairman of the Nominating Committee.(7)

Member of the Budget Committee.(8)

Member of the Executive Committee.(9)

Member of the Audit Committee.(10)

Chairman of the Audit Committee. The Board of Directors held four meetings in person and five meetings by teleconference in 2004.
The average attendance by directors at Board meetings they were scheduled to attend was 86%. Pursuant to the terms of the merger agreement, Mr. Dennis P. McKenna, Dr. Conn, Mr. Norby and Dr.
Park were nominated for election as our directors and Mr. McKenna was nominated to serve as Vice
Chairman of our Board of Directors until December 31, 2004. At our extraordinary shareholders
meeting on August 4, 2004, Mr. McKenna, Dr. Conn, Mr. Norby and Dr. Park were elected as our
directors with Mr. McKenna appointed to serve as Vice Chairman of our Board of Directors until
December 31, 2004. Mr. McKenna resigned from our Board of Directors with effect from December 8,
2004. Other than with respect to these four persons, there are no arrangements or understandings
with any person pursuant to which any of our directors or members of senior management were
selected. There are no family relationships among any of our directors, senior management or
substantial shareholders. Mr. Tay was the Corporate Advisor to and Mr. Lim and Mr. Seah were
employees of STPL, the parent company of our controlling shareholder, STSPL, until December 31,
2004, on which date, pursuant to a restructuring exercise, all the assets of STPL were transferred
to STPLs parent, Temasek Holdings. Mr. Seah has been a member of the Temasek Advisory Panel since
January 1, 2005. BOARD OF DIRECTORS CHARLES RICHARD WOFFORD Charles Richard Wofford has been a member of our Board of Directors since February 1998. He was
appointed Chairman of the Board of Directors in August 2002 and re-elected to the Board of
Directors in 2003. Mr. Wofford was with Texas Instruments, Inc. for 33 years before leaving as
Senior Vice-President to join Farr Company in 1991. 65




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He was the Chairman, CEO and President of Farr Company from 1992 to 1995. He received his Bachelor
of Arts degree from Texas Western College. LIM MING SEONG Lim Ming Seong became our Deputy Chairman in June 1998 and was re-elected to our Board of Directors
in 2001. He is the Deputy Chairman of the Board of Directors of Chartered Semiconductor
Manufacturing Ltd, Chairman of CSE Global Ltd, formerly known as CSE Systems & Engineering Ltd, and
sits on the boards of StarHub Ltd and several other companies. Since joining STPL in December 1986,
he has held various senior positions in the former Singapore Technologies group, including as Group
Director of STPL until January 31, 2002. Prior to joining STPL, he was with the Ministry of Defence
of Singapore. Mr. Lim received his Bachelor of Applied Science (Honors) in Mechanical Engineering
from the University of Toronto and his Diploma in Business Administration from the University of
Singapore. He also participated in the Advanced Management Programs at INSEAD and Harvard
University. TAN LAY KOON Tan Lay Koon was appointed our President and Chief Executive Officer on June 26, 2002. He was
appointed to the Board of Directors on the same date. Mr. Tan joined us in May 2000 as our Chief
Financial Officer. Prior to joining us, he was an investment banker with Salomon Smith Barney, the
global investment banking unit of Citigroup Inc. Before that, he held various positions with the
Government of Singapore, Times Publishing Limited and United Overseas Bank Limited in Singapore.
Mr. Tan graduated with a Bachelor of Engineering (First Class Honors) from the University of
Adelaide, Australia as a Colombo Plan Scholar. He also has a Master of Business Administration
(Distinction) from the Wharton School, University of Pennsylvania where he was elected a Palmer
scholar. PETER SEAH LIM HUAT Peter Seah Lim Huat was appointed to our Board of Directors in July 2002. He has been a member of
the Temasek Advisory Panel since January 1, 2005. He was until December 31, 2004 the President and
Chief Executive Officer of STPL and also a member of its board of directors. He was a banker for
the past 33 years, retiring as the Vice Chairman and Chief Executive Officer of Overseas Union Bank
Limited in 2001. Mr. Seah is the Chairman of Singapore Computer Systems Limited, SembCorp
Industries Ltd and Singapore Technologies Engineering Ltd and sits on the boards of CapitaLand
Limited, Chartered and StarHub Ltd. His other appointments include being a member of the Institute
of Defence and Strategic Studies, Vice President of the Singapore Chinese Chamber of Commerce and
Industry and Honorary Treasurer of the Singapore Business Federation Council. Mr. Seah also serves
on the board of the Government of Singapore Investment Corporation. He was awarded the Public
Service Star (Bintang Bakti Masyarakat) in 1999. Mr. Seah graduated from the University of
Singapore in 1968 with an honors degree in Business Administration. TAY SIEW CHOON Tay Siew Choon was appointed to our Board of Directors in July 2002. He is the Deputy Chairman of
Green Dot Capital Pte Ltd, a subsidiary of Temasek Holdings and was the Corporate Advisor of STPL
until December 31, 2004. He is also the Chairman of SNP Corporation Ltd and Co-Chairman of NexGen
Financial Holdings Limited. He is also a board member of Chartered, ST Telemedia Pte Ltd, Straco
Corporation Limited, Pan-United Corporation Ltd and SNP-Leefung Holdings Limited. Mr. Tay graduated
from Auckland University in 1970 with a Bachelor of Engineering in Electrical Engineering under the
Colombo Plan Scholarship and a Master of Science in System Engineering from the former University
of Singapore in 1974. STEVEN HUGH HAMBLIN Steven Hugh Hamblin was appointed to our Board of Directors in June 1998. Mr. Hamblin was with
Compaq Computer Corporation from 1984 to 1996 and held various positions including, Managing
Director of Compaq Asia Manufacturing, Vice President Asia/Pacific Division, Vice President and
Financial Controller for Corporate Operations and Vice President of Systems Division Operations. He
was with Texas Instruments for ten years before leaving as its Division Controller, Semiconductor
Group, to join General Instrument, Microelectronics Division, New 66




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York in 1983 as its Group Financial Executive. Mr. Hamblin received his Bachelor of Science in
Civil Engineering from the University of Missouri, Columbia and his Master of Science in Industrial
Administration from Carnegie-Mellon University. RICHARD J. AGNICH Richard J. Agnich was appointed to our Board of Directors in October 2001. He has 27 years of
experience in the semiconductor industry. Mr. Agnich joined Texas Instruments in 1973 and held
various positions, including that of Senior Vice President, Secretary and General Counsel. He is
also a co-founder and is currently the Chair of Entrepreneurs Foundation of North Texas, and serves
on the Board of Trustees of Austin College. Mr. Agnich received his B.A. in Economics from Stanford
University and a Juris Doctor from the University of Texas School of Law. ROBERT W. CONN Robert W. Conn was appointed to our Board of Directors in August 2004. Dr. Conn was a member of the
Board of Directors of ChipPAC prior to the merger. Dr. Conn has been the Managing Director of
Enterprise Partners Venture Capital since July 2002. Dr. Conn served as Dean of the Jacobs School
of Engineering, University of California, San Diego, from 1994 to 2002. From 1980 to 1994, Dr. Conn
served as Professor of Engineering and Applied Science at the University of California, Los Angeles
(UCLA), where he was founding director of the Institute of Plasma and Fusion Research. Dr. Conn
co-founded a semiconductor equipment company in 1986, Plasma & Materials Technologies, now Trikon
Technologies, and was Chairman of the Board through 1993. Dr. Conn is a member of the U.S. National
Academy of Engineering, and served in 1997 and 1998 as a member of the Presidents Committee of
Advisors on Science and Technology Panel on Energy R&D Policy for the 21st Century. As Managing
Director of a venture capital firm, Dr. Conn serves as a director of five private companies: NEXX
Systems, Inc., Pivotal Systems, Inc., PathScale, Inc., Nuelight Corp, and TwinStar Systems, Inc. He
is a member of one other public company board, Intersil Corporation, and serves on Intersils
nominating and compensation committees. Dr. Conn received his Bachelor of Science in Chemical
Engineering and Physics from the Pratt Institute. He received a Masters of Science in Mechanical
Engineering and a Ph.D in Engineering Science from the California Institute of Technology. R. DOUGLAS NORBY R. Douglas Norby was appointed to our Board of Directors in August 2004. Mr. Norby was a member of
the Board of Directors of ChipPAC prior to the merger. He has been Senior Vice President and Chief
Financial Officer of Tessera Technologies, Inc. since July 2003. Mr. Norby worked as a consultant
for Tessera Technologies, Inc. from May to July 2003. Mr. Norby was Senior Vice President and Chief
Financial Officer of Zambeel, Inc. from March 2002 to February 2003. From December 2000 to March
2002, Mr. Norby was Senior Vice President and Chief Financial Officer of Novalux, Inc., and from
1996 to 2000, he was Executive Vice President and Chief Financial Officer of LSI Logic Corporation.
Mr. Norby is a director of LSI Logic Corporation, Alexion Pharmaceuticals, Inc. and Verisity Ltd
and serves as the Chairman of Alexions and Verisitys audit committee. He received his B.A. in
Economics from Harvard University and M.B.A. from Harvard Business School. PARK CHONG SUP Park Chong Sup was appointed to our Board of Directors in August 2004. Dr. Park was a member of the
Board of Directors of ChipPAC prior to the merger. Dr. Park has been the Chairman and Chief
Executive Officer of Maxtor Corporation since November 2004. Dr. Park served as Investment Partner
and Senior Advisor at H&Q Asia Pacific from April 2004 until September 2004, and as Managing
Director from November 2002 until March 2004. Dr. Park served as the Chairman and Chief Executive
Officer of Hynix Semiconductor Inc. (formerly Hyundai Electronics Industries Co. Ltd.) from April
2000 to May 2002. He served as President and Chief Executive Officer of Hyundai Electronics
America, Inc. from September 1996 to October 1999 and Chairman from November 1999 to May 2002. Dr.
Park is a director of Smart Modular Technologies, Inc. Dr. Park holds a B.A. in Management from
Yonsei University, an M.A. in Management from Seoul National University, an M.B.A. from the
University of Chicago and a Doctorate in Management from Nova Southeastern University. 67




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SENIOR MANAGEMENT WAN CHOONG HOE Wan Choong Hoe was appointed Chief Operating Officer in September 2004. Mr. Wan was previously Vice
President and Managing Director responsible for Singapore and China operations for National
Semiconductor Manufacturer Singapore Pte. Ltd. (National Semiconductor), a position he held since
2000. From 1994 to 2000, Mr. Wan served as National Semiconductors Vice President and Managing
Director responsible for Singapore and previously held positions as Director of Operations and
Director of QRA/ Logistics. Prior to joining National Semiconductor in 1986, Mr. Wan held various
positions at Texas Instruments Singapore Pte. Ltd. and from 1997 to 2001 served as Chairman of the
Gintic Research Institute Management Board. Mr. Wan holds a Bachelor of Electrical and Electronics
Engineering from the University of Singapore. MICHAEL G. POTTER Michael G. Potter was appointed Chief Financial Officer in August 2004. Mr. Potter was Acting Chief
Financial Officer of ChipPAC prior to the merger, a position he had held since April 2004. Prior to
that time, he served as Corporate Controller of ChipPAC from October 2000 through April 2004. Prior
to joining ChipPAC, Mr. Potter held several executive positions at Honeywell Inc., including
serving as Controller for a Strategic Business Unit of Honeywell. Mr. Potter started his career at
KPMG Peat Marwick. Mr. Potter holds a Bachelor of Commerce degree, Accounting, from Concordia
University and a Graduate Diploma of Public Accountancy from McGill University. He is also a
chartered accountant. HAN BYUNG JOON Han Byung Joon joined us as our Chief Technology Officer in December 1999. Prior to joining us, Dr.
Han was Director of Product Development at Anam Semiconductor, Inc. and, before that, held various
engineering positions with IBM and AT&T Bell Labs in Murray Hill, New Jersey. He is credited with
the invention of several wafer and chip scale semiconductor packaging technologies patented today.
Dr. Han received his Doctorate in Chemical Engineering from Columbia University, New York, in 1988. JEFFREY R. OSMUN Jeffrey R. Osmun was appointed Corporate Vice President, Worldwide Sales and Marketing and
President, U.S. Operations in September 2002. Mr. Osmun joined us in September 1999 as Director of
Sales, U.S. Central Region and was later appointed Vice President, North American Sales. Prior to
that, he served as National Sales Manager of Kyocera America Inc. and, before that, held the post
of Director of Development  College of Engineering and Applied Sciences for Lehigh University. Mr.
Osmun received his Bachelor of Science in Mechanical Engineering from Lehigh University in 1985. NG TIONG GEE Ng Tiong Gee was appointed Chief Information Officer in May 2001. Mr. Ng was previously the Chief
Information Officer of Gateway Singapore, heading the technology multinationals IT activities in
Asia Pacific. Prior to that, he spent over six years with Siemens Components (now known as Infineon
Technologies Asia Pacific) where he last served as Director of Information Systems and Services.
Between 1988 and 1992, he held various key engineering positions at Digital Equipment Singapore,
now part of Hewlett Packard. Mr. Ng graduated with a Bachelor of Mechanical Engineering with honors
from the National University of Singapore in 1987. He also holds a Masters Degree in Science
(computer integrated manufacturing) and Business Administration from the Nanyang Technological
University in Singapore. SCOTT J. JEWLER Scott J. Jewler joined us as our Chief Strategy Officer in August 2004. Prior to joining us, Mr.
Jewler held various executive positions at Amkor Technology, Inc., including President of Amkor
Technology Taiwan and Senior Vice President, Assembly Business Unit. Before that, he held various
manufacturing operations positions at Mitsubishi Semiconductor America, Inc. Mr. Jewler holds five
U.S. patents in the area of integrated circuit packaging. Mr. Jewler graduated from Clemson
University with a Bachelor of Science degree in Mechanical Engineering. 68




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DENNIS W. DANIELS Dennis W. Daniels was appointed Corporate Vice President, Human Resources in August 2004. Mr.
Daniels was Vice President, Corporate Administration and Human Resources at ChipPAC prior to the
merger, a position he had held since November 2003. Prior to joining ChipPAC, he held several
executive human resources positions at Solectron Corp, Chase Manhattan Mortgage Corp, PepsiCo and
Tenneco Oil Corp. Before that, Mr. Daniels was an officer in the United States Marine Corps. Mr.
Daniels holds a Bachelor of Science degree in Journalism from the University of Kansas and a
Masters degree in Public Administration from the University of Missouri.  B.

Compensation of Directors and Senior Management In 2004, the aggregate amount of compensation and bonus paid and accrued for all of our directors
and senior management was approximately $2.4 million broken down as follows: 69




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Executive
    
    
    Non executiveDirectors
    
    
    Directors(1)
    
    
    Total(2)Charles Richard Wofford
    
    
    
    
    
    $
    111,000
    
    
    $
    111,000Lim Ming Seong
    
    
    
    
    
    
    53,000
    
    
    
    53,000Tan Lay Koon
    
    $
    659,224
    
    
    
    
    
    
    
    659,224Peter Seah Lim Huat
    
    
    
    
    
    
    30,000
    
    
    
    30,000Tay Siew Choon
    
    
    
    
    
    
    37,000
    
    
    
    37,000Quek Swee Kuan (3)
    
    
    
    
    
    
    3,577
    
    
    
    3,577Koh Beng Seng(3)
    
    
    
    
    
    
    21,590
    
    
    
    21,590Steven H. Hamblin
    
    
    
    
    
    
    77,000
    
    
    
    77,000Teng Cheong Kwee(3)
    
    
    
    
    
    
    24,500
    
    
    
    24,500William J. Meder(3)
    
    
    
    
    
    
    32,590
    
    
    
    32,590Richard J. Agnich
    
    
    
    
    
    
    48,250
    
    
    
    48,250Eleana Tan Ai Ching(4)
    
    
    
    
    
    
    0
    
    
    
    0Dennis P. McKenna(5)(6)
    
    
    
    
    
    
    16,000
    
    
    
    16,000Robert W. Conn(5)
    
    
    
    
    
    
    14,340
    
    
    
    14,340R. Douglas Norby(5)
    
    
    
    
    
    
    15,420
    
    
    
    15,420Park Chong Sup(5)
    
    
    
    
    
    
    15,800
    
    
    
    15,800Senior management
(excluding Executive
Directors) as a group
    
    
    
    
    
    
    
    
    
    
    1,248,239$
    659,224
    
    
    $
    500,067
    
    
    $
    2,407,530
    (1)
    
    We will seek approval at our annual general meeting in 2005 for the payment of directors
fees of approximately $500,067 for the financial year ended December 31, 2004.(2)
    
    No compensation was 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)
    
    Resigned on August 5, 2004 pursuant to the merger with ChipPAC.(4)
    
    Resigned on September 10, 2004.(5)
    
    Appointed on August 5, 2004 pursuant to the merger with ChipPAC.(6)
    
    Resigned on December 8, 2004. As of January 31, 2005, we have ten directors on our Board. Our executive director does not receive
any directors fees. Our non-executive directors are paid directors fees. Our non-executive
directors are also reimbursed for reasonable expenses they incur in attending meetings of the Board
and its committees and company-sponsored training from time to time. They may receive compensation
for performing additional or special duties at the request of the Board. Our directors fees for
2004 will be submitted for approval by our shareholders at our annual general meeting to be held in
April 2005. We have provided to our directors and officers customary directors and officers liability insurance
cover. We have an established incentive plan to reward our senior executives for their performance and
contributions. The incentive pool is derived from the annual wage increments of the participants
and a sharing of the positive Economic Value Added (EVA) and the change in EVA over the preceding
year (which can result in a negative incentive pool if the change in EVA is significantly
negative). The amount allocated to the individuals from this pool would be based on the collective
achievement of the corporate goals, achievement of individual performance targets as well as his or
her scoring on corporate values. Each senior executive will have his or her own notional EVA bank
account. The bonus earned each year will be added to his or her notional EVA bank account, and only
one third of the aggregate EVA bank amount will be paid for the year. Payment is made only when
there is a positive EVA bank balance in the notional EVA bank account. 70




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In the case of Mr. Tan, his incentive plan comprises a Performance Target Bonus component as well
as an EVA-based incentive plan. The Performance Target Bonus is paid in relation to the extent to
which he achieves his yearly individual targets which are set to focus on what needs to be achieved
for the year in support of long term strategic business goals subject to a maximum payout of 2.5
months base salary. His EVA-based incentive plan is also based on a sharing of the positive EVA
and the change in EVA over the preceding year. Each year, the EVA bonus earned will be added to (or
subtracted from, in the case of negative EVA change) his notional EVA bank account, and only one
third of the aggregate EVA bank amount will be the payout for the year. The balance is accrued to
the following year as a provision for future years payout and the payout is subject to our future
performance. We do not provide any post-retirement benefits, other than pursuant to the plans required or
permitted by local regulations and described below. Under Singapore law, we make monthly contributions based on the statutory funding requirement into
a Central Provident Fund for substantially all of our Singapore employees who are Singapore
citizens and Singapore permanent residents. The aggregate expenses under this plan were $3.0
million for 2002, $4.0 million for 2003 and $4.6 million for 2004. Under Malaysian law, we make monthly contributions based on statutory requirements to the Employee
Provident Fund for all employees except for contract and foreign workers. STATS ChipPAC Malaysia
Sdn Bhds total expenses under this plan for the period August 5, 2004 to December 31, 2004 were
approximately $0.7 million. Employees with more than 20 years of service with STATSChipPAC
Malaysia Sdn Bhd are entitled to a single sum payment of $2,600 upon their mandatory retirement
from their employment at age 55 years. We paid US$5,300 for the period August 5, 2004 to December
31, 2004. Accrued gratuity benefits for eligible employees are adjusted annually as of Balance
Sheet date. Under Chinese Law and Shanghai municipal government regulations, we make monthly contributions
based on the statutory funding requirement into the Pension Fund Center and Provident Fund Center
of Shanghai for all of our Chinese employees. From August 5, 2004 to December 31, 2004, the
aggregate expenses under this plan were $1.2 million. Winstek operates a defined benefit retirement plan for a substantial portion of its employees in
Taiwan in accordance with the Labor Standards Law in Taiwan. Pension benefits are generally based
on years of service and average salary for the six months prior to the approved retirement date.
Winstek contributes its pension obligations to Central Trust of China, as required by the Labor
Standards Law. The funding of the pension plan is determined in accordance with statutory funding
requirements. Winstek is obligated to make up any shortfall in the plans assets in meeting the
benefits accrued to the participating staff. Winsteks total expenses under this plan were $24,000
for 2002, $46,000 for 2003 and $76,000 for 2004. STATS ChipPAC, Inc. and STATS ChipPAC Test Services, Inc. have a 401(k) savings plan where the
Company contributes up to 6% of eligible employee compensation at the rate of 50% of employee
contributions deferred to the 401(k) plan. The Companys matching contributions under the 401(k)
plan were $186,000, $258,000 and $262,000 for the year ended December 31, 2002, 2003 and
2004, respectively. The matching contributions are accrued monthly and adjusted when the actuals
are calculated. The expenses relating to the plan are $15 per person per quarter and are accrued
on a monthly basis. Returns of the 401(k) plan from investments in mutual funds are calculated
daily by an external administrator who administers the plan. ChipPAC, Inc. maintains a plan where each participant may contribute up to 15.0% of tax gross
compensation (up to a statutory limit). The Company is required to make contributions based on
contributions made by employees. The contributions to the 401(k) plan for the period from August
5, 2004 to December 31, 2004 were approximately $58,000. 71




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Under the Labor Standards Law of South Korea, employees with more than one year of service are
entitled to receive a lump-sum payment upon termination of their employment with STATS ChipPAC
Korea Ltd. (formerly ChipPAC Korea Company Ltd), based on their length of service and rate of pay
at the time of termination. Accrued severance benefits are adjusted annually for all eligible
employees based on their employment as of the balance sheet date. The expense for severance
benefits for period August 5, 2004 to December 31, 2004 were approximately $1.8 million. Under the National Pension Act of South Korea, STATS ChipPAC Korea is required to contribute a
certain percentage for pension based on the employees salary to the Korean National Pension Fund.
The expense for the pension benefits for the period August 5, 2004 to December 31, 2004 were
approximately $0.7 million.  C.

Board Practices Board of Directors Our Articles of Association set the minimum number of directors at two. We currently have ten
directors. A number of our directors are re-elected at each annual general meeting of
shareholders. The number of directors retiring and eligible to stand for re-election each year
varies, but generally it is equal to one-third of the board, with the directors who have been in
office longest since their last re-election or appointment standing for re-election. Accordingly,
the appointments of Lim Ming Seong, Tan Lay Koon and Tay Siew Choon will expire and we will seek
shareholders approval for their re-appointment at the next annual general meeting of shareholders
in 2005. Under the Companies Act, the term of any director shall expire at the conclusion on the
date of the annual general meeting of shareholders immediately following the date that director
turns 70 years of age, although he or she will be eligible for re-election. Directors who are
aged 70 or older are eligible for re-election upon the approval of the shareholders of the company
by way of an ordinary resolution passed at an annual general meeting and, if re-elected, will hold
office until the next annual general meeting of the shareholders. Accordingly, the appointment of
Charles Richard Wofford, will expire and we will seek shareholders approval for his re-appointment
at the next annual general meeting of shareholders to be held in 2005. As of January 31, 2005, Temasek Holdings, through its wholly-owned subsidiary, Singapore
Technologies Semiconductors Pte Ltd (STSPL), beneficially owned approximately 36.69% of our
outstanding ordinary shares. Temasek Holdings is the principal holding company through which the
corporate investments of the Government of Singapore are held. As a result, Temasek Holdings will
have significant influence over matters requiring the approval of our shareholders. The actions of
Temasek and STSPL, particularly through the election of directors and subsequent selection of
management by those directors, can affect our strategic decisions, our legal and capital structure
and our day-to-day operations. Our Articles of Association permit a director to appoint an alternate director to act in place of
such director should the director be unable to perform his or her duties as director for a period
of time. Under Singapore law, the alternate director is not merely an agent of the director but is
also held accountable to the company for his or her actions as director during the period for which
he or she acts as alternate director. We do not have any service contracts with any of our non executive directors. The services contract
of our executive director does not provide for benefits upon termination of employment. Committees of the Board of Directors  (i)

Audit Committee The Audit Committee currently consists of three members, all of whom are non-executive directors.
They are Richard J. Agnich (Chairman), Steven H. Hamblin and R. Douglas Norby. The Audit Committee
serves as an 72




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independent and objective party to review the integrity and reliability of the financial
information presented by management to shareholders, regulators and the general public. It oversees
the establishment, documentation, maintenance and periodic evaluation of the system of our internal
controls and is responsible for the appointment, compensation, independence, retention, termination
and oversight of the work of our external auditors. The Audit Committee also reviews and evaluates
the performance and policies of our internal audit function and of its external auditors. Under
Singapore law, only board members of a company may serve on its Audit Committee. The Audit Committee held eight meetings in 2004.  (ii)

Executive Resource & Compensation Committee The Executive Resource & Compensation Committee currently consists of Peter Seah Lim Huat
(Chairman), Charles R. Wofford and Lim Ming Seong. The Executive Resource & Compensation Committee oversees the development of leadership and
management talent in our company, ensures that we have appropriate remuneration policies and
designs competitive compensation packages with focus on long term sustainability of business and
long term shareholders return. Specifically, the Executive Resource & Compensation Committee,
reviews and approves the compensation policies and incentive programs for key management executives
and considers, reviews and approve the entire specific remuneration package and service contract
terms for each key management executive. The compensation of the Chief Executive Officer is
further required to be approved by the Board. The Executive Resource and Compensation Committee,
also reviews and approves all our option plans, stock plans and other equity based plans. The Executive Resource & Compensation Committee held four meetings in 2004.  (iii)

Budget Committee The Budget Committee currently consists of Lim Ming Seong (Chairman), Tay Siew Choon and Chong Sup
Park. The Budget Committee meets with our senior management to review our annual budget and to
review our quarterly financial performance in relation to our budget. The Budget Committee held four meetings in 2004.  (iv)

Executive Committee The Executive Committee currently consists of Charles R. Wofford (Chairman), Tay Siew Choon and
Steven H. Hamblin. The main objective of the Executive Committee is to enable the Board to delegate some of its powers
and functions regarding the governing of our affairs and the affairs of our subsidiaries to the
Executive Committee in order to facilitate timely decision-making processes within the limits of
authority as determined by the Board. The Executive Committee held four meetings in 2004.  (v)

Nominating Committee The Nominating Committee which was established on January 28, 2004, comprises the same members as
the Executive Resource & Compensation Committee. The Nominating Committee identifies suitable
candidates for appointment to our Board of Directors, with a view to ensuring that the 73




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individuals comprising our Board can contribute in the relevant strategic areas of our business and
are able to discharge their responsibilities as directors having regard to the law and high
standards of governance. The Nominating Committee held four meetings in 2004.  D.

Employees As of December 31, 2004, we employed 11,280 full-time employees and 414 temporary employees or
contract employees. As of December 31, 2004, approximately 1,351 of our employees at the Icheon, South Korea facility
are represented by the ChipPAC Korea Labor Union and are covered by collective bargaining and wage
agreements. The collective bargaining agreement, which, among other things, covers basic union
activities, working conditions and welfare programs, and the wage agreement are each effective
through April 30, 2005. We believe that we have good relationships with our employees and the
union. The following table sets forth numbers of our employees by function and location for the dates
indicated: STATS
    
    
    STATS ChipPACas of December 31
    
    
    as of2002
    
    
    2003
    
    
    December 31, 2004FunctionDirect and Indirect Labor
(Manufacturing)
    
    
    2,346
    
    
    
    3,596
    
    
    
    10,398
    (1)Indirect Labor (Administration)
    
    
    257
    
    
    
    279
    
    
    
    653Research and Development
    
    
    164
    
    
    
    129
    
    
    
    229Total(1)
    
    
    2,767
    
    
    
    4,004
    
    
    
    11,280LocationSingapore
    
    
    2,419
    
    
    
    3,461
    
    
    
    3,828China
    
    
    
    
    
    
    16
    
    
    
    2,459Malaysia
    
    
    
    
    
    
    
    
    
    
    2,310South Korea
    
    
    
    
    
    
    
    
    
    
    2,031Taiwan
    
    
    224
    
    
    
    376
    
    
    
    443United States
    
    
    112
    
    
    
    145
    
    
    
    198Others
    
    
    12
    
    
    
    6
    
    
    
    11Total(1)
    
    
    2,767
    
    
    
    4,004
    
    
    
    11,280
    (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 Based on an aggregate of 1,944,384,070 ordinary shares outstanding as of January 31, 2005, each of
our directors and senior management officers has a beneficial ownership of less than 1% of our
outstanding ordinary shares, including ordinary shares held directly or in the form of ADSs and
share options granted as of such date. Beneficial ownership is determined in accordance with rules of the SEC and includes shares over
which the indicated beneficial owner exercises voting and/or investment power or receives the
economic benefit of ownership of such securities. Ordinary shares subject to options currently
exercisable or exercisable within 60 days are deemed outstanding for computing the percentage
ownership of the person holding the options but are not deemed outstanding for computing the
percentage ownership of any other person. 74




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All our ordinary shares have identical rights in all respects and rank equally with one another. Share Options for Directors The following table contains information pertaining to share options held by our directors as of
January 31, 2005. Number of Ordinary
    
    
    Per ShareShares Issuable on
    
    
    Exercise PriceExercise of Option
    
    
    S$
    
    
    Exercisable PeriodCharles R. Wofford
    
    
    40,000
    
    
    
    6.93
    
    
    04/20/2001 to 04/19/200550,000
    
    
    
    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 02/16/200950,000
    
    
    
    1.06
    
    
    08/11/2005 to 08/10/2009Lim 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 08/10/2009Tan 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 08/10/2014Peter 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 08/10/2014Tay 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 08/10/2009Steven H. Hamblin
    
    
    40,000
    
    
    
    6.93
    
    
    04/20/2001 to 04/19/200550,000
    
    
    
    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
    
    
    
    1.06
    
    
    08/11/2005 to 08/10/2009Richard 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
    
    
    
    1.06
    
    
    08/11/2005 to 08/10/2009Robert W. Conn(1)
    
    
    174,000
    
    
    
    1.88
    
    
    04/15/2003 to 08/04/2009130,500
    
    
    
    0.50
    
    
    03/17/2004 to 08/04/2009130,500
    
    
    
    1.36
    
    
    02/05/2005 to 08/04/2009
 75




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Number of Ordinary
    
    
    Per ShareShares Issuable on
    
    
    Exercise PriceExercise of Option
    
    
    S$
    
    
    Exercisable PeriodR. Douglas Norby(1)
    
    
    174,000
    
    
    
    1.88
    
    
    04/15/2003 to 08/04/2009130,500
    
    
    
    0.50
    
    
    03/17/2004 to 08/04/2009130,500
    
    
    
    1.36
    
    
    02/05/2005 to 08/04/2009Park Chong Sup(1)
    
    
    130,500
    
    
    
    1.57
    
    
    10/20/2001 to 08/04/200943,500
    
    
    
    0.38
    
    
    09/27/2002 to 08/04/2009130,500
    
    
    
    0.50
    
    
    03/17/2004 to 08/04/2009130,500
    
    
    
    1.36
    
    
    02/05/2005 to 08/04/2009
    (1)

The exercise prices for Dr. Conns, Mr. Norbys and Dr. Parks 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 We had an Employees Share Ownership Scheme for employees and directors of our company, our
subsidiary and the related companies within the Singapore Technologies Group which was terminated
prior to the initial public offering of our shares on the Nasdaq National Market and Singapore
Exchange in February 2000. Share Option Plan STATS ChipPAC Ltd. Substitute Purchase and Option Plan (the Substitute Option Plan) and STATS
ChipPAC Ltd. Substitute Equity Incentive Plan (the Substitute EIP and collectively with the
Substitute Option Plan, the Substitute Plans).In connection with the merger between STATS and
ChipPAC, we adopted the Substitute Plans to enable substitute options to be granted to holders of
options granted under the ChipPAC 1999 Stock Purchase and Option Plan and the ChipPAC 2000 Equity
Incentive Plan. The number of our ordinary shares that may be issued under the Substitute Option
Plan and the Substitute EIP, may not exceed, in the aggregate, 7.2 million and 73 million ordinary
shares, respectively. STATS ChipPAC Ltd. Share Option Plan, as amended.Effective May 28, 1999, we adopted the ST
Assembly Test Services Ltd Share Option Plan 1999 (STATS 1999 option plan). The STATS 1999 option
plan was amended from time to time to accomplish various varying objectives, including among other
purposes, to comply with changes in applicable laws and to bring the plan in line with current
market practices. In connection with the consummation of the merger and, in light of the
significant increase in the number of our employees, our shareholders approved an amendment to the
STATS 1999 option plan, effective as of August 5, 2004, to increase the maximum number of ordinary
shares issuable under the plan and the issuance of new ordinary shares upon the exercise of options
granted under the plan. The STATS 1999 option plan was re-named the STATS ChipPAC Ltd. STATS
Option Plan (STATS ChipPAC option plan). The purpose of the STATS ChipPAC option plan is to offer selected individuals an opportunity to
acquire or increase an ownership interest in us through the grant of options to purchase our
ordinary shares. Options granted under the STATS ChipPAC option plan may be either nonqualified
options or incentive stock options intended to qualify under Section 422 of the United States
Internal Revenue Code. The aggregate number of ordinary shares that may be issued under the STATS ChipPAC option plan may
not exceed 245 million shares (subject to anti-dilution adjustment pursuant to the STATS ChipPAC
option plan). 76




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STATS ChipPAC Ltd. Employee Share Purchase Plan 2004.In connection with the merger, effective
August 5, 2004, our shareholders approved the adoption of the STATS ChipPAC Ltd. Employee Share
Purchase Plan 2004 (ESPP). The purpose of the ESPP is to provide our employees with the opportunity
to purchase our ordinary shares in order to encourage broad employee ownership, encourage employees
to remain in our employ, enhance the ability to attract new employees by providing an opportunity
to acquire a vested interest in our success and provide a
performance incentive to our employees. The ESPP is intended to qualify under Sections 421 and 423
of the United States Internal Revenue Code. Participants in the ESPP may elect through payroll deductions or a lump sum contribution to
purchase our ordinary shares or ADSs at a fixed discount. A maximum aggregate of 130 million ordinary shares whether issued in the form of ordinary shares or
ADSs have been reserved for issuance under the ESPP. As of January 31, 2005, options to purchase an aggregate of 131,666,844 ordinary shares were
outstanding, out of which 18,671,800 were held by all our directors and executive officers as a
group. The exercise prices of these options range from S$0.25 to S$6.93. The expiration dates of
these options range from April 2005 to October 2014. In 2005, we expect to grant to our directors, officers and employees additional options under the
STATS ChipPAC option plan. The exercise price of such options will be equal to the fair market
value of the underlying ordinary shares on the date of the grant. 
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS  A.

Major Shareholders Prior to the consummation of our merger with ChipPAC in August 2004, Singapore Technologies
Semiconductors Pte Ltd (STSPL) held 59.18% of our outstanding shares. This was reduced to a 32.67%
following the consummation of the merger. Following a restructuring of the Temasek Holdings group of companies on December 31, 2004, Temasek
Holdings acquired all of the shareholdings in STSPL held by Temasek Holdings wholly-owned
subsidiary, Singapore Technologies Pte Ltd. As of January 31, 2005, Temasek Holdings, through
STSPL, beneficially owns approximately 36.69% of our outstanding ordinary shares. Temasek Holdings
is the principal holding company through which the corporate investments of the Government of
Singapore are held. As a result, Temasek Holdings will have significant influence over matters
requiring the approval of our shareholders. Matters that typically require the approval of our shareholders include, among other things:  

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 77




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

the timing and payment of dividends. The following table sets forth certain information regarding the ownership of our ordinary shares
as of January 31, 2005 by each person who is known by us to own beneficially more than 5% of our
outstanding ordinary shares. Beneficial ownership is determined in accordance with the rules of the
SEC and includes shares over which the indicated beneficial owner exercises voting and/or
investment power or receives the economic benefit of ownership of such securities. Ordinary shares
subject to options currently exercisable or exercisable within 60 days are deemed outstanding for
the purposes of computing the percentage ownership of the person holding the options but are not
deemed outstanding for the purposes of computing the percentage ownership of any other person. Number of Shares
    
    
    Percentage(2)Name of Beneficial Owner
    
    Beneficially Owned
    
    
    Beneficially OwnedSingapore Technologies Semiconductors
Pte Ltd(1)
    
    713,386,050
    
    
    36.69%
    (1)

Includes 2.41% of shares lent to Deutsche Bank AG, Singapore Branch, and Morgan Stanley & Co.
International Limited as of January 31, 2005 pursuant to a Global Master Securities Lending
Agreement in connection with the issue of convertible notes due 2008 by STATS ChipPAC.
Temasek Holdings, the principal holding company through which the corporate investments of the
Government of Singapore are held, owns 100% of the ordinary shares of STSPL. Temasek Holdings
is deemed to beneficially own ordinary shares which are owned directly by STSPL.(2)

Based on an aggregate 1,944,384,070 ordinary shares outstanding as of January 31, 2005. All our ordinary shares have identical rights in all respects and rank equally with one
another. Our ordinary shares have been traded on the Singapore Exchange Securities Trading Limited since
January 31, 2000 and our ADSs have been traded on the Nasdaq since January 28, 2000. As of February 28, 2005, 88,817,550 of our ordinary shares, representing 4.5% of our outstanding
shares, were held by a total of 32 holders of record with addresses in the United States. Because
many of our ordinary shares and ADSs were held by brokers and other institutions on behalf of
shareholders in street name, we believe that the number of beneficial holders of our ordinary
shares and ADSs could be higher. On February 28, 2005, the closing price of our ordinary shares on the SGD-ST was S$1.00 per
ordinary share and the closing price of our ADSs on Nasdaq was $6.09 per ADS.  B.

Related Party Transactions Temasek Holdings is a holding company with investments in a group of companies (the Temasek
Holdings Group). We engage in transactions with companies in the Temasek Holdings Group in the
ordinary course of business. Such transactions are generally entered into on normal commercial
terms. We entered into a turnkey contract with Chartered in March 2000 pursuant to which we agreed
to provide wafer sort, packaging and test services to Chartered. The term of this agreement, which
was due to expire in March 2003, was extended to March 2005 by an amendment agreement dated October
30, 2002. This agreement governs the conduct of business between the parties, relating, among other
things, to our provision of sort, packaging and test services to Chartered which were previously
governed solely by purchase orders executed by Chartered. The agreement does not contain any firm
commitment from Chartered to purchase or from us to supply services covered thereunder. In April
2004, we entered into another 78




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test services agreement with Chartered pursuant to which we agreed to
give Chartered priority to use six of our testers, and access to six additional testers, for which
Chartered guarantees minimum loading and issuance of purchase orders of $450,000 per month. This
test services agreement is due to expire in March 2005. In October 2001, we gave a guarantee on behalf of our subsidiary, STATS ChipPAC, Inc., for the
lease by STATS ChipPAC, Inc. of its office in California in the United States. The guarantee covers
the full performance of each term, covenant and condition of the lease, including payment of all
rent and other sums that may be required to be paid under the lease. As of December 31, 2004, the
amount outstanding under this guarantee was approximately $2.1 million. In the years ended December 31, 2002, 2003 and 2004, we paid management fees of $1.1 million for
each year, to STPL for various management and corporate services provided pursuant to the Singapore
Technologies Management and Support Services Agreement entered into in December 1999. Prior to this
agreement, these services were subject
to a management fee computed based on certain percentages of capital employed, revenue, manpower
and payroll. We believe that our arrangement with STPL approximated the cost of providing these
services. Mr. Tan Bock Seng served as Chief Executive Officer of the Company from May 18, 1998 to January 7,
2002. Effective January 8, 2002, the Company appointed Mr. Tan Bock Seng as advisor to their Board
of Directors. In August 2002, Mr. Tan Bock Seng terminated the advisory agreement between him and
our company. In recognition of his past services, STPL made a payment of $1.0 million to Mr. Tan
Bock Seng. The Company accounted for the payment as compensation expense in the income statement
and as additional paid-in capital within shareholders equity as the payment did not involve any
cash outlay by our company. We participated in a cash management program managed by a bank for the former Singapore
Technologies Group. Under this program, cash balances are pooled with other companies in the former
Singapore Technologies Group. The daily cash surpluses or shortfalls of the companies within the
pool earn or bear interest at prevailing interest rates. This arrangement was terminated as of
November 30, 2004. In the past, we had deposited excess funds with ST Treasury Services Ltd, a
wholly-owned subsidiary of Temasek Holdings but we have ceased to do so since October 1, 2004. Our
insurance coverage is held under various insurance policies which are negotiated by our insurance
brokers along with those of other companies in the former Singapore Technologies Group. While this
enabled us to benefit from the group rates negotiated by our insurance brokers, these policies are
issued and billed directly to us and are further negotiated by us to tailor to our specific
insurance needs. In accordance with the requirements of the Nasdaq Marketplace Rules, all new related party
transactions (as defined in Item 404 of Regulation S-K under the Securities Act) require approval
by the Audit Committee of our Board of Directors. In addition, more significant related party
transactions must be separately approved by a majority of the Board of Directors. We also engage in
transactions with other companies directly or indirectly controlled by Temasek Holdings, in the
ordinary course of business. These transactions, which include transactions for gas, water and
electricity, facilities management and telecommunication services are at their prevailing market
rates/prices (including where appropriate, preferential rates and discounts) and on customary terms
and conditions, and are generally not subject to review by the Audit Committee. 79




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C.

Interest of Experts and Counsel Not applicable 
 ITEM 8. FINANCIAL INFORMATION  A.

Consolidated Statements and Other Financial Information Please see Item 18 for a list of the financial statements filed as part of this Annual Report. Legal Proceedings On July 31, 2002, Seagate Technology L.L.C. filed suit against Atmel Corporation and Atmel SARL in
Santa Clara County Superior Court. Seagate alleges that Atmel supplied defective semiconductor
chips, and that Atmel had its chips outsourced and packaged by ChipPAC and Amkor Technology, Inc.
On November 19, 2003, Atmel filed a First Amended Cross-Complaint against ChipPAC, Amkor and
Sumitomo Bakelite, Ltd., the Japanese manufacturer of the allegedly defective epoxy mold compound.
ChipPAC is currently being defended by insurance counsel, subject to the complete reservation of
rights by the insurance company. ChipPAC has filed a cross-complaint against Sumitomo. We believe
the claims against ChipPAC for indemnification are without merit and will vigorously defend the
litigation. However, the litigation process is inherently uncertain and there can be no assurance
that the outcome of these claims will be favorable for ChipPAC. We are not involved in any other legal proceedings; the outcome of which we believe would have a
material adverse effect on our business, financial condition or results of operations. From time to
time, however, we are involved in claims that arise in the ordinary course of business, and we
maintain insurance that we believe to be adequate to cover these claims. Dividend Policy We have never declared or paid any cash dividends on our ordinary shares, including our ordinary
shares represented by ADSs.  B.

Significant Changes There has been no significant subsequent events following the close of the last financial year up
to the date of this Annual Report that are known to us and require disclosure in this Annual Report
for which disclosure was not made in this Annual Report. 
 ITEM 9. THE OFFER AND LISTING  A.

Offer and Listing Details Price range of our ordinary shares and ADSs The historical high and low prices of our ordinary shares and ADSs for the periods stated are
as shown below. 80




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Price per ordinary share on the
    
    
    Price per ADS onSGX (in S$)
    
    

Nasdaq (in US$)High
    
    
    Low
    
    
    High
    
    
    LowAnnual for 2000
    
    
    10.90
    
    
    
    2.72
    
    
    
    63.63
    
    
    
    13.13Annual 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
    
    
    
    5.40Quarterly highs and lows: quarter ending March 31, 2003
    
    
    1.44
    
    
    
    1.05
    
    
    
    8.00
    
    
    
    6.16 quarter ending June 30, 2003
    
    
    1.83
    
    
    
    1.15
    
    
    
    10.30
    
    
    
    6.65 quarter ending September 30,
2003
    
    
    2.59
    
    
    
    1.72
    
    
    
    14.89
    
    
    
    9.55 quarter ending December 31,
2003
    
    
    2.73
    
    
    
    1.93
    
    
    
    15.75
    
    
    
    11.40 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
    
    
    
    5.40Monthly highs and lows:September 2004
    
    
    1.15
    
    
    
    1.02
    
    
    
    6.98
    
    
    
    5.90October 2004
    
    
    1.12
    
    
    
    0.975
    
    
    
    6.61
    
    
    
    5.69November 2004
    
    
    1.01
    
    
    
    0.92
    
    
    
    6.00
    
    
    
    5.40December 2004
    
    
    1.05
    
    
    
    0.915
    
    
    
    6.38
    
    
    
    5.51January 2005
    
    
    1.04
    
    
    
    0.88
    
    
    
    6.27
    
    
    
    5.37February 2005
    
    
    1.09
    
    
    
    0.935
    
    
    
    6.49
    
    
    
    5.78
  B.

Plan of Distribution Not applicable  C.

Markets Our ordinary shares are listed on the Singapore Exchange Securities Trading Limited or SGX-ST
(SGX-ST: STATSChP) and our ADSs are quoted on the Nasdaq National Market or Nasdaq (NASDAQ: STTS).  D.

Selling Shareholders Not applicable  E.

Dilution Not applicable  F.

Expenses of the Issue Not applicable 
 81




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ITEM 10. ADDITIONAL INFORMATION  A.

Share Capital Not applicable  B.

Memorandum and Articles of Association We are a company limited by shares incorporated under the laws of the Republic of Singapore. Our
company registration number in Singapore is 199407932D. Objects We were established mainly to manufacture, assemble, test and provide services relating to
electrical and electronic components. We also carry out research and development work in relation
to the electrical and electronic industry. A detailed list of all the other objects and purposes of our company can be found in Article 3 of
our Memorandum of Association which was filed as an Exhibit to our registration statement on Form
F-1 (Registration Number: 333-93661) in connection with our initial public offering in 2000 and is
available for examination at our registered office at No. 5, Yishun Street 23, Singapore 768442,
Republic of Singapore. Board of Directors Our Articles of Association state that a director must declare at a meeting of the Board of
Directors if there are matters which may conflict with his duties or interests as a director. He
is not allowed to vote in respect of any contract or arrangement or other proposal whatsoever in
which he has any interest, directly or indirectly and shall not be counted in the quorum in
relation to any resolution with respect to which he is not entitled to vote. If an independent
quorum is not achieved, the remaining directors may convene a general meeting. Our directors may exercise all the borrowing powers of our company to borrow money, to mortgage or
charge its undertaking, property and uncalled capital, and to issue debentures and other
securities. No shares are required to be held by a director for directors qualification. Under Singapore law, no person of or over the age of 70 years shall be appointed or act as a
director of a public company or of a subsidiary of a public company unless the shareholders at an
annual general meeting vote by an ordinary resolution in favor of his appointment to hold office
until the next annual general meeting of the company. Our Articles of Association set the minimum number of directors at two. The number of directors
retiring and eligible to stand for re-election each year varies, but generally it is equal to
one-third of the board, with the directors who have been in office longest since their re-election
or appointment standing for re-election. Our Articles of Association permit a director to appoint an alternate director to act in place of
such director should the director be unable to perform his or her duties as director for a period
of time. There is currently no alternate director. Under Singapore law, the alternate director is
not merely an agent of the director but is accountable to the company for his or her actions as
director during the period for which he or she acts as alternate director. Ordinary Shares Our authorized capital is S$800,000,000 consisting of 3,200,000,000 ordinary shares of par value
S$0.25 each. We have only one class of shares, namely, ordinary shares, which have identical rights
in all respects and rank equally with one another. Our Articles of Association provide that we may
issue shares of a different class with preferential, deferred, qualified or other special rights,
privileges or conditions as our Board of Directors may think fit, and may issue preference shares
which are, or at the option of our company are, redeemable, subject to certain limitations. 82




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Our
directors may issue shares at a premium. If shares are issued at a premium, a sum equal to the
aggregate amount or value of the premium on those shares will, subject to certain exceptions, be
transferred to a share premium account. All of our ordinary shares are in registered form. All
our issued ordinary shares are entitled to voting rights. We may, subject to and in accordance
with the Companies Act, Chapter 50 of Singapore (the Companies Act) purchase our own ordinary
shares. We may not, except as provided in the Companies Act, grant any financial assistance for
the acquisition or proposed acquisition of our ordinary shares. New Ordinary Shares New ordinary shares may only be issued with the prior approval of the shareholders in a general
meeting. The approval, if granted, will lapse at the conclusion of the annual general meeting
following the date on which the approval was granted or the date by which such annual general
meeting is required by law to be held, whichever is earlier. Our shareholders have given the
general authority to allot and issue any remaining approved but unissued ordinary shares in the
capital of our company prior to the next annual general meeting. Subject to the foregoing, the
provisions of the Companies Act and any special rights attached to shares currently issued, all new
ordinary shares are under the control of our Board of Directors who may allot and issue the same
with such rights and restrictions as it may think fit, provided that, amongst others, new ordinary
shares may not be issued to transfer a controlling interest
in our company without the prior approval in general meeting of our shareholders. Our shareholders
are not entitled to pre-emptive rights under our Articles of Association or Singapore law. Shareholders Only persons who are registered in our register of members and, in cases in which the person so
registered is The Central Depository (Pte) Limited (CDP), the persons named as depositors in the
depository register maintained by CDP for our ordinary shares, are recognized as shareholders. We
will not, except as required by law, recognize any equitable, contingent, future or partial
interest in any ordinary share or other rights in respect of any ordinary share other than an
absolute right to the entirety thereof of the registered holder of the ordinary share or of the
person whose name is entered in the depository register for that ordinary share. We may close the
register of members for any time or times. However, the register may not be closed for more than
30 days in aggregate in any calendar year. We typically close the register to determine
shareholders entitlement to receive dividends and other distributions for no more than ten days a
year. Transfer of Ordinary Shares There is no restriction on the transfer of fully paid ordinary shares except where required by law.
Our directors may decline to register any transfer of ordinary shares which are not fully paid
shares or ordinary shares on which we have a lien. Ordinary shares may be transferred by a duly
signed instrument of transfer in a form acceptable to our directors. Our directors may also
decline to register any instrument of transfer unless, among other things, it has been duly stamped
and is presented for registration together with the share certificate and such other evidence of
title as they may require. We will replace lost or destroyed certificates for ordinary shares if
the applicant pays a fee which will not exceed S$2 together with the amount of the proper duty
chargeable, if any, and furnishes any evidence and indemnity that our directors may require. General Meetings of Shareholders We are required to hold an annual general meeting every year. Our Board of Directors may convene
an extraordinary general meeting whenever it thinks fit and must do so if shareholders representing
not less than 10% of the total voting rights of all shareholders request in writing that such a
meeting be held. In addition, two or more shareholders holding not less than 10% of our issued
share capital may call a meeting. Unless otherwise required by Singapore 83




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law or by our Articles of
Association, voting at general meetings is by ordinary resolution, requiring an affirmative vote of
a simple majority of the votes cast at that meeting. An ordinary resolution suffices, for example,
for the appointment of directors. A special resolution, requiring the affirmative vote of at least
75% of the votes cast at the meeting, is necessary for certain matters under Singapore law,
including the voluntary winding up of our company, amendments to our Memorandum and Articles of
Association, a change of our corporate name and a reduction in our share capital, share premium
account or capital redemption reserve fund. We must give at least 21 days notice in writing for
every general meeting convened for the purpose of passing a special resolution. Ordinary
resolutions require at least 14 days notice in writing. The notice must be given to every
shareholder who has supplied us with an address in Singapore for the giving of notices and must set
forth the place, the day and the hour of the meeting and, in the case of special business, the
general nature of that business and a statement regarding the effect of any proposed resolution on
our company in respect of such special business. Voting Rights A shareholder is entitled to attend, speak and vote at any general meeting, in person or by proxy.
A proxy need not be a shareholder. A person who holds ordinary shares through the CDP book-entry
settlement system will only be entitled to vote at a general meeting if his name appears on the
depository register maintained by CDP as at 48 hours before the time of the general meeting as
certified by CDP to our Company. Except as otherwise provided in our Articles of Association, two
or more shareholders holding at least 33 1/3% of our total issued and fully-paid ordinary
shares must be present in person or by proxy to constitute a quorum at any general meeting. Under
our Articles of Association, on a show of hands, every shareholder present in person and each proxy
shall have one vote, and on a poll, every shareholder present in person or by proxy shall have one
vote for each ordinary share held or represented. A poll may be demanded in certain circumstances,
including by the chairman of the meeting, by not less than five shareholders present in person or
by proxy and entitled to vote or by a shareholder present in person or by proxy and representing
not less than one-tenth of the total voting rights of all the shareholders having the right to vote
at the meeting. Dividends We may, by ordinary resolution of our shareholders, declare dividends at a general meeting, but we
may not pay dividends in excess of the amount recommended by our directors. We must pay all
dividends out of our profits. However, we may capitalize our share premium account and apply it to
pay dividends, if such dividends are satisfied by the issue of shares to the shareholders. Our
directors may also declare an interim dividend without the approval of the shareholders. All
dividends are paid pro rata among the shareholders in proportion to the amount paid up on each
shareholders ordinary shares, unless the rights attaching any ordinary shares or the terms of
issue thereof provide otherwise. Unless otherwise directed, dividends are paid by check or warrant
sent through the post to each shareholder at his registered address. Notwithstanding the
foregoing, the payment to CDP of any dividend payable to a shareholder who holds his ordinary
shares through the CDP book-entry settlement system shall, to the extent of payment made to CDP,
discharge us from any liability to that shareholder in respect of that payment. Bonus and Rights Issue Our directors may, with approval by our shareholders at a general meeting, capitalize any reserves
or profits (including profit or monies carried and standing to any reserve or to the share premium
account) and distribute the same as bonus shares credited as paid-up to our shareholders in
proportion to their shareholdings. Our directors may also issue rights to take up additional
ordinary shares to shareholders in proportion to their shareholdings. Such rights are subject to
any conditions attached to such issue and the regulations of any stock exchange in which we are
listed. 84




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Take-Overs

The Singapore Code on Take-over and Mergers (the Take-over Code) regulates the acquisition of,
amongst others, ordinary shares of public companies and contain certain provisions that may delay,
deter or prevent a future take-over or change in control of our company. Any person acquiring an
interest, either on his or her own or together with parties acting in concert with him in 30% or
more of our voting shares or, if such person holds, either on his own or together with parties
acting in concert with him, between 30% and 50% (both inclusive) of our voting shares, and acquires
additional voting shares representing more than 1% of our voting
shares in any six-month period, may be required to extend a take-over offer for the remaining voting shares in accordance with the
provisions of the Take-Over Code. Parties acting in concert comprise individuals or companies who, pursuant to an arrangement or
understanding (whether formal or informal), co-operate, through the acquisition by any of them of
shares in a company, to obtain or consolidate effective control of that company. Certain persons
are presumed (unless the presumption is rebutted) to be acting in concert with each other. They are
as follows: a company and its related and associated companies and companies whose associated
companies include any of these companies;, a company and any of its directors (including their
close relatives, related trusts and companies controlled by any of the directors, their close
relatives and related trusts), a company and any of its pension funds and employee share schemes; a
person and any investment company, unit trust or other fund whose investment such person manages on
a discretionary basis, a financial or other professional adviser and its client in respect of
shares held by the adviser and persons controlling, controlled by or under the same control as the
adviser and all the funds managed by the adviser on a discretionary
basis; where the shareholdings of the adviser and any of those funds in the client total 10% or
more of the clients equity share capital; directors of a company (including their close relatives,
related trusts and companies controlled by any of such directors, their close relatives and related
trusts) that is subject to an offer or where the directors have reason to believe a bona fide offer
for the company may be imminent; partners; and an individual and his close relatives, related
trusts, any person who is accustomed to act in accordance with his or her instructions and
companies controlled by the individual, his close relatives, his related trusts or any person who
is accustomed to act in accordance with his instructions. Subject to certain exceptions, a take-over offer must be in cash or be accompanied by a cash
alternative at not less than the highest price paid by the offeror or parties acting in concert
with the offeror within the preceding six months. Under the Take-Over Code, where effective control of a company is acquired or consolidated by a
person, or persons acting in concert, a general offer to all other shareholders is normally
required. An offeror must treat all shareholders of the same class in an offeree company equally.
A fundamental requirement is that shareholders in the company subject to the take-over offer must
be given sufficient information, advice and time to consider and decide on the offer. Liquidation or Other Return of Capital If our company liquidates or in the event of any other return of capital, holders of ordinary
shares will be entitled to participate in any distribution of surplus assets in proportion to their
shareholdings, subject to any special rights attaching to any other class of shares. Indemnity As permitted by Singapore law, our Articles of Association provide that, subject to the Companies
Act, our directors and officers shall be entitled to be indemnified by our company against any
liability incurred in defending any proceedings, whether civil or criminal, which relate to
anything done or omitted or alleged to have been done or omitted by them as officers or employees
of our company and in which judgment is given in their favor or in which they are acquitted or in
connection with any application under any statute for relief from liability in respect thereof in
which relief is granted by the court. We may not indemnify our directors and officers against any
liability which by 85




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law would otherwise attach to them in respect of any negligence, default, breach
of duty or breach of trust of which they may be guilty in relation to our company. Limitations on Rights to Hold or Vote Shares Except as described herein, there are no limitations imposed by Singapore law or by our Articles of
Association on the rights of non-resident shareholders to hold or exercise voting rights attached
to our ordinary shares. Substantial Shareholdings The Companies Act and the Securities and Futures Act, Chapter 289 of Singapore require the
substantial shareholders of our company to give notice to our company and the SGX-ST, including
particulars of their interest and the circumstances by reason of which they have such interest,
within two business days of their becoming substantial shareholders of our company and of any
change in the percentage level of their interest. Under the Companies Act, a person has a substantial shareholding in our company if he has an
interest (or interests) in one or more voting shares in our company and the nominal amount of that
share (or the aggregate amount of the nominal amounts of those shares) is not less than 5 per cent
of the aggregate of the nominal amount of all voting shares in our company. Percentage level, in relation to a substantial shareholder, means the percentage figure
ascertained by expressing the aggregate of the nominal amount of our voting shares in which the
substantial shareholder has an interest or interests immediately before or (as the case may be)
immediately after the relevant time as a percentage of the nominal amount of all the voting shares
in our company, and, if it is not a whole number, rounding that figure down to the next whole
number. Minority Rights The rights of minority shareholders of Singapore-incorporated companies are protected under Section
216 of the Companies Act, which gives the Singapore courts a general power to make any order, upon
application by any shareholder of the company, as they think fit to remedy situations where: (1)
the affairs of the company are being conducted or the powers of the board of directors are being
exercised in a manner oppressive to, or in disregard of the interests of, one or more of the
shareholders; or (2) the company takes an action, or threatens to take an action, or the
shareholders pass a resolution, or proposes to pass a resolution, which unfairly discriminates
against, or is otherwise prejudicial to, one or more of the shareholders, including the applicant. Singapore courts have wide discretion as to the reliefs they may grant and those reliefs are in no
way limited to those listed in the Companies Act itself. Without prejudice to the foregoing,
Singapore courts may direct or prohibit any act or cancel or vary any transaction or resolution,
regulate the conduct of our companys affairs in the future, and authorize civil proceedings to be
brought in the name of, or on behalf of, our company by a person or persons and on such terms as
the courts may direct. The Singapore courts may also direct that our company or some of our
shareholders purchase a minority shareholders shares and, in the case of a purchase of shares by
us, a corresponding reduction of our share capital, and direct that our Memorandum or Articles of
Association be amended or that our company be wound up.  C.

Material Contracts We lease the land on which our Singapore facility is situated pursuant to a long-term operating
lease from the Housing and Development Board, a statutory board of the Government of Singapore. The
lease is for a 30-year period commencing March 1, 1996, and is renewable for a further 30 years
subject to the fulfillment of certain conditions. The rent is $43,073 (S$70,209) per month, after
deducting a rebate offered by the landlord, subject to 86




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revision to market rate in March of each
year, with the increase capped at 4% per annum. In August 2004, the rate of rental increase was
changed from a cap of 4% per annum to a cap of the lower of 5.5% per annum of the preceding annual
rental rate or to the prevailing rental rate posted by the Housing and Development Board. The new
rates will become effective upon the landlords withdrawal of the rental rebate or in March 2005. In January 2002, we established a $306.7 million (S$500.0 million) MTN Program. Under the MTN
Program, we may, from time to time, issue notes in series or tranches in Singapore dollars or any
other currencies as may be agreed upon between us and the dealers of the MTN Program. Each series
of notes may be issued in various amounts and terms, and may bear fixed or floating rates of
interest. The notes constitute unsecured obligations. The MTN Program limits our ability to pay
dividends while the interest on the notes is unpaid, to create security interests to secure our
indebtedness and to undertake any form of reconstruction, amalgamation, merger or consolidation
with another company if such arrangement would affect our ability to make payments on the notes,
among other things. We intend to use any proceeds from the MTN Program for our general corporate
purposes including capital expenditure, working capital and investments. We have not issued any
notes under the MTN Program. Our ability to issue notes under the MTN Program will depend on
market and other conditions (including our financial condition) prevailing at the time we intend to
issue notes. As a result, we may not be able to issue notes under the MTN Program. In March 2002, we issued $200.0 million of senior unsecured and unsubordinated convertible notes
due March 18, 2007. The convertible notes bear interest at the rate of 1.75% per annum and have a
yield to maturity of 4.91%. At the maturity date, we will pay to the note holders 117.665% of the
principal amount. The notes can be converted into our ordinary shares or, subject to certain
limitations, ADSs, each of which currently represents ten ordinary shares, at a conversion price of
S$3.408 per ordinary share (at a fixed exchange rate of US$1.00 = S$1.8215). The conversion price
may be subject to adjustments for certain events. We may elect to satisfy our obligations to
deliver ordinary shares or ADSs through delivery of cash in accordance with the terms of the notes.
We may redeem all or a portion of the convertible notes at any time on or after March 18, 2004 at
a price to yield of 4.91% per year to the redemption date if our shares or ADSs trade at or above
125% of the conversion price for a period of 20 trading days in any 30 consecutive trading day
period. The note holders may require us to repurchase all or a portion of the notes on March 18,
2005 at a price equal to 110.081% of the principal amount of the notes being redeemed, plus any
accrued and unpaid interest accrued to the date of redemption. In addition, upon the occurrence of
certain repayment events, including a change in control, on or prior to March 18, 2007, each note
holder may require us to repurchase all or a portion of such holders notes at a price to yield of
4.91% per year to the redemption date. We have received demands for the redemption of $125,420,000
aggregate amount of the notes. The total amount payable in respect of the redeemed Notes,
including interest, is $139,813,590. We intend to pay for all or a portion of the redeemed notes
with cash at hand or some form of financing or a combination of both. We have licensed patent rights from Motorola, Inc. to use technology in manufacturing BGA packages
under an agreement which expires on December 31, 2010. Under this agreement, we are required to pay
Motorola a royalty based upon a percentage of net revenues. We cannot assure you that we will be
able to renew this agreement when it expires on terms that are favorable to us or at all. In June 2003, we executed a Strategic Assistance Loan Agreement with Simmtech, pursuant to which we
granted an interest-free loan of $5 million to Simmtech and Simmtech undertook to supply such
quantities of materials, substrates and other supplies to enable us to produce a specified number
of PBGA and stPBGA packages up to mid 2007. The loan is repayable in installments of $450,000, with
the first installment of the repayment amount due on June 23, 2004 and thereafter on the first day
of each subsequent three month period, except that the last repayment amount is due no later than
July 1, 2007. In order to secure Simmtechs obligations under the Strategic Assistance Loan
Agreement to us, Simmtech deposited and pledged 0.7 million shares of common stock of Simmtech
under a 87




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Pledge Agreement dated June 20, 2003 as well as transferred to us pursuant to a Yangdo
Tambo Agreement dated June 20, 2003, all its rights and interests in certain movable property to be
released and re-transferred upon the repayment of the loan. On December 26, 2003, we signed a Base
Capacity and Continuing Support Agreement with Simmtech and a Loan Agreement pursuant to which we
granted an interest-free loan of $15 million to Simmtech. Under the Base Capacity and Continuing
Support Agreement which took effect from January 1, 2004, Simmtech further committed and undertook
to supply certain quantities of substrates and other supplies to enable us to produce certain
specified quantities of PBGA and stPBGA packages. In connection with this, we executed a Strategic
Assistance Loan Agreement under which we granted a loan of $15 million to Simmtech. The loan is
repayable in installments of $882,353, with the first installment due on January 2, 2005 and
thereafter on the first day of each subsequent three month period, except that the last installment
is due no later than January 2, 2009. Under the Loan Agreement, in the event that Simmtech spins
off its substrate manufacturing operations and forms a new company, to run such operations, we are
entitled to make an equity investment of up to 30% in the new company. Further, for as long as the
loan is outstanding from Simmtech, we have the right to nominate for election one non-standing
member of the board of directors of Simmtech. In order to secure Simmtechs obligations under the
Strategic Assistance Loan Agreement to us, Simmtech deposited and pledged 2.4 million shares of
common stock of Simmtech under a Share Pledge Agreement dated December 26, 2003. Simmtech also
transferred to us pursuant to a Yangdo Tambo Agreement dated December 26, 2003, all its rights and
interests in the equipment to be purchased using the loan sums. These rights and interests will be
released and re-transferred upon repayment of the loan. In addition, we were granted a fourth
priority maximum amount factory mortgage over certain property owned by Simmtech. At Simmtechs
request, we discharged the pledge of 0.7 million shares on January 27, 2005 in consideration of the
value of the 2.4 million shares pledged to us under the December 26, 2003 Share Pledge Agreement. In November, 2003, we issued $115.0 million of senior unsecured and unsubordinated convertible
notes due November 7, 2008. The convertible notes have a yield to maturity of 4.25%. At the
maturity date, we will pay to the note holders 123.4% of the principal amount, comprising principal
and redemption interest. The notes can be converted into our ordinary shares, or subject to certain
limitations, ADSs, each of which currently represents ten ordinary shares, at an initial conversion
price of $3.05 per ordinary share (equivalent to an initial number of 570.5902 ordinary shares per
$1,000 principal amount of convertible notes, based on a fixed exchange rate of UD$1.00 =S$1.7403).
The conversion price may be subject to adjustments for certain events. We may elect to satisfy our
obligations to deliver ordinary shares or ADSs through delivery of cash in accordance with the
terms of the notes. We may redeem all or a portion of the convertible notes at any time on or after
November 7, 2006 at a price to yield of 4.25% per annum to the redemption date if our shares or
ADSs trade at or above 130% of the conversion price for a period of 20 trading days in any 30
consecutive trading day period. The note holders may require us to repurchase all or a portion of
their notes on November 7, 2007 at a price equal to 118.32% of the principal amount of the notes
being redeemed, plus any accrued and unpaid interest accrued to the date of redemption. In
addition, upon the occurrence of certain repayment events, including a change in control, on or
prior to November 7, 2008, each note holder may require us to repurchase all or a portion of such
holders notes at a price to yield of 4.25% per year to the redemption date. In January 2004, in order to enhance our yields on our cash deposits, we entered into a bond
transaction and an asset swap transaction with Deutsche Bank AG, London Branch. In exchange for the
purchase of certain bonds from the Bank at a bond purchase price of $96,116,000, the Bank agreed to
make four payments of $25,000,000 each spread out over the years 2004 to 2007, to us in respect of
the bonds. In consideration for such payments, we agreed to pledge the Bonds in favor of the Bank
and enter into an International Swaps and Derivatives Association (ISDA) Agreement (ISDA
Agreement) with the Bank. We liquidated the bonds and terminated the ISDA Agreement in August
2004. On February 10, 2004, we signed an Agreement and Plan of Merger and Reorganization with ChipPAC,
pursuant to which a newly formed, wholly owned subsidiary of ours merged with ChipPAC and ChipPAC
became our wholly owned subsidiary. Pursuant to the merger, each share of Class A common stock, par
value US$0.01 per share, of ChipPAC was converted into the right to receive 0.87 of our ADSs. STPL
has entered into a voting agreement pursuant to which it agreed to vote approximately 59% of STATS
outstanding capital stock beneficially owned 88




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by STPL in favor of the issuance of our ADSs in
connection with the merger and certain other related matters. In addition, certain of ChipPACs
stockholders who owned approximately 18% of ChipPACs Class A common stock entered into a voting
agreement pursuant to which they agreed to vote in favor of the merger. The merger with ChipPAC was
completed on August 5, 2004. In May and June 2003, ChipPAC issued $150.0 million of 2.5% convertible subordinated notes due
2008. These convertible notes are ChipPACs unsecured and subordinated obligations. These
convertible notes will mature on June 1, 2008, with interest at the rate of 2.5% per annum payable
semi-annually on June 1 and December 1 of each year. On the maturity date of these convertible
notes, ChipPAC will pay to the note holders of these convertible notes 100% of the principal
amount. These convertible notes were originally convertible into ChipPAC Class A common stock.
However, as a condition precedent to the merger, we, ChipPAC and the trustee for these convertible
notes entered into a supplemental indenture to modify the conversion rights of these convertible
notes such that these convertible notes would be convertible into our ADSs. Pursuant to the
supplemental indenture, these convertible notes can be converted into our ADSs at a conversion
price of $9.267 per ADS. The conversion price may be subject to adjustments for certain events.
These convertible notes are not redeemable at the option of ChipPAC. Upon the occurrence of
specified change in control events, each holder of these notes may require ChipPAC to repurchase
all or a portion of such holders notes at a purchase price equal to 100% of the principal amount
thereof on the date of purchase plus accrued and unpaid interest, if any. On October 11, 2004, we,
ChipPAC and the trustee for these convertible notes entered into a second supplemental indenture to
provide for an unconditional guarantee of these convertible notes on a subordinated basis by STATS
ChipPAC (but not by any of its subsidiaries). On October 18, 2004, ChipPAC commenced a consent
solicitation from holders of these convertible notes to amend the indenture
governing these convertible notes to replace ChipPACs obligation to file with the SEC annual
reports and such other information, documents and reports specified in Section 13 and 15(d) of the
Exchange Act with an obligation for us to file all such reports with the SEC as are applicable to a
foreign private issuer. The consent solicitation expired on November 1, 2004. ChipPAC received
valid deliveries of consents from holders of approximately $130.5 million aggregate principal
amount, or 87%, of these convertible notes outstanding. Accordingly, ChipPAC obtained the requisite
consents authorizing the adoption of the proposed amendment to the indenture. The consents were
accepted and the amendments to the indenture became effective on November 2, 2004. Payment of the
consent fee of $326,250 was made on November 4, 2004. In November 2004, we issued $215.0 million of 6.75% senior notes due 2011. These notes are our
unsecured senior obligations. These notes are guaranteed, on an unsecured senior basis, by all of
our existing wholly owned subsidiaries (except STATS ChipPAC Test Services (Shanghai) Co., Ltd. and
STATS ChipPAC Shanghai Co., Ltd.) and our future restricted subsidiaries (except where prohibited
by local law). These notes will mature on November 15, 2011, with interest at the rate of 6.75% per
annum payable semi-annually on May 15 and November 15 of each year, commencing May 15, 2005. Prior
to November 15, 2008, we may redeem all or part of these notes at any time by paying a make-whole
premium plus accrued and unpaid interest. We may redeem all, but not less than all, of these notes
at any time in the event of certain changes affecting withholding taxes at 100% of their principal
amount plus accrued and unpaid interest. On or after November 15, 2008, we may redeem all or a part
of these notes at any time at the redemption prices specified under the terms and conditions of
these notes plus accrued and unpaid interest. In addition, prior to November 15, 2007, we may
redeem up to 35% of these notes with the net proceeds of certain equity offerings. Upon a change of
control, we will be required to offer to purchase these notes at 101% of their principal amount
plus accrued and unpaid interest.  D.

Exchange Controls Currently, there are no exchange control restrictions in Singapore. 89




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Exchange Rates

Fluctuations in the exchange rate between the Singapore dollar and the U.S dollar will affect the
U.S. dollar equivalent of the Singapore dollar price of the ordinary shares on the Singapore
Exchange and, as a result, may affect the market price of our convertible notes. Currently, there
are no restrictions in Singapore on the conversion of Singapore dollars into U.S. dollars and vice
versa. The following table sets forth, for the fiscal years indicated, information concerning the exchange
rates between Singapore dollars and U.S. dollars based on the average of the noon buying rate in
the City of New York on the last business day of each month during the period for cable transfers
in Singapore dollars as certified for customs purposes by the Federal Reserve Bank of New York. The
table illustrates how many Singapore dollars it would take to buy one U.S. dollar. These
transactions should not be construed as a representation that those Singapore dollar or U.S. dollar
amounts could have been, or could be, converted into U.S. dollars or Singapore dollars, as the case
may be, at any particular rate, the rate stated below, or at all. 90




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Singapore Dollars Per US$1.00Noon Buying RateAverage(1)
    
    
    Low
    
    
    High
    
    
    Period EndYear Ended December 31,2000
    
    
    1.73
    
    
    
    1.65
    
    
    
    1.76
    
    
    
    1.732001
    
    
    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
    
    
    
    1.63MonthSeptember 2004
    
    
    
    
    
    
    1.68
    
    
    
    1.71
    
    
    
    1.68October 2004
    
    
    
    
    
    
    1.66
    
    
    
    1.69
    
    
    
    1.66November 2004
    
    
    
    
    
    
    1.64
    
    
    
    1.67
    
    
    
    1.64December 2004
    
    
    
    
    
    
    1.63
    
    
    
    1.65
    
    
    
    1.63January 2005
    
    
    
    
    
    
    1.63
    
    
    
    1.65
    
    
    
    1.64February 2005
    
    
    
    
    
    
    1.62
    
    
    
    1.65
    
    
    
    1.62
    (1)

The average of the daily Noon Buying Rates on the last business day of each month during the
year.E.

Taxation Singapore Taxation The statements made herein regarding taxation are general in nature and based on certain aspects of
the tax laws of Singapore and administrative guidelines issued by the relevant authorities in force
as of the date hereof and are subject to any changes in such laws or administrative guidelines, or
in the interpretation of these laws or guidelines, occurring after such date, which changes could
be made on a retroactive basis. The following is a summary of the material Singapore income tax,
stamp duty and estate duty consequences of the purchase, ownership and disposal of the ordinary
shares or ADSs, (collectively, the Securities) to a holder of the Securities who is not tax
resident in Singapore. The statements below are not to be regarded as advice on the Singapore tax
position of any holder of the Securities or of any person acquiring, selling or otherwise dealing
with the Securities or on any tax implications arising from the acquisition, sale or other dealings
in respect of the Securities. The statements made herein do not purport to be a comprehensive
description of all of the tax considerations that may be relevant to a decision to purchase, own or
dispose of the Securities and does not purport to deal with the tax consequences applicable to all
categories of investors some of which (such as dealers in securities) may be subject to special
rules. Prospective purchasers and holders of the Securities are advised to consult their own tax
advisors as to the Singapore or other tax consequences of the acquisition, ownership or disposition
of the Securities, including, in particular, the effect of any foreign, state or local tax laws to
which they are subject. Income Tax General Non-resident corporate taxpayers are subject to income tax on income that is accrued in or derived
from Singapore, and on foreign income received or deemed received in Singapore, subject to certain
exceptions. A non-resident individual is subject to income tax on the income accrued in or derived
from Singapore. 91




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Subject to the provisions of any applicable double taxation treaty, non-resident taxpayers who
derive certain types of income from Singapore are subject to a withholding tax on that income at a
rate of 22% for the years of assessment
2004 and a rate of 20% with effect from the year of assessment 2005, or 15% in the case of
interest, royalty and rental of moveable equipment, subject to certain exceptions. We are
obligated by law to withhold tax at the source. A corporation will be regarded as being tax resident in Singapore if the control and management of
its business is exercised in Singapore (for example, if the corporations board of directors meets
and conducts the business of the corporation in Singapore). An individual is tax resident in
Singapore in a year of assessment if, in the preceding year, he was physically present in Singapore
or exercised an employment in Singapore (other than as a director of a company) for 183 days or
more, or if resides in Singapore. Dividend Distributions Dividends received in respect of our ordinary shares or ADSs by either a resident or non-resident
of Singapore are not subject to Singapore withholding tax. Dividends paid out of Tax-Exempt Income or Income subject to Concessionary Tax Rate If we pay dividends on the ordinary shares or ADSs out of income received that is exempt from tax
because of our pioneer status or out of our income received that is subject to tax at a
concessionary rate, if any, such dividends will be free from Singapore tax in the hands of the
holders of the ordinary shares and ADSs. See Item 5. Operating and Financial Review and Prospects
 Special Tax Status for a discussion of our pioneer status. Dividends paid out of Income subject to Normal Corporate Taxation Imputation System Prior to January 1, 2003, (and to a certain extent between January 1, 2003 and December 31, 2007,
pursuant to the transitional rules for the new one-tier corporate tax system (see New One-Tier
Corporate Tax System below) Singapore was on the imputation system of corporate taxation. Under
this system, the tax we paid on income subject to tax at the prevailing corporate income tax rate
22% for the years of assessment 2004) and 20% with effect from the year of assessment 2005 would be
imputed to, and deemed to be paid on behalf of, our shareholders upon distribution of such income
as dividends. Our shareholders would have received dividends Franked Dividends net of such tax
and would be taxed on. The gross amount of dividends (that is, on the amount of net dividends plus
an amount equal to the amount of gross dividends multiplied by the prevailing corporate tax rate.
In this way, the tax we paid would be available to our shareholders as a tax credit to offset their
tax liability on their overall income subject to Singapore income tax (including the gross amount
of dividends). A non-resident shareholder is effectively taxed on Franked Dividends at the corporate income tax
rate. Thus, because tax deducted from the dividend and paid by us at the corporate income tax rate
is in effect imputed to, and deemed paid on behalf of, our shareholders (as discussed in the
preceding paragraph), no further Singapore income tax will be imposed on net dividends received by
a non-resident holder of ordinary shares or ADSs. Further, the non-resident shareholder which does
not have a permanent establishment in Singapore and deductible expenses attributed to such dividend
income would normally not receive any tax refund from the Inland Revenue Authority of Singapore. New One-tier Corporate Tax System A new one-tier corporate tax system became effective from January 1, 2003 (subject to certain
transitional rules). Under this new system, the tax on corporate profits is final and dividends
paid by a Singapore resident company will be tax exempt in the hands of the shareholder, regardless
of whether the shareholder is a company or an individual 92




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and whether or not the shareholder is a
Singapore tax resident. Accordingly, under the one-tier corporate tax system,
no further Singapore income tax will be imposed on the net dividends received by a non-resident
holder of the ordinary shares or ADSs. However, to enable companies to make use of their unutilized dividend franking credits as at
December 31, 2002, there will be a five-year transition period from January 1, 2003 to December 31,
2007, during which a company may remain on the imputation system for the purposes of paying Franked
Dividends out of its unutilized dividend franking credits as at December 31, 2002. Accordingly, as
long as we remain on the imputation system, shareholders may continue to receive dividends with
credits attached as described above under Imputation System. For the transitional period from January 1, 2003 up to December 31, 2007, when the imputation
system will co-exist with the one-tier corporate tax system, if we have not moved to the one-tier
system, tax vouchers issued by us will distinguish between franked dividends and normal tax exempt
dividends not being exempt dividends under the one-tier system, such as dividends paid out of tax
exempt income, approved deduction or further deduction of expenses or foreign tax credit allowed.
If we have fully utilized our dividend franking credits (that is, we are required to move to the
one-tier system) or if we elect to move to the one-tier system at an earlier date, tax vouchers
issued by us will distinguish between normal tax exempt dividends and exempt dividends under the
one-tier system. We do not presently intend to migrate to the new one-tier corporate tax system
until our dividend franking credits as at December 31, 2002 are fully utilized or until the
transition period comes to an end on December 31, 2007, whichever is earlier. No comprehensive tax treaty currently exist between Singapore and the United States. Capital Gains on Disposal of Ordinary Shares and ADSs Singapore does not impose tax on capital gains. However, there are currently no specific laws or
regulations which address the characterization of capital gains; hence gains or profits may be
construed to be of an income nature and subject to tax, especially if they arise from activities
which the Inland Revenue Authority of Singapore regards as the carrying on of a trade or business
in Singapore. Thus, any gains or profits from the disposal of the ordinary shares or ADSs are not
taxable in Singapore unless the seller is regarded as carrying on a trade or business (for example,
one of dealing in securities) in Singapore, in which case the disposal profits would be taxable as
such profits would be considered revenue in nature. Stamp Duty There is no stamp duty payable in respect of the issuance and holding of ordinary shares or ADSs.
Where ordinary shares or ADSs evidenced in certificated form are acquired in Singapore, stamp duty
is payable on the instrument of transfer of the ordinary shares or ADSs at the rate of S$0.20 for
every S$100 or part thereof of the consideration for, or market value of, the ordinary shares or
ADSs, whichever is higher. The stamp duty is borne by the purchaser unless there is an agreement
to the contrary. Where an instrument of transfer is executed outside Singapore or no instrument of
transfer is executed, no stamp duty is payable on the acquisition of ordinary shares or ADSs.
However, stamp duty may be payable if the instrument of transfer is executed outside Singapore and
received in Singapore. Estate Duty In the case of an individual who is not domiciled in Singapore, Singapore estate duty is imposed on
the value of immovable properties of the individual situated in Singapore. Estate duty is not
imposed on the movable properties in Singapore owned by a non-domiciled person. Thus, an individual
holder of the ordinary shares or ADSs who is not domiciled in Singapore at the time of his death
will not be subject to Singapore estate duty on the value of the ordinary shares or ADSs held by
the individual upon the individuals death. 93




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Prospective purchasers of ordinary shares or ADSs who are individuals, whether or not domiciled in
Singapore, should consult their own tax advisers regarding the Singapore estate duty consequences
of their investment and ownership of such ordinary shares and/or ADSs. United States Federal Income Taxation The following is a general summary of the material United States federal income tax consequences of
the ownership and disposition of ordinary shares (including ordinary shares represented by ADSs).
This summary applies only to U.S. Holders that are beneficial owners of ordinary shares or ADSs and
that hold ordinary shares or ADSs as capital assets. This discussion does not address tax
considerations applicable to a U.S. Holders special circumstances or to U.S. Holders that may be
subject to special tax rules. U.S. Holders are urged to consult their own tax advisors with
respect to the United States federal income tax consequences of the ownership and disposition of
ordinary shares and ADSs in light of their own particular circumstances, as well as the effect of
any state, local or non-United States tax laws. Distributions on Ordinary Shares or ADSs Subject to the passive foreign investment company, or PFIC, rules discussed below, distributions,
if any, made with respect to the ordinary shares or ADSs will be included in the income of a U.S.
Holder as dividend income to the extent of our current and accumulated earnings and profits,
calculated pursuant to United States federal income tax principles. U.S. Holders must include such
distributions in income on the date they are actually or constructively received by the U.S.
Holder, in the case of ordinary shares, or by the depositary, in the case of the ADSs. Subject to
certain limitations, dividends paid to non-corporate U.S. Holders, including individuals, may be
eligible for reduced rate of taxation if we are a qualified foreign corporation for United States
federal income tax purposes. A qualified foreign corporation includes (i) a foreign corporation
that is eligible for the benefits of a comprehensive income tax treaty with the United States that
includes an exchange of information program, and (ii) a foreign corporation if its stock with
respect to which a dividend is paid or its ADSs backed by such stock are readily tradable on an
established securities market within the United States, but does not include an otherwise qualified
corporation that is a PFIC. We believe that we will be a qualified foreign corporation for so long
as we are not a PFIC and the ordinary shares or the ADSs are considered to be readily tradable on
an established securities market within the United States. No assurance can be made that our
status as a qualified foreign corporation will not change. A corporate U.S. Holder will not be entitled to a dividends received deduction generally available
upon the receipt of dividends distributed by United States corporations. Distributions in excess
of our current and accumulated earnings and profits will be treated as a return of capital to the
extent of the U.S. Holders basis in the ordinary shares or ADSs and thereafter as capital gain.
Such capital gain will be long-term capital gain if the U.S. Holders holding period of the
ordinary shares or ADSs is more than one year at the time of sale or exchange. If a taxable dividend is paid in a currency other than the U.S. dollar, the amount includible in
gross income will be the U.S. dollar value of such dividend, calculated by reference to the
exchange rate in effect on the date of actual or constructive receipt of the dividend by the U.S.
Holder, in the case of ordinary shares, or by the depositary, in the case of ADS, regardless of
whether the payment is actually converted into U.S. dollars. U.S. Holders should consult their own
tax advisors concerning the possibility of foreign currency gain or loss if any such currency is
not converted into U.S. dollars on the date of receipt. Dividends received with respect to the ordinary shares or ADSs will be treated as income from
outside the United States, but, for taxable years beginning before
December 31, 2006, generally will be treated as passive income or financial services
income for United States foreign tax credit purposes. For taxable years beginning after December
31, 2006, dividends will be treated as passive category income or general category income for
United States foreign tax credit purposes. Under Section 904(g) of the United States Internal
Revenue Code of 1986, as amended, dividends paid by a foreign corporation 50% or more of which is
owned by United States persons may be treated as income from sources within the United States to
the 94




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extent that the foreign corporation has more than a small amount of income from sources within the
United States. The Singapore taxes are paid by our company and deemed to have been distributed to
and paid by our shareholders. A U.S. Holder will not be subject to United States federal income tax
on such amounts, and the holder will not be eligible for foreign tax credits for such amounts
against its United States federal income tax liability. Sale or Exchange of the Ordinary Shares or ADSs Subject to the PFIC rules discussed below, upon the sale or exchange of an ordinary share or an
ADS, a U.S. Holder will generally recognize capital gain or loss equal to the difference between
(i) the amount of cash proceeds and the fair market value of any property received on the sale or
exchange and (ii) such holders adjusted tax basis in the ordinary share, or ADS. Such capital
gain or loss will be long-term capital gain or loss if the U.S. Holders holding period in the
ordinary share or ADS is more than one year at the time of sale or exchange. Long-term capital
gains recognized by certain non-corporate U.S. Holders, including individuals, will generally be
subject to a maximum rate of tax of 15%. The deductibility of capital losses is subject to
limitations. Such gain or loss generally will be treated as income or loss from within the United
States for United States foreign tax credit purposes. Passive Foreign Investment Company Special United States federal income tax rules apply to U.S. persons owning shares of a PFIC. We
do not believe that we are currently a PFIC, nor do we anticipate becoming a PFIC in the
foreseeable future. However, there can be no assurance that we will not become a PFIC at some
future time as a result of changes in our assets, income or business operations. If we were classified as a PFIC for any taxable year during which a U.S. Holder held ordinary
shares, ADSs, such U.S. Holder generally would be taxed at ordinary income tax rates on any gain
realized on the sale or exchange of the ordinary share or ADSs and on any excess
distribution received. Such U.S. Holder would also be subject to a special interest
charge with respect to any such gain or excess
distribution. Rather than being subject to this tax regime, a
U.S. Holder of ordinary shares or ADSs may make a qualified
electing fund or mark-to-market election. A
qualified electing fund election generally should be made for the first
taxable year in which a company is a PFIC.  F.

Dividends and Paying Agents Not applicable  G.

Statements by Experts Not applicable  H.

Documents on Display All documents relating to our company, which are referred to in this Annual Report are available at
our principal executive and registered office at No. 5, Yishun Street 23, Singapore 768442,
Republic of Singapore.  I.

Subsidiary Information Not applicable 95




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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to financial market risks, including changes in currency exchange rates and interest
rates. To mitigate the currency exchange risks, a substantial majority of our revenue, material and
equipment supplies are transacted in U.S. dollars. We may employ derivative instruments such as
forward foreign currency swaps, foreign currency contracts and options and interest rate swaps to
manage our foreign exchange and interest rate exposures. These instruments are generally used to
reduce or eliminate the financial risks associated with its assets and liabilities and not for
trading purposes. Investment and Interest Rates.Our exposure to market risk associated with changes in interest
rates primarily relates to its investment portfolio and debt obligations. We place our investments
in time deposits and marketable securities. We mitigate default risk by investing in marketable
securities that are of at least an A rating, as assigned by an internationally recognized credit
rating organization, and major Singapore banks and government-linked
companies. We have no
material cash flow exposure due to rate changes for cash equivalents and short-term investments. As
of December 31, 2004, our long-term debt obligations for the $200.0 million and $115.0 million
senior unsecured and unsubordinated convertible notes due March 18, 2007 and November 7, 2008, the
$50.0 million and $150.0 million subordinated convertible notes due June 15, 2011 and June 1, 2008
and the $215.0 million senior notes due 2011 bear a fixed interest rate. The convertible notes due
March 18, 2007 bear interest at a rate of 1.75% per annum and have a yield to maturity of 4.91%.
The convertible notes due November 7, 2008 have a yield to maturity of 4.25%. The senior
subordinated convertible notes due 2011 and 2008 and senior notes due 2011 bear interest of 8.0%,
2.5% and 6.75% per annum. Currency Exchange Rates.A portion of our costs is denominated in foreign currencies, like the
Singapore dollar, the New Taiwan dollar and the Japanese yen. As a result, changes in the exchange
rates of these currencies or any other applicable currencies to the U.S. dollar will affect our
cost of goods sold and operating margins and could result in exchange losses. We have entered into
foreign currency contracts to mitigate financial risks associated with payroll costs, materials
costs and other costs denominated in Singapore dollars, South Korean Won and Malaysia Ringgit to
benefit from its expectations of future exchange rate fluctuations. Based on our overall currency rate exposure, we have adopted a foreign currency hedging policy for
committed or forecasted currency exposures. We may utilize foreign currency swaps as well as
foreign exchange forward contracts and options. These programs reduce, but do not always entirely
eliminate the impact of currency exchange movements. The goal of the hedging policy is to
effectively manage risk associated with fluctuations in the value of the foreign currency, thereby
making financial results more stable and predictable. However, we cannot assure you that any
hedging policy we implement will be effective and we may experience reduced operating margins if
any such policies are unsuccessful. Currency, maturity and interest rate information relating to our marketable securities and,
short-term and long-term debt are disclosed in Notes 4, 15, and 17 to our audited consolidated
financial statements, respectively. Limitations Fair value estimates are made at a specific point in time and are based on relevant market
information about the financial instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates. 
 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable 96




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ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES None 
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS See Item 10. Additional Information for a description of the rights of securities holders, which
remain unchanged. We completed our initial public offering of 175,950,000 ordinary shares, directly or in the form of
ADSs, at S$3.554 per ordinary share or $21.00 per ADS in February 2000, after our ordinary shares
and American Depositary Receipts, or ADRs, were registered under the Securities Act. The aggregate
price of the offering amount registered and sold was $369,495,000. We also completed a separate
offering of 19,550,000 ordinary shares at S$3.554 per ordinary share in Singapore on the same date.
The effective date of our registration statement on Form F-1 (File number: 333-93661) was January
27, 2000. Salomon Smith Barney Inc. was the global coordinator and sole book running manager for
the global offering of our ordinary shares and ADSs. The net proceeds from our initial public offering was used to repay loans of $25.0 million from ST
Treasury Services Ltd, a related party, $35.0 million from Den Danske Bank and $22.2 million due on
the EDB loan on the respective repayment due dates, and for general corporate purposes, including
for capital expenditure and general working capital. Except as set forth in the previous sentence,
none of the proceeds were paid, directly or indirectly to our directors, officers or their
associates or to any person owning ten percent or more of our ordinary shares or to our affiliates.
As of December 31, 2004, our cash resources amounted to $247.7 million, comprising $227.5 million
in cash and cash equivalents and $20.2 million in marketable securities. 
 ITEM 15. CONTROLS AND PROCEDURES Evaluation of disclosure controls and procedures Based on our chief executive officers and chief financial officers evaluation of our disclosure
controls and procedures (as defined in Rules 13a-14 (c) and
15d-14 (c) under the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this Form 20-F, they have
concluded that our disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the SECs rules
and forms and are operating in an effective manner. Changes to internal controls There were no adverse changes in our internal controls over financial reporting that occurred
during the period covered by this Annual Report that has materially affected, or is likely to
materially affect, our internal control over financial reporting. 97




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ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our Board of Directors has determined that Mr. Steven Hugh Hamblin and Mr. R. Douglas Norby qualify
as audit committee financial experts as defined in Item 16A of Form 20-F. Each of the members
of the Audit Committee is an independent director as defined in Rule 4200(15) of the Nasdaq
Marketplace Rules. 
 ITEM 16B. CODE OF ETHICS We have adopted a code of ethics that applies to all of our officers, directors and employees and
to all officers, directors and employees of our subsidiaries. The text of our Code of Business
Conduct and Ethics is posted on our internet website at http://www.statschippac.com. 
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES KPMG served as our independent registered public accounting firm for the financial year ended December 31, 2003,
for which audited financial statements appear in this annual report on Form 20-F. PWC served as
our independent registered public accounting firm from August 2004. The following table shows the fees we paid or accrued for the audit and other services provided by
KPMG for 2003 and PWC for 2004. December 31,2003
    
    
    2004(in thousands of US$)Audit Fees
    
    $
    374
    
    
    $
    918Audit-Related Fees
    
    
    7
    
    
    
    160Tax Fees
    
    
    71
    
    
    
    42All Other Fees
    
    
    
    
    
    
    35Total
    
    $
    452
    
    
    $
    1,155
 Audit Fees. This category consists of fees billed for the annual audit services engagement and
other audit services, which are normally provided by the independent auditors in connection with
statutory and accounting matters that arose during, or as a result of, the audit or the review of
interim financial statements and include the group audit; statutory audits required by non-U.S.
jurisdictions; comfort letters and consents; attest services; and assistance with and review of
documents filed with the SEC. Audit-Related Fees. This category consists of fees billed for assurance and related services
that are reasonably related to the performance of the audit or review of our financial statements
or that are traditionally performed by the 98




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external auditor, and include internal control reviews
of new systems, programmes and projects; review of security controls and operational effectiveness
of systems; due diligence related to acquisitions; accounting assistance; audits for MTN Program,
offering of convertible notes and audits in connection with proposed or completed acquisitions; and
employee benefit plan audits. Tax Fees.This category includes fees billed for tax compliance services, including the preparation
of original and amended tax returns and claims for refund; tax consultations, such as assistance
and representation in connection with tax audits and appeals, tax advice related to mergers and
acquisitions, transfer pricing, and requests for rulings or technical advice from taxing
authorities and tax planning services. All Other Fees.No fees were paid or billed by KPMG or by PWC with respect to any other services
which have not been described above, in 2003 and 2004. Audit Committee Pre-approval Process Our Audit Committee reviews and pre-approves the scope and the cost of all audit and permissible
non-audit services performed by the independent auditors, other than those for de minimusservices
which are approved by the Audit Committee prior to the completion of the audit. All of the
services provided by KPMG and PWC during the last two fiscal years have been approved by the Audit
Committee. 
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE Not applicable. 
 ITEM 16E. ISSUER PURCHASES OF EQUITY SECURITIES Neither we, nor any affiliated purchaser, made any purchase of our equity securities for the year
ended December 31, 2004. 
 ITEM 17. FINANCIAL STATEMENTS See Item 18 for a list of the Financial Statements filed as part of this Annual Report. 
 ITEM 18. FINANCIAL STATEMENTS The following financial statements are filed as part of this Annual Report, together with the
report of the independent registered public accounting firms:  Reports of Independent Registered Public Accounting FirmsConsolidated Balance Sheets as at December 31, 2003 and 2004Consolidated Statements of Operations and Comprehensive Loss for the years ended December
31, 2002, 2003 and 2004 99




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Consolidated Statements of Shareholders Equity for the years ended December 31, 2002, 2003
and 2004Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2003 and 2004Notes to the Consolidated Financial Statements 
 ITEM 19. EXHIBITS The following exhibits are filed as part of this Annual Report:  1.1

Memorandum and Articles of Association of STATS ChipPAC Ltd. 
incorporated by reference to Exhibit 3.2 to Form F-4 of STATS ChipPAC
Ltd., as filed with the Securities and Exchange Commission on April 6,
20042.1

Form of specimen certificate representing ST Assembly Test Services
Ltds ordinary shares  incorporated by reference to Exhibit 4.1 of
Amendment No. 1 to Form F-1 of ST Assembly Test Services Ltd filed
with the Securities and Exchange Commission on January 3, 20002.2

Deposit Agreement 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 of ST Assembly Test Services Ltd filed with
the Securities and Exchange Commission on March 30, 20014.1

ST Group Management & Support Services Agreement dated December 27,
1999 by and between Singapore Technologies Pte Ltd and ST Assembly
Test Services Ltd  incorporated by reference to Exhibit 10.1 of
Amendment No. 1 to Form F-1 of ST Assembly Test Services Ltd filed
with the Securities and Exchange Commission on January 3, 20004.2

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 of ST
Assembly Test Services Ltd filed with the Securities and Exchange
Commission on January 3, 20004.3

Agreement for the period January 1, 2003 to March 31, 2003, for the
extension of the BGA Immunity Agreement entered into on October 18,
1996 between Motorola Inc and ST Assembly Test Services Ltd  incorporated by reference to Exhibit 4.6 of Form 20-F of ST Assembly
Test Services filed with the Securities and Exchange Commission on
March 31, 20034.4

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 of ST Assembly
Test Services Ltd filed with the Securities and Exchange Commission on
February 28, 20024.5

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 of ST Assembly Test Services Ltd
filed with the Securities and Exchange Commission on February 28, 20024.6

Agency Agreement dated January 10, 2002 by and between British and
Malayan Trustees Limited, 100




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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 of ST Assembly Test Services Ltd filed with
the Securities and Exchange Commission on February 28, 20024.7

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 of ST Assembly Test Services Ltd filed with the
Securities and Exchange Commission on March 31, 20034.8

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 of ST Assembly
Test Services Ltd filed with the Securities and Exchange Commission
on March 31, 20034.9

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 of ST Assembly
Test Services Ltd filed with the Securities and Exchange Commission
on March 31, 20034.10

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 of ST Assembly
Test Services Ltd filed with the Securities and Exchange Commission
on March 31, 20034.11

Terms and Conditions of Appointment of Tan Lay Koon as President and
Chief Executive Officer of ST Assembly Test Services Ltd dated March
24, 2003 by and between Tan Lay Koon and ST Assembly Test Services
Ltd  incorporated by reference to Exhibit 4.16 of Form 20-F of ST
Assembly Test Services Ltd filed with the Securities and Exchange
Commission on March 31, 20034.12

ChipPAC, Inc. Employee Retention and Severance Plan  incorporated by
reference to Exhibit 10.41 to the Annual Report on Form 10-K of
ChipPAC, Inc. for the fiscal year ended December 31, 2003, as filed
with the Securities and Exchange Commission on March 12, 20044.13

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 of ChipPAC, Inc. for the fiscal year ended December 31,
2003, as filed with the Securities and Exchange Commission on March
12, 20044.14

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 of ST Assembly Test Services Ltd filed with the
Securities and Exchange Commission on March 19, 20044.15

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 of ST Assembly Test Services Ltd filed with the Securities and
Exchange Commission on March 19, 20044.16

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 of ST Assembly
Test Services Ltd filed with the Securities and Exchange Commission
on March 19, 20044.17

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 of ST Assembly Test Services Ltd filed with the Securities
and Exchange Commission on March 19, 2004 101




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4.18

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 of ST Assembly
Test Services Ltd filed with the Securities and Exchange Commission
on March 19, 20044.19

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 of ST Assembly Test Services
Ltd filed with the Securities and Exchange Commission on March 19,
20044.20

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 of ST Assembly Test Services Ltd filed with
the Securities and Exchange Commission on March 19, 20044.21

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 of ST Assembly Test
Services Ltd filed with the Securities and Exchange Commission on
March 19, 20044.22

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 of ST Assembly Test Services
Ltd filed with the Securities and Exchange Commission on March 19,
20044.23

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 of ST Assembly Test Services Ltd filed
with the Securities and Exchange Commission on March 19, 20044.24

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 of ST Assembly Test Services
Ltd filed with the Securities and Exchange Commission on March 19,
20044.25

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 of ST
Assembly Test Services Ltd filed with the Securities and Exchange
Commission on March 19, 20044.26

Indenture dated November 7, 2003 by and between ST Assembly Test
Services Ltd and the Bank of New York relating to the Convertible
Notes Due 2008  incorporated by reference to Exhibit 4.24 of Form
20-F of ST Assembly Test Services Ltd filed with the Securities and
Exchange Commission on March 19, 20044.27

US$115 Million Reg S Global Note issued by ST Assembly Test Services
Ltd under the Indenture relating to the Convertible Notes Due 2008

incorporated by reference to Exhibit 4.25 of Form 20-F of ST Assembly
Test Services Ltd filed with the Securities and Exchange Commission
on March 19, 20044.28

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 of ChipPAC, Inc. filed with the Securities and
Exchange Commission on August 26, 20034.29

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 of ChipPAC, Inc. filed with the Securities
and Exchange Commission on August 8, 2003 for the period ended June
30, 2003 102




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4.30

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 of ChipPAC, Inc. filed with the
Securities and Exchange Commission on August 8, 2003 for the period
ended June 30, 20034.31

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 of STATS
ChipPAC Ltd., as filed with the Securities and Exchange Commission on
April 6, 20044.32

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 of STATS ChipPAC Ltd., as
filed with the Securities and Exchange Commission on April 6, 20044.33

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 of ChipPAC, Inc. for the three months ended March 31, 2004,
as filed with the Securities and Exchange Commission on May 10, 20044.34

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 of ChipPAC, Inc. for the three
months ended June 30, 3002, as filed with the Securities and Exchange
Commission on July 30, 20044.35

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 42 of Form F-3 of STATS ChipPAC, Inc. filed with
the Securities and Exchange Commission on October 13, 20044.36

STATS ChipPAC Ltd. Substitute Share Purchase and Option Plan 
incorporated by reference to Exhibit 4.4 to Form S-8 POS of STATS
ChipPAC Ltd. of August 25, 20044.37

STATS ChipPAC Ltd. Substitute Equity Incentive Plan  incorporated by
reference to Exhibit 4.5 to Form S-8 POS of STATS ChipPAC Ltd. of
August 25, 20044.38

STATS ChipPAC Ltd. Share Option Plan  incorporated by reference to
Exhibit 4.3 to Form S-8 of STATS ChipPAC Ltd. of August 25, 20044.39

STATS ChipPAC Ltd. Employee Share Purchase Plan 2004  incorporated
by reference to Exhibit 4.4 to Form S-8 of STATS ChipPAC Ltd. of
August 25, 20044.40

Indenture, dated November 18, 2004, by and between STATS ChipPAC Ltd.
and U.S. Bank National Association4.41

Purchase Agreement, dated as of November 5, 2004 by and between STATS
ChipPAC Ltd, Deutsche Bank AG, Singapore Branch and Lehman Brothers
International (Europe) 103




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4.42

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, the
Subsidiary Guarantors) and Deutsche Bank AG, Singapore Branch and
Lehman Brothers International (Europe)4.43

Subsidiary Guarantee Agreement, dated November 18, 2004, by and
between STATS ChipPAC Ltd., the Subsidiary Guarantors and U.S. Bank
National Association, as Trustee4.44

Second Supplemental Indenture among ChipPAC International, as Issuer,
ChipPAC, Inc., as Guarantor, and U.S. Bank National Association as
Trustee, dated October 7, 20044.45

Second Supplemental Indenture among ChipPAC Inc., as Company, STATS
ChipPAC Ltd., as Parent, and U.S. Bank National Association, as
Trustee, dated October 11, 20044.46

Third Supplemental Indenture among ChipPAC Inc., as Company, STATS
ChipPAC Ltd., as Parent, and U.S. Bank National Association, as
Trustee, dated November 2, 20048.1

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 and 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 104




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SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its behalf. STATS CHIPPAC LTD.Date: March 18, 2005By    /s/ Tan Lay KoonTan Lay KoonPresident and Chief Executive Officer 105




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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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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders
STATS ChipPAC Ltd.: In our opinion, the accompanying consolidated balance sheet and the related consolidated statements
of operations, of shareholders equity and of cash flows, present fairly, in all material respects,
the financial position of STATS ChipPAC Ltd. and subsidiaries as of December 31, 2004, and the
results of their operations and their cash flows for the year ended December 31, 2004, in
conformity with accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audit. We conducted our audit of
these statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States), which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that our audit provide a
reasonable basis for our opinion. PricewaterhouseCoopers Singapore
March 11, 2005 F-2




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders
ST Assembly Test Services Ltd: We have audited the accompanying consolidated balance sheet of ST
Assembly Test Services Ltd and subsidiaries
as of December 31, 2003, and the related consolidated statements of operations, comprehensive loss,
shareholders equity and cash flows for each of the two years in the period ended December 31,
2003. These consolidated financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of ST Assembly Test Services Ltd and subsidiaries as of
December 31, 2003, and the consolidated results of their operations and their cash flows for each
of the two years in the period ended December 31, 2003, in conformity with U.S. generally accepted
accounting principles. KPMG Singapore
February 6, 2004 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
    
    
    2003
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    
    3
    
    
    $
    313,163
    
    
    $
    227,509Short-term marketable securities
    
    
    4
    
    
    
    11,144
    
    
    
    2,060Accounts receivable, net
    
    
    5
    
    
    
    79,899
    
    
    
    149,650Amounts due from affiliates
    
    
    2
    
    
    
    7,050
    
    
    
    2,623Other receivables
    
    
    6
    
    
    
    2,773
    
    
    
    16,813Inventories
    
    
    7
    
    
    
    19,839
    
    
    
    54,690Prepaid expenses and other current assets
    
    
    8
    
    
    
    14,863
    
    
    
    38,836Total current assets
    
    
    
    
    
    
    448,731
    
    
    
    492,181Long-term marketable securities
    
    
    4
    
    
    
    23,313
    
    
    
    18,121Property, plant and equipment, net
    
    
    9
    
    
    
    474,133
    
    
    
    1,035,803Intangible assets
    
    
    10
    
    
    
    1,940
    
    
    
    125,830Goodwill
    
    
    11
    
    
    
    2,209
    
    
    
    523,598Prepaid expenses and other non-current assets
    
    
    8
    
    
    
    43,526
    
    
    
    76,169Total assets
    
    
    
    
    
    $
    993,852
    
    
    $
    2,271,702LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts and other payable
    
    
    
    
    
    $
    8,042
    
    
    $
    68,573Payables related to property, plant and equipment purchases
    
    
    
    
    
    
    54,089
    
    
    
    51,638Accrued operating expenses
    
    
    13
    
    
    
    40,661
    
    
    
    63,899Income taxes payable
    
    
    
    
    
    
    3,383
    
    
    
    2,038Short-term borrowings
    
    
    15
    
    
    
    
    
    
    
    19,874Amounts due to affiliates
    
    
    2
    
    
    
    1,836
    
    
    
    137Current obligations under capital leases
    
    
    16
    
    
    
    5,296
    
    
    
    7,587Current installments of long-term debt
    
    
    17
    
    
    
    6,841
    
    
    
    154,407Total current liabilities
    
    
    
    
    
    
    120,148
    
    
    
    368,153Obligations under capital leases, excluding current installments
    
    
    16
    
    
    
    812
    
    
    
    10,771Long-term debt, excluding current installments
    
    
    17
    
    
    
    358,789
    
    
    
    642,175Other non-current liabilities
    
    
    19
    
    
    
    4,463
    
    
    
    50,362Total liabilities
    
    
    
    
    
    
    484,212
    
    
    
    1,071,461Minority interest
    
    
    
    
    
    
    33,684
    
    
    
    40,891Share capital:Ordinary shares  par value S$0.25,Authorized 3,200,000,000 sharesIssued ordinary shares  1,076,620,120 in 2003 and
1,944,330,450 in 2004
    
    
    20
    
    
    
    172,434
    
    
    
    298,233Additional paid-in capital
    
    
    21
    
    
    
    489,355
    
    
    
    1,507,612Accumulated other comprehensive loss
    
    
    22
    
    
    
    (9,921
    )
    
    
    (2,860
    )Accumulated deficit
    
    
    
    
    
    
    (175,912
    )
    
    
    (643,635
    )Total shareholders equity
    
    
    
    
    
    
    475,956
    
    
    
    1,159,350Commitments and contingencies
    
    
    24Total liabilities and shareholders equity
    
    
    
    
    
    $
    993,852
    
    
    $
    2,271,702
 See accompanying notes to consolidated financial statements. F-4




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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
    
    
    2002
    
    
    2003
    
    
    2004Net revenues
    
    
    
    
    
    $
    225,738
    
    
    $
    380,691
    
    
    $
    769,121Cost of revenues
    
    
    
    
    
    
    (247,943
    )
    
    
    (328,014
    )
    
    
    (643,540
    )Gross profit (loss)
    
    
    
    
    
    
    (22,205
    )
    
    
    52,677
    
    
    
    125,581Operating expenses:Selling, general and administrative
    
    
    
    
    
    
    36,693
    
    
    
    36,475
    
    
    
    84,965Research and development
    
    
    
    
    
    
    18,856
    
    
    
    15,295
    
    
    
    17,637Goodwill and
asset impairments
    
    
    9, 11
    
    
    
    14,666
    
    
    
    
    
    
    
    453,000Prepaid leases written off
    
    
    
    
    
    
    764
    
    
    
    
    
    
    
    Other general expenses (income), net
    
    
    
    
    
    
    548
    
    
    
    374
    
    
    
    (464
    )Total operating expenses
    
    
    
    
    
    
    71,527
    
    
    
    52,144
    
    
    
    555,138Operating income (loss)
    
    
    
    
    
    
    (93,732
    )
    
    
    533
    
    
    
    (429,557
    )Other income (expense), net:Interest income
    
    
    
    
    
    
    5,271
    
    
    
    4,785
    
    
    
    4,430Interest expense
    
    
    
    
    
    
    (10,414
    )
    
    
    (13,994
    )
    
    
    (28,816
    )Foreign currency exchange gain (loss)
    
    
    
    
    
    
    (512
    )
    
    
    1,634
    
    
    
    (1,122
    )Other non-operating income (expense), net
    
    
    25
    
    
    
    3,419
    
    
    
    7,570
    
    
    
    (936
    )Total other income (expense), net
    
    
    
    
    
    
    (2,236
    )
    
    
    (5
    )
    
    
    (26,444
    )Income (loss) before income taxes
    
    
    
    
    
    
    (95,968
    )
    
    
    528
    
    
    
    (456,001
    )Income tax benefit (expense)
    
    
    14
    
    
    
    7,163
    
    
    
    (705
    )
    
    
    (7,894
    )Loss before minority interest
    
    
    
    
    
    
    (88,805
    )
    
    
    (177
    )
    
    
    (463,895
    )Minority interest
    
    
    
    
    
    
    (514
    )
    
    
    (1,539
    )
    
    
    (3,828
    )Net loss
    
    
    
    
    
    $
    (89,319
    )
    
    $
    (1,716
    )
    
    $
    (467,723
    )Basic and diluted net loss per ordinary share
    
    
    
    
    
    $
    (0.09
    )
    
    $
    (0.00
    )
    
    $
    (0.33
    )Basic and diluted net loss per ADS
    
    
    
    
    
    $
    (0.90
    )
    
    $
    (0.02
    )
    
    $
    (3.27
    )Ordinary shares (in thousands) used in per ordinary
share calculation: basic and diluted
    
    
    
    
    
    
    991,549
    
    
    
    1,005,374
    
    
    
    1,428,954ADS (in thousands) used in per ADS calculation: basic and diluted
    
    
    
    
    
    
    99,155
    
    
    
    100,537
    
    
    
    142,895
 See accompanying notes to consolidated financial statements. F-5




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STATS CHIPPAC LTD. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31
In thousands of U.S. Dollars 2002
    
    
    2003
    
    
    2004Net loss
    
    $
    (89,319
    )
    
    $
    (1,716
    )
    
    $
    (467,723
    )Other comprehensive loss:Unrealized gain (loss) on available-for-sale
marketable securities
    
    
    1,012
    
    
    
    3,687
    
    
    
    (548
    )Realized (gain) loss on available-for-sale
marketable securities included in net loss
    
    
    (125
    )
    
    
    (5,040
    )
    
    
    537Unrealized gain on hedging instruments
    
    
    
    
    
    
    
    
    
    
    3,953Realized gain on hedging instruments
    
    
    
    
    
    
    
    
    
    
    (168
    )Foreign currency translation adjustment
    
    
    (212
    )
    
    
    698
    
    
    
    3,287Comprehensive loss
    
    $
    (88,644
    )
    
    $
    (2,371
    )
    
    $
    (460,662
    )
 See accompanying notes to consolidated financial statements. F-6




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##### Table of Contents



STATS CHIPPAC LTD. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
In thousands of U.S. Dollars AccumulatedAdditional
    
    
    Other
    
    
    Accumulated
    
    
    TotalPaid-in
    
    
    Comprehensive
    
    
    Earnings
    
    
    ShareholdersOrdinary Shares
    
    
    Capital
    
    
    Loss
    
    
    (Deficit)
    
    
    EquityNo.(In thousands)
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Balances at January 1, 2002
    
    
    989,683
    
    
    
    159,961
    
    
    
    387,652
    
    
    
    (9,941
    )
    
    
    (84,877
    )
    
    
    452,795Share issuances
    
    
    2,432
    
    
    
    334
    
    
    
    944
    
    
    
    
    
    
    
    
    
    
    
    1,278Non-cash compensation
    
    
    
    
    
    
    
    
    
    
    1,023
    
    
    
    
    
    
    
    
    
    
    
    1,023Stock compensation
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    60Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (89,319
    )
    
    
    (89,319
    )Other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    675
    
    
    
    
    
    
    
    675Balances at December 31,
2002
    
    
    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
    )
    
    
    1,159,350
 See accompanying notes to consolidated financial statements. 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 2002
    
    
    2003
    
    
    2004Cash Flows From Operating ActivitiesNet loss
    
    $
    (89,319
    )
    
    $
    (1,716
    )
    
    $
    (467,723
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Depreciation and amortization
    
    
    105,466
    
    
    
    120,610
    
    
    
    188,683Goodwill and
asset impairments and prepaid leases written off
    
    
    15,430
    
    
    
    
    
    
    
    453,000Amortization of leasing prepayments
    
    
    19,222
    
    
    
    11,732
    
    
    
    25,718Debt issuance cost amortization
    
    
    882
    
    
    
    1,155
    
    
    
    1,913Loss (gain) on sale of property, plant and equipment
    
    
    702
    
    
    
    100
    
    
    
    (656
    )Accretion of discount on convertible notes
    
    
    5,013
    
    
    
    7,366
    
    
    
    11,437Loss from repurchase of senior and convertible notes
    
    
    
    
    
    
    
    
    
    
    797Foreign currency exchange loss (gain)
    
    
    367
    
    
    
    (3,367
    )
    
    
    (830
    )Deferred income taxes
    
    
    (8,189
    )
    
    
    (1,246
    )
    
    
    15,005Non-cash compensation
    
    
    1,023
    
    
    
    
    
    
    
    Minority interest in income of subsidiary
    
    
    514
    
    
    
    1,539
    
    
    
    3,828Loss (gain) on sale and maturity of marketable securities
    
    
    (125
    )
    
    
    (5,040
    )
    
    
    537Others
    
    
    (3
    )
    
    
    (54
    )
    
    
    1,029Changes in operating working capital:Accounts receivable
    
    
    (23,633
    )
    
    
    (30,277
    )
    
    
    8,149Amounts due from affiliates
    
    
    (2,030
    )
    
    
    (2,932
    )
    
    
    4,427Inventories
    
    
    (2,482
    )
    
    
    (10,095
    )
    
    
    (1,171
    )Other receivables, prepaid expenses and other assets
    
    
    (893
    )
    
    
    (16,783
    )
    
    
    (64,421
    )Accounts payable, accrued operating expenses and other
payables
    
    
    7,163
    
    
    
    11,769
    
    
    
    (41,406
    )Amounts due to affiliates
    
    
    (611
    )
    
    
    (213
    )
    
    
    (1,699
    )Net cash provided by operating activities
    
    
    28,497
    
    
    
    82,548
    
    
    
    136,617Cash Flows From Investing ActivitiesProceeds from sales of marketable securities
    
    
    110,962
    
    
    
    77,566
    
    
    
    130,497Proceeds from maturity of marketable securities
    
    
    2,844
    
    
    
    5,753
    
    
    
    46,687Purchases of marketable securities
    
    
    (157,976
    )
    
    
    (43,850
    )
    
    
    (160,943
    )Acquisition of intangible assets
    
    
    (65
    )
    
    
    
    
    
    
    (1,428
    )Acquisition of subsidiary, net of cash acquired
    
    
    
    
    
    
    (467
    )
    
    
    7,208Purchases of property, plant and equipment
    
    
    (113,169
    )
    
    
    (209,326
    )
    
    
    (287,574
    )Others, net
    
    
    751
    
    
    
    (3,946
    )
    
    
    729Net cash used in investing activities
    
    
    (156,653
    )
    
    
    (174,270
    )
    
    
    (264,824
    )Cash Flows From Financing ActivitiesRepayment of short-term debt
    
    $
    
    
    
    $
    (27,419
    )
    
    $
    (72,006
    )Repayment of long-term debt
    
    
    (14,321
    )
    
    
    (19,713
    )
    
    
    (8,982
    )Proceeds from issuance of shares, net of expenses
    
    
    1,278
    
    
    
    117,477
    
    
    
    1,968Proceeds from issuance of convertible and senior notes,
net of expenses
    
    
    195,032
    
    
    
    112,345
    
    
    
    210,458Repurchase of senior and convertible notes
    
    
    
    
    
    
    
    
    
    
    (193,647
    )Proceeds from bank borrowings
    
    
    20,592
    
    
    
    49,839
    
    
    
    107,620Decrease (increase) in restricted cash
    
    
    (13,026
    )
    
    
    8,223
    
    
    
    2,927Grants received
    
    
    1,150
    
    
    
    6,784
    
    
    
    Capital lease payments
    
    
    (10,082
    )
    
    
    (12,862
    )
    
    
    (7,210
    )Net cash provided by financing activities
    
    
    180,623
    
    
    
    234,674
    
    
    
    41,128Net increase (decrease) in cash and cash equivalents
    
    
    52,467
    
    
    
    142,952
    
    
    
    (87,079
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    (20
    )
    
    
    2,550
    
    
    
    1,425Cash and cash equivalents at beginning of the year
    
    
    115,214
    
    
    
    167,661
    
    
    
    313,163Cash and cash equivalents at end of the year
    
    $
    167,661
    
    
    $
    313,163
    
    
    $
    227,509Supplementary Cash Flow InformationInterest paid (net of amount capitalized)
    
    $
    3,312
    
    
    $
    5,580
    
    
    $
    21,974Income taxes paid
    
    $
    1,333
    
    
    $
    669
    
    
    $
    1,023Non-cash itemsIssuance of shares and assumption of share options in
connection with acquisition
    
    $
    
    
    
    $
    
    
    
    $
    1,066,994Equipment acquired under capital leases
    
    $
    11,576
    
    
    $
    2,663
    
    
    $
    Compensation paid by Singapore Technologies Pte Ltd.
    
    $
    1,023
    
    
    $
    
    
    
    $
    
 See accompanying notes to consolidated financial statements. 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 STATS ChipPAC Ltd. (STATS ChipPAC or STATS prior to consummation of the merger) and
subsidiaries (collectively the Company) is an independent provider of a full range of
semiconductor test and packaging services. The Company was formed in connection with the merger of
ST Assembly Test Services Ltd and ChipPAC, Inc. (ChipPAC), which was consummated on August 5,
2004. In the merger, former ChipPAC stockholders received 0.87 American Depositary Shares of STATS
for each share of ChipPAC Class A common stock, par value $0.01 per share, owned by such
stockholder. Upon consummation of the merger, STATS and ChipPACs former shareholders owned
approximately 56% and 44%, respectively, of the Companys total shares outstanding. As a result of
the merger, ChipPAC became a wholly-owned subsidiary of STATS. The transaction was accounted for
using the purchase method. Subsequent to the merger, STATS was renamed STATS ChipPAC Ltd. In 2004, the Companys Taiwan subsidiary, Winstek Semiconductor Corporation (Winstek), issued new
shares to its employees as employee stock bonus and resulted in the dilution of the Companys
interest in Winstek from 55.0% to 54.5%. The Company recognized the
loss of $62 on the dilution on
interest within shareholders equity. The Company has operations in Singapore, South Korea, China, Malaysia, Taiwan, the United Kingdom,
the Netherlands, Japan and in the United States of America, its principal market. Temasek Holdings (Private) Limited (Temasek), through its wholly-owned subsidiary, Singapore
Technologies Semiconductors Pte Ltd, beneficially owned approximately 37% of the Company as of
December 31, 2004. Temasek is the principal holding company through which corporate investments of
the Government of Singapore are held. (b) Accounting Principles The consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP) consistently applied for all
periods. (c) Principles of Consolidation The consolidated financial statements include the consolidated accounts of STATS ChipPAC and its
majority-owned subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation. (d) Issuances of Stock by Subsidiaries Changes in the Companys proportionate share of the underlying net equity of a subsidiary, which
result from the issuance of additional stocks to third parties, are recognized as increases or
decreases to additional paid-in capital as a component of shareholders equity. (e) Use of Estimates The preparation of the consolidated financial statements in accordance with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported revenues and expenses during the reporting period. Significant
estimates made by management include: the useful lives of property, plant and equipment and
intangible assets as well as future cash flows to be generated by those assets; discounts and
allowances relating to volume purchases and other incentive programs offered to customers,
allowances for doubtful accounts, sales returns; valuation allowances for deferred tax assets;
provision for inventory losses; fair value of reporting units, and contingent liabilities,
among others. Actual results could differ from these estimates. 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)
 (f) Reclassifications Certain reclassifications have been made in prior years' financial statements to conform with classifications used in the current year. (g) Foreign Currency Transactions The Company predominantly utilizes the U.S. dollar as its functional currency. Assets and
liabilities which are denominated in foreign currencies are converted into the functional currency
at the rates of exchange prevailing at the balance sheet date. Income and expenses which are
denominated in foreign currencies are converted at the average rates of exchange prevailing during
the period. Foreign currency transaction gains or losses are included in results of operations. Winstek designates the New Taiwan Dollar as its functional currency. Where the functional currency
of a subsidiary is other than the Companys U.S. dollar reporting currency, the financial
statements are translated into U.S. dollars using exchange rates prevailing at the balance sheet
date for assets and liabilities and average exchange rates for the reporting period for the results
of operations. Adjustments resulting from translation of such foreign subsidiary financial
statements are reported within accumulated other comprehensive loss, which is reflected as a
separate component of shareholders equity. (h) Certain Risks and Concentrations The Companys customers are comprised of companies in the semiconductor industry located primarily
in the United States of America, Europe and Asia. The semiconductor industry is highly cyclical and
experiences significant fluctuations in customer demand, evolving industry standards, competitive
pricing pressure that leads to steady declines in average selling prices, rapid technological
changes, risk associated with foreign currencies and enforcement of intellectual property rights.
Additionally, the market in which the Company operates is very competitive. As a result of these
industry and market characteristics, key elements of competition in the independent semiconductor
packaging market include breath of packaging offerings, time-to-market, technical competence,
design services quality, production yields, reliability of customer service and price. The Companys largest customer accounted for approximately 30%, 32% and 21% of revenues for the
years ended December 31, 2002, 2003, and 2004, respectively. The Companys five largest customers
collectively accounted for approximately 64%, 66% and 56% of revenues for the years ended December
31, 2002, 2003 and 2004, respectively. The decommitment from any major customer for products, or
the loss of or default by any of these major customers could have an adverse effect upon the
Companys financial position, results of operations and cash flows. The Company mitigates the
concentration of credit risk in trade receivables through the Companys credit evaluation process,
credit policies, credit control and collection procedures. Cash and cash equivalents are deposited with banks primarily in Singapore, South Korea, China,
Malaysia, British Virgin Islands, Taiwan and the United States of America. Deposits in these banks
may exceed the amount of insurance provided on such deposits, if any. The Company has not
experienced any losses to date on its bank cash deposits. Prior to December 2004, the Company also
participates in a pooled cash management arrangement and places short-term advances with affiliates
of Temasek. South Korean, Chinese and Malaysian foreign currency exchange regulations may place restrictions on
the flow of foreign funds into and out of those countries. The Company is required to comply with
these regulations when entering into transactions in foreign currencies in South Korea, China and
Malaysia. As of December 31, 2004, there were no restrictions on foreign funds flow. 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)
 (i) Cash and Cash Equivalents Cash equivalents consist of highly liquid investments that are readily convertible into cash and
have original maturities of three months or less. Cash and cash equivalents consisted of cash,
deposit accounts and money market funds at December 31, 2004. (j) Derivative Instruments and Hedging Activities The Company recognizes all derivatives as either assets or liabilities in the statement of
financial position and measures those instruments at fair value. Changes in the fair value of
those instruments will be reported in earnings or other comprehensive income depending on the use
of the derivative and whether it qualifies for hedge accounting. The accounting for gains and
losses associated with changes in the fair value of derivatives and the effect on the consolidated
financial statements will depend on the derivatives hedge designation and whether the hedge is
highly effective in achieving offsetting changes in the fair values of cash flows of the asset or
liability hedged. In 2004, the Company entered into foreign currency forward contracts to protect the Company from fluctuations
in exchange rates. At December 31, 2004, the Company had realized and unrealized gain of $168 and
$3,953, respectively, on its foreign forward contracts. In 2003, hedge accounting has not been applied as the foreign currency forward contracts entered into do not qualify as hedges. Gains and losses on these contracts have been recorded as foreign currency gains or losses. (k) Marketable Securities Marketable securities at December 31, 2003 and 2004 consist of corporate debt securities
denominated principally in U.S. dollars and classified as available-for-sale. The Company
classifies its securities in one of three categories: trading, available-for-sale, or
held-to-maturity. Trading securities are bought and held principally for the purpose of selling
them in the near term. Held-to-maturity securities are those securities in which the Company has
the ability and intent to hold the security until maturity. All securities not included in trading
or held-to-maturity are classified as available-for-sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities
are recorded at amortized cost, adjusted for the amortization or accretion of premiums or
discounts. Unrealized holding gains and losses on trading securities are included in earnings.
Unrealized holding gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate component of other
comprehensive loss until realized. Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification basis. A decline in the market value of individual available-for-sale or held-to-maturity securities below
cost that is deemed to be other than temporary results in a reduction in its carrying amount to
fair value, with the impairment charged to earnings and a new cost basis for the security being
established. Premiums and discounts are amortized or accreted over the life of the related
held-to-maturity or available-for-sale security as an adjustment to yield using the effective
interest method. Dividend and interest income are recognized when earned. (l) Inventories Inventories are stated at the lower of standard cost, which approximates actual cost determined on
the weighted average basis, or market value. The Company generally does not take ownership of
customer supplied semiconductors, and accordingly does not include them as part of the Companys
inventories. 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) Business Combination Business combinations have been accounted for using the purchase method accounting. Business
combinations which have been accounted for under the purchase method of accounting include the
results of operations of the acquired business from the effective date of acquisition. Any excess
of the purchase price over estimated fair values of the net assets acquired has been recorded as
goodwill. (n) Goodwill The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142) effective
January 1, 2002. Under SFAS 142, goodwill is not amortized, but is tested for impairment. The
Company tests goodwill for impairment on an annual basis in the designated quarters for its different reporting units, and whenever
circumstances indicate the carrying value of the goodwill may have been impaired. The impairment
test is performed by first comparing the fair value of the applicable reporting unit to its
carrying value. If the carrying value of the reporting unit exceeds its fair value, the second
step of the impairment test is performed to determine the amount of impairment loss, if any. The
second step of the test involves the comparison of the implied fair value of the goodwill to its
carrying value. If the carrying value of reporting unit goodwill exceeds its implied fair value,
an impairment loss is recognized for an amount equal to the excess. The implied fair value of
reporting unit is determined in the same manner as the amount of goodwill recognized in a
purchase business combination. The estimates of fair value of a reporting unit are determined using various valuation techniques
with the primary technique being a discounted cash flow analysis. A discounted cash flow analysis
requires one to make various judgmental assumptions including assumptions about future cash flows,
growth rates and discount rates. The assumptions about future cash flows and growth rates are based
on the Companys budget and long-term plans. In estimating fair values of its reporting units, the
Company also use analyst estimates as well as comparable market analyses. (o) Intangible assets The Company acquires patent rights and technology licenses from other companies for use in its
processes. Cost of the technology licenses is amortized over the shorter of the useful life or
license period. In addition, intangible assets acquired in business combinations accounted for
under the purchase method of accounting are recorded at fair value on the Companys consolidated
balance sheet at the date of acquisition. In connection with the merger with ChipPAC, the costs of
intangible assets acquired comprising tradenames, technology, intellectual property and customer
relationships, software and licenses, were recorded based on the fair values of those intangible
assets on August 4, 2004, determined by independent appraisals. Intangible assets are stated at cost less accumulated amortization. Amortization is calculated on
the straight-line method over the following periods: Tradenames
    
    7 yearsTechnology and intellectual property
    
    10 yearsCustomer relationships
    
    2 yearsSoftware and licenses
    
    3 to 5 years
 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)
 (p) Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is
calculated on the straight-line method over the following periods: Land use rights
    
    50 to 99 yearsBuilding, mechanical and electrical installation
    
    3 to 25 yearsEquipment
    
    2 to 8 years
 No depreciation is provided on property, plant and equipment under installation or construction and
freehold land. Repairs and replacements of a routine nature are expensed, while those that extend
the life of an asset are capitalized. Plant and equipment under capital leases are stated at the present value of minimum lease payments
and are amortized straight-line over the estimated useful life of the assets. The Company adopted
SFAS No. 143, Accounting For Asset Retirement Obligations,
(SFAS 143) on January 1, 2003, which addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and associated asset retirement costs. This statement
applies to legal obligations associated with the retirement of
long-lived assets that result from acquisition, construction,
development and (or) normal use of asset. (q) Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. Recoverability of a long-lived asset is
measured by a comparison of the carrying amount to the sum of the undiscounted cash flows expected
to result from the use and eventual disposition of the asset. If such asset is considered to be
impaired, the impairment loss is measured as the amount by which the carrying amount of a
long-lived asset exceeds its fair value. For long-lived assets held for sale, the carrying value is measured at the lower of its carrying
amount or fair value less cost to sell and depreciation is ceased. Long-lived assets to be
abandoned will be considered held and used until it is disposed of. (r) Comprehensive Loss The Company applies SFAS No. 130, Reporting Comprehensive Income with respect to reporting and
presentation of comprehensive loss and its components in a full set of financial statements.
Comprehensive loss consists of net loss, foreign currency translation adjustments and unrealized
gain (loss) on available-for-sale marketable securities and hedging instruments, and is presented
in the consolidated statements of comprehensive loss. (s) Revenue Recognition Revenue is derived primarily from wafer probe, packaging and testing of semiconductor integrated
circuits. Net revenues represent the invoiced value of services rendered net of returns, trade
discounts and allowances, and excluding goods and services tax. Revenue is recognized when there is evidence of an arrangement, fees are fixed or determinable,
collectibility is reasonably assured, the service has been rendered, the revenue to be recognized
is billable under the terms of the arrangement and not contingent upon completion of undelivered
services, and, where applicable, delivery has occurred and risk of loss has passed to the customer.
Such policies are consistent with the provisions in Securities Exchange Commissions Staff
Accounting Bulletin No. 104 Revenue Recognition in Financial Statements. The Companys sales
arrangement include probe, packaging or test services sold on a
standalone basis, as well as multiple-element arrangements where
probe, packaging, test, and in some cases pre-production and
post-production services are provided together. Where arrangements
provide for multiple elements, elements are either combined into one
single unit of accounting or treated as separate units of accounting
depending on whether certain specified criteria are met. Revenue is allocated
to each unit of accounting based on fair value, determined by reference to
prices of services sold on a standalone basis. The Company generally does not take ownership of customer supplied semiconductors as these
materials are sent to the Company on a consignment basis. Accordingly, the values of the customer
supplied materials are neither reflected in revenue nor in cost of revenue. Provisions are made for estimates of potential sales returns and discounts allowance for volume
purchases and early payments and are recorded as a deduction from gross revenue based upon
historical experience and expectations of 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)
 customers ultimate purchase levels and timing of payment. Actual revenues may differ from
estimates if future customer purchases or payment timing differ, which may happen as a result of
changes in general economic conditions, market demand for the customers products, or desire by
customers interest in achieving payment timing discounts. Actual returns and discounts have not
historically been significantly different from estimates. In addition, specific returns and
discounts are provided for at the time their existence is known and the amounts are estimable. The following sets forth the percentage of net revenues by packaging products group and testing
services: For the Year EndedDecember 31,2002
    
    
    2003
    
    
    2004%
    
    
    %
    
    
    %Revenue packaging  array
    
    
    14.8
    
    
    
    20.6
    
    
    
    40.6 packaging  leaded
    
    
    34.0
    
    
    
    26.9
    
    
    
    20.9 test
    
    
    51.2
    
    
    
    52.5
    
    
    
    38.5Total
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
 Provisions are made for collectibility of accounts receivable when there is doubt as to the
collectibility of individual accounts. Collectibility is assessed based on the age of the balance,
the customers historical payment history, its current credit-worthiness and current economic
trends. (t) Grants Asset-related government grants consist of grants for the purchase of equipment used for research
and development activities. Asset-related grants are presented in the consolidated balance sheet
as deferred grants and are credited to income on the straight-line basis over the estimated useful
lives of the relevant assets. Income-related government grants are subsidies of training and research and development expenses.
Income-related grants are credited to income when it becomes probable that expenditures already
incurred will constitute qualifying expenditures for purposes of reimbursement under the grants,
which is typically substantially concurrent with the expenditures. There are no restrictions on transferring technology or manufacturing products developed with
government grants. (u) Stock-Based Employee Compensation At December 31, 2004, the Company has two stock-based employee compensation plans, which are more
fully described in Note 25. The Company measures stock-based employee compensation cost for
financial statement purposes in accordance with the intrinsic method of APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), and its related interpretations, and
includes pro forma information in accordance with SFAS No. 123, Accounting for Stock-Based
Compensation, (SFAS 123) as amended by SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure. Compensation cost is measured as the excess of fair market value of
the stock subject to the option at measurement date over the exercise price of the option. F-14




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STATS CHIPPAC LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) In thousands of U.S. Dollars (except per share data)
 Had the Company determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Companys net loss would have been increased to the pro forma
amounts indicated below: For the Year Ended December 31,2002
    
    
    2003
    
    
    2004Net loss as reported
    
    $
    (89,319
    )
    
    $
    (1,716
    )
    
    $
    (467,723
    )Add: Total stock-based employee
compensation expenses included in
reported net loss, net of related
tax effects
    
    
    60
    
    
    
    97
    
    
    
    658Deduct: Total stock-based employee
compensation expenses determined
under the fair value method for
all awards, net of related tax
effects
    
    
    (9,390
    )
    
    
    (10,496
    )
    
    
    (18,492
    )Pro forma net loss
    
    $
    (98,649
    )
    
    $
    (12,115
    )
    
    $
    (485,557
    )Basic and diluted net loss per share:As reported
    
    $
    (0.09
    )
    
    $
    (0.00
    )
    
    $
    (0.33
    )Pro forma
    
    $
    (0.10
    )
    
    $
    (0.01
    )
    
    $
    (0.34
    )Basic and diluted net loss per ADS:As reported
    
    $
    (0.90
    )
    
    $
    (0.02
    )
    
    $
    (3.27
    )Pro forma
    
    $
    (0.99
    )
    
    $
    (0.12
    )
    
    $
    (3.40
    )
 The fair value of options granted for the years ended December 31, 2002, 2003 and 2004 is estimated
on the date of grant using the Black-Scholes option-pricing model with the following assumptions: For the Year Ended December 31,2002
    
    
    2003
    
    
    2004Expected lives
    
    5 years
    
    
    5 - 10 years
    
    
    5 - 10 yearsDividend yield
    
    
    0.0%
    
    
    
    0.0%
    
    
    
    0.0%Risk free interest rate
    
    
    1.8% - 3.0%
    
    
    
    2.5% - 3.6%
    
    
    
    0.8% - 4.3%Expected volatility
    
    
    52.1% - 59.1%
    
    
    
    59.7% - 67.4%
    
    
    
    55.9% - 64.9%
 (v) Employee Benefit Plans Winstek operates a defined benefit retirement plan for a substantial portion of its employees in
Taiwan in accordance with the Labor Standards Law in Taiwan. Pension benefits are generally based
on years of service and average salary for the six months prior to the approved retirement date.
Winstek contributes 2% of eligible wages and salaries, on a monthly basis, to a pension fund
maintained with the Central Trust of China, as required by the Labor Standards Law. At each year
end, Winstek actuarially determines pension benefit costs and obligations using the projected unit
credit method, and the amounts calculated depend on a variety of assumptions. These assumptions
include discount rates, rates for expected returns on plan assets, mortality rates and retirement
rates. The funding of the pension plan is determined in accordance with statutory funding
requirements. Winstek is obligated to make up any shortfall in the plans assets in meeting the
benefits accrued to the participating staff. As at December 31, 2004, there is no shortfall in the
plans assets. Total pension plan expenses for the year ended December 31, 2002, 2003 and 2004 were
approximately $24, $46 and $76, respectively. Additional disclosures regarding this pension plan
pursuant to SFAS No. 132, Employers Disclosures about Pensions and Other Postretirement Benefits
are not considered necessary due to the insignificance of the amounts involved. STATS ChipPAC, Inc. and STATS ChipPAC Test Services, Inc. have a 401(k) savings plan where the
Company contributes up to 6% of eligible employee compensation at the rate of 50% of employee
contributions deferred to the 401(k) plan. The Companys matching contributions under the 401(k)
plan were $186, $258 and $262 for the year ended December 31, 2002, 2003 and 2004, respectively.
The matching contributions are accrued monthly and adjusted when the actuals are calculated. The
expenses relating to the plan are $15 per person per quarter and are F-15




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STATS CHIPPAC LTD. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) In thousands of U.S. Dollars (except per share data)
 accrued on a monthly basis. Returns of the 401(k) plan from investments in mutual funds are
calculated daily by an external administrator who administers the plan. ChipPAC, Inc. maintains a 401(k) plan where each participant may contribute up to 15.0% of tax
gross compensation (up to a statutory limit). The Company is required to make contributions based
on contributions made by employees. The contributions to the 401(k) plan for the period from August
5, 2004 to December 31, 2004 were approximately $58. Employees with more than one year of service are entitled to receive a lump-sum payment upon
termination of their employment with STATS ChipPAC Korea Ltd. (STATS ChipPAC Korea), based on
their length of service and rate of pay at the time of termination. Accrued severance benefits are
adjusted annually for all eligible employees based on their employment as of balance sheet date. In
accordance with the National Pension Act of South Korea, a certain portion of severance benefits
has been deposited with the Korean National Pension Fund and deducted from accrued severance
benefits. The amount contributed will be refunded to employees from the National Pension Fund upon
retirement. The expense for severance benefits for the period from August 5, 2004 to December 31,
2004 were approximately $1,793. The Company participates in a number of defined contribution retirement benefit plans in certain
countries of operations. Contributions are based on a percentage of each eligible employees salary
and are expensed as the related salaries are incurred. The Company incurred expenses of
approximately $3,009, $4,072 and $7,226 with respect to these retirement plans in the years ended
December 31, 2002, 2003 and 2004, respectively. (w) Operating Leases Rental payments under operating leases are expensed on a straight-line basis over the periods of
the respective leases. (x) Product Warranties The Company guarantees that work performed will be free from any defects in workmanship, materials
and manufacture for a period ranging from three to twelve months to meet the stated functionality
as agreed to in each sales arrangement. Products are tested against specified functionality
requirements prior to delivery, but the Company nevertheless from time to time experiences claims
under its warranty guarantees. The Company accrues for estimated warranty costs under those
guarantees based upon historical experience, and for specific items at the time their existence is
known and the amounts are determinable. Warranty costs incurred in 2002, 2003 and 2004 were
insignificant. (y) Research and Development Research and development expenses are expensed as incurred. (z) Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the
carrying amounts of existing assets and liabilities in the financial statements and their
respective tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is recorded for loss carryforwards and
other deferred tax assets where it is more likely than not that such loss carryforwards and
deferred tax assets will not be realized. 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)  (aa)
    
    Net Loss Per Share Basic net loss per share is computed using the weighted average number of common shares
outstanding. Diluted net loss per share is computed using the weighted average number of common
shares outstanding and dilutive potential common shares from the assumed exercise of options
outstanding during the period, if any, using the treasury stock method plus other potentially
dilutive securities outstanding, such as convertible notes. The Company excluded potentially dilutive securities for each period presented from its diluted net
loss per share computation because either the exercise price of the securities exceeded the average
fair value of the Companys common stock or the Company had net losses, and therefore these
securities were anti-dilutive. A summary of the excluded potentially dilutive securities outstanding as of December 31 and the
range of related exercise prices follows: Year Ended December 31,2002
    
    
    2003
    
    
    2004Convertible debt
    
    
    106,895
    
    
    
    172,513
    
    
    
    369,235Stock options
    
    
    54,275
    
    
    
    61,022
    
    
    
    131,997
 The conversion price of convertible debt outstanding was S$1.585 to S$3.408 per share (equivalent
to approximately $9.26 to $18.71 per ADS) as of December 31, 2004. The weighted average exercise
prices of options outstanding were $1.65, $1.58, and $1.01 (equivalent to $16.50, $15.80, and
$10.10 per ADS) as of December 31, 2002, 2003 and 2004, respectively. The excluded stock options
have per share exercise prices ranging from $0.14 to $3.99 (equivalent to $1.40 and $39.90 per ADS)
for the years ended December 31, 2002, 2003 and 2004.  (bb)
    
    New Accounting Pronouncements In March 2004, the EITF reached a consensus on recognition and measurement guidance previously
discussed under EITF Issue No. 03-01, The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. The consensus clarifies the meaning of other-than-temporary
impairment and its application to investments in debt and equity securities, in particular
investments within the scope of SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities, and investments accounted for under the cost method. This consensus is to be
applied to other-than-temporary impairment evaluations in reporting periods beginning after June
15, 2004. The application of this consensus does not have a material impact on the consolidated
results of operations as the Companys current policies are consistent with the consensus. In April 2004, the EITF issued Statement No. 03-06, Participating Securities and the Two-Class
Method Under FASB Statement No. 128, Earnings Per Share (EITF 03-06). EITF 03-06 addresses a
number of questions regarding the computation of earnings per share by companies that have issued
securities other than common stock that contractually entitle the holder to participate in
dividends and earnings of the company when, and if, it declares dividends on its common stock. The
issue also provides further guidance in applying the two class method of calculating earnings per
share, clarifying what constitutes a participating security and how to apply the two-class method
of computing earnings per share once it is determined that a security is participating, including
how to allocate undistributed earnings to such a security. EITF 03-06 became effective during the
second quarter of fiscal 2004, the adoption of which did not have an impact on the calculation of
earnings per share. In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4 (SFAS 151) SFAS 151 requires certain abnormal expenditures to be recognized as
expenses in the current period. It also requires that the amount of fixed production overhead
allocated to inventory be based on the normal capacity of the production facilities. The standard
is effective for the fiscal year beginning January 1, 2006. It is not expected that SFAS 151 will
have a material effect on the Companys consolidated financial statements. 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) In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment (SFAS 123(R)). This
statement revises SFAS No. 123, Accounting for Stock-Based Compensation, amends SFAS No. 95,
Statement of Cash Flows,and supersedes APB No. 25, Accounting for Stock Issued to Employees.
SFAS 123(R) requires companies to apply a fair-value based measurement method in accounting for
share-based payment transactions with employees and to record compensation expense for all stock
awards granted, and to awards modified, repurchased or cancelled after the required effective date.
In addition, the Company is required to record compensation expense (as previous awards continue to
vest) for the unvested portion of previously granted awards that remain outstanding at the date of
adoption. SFAS 123(R) will be effective for quarterly periods beginning after June 15, 2005, which
is the Companys third quarter of fiscal 2005. The Company is currently evaluating the impact from
this standard on its results of operations and financial position. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment of
APB Opinion No. 29 (SFAS 153) effective for nonmonetary asset exchanges occurring in the fiscal
year beginning January 1, 2006. SFAS 153 requires that exchanges of productive assets be accounted
for at fair value unless fair value cannot be reasonably determined or the transaction lacks
commercial substance. SFAS 153 is not expected to have a material effect on the Companys
consolidated financial statements.  2.
    
    Related Party Transactions As of December 31, 2004, Temasek, through its wholly-owned subsidiary, Singapore Technologies
Semiconductors Pte Ltd, beneficially owns approximately 37% of our outstanding ordinary shares.
Singapore Technologies Pte Ltd (STPL), a wholly-owned subsidiary of Temasek, was the holding
company of Singapore Technologies Semiconductors Pte Ltd prior to a restructuring completed on
December 31, 2004 pursuant to which all the assets of Singapore Technologies Pte Ltd were
transferred to Temasek. Temasek is the principal holding company through which corporate investments of the Government of
Singapore are held. Companies within the Temasek group, including Chartered Semiconductor
Manufacturing Ltd (Chartered), engage in transactions with the Company in the normal course of
their respective businesses. These transactions, such as for gas, water, electricity, facilities
management and telecommunications services, are on customary terms and conditions no
different from those with third parties. The Companys operations in Singapore are conducted in a building constructed on land held on a
long-term operating lease from a statutory board of the Government of Singapore. The lease is for
a 30-year period commencing March 1, 1996 and is renewable for a further 30 years subject to the
fulfillment of certain conditions. STPL provides management and corporate services to the Company. Under a service agreement
effective January 1, 2000, annual management fees are payable for the provision of specified
services on mutually agreed terms which the Company believes approximates the cost of providing
those services. The fees are subject to review by the parties every three years. The service fee
expense amounted to $1,084, $1,086 and $1,146 for 2002, 2003 and 2004, respectively. The service
agreement was terminated on December 31, 2004. The Company has contracts with Chartered to provide wafer sort, packaging and test services and
priority usage of the Companys testers in return for minimum loads and orders. Net revenues earned
from Chartered for 2002, 2003 and 2004 were $10,982, $13,940 and $18,537, respectively. Mr. Tan Bock Seng served as Chief Executive Officer of the Company from May 18, 1998 to January 7,
2002. Effective January 8, 2002, the Company appointed Mr. Tan Bock Seng as advisor to their Board
of Directors. In August 2002, Mr. Tan Bock Seng terminated the advisory agreement between him and
the Company. In recognition 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) of his past services, STPL made a payment of $1,023 to Mr. Tan Bock
Seng. The Company accounted for the payment as compensation expense in the income statement and as
additional paid-in capital within shareholders equity as the payment did not involve any cash
outlay by the Company. The Company participated in a cash management program managed by a bank for the former STPL group
(STPL pooled cash). Under the program, cash balances are pooled and daily cash surpluses or
shortfalls of the Company within the pool earn or bear interest at prevailing interest rates. This
arrangement was terminated as of November 30, 2004. In the past, the Company had placed surplus
cash as short-term deposits with ST Treasury Services Ltd (STPL treasury deposits), a
wholly-owned subsidiary of Temasek, but the Company had ceased to do so since October 1, 2004.
Interest income under this arrangement for 2002, 2003 and 2004 amounted to $2,170, $1,286 and $255,
respectively. Certain general and administrative expenses of a wholly-owned subsidiary, STATS ChipPAC, Inc., were
borne by and recharged to the Company by Chartered. These expenses amounted to $124 for 2002.
There were no such expenses in 2003 and 2004. 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) As of December 31, 2003 and 2004, there were the following amounts owing by (to) affiliates: December 31,2003
    
    
    2004Amounts due from affiliatesAccounts receivable, net of allowance for sales returns
    
    $
    7,050
    
    
    $
    2,623Amounts due to affiliatesOther payables
    
    $
    (1,122
    )
    
    $
    Accounts payable
    
    
    (714
    )
    
    
    (137
    )$
    (1,836
    )
    
    $
    (137
    )
  3.

Cash and Cash Equivalents Cash and cash equivalents consist of the following: December 31,2003
    
    
    2004Cash at banks and on hand
    
    $
    2,140
    
    
    $
    37,100Cash equivalentsBank fixed deposits
    
    
    176,737
    
    
    
    152,849STPL pooled cash
    
    
    3,201
    
    
    
    STPL treasury deposits
    
    
    80,202
    
    
    
    Premium deposit
    
    
    5,858
    
    
    
    Investment fund
    
    
    45,025
    
    
    
    37,560$
    313,163
    
    
    $
    227,509
 The premium deposit is a bank fixed deposit which gives enhanced yield. Upon its maturity, the
Company redeems the principal and interest either in S$ or US$ depending on the position of the US$
to S$ rate against a pre-determined strike price on a future calculation time and date. F-20




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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 Marketable securities consist of the following: December 31,2003
    
    
    2004Gross
    
    
    Gross
    
    
    
    
    
    
    
    
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair
    
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    Value
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueAvailable-for-sale
corporate debt securities
    
    $
    35,389
    
    
    $
    69
    
    
    $
    (1,001
    )
    
    $
    34,457
    
    
    $
    20,961
    
    
    $
    
    
    
    $
    (780
    )
    
    $
    20,181
 Maturities of available-for-sale debt securities are as follows (at fair value): December 31,2003
    
    
    2004Corporate debt securities:Due in one year or less
    
    $
    11,144
    
    
    $
    2,060Due after one year through five years
    
    
    23,313
    
    
    
    18,121$
    34,457
    
    
    $
    20,181
 Gross realized gains and losses in 2002 were $149 and $24, respectively. Gross realized gains and
losses in 2003 were $5,062 and $22, respectively. Gross realized gains and losses in 2004 were $86
and $623, respectively. Proceeds from the sales or maturities of available-for-sale marketable
securities during 2002, 2003 and 2004 were $113,806, $83,319 and $177,184, respectively.  5.

Accounts Receivable Accounts receivable consists of the following: December 31,2003
    
    
    2004Accounts receivable  third parties
    
    $
    81,261
    
    
    $
    151,549Allowance for sales returns
    
    
    (1,362
    )
    
    
    (1,899
    )$
    79,899
    
    
    $
    149,650
 Movements in the allowance for sales returns are as follows: 2002
    
    
    2003
    
    
    2004Beginning
    
    $
    784
    
    
    $
    1,625
    
    
    $
    1,362Utilized during the year
    
    
    (36
    )
    
    
    (1,102
    )
    
    
    (4,511
    )Charged during the year
    
    
    877
    
    
    
    839
    
    
    
    5,048Ending
    
    $
    1,625
    
    
    $
    1,362
    
    
    $
    1,899
  6.

Other Receivables Other receivables consist of the following: December 31,2003
    
    
    2004Deposits and staff advances
    
    $
    405
    
    
    $
    580Grants receivable
    
    
    722
    
    
    
    1,322Forward contract receivable
    
    
    
    
    
    
    3,785Taxes receivable
    
    
    
    
    
    
    9,492Other receivables
    
    
    1,646
    
    
    
    1,634$
    2,773
    
    
    $
    16,813
 F-21




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STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data)  7.

Inventories Inventories consist of the following: December 31,2003
    
    
    2004Raw materials
    
    $
    14,704
    
    
    $
    42,267Work-in-progress
    
    
    5,092
    
    
    
    11,472Finished goods
    
    
    43
    
    
    
    951$
    19,839
    
    
    $
    54,690
 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)  8.

Prepaid Expenses and Other Assets Prepaid expenses and other current assets consist of the following: December 31,2003
    
    
    2004Leasing prepayments
    
    $
    10,950
    
    
    $
    27,137Other prepayments and assets
    
    
    1,030
    
    
    
    4,004Deferred income tax assets
    
    
    1,203
    
    
    
    2,422Loans to vendors
    
    
    900
    
    
    
    4,879Fixed deposits pledge for bank loans
    
    
    780
    
    
    
    394$
    14,863
    
    
    $
    38,836
 Prepaid expenses and other non-current assets consist of the following: December 31,2003
    
    
    2004Leasing prepayments
    
    $
    6,283
    
    
    $
    7,071Deferred income tax assets
    
    
    22,471
    
    
    
    33,992Fixed deposits pledged for bank loans
    
    
    3,732
    
    
    
    727Other deposits
    
    
    
    
    
    
    5,225Loans to vendors
    
    
    4,100
    
    
    
    13,771Debt issuance cost, net of accumulated
amortization of $2,036 and $3,481
    
    
    6,154
    
    
    
    10,677Others
    
    
    786
    
    
    
    4,706$
    43,526
    
    
    $
    76,169
 Leasing prepayments represent prepayments of lease rental obligations for certain plant and
machinery leased under sale and lease-back arrangements. In the year ended December 31, 2002, the
Company recorded impairment charge of $764. The impairment charge resulted from testers no longer
being used. As the tester platforms had no expected future use, the prepaid leases for these
testers were written-off. Included in current and non-current loan to vendors are amounts of $5,000 and $15,000 extended by
the Company in June 2003 and January 2004, respectively, to a vendor to secure a specified minimum
quantity of substrates up to December 2008. The loans are interest-free and are collateralized by
equipment purchased by the loan monies, mortgage on the factory of the vendor and 2,400 shares of
the vendor. The loans of $5,000 and $15,000 are repayable by quarterly installments of $450 and
$882 up to June 2007 and December 2008, respectively. During the year ended December 31, 2004,
$1,350 was repaid. 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)  9.

Property, Plant and Equipment Property, plant and equipment consist of the following: December 31,2003
    
    
    2004Cost:Freehold land
    
    $
    5,760
    
    
    $
    6,147Land and land use rights
    
    
    
    
    
    
    19,864Buildings, mechanical and electrical installation
    
    
    70,661
    
    
    
    164,083Equipment
    
    
    805,830
    
    
    
    1,404,959Total cost
    
    $
    882,251
    
    
    $
    1,595,053Total accumulated depreciation
    
    $
    408,118
    
    
    $
    559,250Property, plant and equipment, net
    
    $
    474,133
    
    
    $
    1,035,803
 Depreciation charged to results of operations, including depreciation related to assets under
capital leases, amounted to $105,712 (excluding asset impairment charges of $14,666), $119,938 and
$163,975 for the years ended December 31, 2002, 2003 and 2004, respectively. In the third quarter of fiscal 2004, following the consummation of the merger, the Company adopted
ChipPACs policy to depreciate equipment and machinery on a
straight-line basis over 8 years, from
5 years previously. The impact of this change is depreciation savings of $23,373 for year ended
December 31, 2004. The change resulted in an increase in net income of $19,698, net of tax effects
of $3,675. This will also result in a decrease in loss per share and ADS by $0.01 and $0.14,
respectively for the year ended December 31, 2004. Due to the continuing softness in the demand for test services, the Company recorded asset
impairment charges in operating expenses totaling $14,666 in 2002. These charges included a write
down of machinery and equipment held for sale of $3,568 and a write down of machinery and equipment
held for use of $11,098 to reflect their estimated fair value. In determining the fair value of
machinery and equipment held for sale and held for use, the Company considered recent offers and
expected future cash flows. The carrying amount of the machinery and equipment held for sale was
$nil. The machinery and equipment held for sale were not used in operations and the Company has
disposed of them in 2003. The Company routinely reviews the remaining estimated useful lives of their equipment and machinery
to determine if such lives should be adjusted due to the likelihood of technological obsolescence
arising from changes in production techniques or in market demand for the use of its equipment and
machinery. However, due to the nature of the testing operations, which may include sudden changes
in demand in the end markets, and due to the fact that certain equipment is dedicated to specific
customers, the Company may not be able to accurately anticipate declines in the utility of its
machinery and equipment. Land use rights represent payments to secure, on a fully-paid up basis, the use of properties where
the Companys facilities are located in Shanghai, China and Kuala Lumpur, Malaysia for a period of
50 and 99 years, respectively. The land use rights expire in the year 2044 for Shanghai, China and
in the year 2086 for Kuala Lumpur, Malaysia. The Companys Singapore facilities are located in a
building constructed on land held on a 30-year operating lease which is renewable for a further
30-year period subject to the fulfillment of certain conditions. The facilities in Hsin-Chu Hsien,
Taiwan are located on a freehold land. Included in property, plant and equipment are equipments acquired under capital lease at a cost of
$17,051 and $31,889 as of December 31, 2003 and 2004, respectively. The accumulated depreciation
for these leased assets for the year ended December 31, 2003 and 2004 amounted to $6,408 and
$7,317, respectively. 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)  10.

Intangible Assets Intangible assets consist of the following: December 31, 2003
    
    
    December 31, 2004Gross
    
    
    Accumulated
    
    
    Net
    
    
    Gross
    
    
    Accumulated
    
    
    NetAssets
    
    
    Amortization
    
    
    Assets
    
    
    Assets
    
    
    Amortization
    
    
    AssetsTradenames
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7,700
    
    
    $
    (458
    )
    
    $
    7,242Technology and
intellectual property
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,000
    
    
    
    (1,333
    )
    
    
    30,667Customer relationships
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,300
    
    
    
    (20,688
    )
    
    
    78,612Software and licenses
    
    
    3,582
    
    
    
    (1,642
    )
    
    
    1,940
    
    
    
    13,180
    
    
    
    (3,871
    )
    
    
    9,309$
    3,582
    
    
    $
    (1,642
    )
    
    $
    1,940
    
    
    $
    152,180
    
    
    $
    (26,350
    )
    
    $
    125,830
 Amortization expense for intangible assets is summarized as follows: For the Year Ended December 31,2002
    
    
    2003
    
    
    2004Tradenames
    
    $
    
    
    
    $
    
    
    
    $
    458Technology and intellectual
property
    
    
    
    
    
    
    
    
    
    
    1,333Customer relationships
    
    
    
    
    
    
    
    
    
    
    20,688Software and licenses
    
    
    606
    
    
    
    512
    
    
    
    2,229$
    606
    
    
    $
    512
    
    
    $
    24,708
 Intangible assets are being amortized over estimated useful lives of two to ten years. Estimated
future amortization expense is summarized as follows: 2005
    
    $
    57,4572006
    
    
    35,7342007
    
    
    6,0592008
    
    
    4,8932009
    
    
    4,631Thereafter
    
    
    17,056Total
    
    $
    125,830
  11.

Goodwill The changes in the carrying value of goodwill for the year ended December 31, 2004 are as follows: December 31,2003
    
    
    2004Beginning
    
    $
    1,321
    
    
    $
    2,209Goodwill related to acquisitions
    
    
    888
    
    
    
    974,389Impairment charges
    
    
    
    
    
    
    (453,000
    )Ending
    
    $
    2,209
    
    
    $
    523,598
 As of December 31, 2003, the Company had goodwill of $2,209 related to the acquisition of Winstek.
As a result of the acquisition of ChipPAC, Inc. in August 2004, the Company recorded additional
goodwill of $974,389, inclusive 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) of purchase adjustments of $4,880 in the fourth quarter of 2004
related primarily to equipment and deferred taxes valuation. Pursuant to business combination
accounting rules, the goodwill associated with the acquisition of ChipPAC was recorded based on
share prices at the time the merger was announced. The Company performed its
annual test for impairment of goodwill related to ChipPAC during the fourth quarter of 2004.
Goodwill was allocated to reporting units associated with the Companys acquisitions. The test
completed in the fourth quarter of 2004 indicated that the reported book value of the ChipPAC
reporting units exceeded its fair value, as determined by independent appraiser using a combination
of discounted cash flows and market multiples methodologies. The Company believes that the decline in the fair values of the ChipPAC
reporting units are due primarily to:-  (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. The Company compared the fair values of the ChipPAC reporting units to the fair values of their
tangible and identifiable intangible net assets for purposes of determining the implied fair value
of goodwill as of December 31, 2004. Upon completion of the assessment, the Company recorded a
non-cash impairment charge of $453,000 to reduce the carrying value of goodwill related to the
acquisition of ChipPAC to its estimated fair value of $521,389.  12.

Business Combination On August 5, 2004, STATS and ChipPAC consummated the previously announced merger which
resulted in ChipPAC becoming a wholly-owned subsidiary of STATS. The transaction has been accounted
for using the purchase method. ChipPAC is a full portfolio provider of semiconductor packaging,
design, assembly, test and distribution services. By combining the testing expertise of STATS with
the packaging expertise of ChipPAC, STATS ChipPAC offers its global customers one of the broadest
portfolios of comprehensive end-to-end packaging and test services in the semiconductor industry. The number of STATS ChipPAC ADSs issued pursuant to the merger was 86,190,753, determined based
upon the exchange ratio of 0.87 STATS ADSs for each share of ChipPAC Class A common stock and the
number of outstanding shares of ChipPAC Class A common stock as of August 5, 2004. The average
market price per STATS ADS of $12.402 is based upon an average of the closing prices for a range of
trading days (February 8 through 12, 2004) around February 10, 2004, the date on which the merger
was announced. The fair values of STATS substitute options, both vested and unvested, were determined using a
Black-Scholes valuation model with the following assumptions: no dividend yield, an expected
volatility of 62.47%, and a risk-free interest rate of 3.12%. The model assumed an expected life
of five to seven years for vested and unvested options. The number of STATS ChipPAC ordinary shares that are subject to STATS substitute options in
connection with the merger is 76,492,951, based upon the total number of shares of ChipPAC Class A
common stock subject to outstanding ChipPAC options as of August 5, 2004, at an exercise price
range of $0.15 to $1.47 per STATS ChipPAC ordinary share. 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) Based on the above, the estimated total purchase price of the ChipPAC acquisition is as follows (in
thousands): Value of STATS ChipPAC ADSs issued
    
    $
    1,068,955Value of STATS substitute options
    
    
    74,548Total value of STATS securities
    
    
    1,143,503Estimated direct transaction costs
    
    
    9,369Total estimated purchase price
    
    $
    1,152,872
 Under the purchase method of accounting, the total estimated purchase price as shown in the
table above is allocated to ChipPACs net tangible and identifiable intangible assets based on
their estimated fair values as at merger date. In determining the price allocation,
management considered, among other factors, its intention for use of acquired assets as well as
historical demand and estimates of future demand for ChipPACs products and services. Based on
these assumptions, the estimated purchase price is allocated as follows (in thousands): 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
 Of the total estimated
purchase price, an estimate of $29,254 has been allocated to
net assets assumed and $147,218 has been allocated to amortizable identifiable intangible assets
acquired. The final allocation of purchase price is subject to adjustments for a period not to
exceed one year from the consummation date (the allocation period) in accordance with SFAS No. 141,
Business Combinations (SFAS 141) and EITF No. 95-3, Recognition of Liabilities in connection
with a Purchase Business Combination. The allocation period is intended to differentiate between
amounts that are determined as a result of the identification and valuation process required by
SFAS 141 for all assets acquired and liabilities assumed and amounts that are determined as a
result of information that was not previously obtained being obtained. The fair value of tangible assets was estimated primarily based on the cost and sales comparison
approaches. In applying the cost approach, the replacement or reproduction cost estimates for the
buildings, machinery and other equipment were based on indexed original costs or manufacturer
reported replacement costs. Original historical cost data was segregated by appraisal class and
year of acquisition, and indexed to estimated reproduction cost. Inflation trend factors were
derived using indices from nationally recognized indexes. Replacement or reproduction costs were
reduced by depreciation factors that reflect the estimated physical deterioration and functional
obsolescence of assets. The sales comparison approach was used for tangible assets that have an
active resale market. Similar assets recently sold or offered for sale were analyzed and their
prices adjusted to reflect the difference between the comparable asset and the asset and the
conditions of the sale to estimate the value of the acquired assets. The fair value assigned to intangible assets was estimated by discounting the estimated future cash
flows of the intangibles assets to their present value. The cash flow estimates used for
technology and intellectual property were based on estimates of product revenue and appropriate
royalty rates (based on an analysis of rates for similar technologies and forecast product
margins). The cash flow estimates used for customer relationships were based on estimates of
revenue attributed to the current customers and the programs they have been qualified on as well as
the profitability attributed to each. The rate used to discount these net cash flows was
determined after consideration of market returns on debt and equity capital, the weighted average
return on invested capital, the nature of each asset and the risk associated with achieving the
forecast. 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) The Company expects to amortize the fair value of the ChipPAC tradename on a straight-line basis
over an estimated life of seven years. Technology and intellectual property relates to ChipPACs technology for ball grid array,
lead-frame and chip scale package. The Company expects to amortize the fair value of these assets
on a straight-line basis over an average estimated life of ten years. Customer relationships represent those customers with which ChipPAC has current sales
relationships. The Company expects to amortize the fair value of these assets on a straight-line
basis over an average estimated life of two years. The Company recorded $2,011 of unearned compensation on unvested options, in accordance with FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation. This
amount represents the intrinsic value of stock options assumed that is earned as the employees
provide services over the next four years. Of the total estimated purchase price, $974,389 has been allocated to goodwill. Goodwill
represents the excess of the purchase price of an acquired business over the fair value of the
underlying net tangible and identifiable intangible assets. In accordance with SFAS No. 142,
Goodwill and Other Intangible Assets, goodwill and intangible assets with indefinite lives
resulting from business combinations completed subsequent to June 30, 2001 will not be amortized
but instead will be tested for impairment at least annually or more frequently if certain
indicators are present. The following unaudited pro forma financial information presents a summary of the results of
operations of the Company assuming the merger was consummated on January 1, 2003 or 2004. The unaudited
pro forma financial information is not necessarily indicative of the operating results or financial
position that would have occurred if the merger had been consummated on January 1, 2003 or 2004, nor is it
necessarily indicative of future operating results or financial position of the Company. For the Year Ended December 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
    )
 The unaudited proforma financial information above includes the following material, non-recurring
charges: impairment of goodwill of $453,000 and merger related expenses of $5,399 for the year ended December 31, 2004. 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)  13.

Accrued Operating Expenses Accrued operating expenses consist of the following: December 31,2003
    
    
    2004Staff costs
    
    $
    5,384
    
    
    $
    22,609Purchase of raw materials
    
    
    18,293
    
    
    
    12,789Maintenance fees, license fees and royalties
    
    
    1,237
    
    
    
    2,832Interest expense
    
    
    1,001
    
    
    
    3,060Provision for vacation liability
    
    
    2,610
    
    
    
    3,511Others
    
    
    12,136
    
    
    
    19,098$
    40,661
    
    
    $
    63,899
  14.

Income Taxes Income (loss) before income taxes consists of the following: For the Year Ended December 31,2002
    
    
    2003
    
    
    2004Singapore
    
    $
    (91,852
    )
    
    $
    (122
    )
    
    $
    6,674Foreign
    
    
    (4,116
    )
    
    
    650
    
    
    
    (462,675
    )$
    (95,968
    )
    
    $
    528
    
    
    $
    (456,001
    )
 Income tax benefit (expense) consists of the following: For the Year Ended December 31,2002
    
    
    2003
    
    
    2004Current:Singapore
    
    $
    (850
    )
    
    $
    (1,706
    )
    
    $
    7,283Foreign
    
    
    (176
    )
    
    
    (225
    )
    
    
    (172
    )$
    (1,026
    )
    
    $
    (1,931
    )
    
    $
    7,111Deferred:Singapore
    
    $
    8,661
    
    
    $
    741
    
    
    $
    (9,145
    )Foreign
    
    
    (472
    )
    
    
    485
    
    
    
    (5,860
    )$
    8,189
    
    
    $
    1,226
    
    
    $
    (15,005
    )$
    7,163
    
    
    $
    (705
    )
    
    $
    (7,894
    )
 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) The Company was previously granted pioneer status under the Singapore Economic Expansion Incentives
(Relief from Income Tax) Act, Chapter 86, for Subcontract Assembly And Testing Of Integrated
Circuits Including Wafer Probing Services. In December 2003, an application was submitted to the
Singapore Economic Development Board (EDB) to revoke the Companys pioneer status granted from
January 1, 1996 to December 31, 2003. The Companys pioneer trade was in an adjusted tax loss
position due to the substantial amount of capital allowances claimed arising from capital
expenditure on its plant and machinery and trade losses in certain years. As a result, the Company
has not enjoyed any tax exemption in respect of its income arising from the pioneer activities. On
the other hand, the Company has paid taxes in respect of its interest and rental income as losses
arising from the pioneer trade cannot be set-off against the non-qualifying income during the
pioneer incentive period due to the application of the law in respect of the pioneer incentive. In
September 2004, the application of for the revocation was approved by EDB. Accordingly, the Company
expects to receive a refund of taxes amounting to approximately $5,039 paid previously on interest
and rental income as the unutilized tax losses and capital allowances arising from the trading
activities would then be allowed to set-off against the income derived in previous years. The
Company is in the process of working with the EDB for a new tax incentive for its Singapore
operations. A reconciliation of the expected tax expense (benefit) at the statutory rate of tax to actual tax
expense (benefit) is as follows: For the Year Ended December 31,2002
    
    
    2003
    
    
    2004Income tax expense (benefit) computed at Singapore
statutory rate of 20.0% (2003: 22.0%, 2002:22.0%)
    
    $
    (21,113
    )
    
    $
    116
    
    
    $
    (91,200
    )Non-deductible expenses, including goodwill impairment charges
    
    
    318
    
    
    
    175
    
    
    
    91,488Non-taxable income
    
    
    (308
    )
    
    
    (253
    )
    
    
    (1,212
    )Differences in tax rates
    
    
    (692
    )
    
    
    (121
    )
    
    
    6,898Effect of recognizing deferred tax assets at
concessionary tax rate and tax credits
    
    
    10,393
    
    
    
    (5,781
    )
    
    
    (13,199
    )Change in valuation allowance
    
    
    2,292
    
    
    
    6,383
    
    
    
    12,722Benefit of tax status change
    
    
    
    
    
    
    
    
    
    
    (935
    )Taxable foreign exchange adjustment
    
    
    
    
    
    
    
    
    
    
    2,639All other items, net
    
    
    1,947
    
    
    
    186
    
    
    
    693Income tax expense (benefit)
    
    $
    (7,163
    )
    
    $
    705
    
    
    $
    7,894
 The pioneer status relief had the effect of increasing diluted net loss per ordinary share by
$0.01 and diluted net loss per ADS by $0.10 for the years ended December 31, 2002, but decreasing
diluted net loss per ordinary share by $0.01 and diluted net loss per ADS by $0.06 for the year
ended December 31, 2003. The pioneer status relief was revoked in September 2004. Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes, and (b) operating loss, unutilized capital allowance and investment tax credit
carryforwards. The tax effect of significant items comprising the Companys deferred income tax
assets and liabilities at December 31, 2003 and 2004 are as follows: 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) December 31,2003
    
    
    2004Deferred income tax assets:Operating loss carryforwards
    
    $
    4,574
    
    
    $
    29,372Investment tax credits
    
    
    9,133
    
    
    
    45,656Property, plant and equipment
    
    
    25,708
    
    
    
    18,276Other
    
    
    592
    
    
    
    6740,007
    
    
    
    99,371Valuation allowance:
    
    
    (8,675
    )
    
    
    (56,957
    )$
    31,332
    
    
    $
    36,414Deferred income tax liabilities:Unrealized tax credits
    
    $
    3,250
    
    
    $
    Property, plant and equipment
    
    
    7,658
    
    
    
    17,855Allowances and reserves
    
    
    
    
    
    
    12,76410,908
    
    
    
    30,619Net deferred income tax assets
    
    $
    20,424
    
    
    $
    5,795
 During the year ended December 31, 2004, as part of our acquisition of ChipPAC, we acquired
approximately $103,351 of net operating loss carryforwards and $32,185
of tax credit carryforwards that
were recognised as deferred tax assets upon acquisition. We established
a valuation allowance of
$40,807 against all of the net operating loss carryforwards and a portion of the Korean tax credit
carryforwards. If utilized, these attributes will be treated as a reduction in acquired goodwill.
As of December 31, 2004, $5,916 of the Korean tax credit carryforwards were utilized. The deferred tax assets as of December 31, 2004 arose principally as a result of the deferred tax
benefit associated with tax loss carryforwards and investment tax credits. The Company recorded a
valuation allowance of $8,675 and $56,957 as of December 31, 2003 and 2004, respectively, which
represents an increase of $6,383 and $48,282 in 2003 and 2004, respectively, to reduce the assets
to the amounts that the Company deemed, more likely than not, that the deferred tax asset will not
be realized. In assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the level of historical
taxable income and projections for future taxable income over the periods which the deferred tax
assets are deductible, the Company establish a partial valuation allowance against its gross
deferred tax assets to reduce the assets to the amount the Company deemed, more likely than not, to
be recoverable. As at December 31, 2004, the Company had approximately $119,912 of tax loss carryforwards available
to offset against future taxable income which will expire in varying amounts from 2006 to 2024. Winstek has investment tax credit carryforwards of approximately $2,190, $2,712, $5,839 and $3,593,
which expire in 2005, 2006, 2007 and 2008, respectively. The foreign investment tax credit
carryforwards can be used to offset income tax payable in future years. The offsetting amount is
limited to 50% of the offsetting years income tax payable. The last year of expiry for the tax
credit carryforwards is, however, not subject to the 50% limitation. STATS ChipPAC Korea has
investment tax credits and research and development credits of approximately $27,964 and $3,328,
respectively. The credits will expire in varying amounts from 2005
through 2009. 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)  15.

Short-Term Borrowings The short-term borrowings relate to the line of credit with Cho Hung Bank, with credit limit of
$25,000. The line of credit bore interest at rates ranging from 2.1% to 3.3% during the year 2004.
The line of credit is subject to annual
review of Cho Hung Bank for the continued use of the facility. The Company had no short-term
borrowings as of December 31, 2003. 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)  16.

Capital Leases Future minimum lease payments under capital leases for equipment and machinery are as follows: 2004Payable in year ending December 31,2005
    
    $
    8,2452006
    
    
    7,4282007
    
    
    3,7302008
    
    
    Thereafter
    
    
    Total minimum obligations
    
    
    19,403Less amounts representing interest at rates ranging from
4.4% to 7.1% per annum
    
    
    (1,045
    )Present value of minimum obligations
    
    
    18,358Current installments of obligations under capital leases
    
    
    (7,587
    )Obligations under capital leases, excluding current
Installments
    
    $
    10,771
 All leasing arrangements are for testers with 1 or 4-year terms. At the end of the lease term, the
Company may choose to terminate, renew the lease or purchase the equipment at fair market value. 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)  17.

Long-term debt Long-term debt consists of the following: December 31,2003
    
    
    20041.75% coupon senior fixed-rate convertible notes
    
    $
    200,000
    
    
    $
    183,5000% coupon senior fixed-rate convertible notes
    
    
    115,000
    
    
    
    115,0002.5% convertible subordinated notes
    
    
    
    
    
    
    150,0008% convertible subordinated notes
    
    
    
    
    
    
    50,0006.75% senior notes
    
    
    
    
    
    
    215,000Taiwan dollar loans at floating rates
    
    
    35,540
    
    
    
    51,951Taiwan dollar loans and commercial papers at fixed rates
    
    
    2,711
    
    
    
    8,342Accrued yield-to-maturity interest on notes
    
    
    12,379
    
    
    
    22,789365,630
    
    
    
    796,582Less current amounts
    
    
    (6,841
    )
    
    
    (154,407
    )$
    358,789
    
    
    $
    642,175
 In March, 2002, the Company issued $200,000 of senior unsecured and unsubordinated convertible
notes due March 18, 2007 for net proceeds of $195,032. The convertible notes bear interest at the
rate of 1.75% per annum and have a yield to maturity of 4.91%. At the maturity date, the Company
will pay to the note holders 117.665% of the principal amount. The notes can be converted into the
Companys ordinary shares or, subject to certain limitations, ADSs, each of which currently
represents ten ordinary shares, at a conversion price of S$3.408 per ordinary share (at a fixed
exchange rate of US$1.00 = S$1.8215). The conversion price may be subject to adjustments for
certain events. The Company may elect to satisfy its obligations to deliver ordinary shares or
ADSs through delivery of cash in accordance with the terms of the notes. The Company may redeem
all or a portion of the convertible notes at any time on or after March 18, 2004 at a price to
yield of 4.91% per annum to the redemption date if the Companys shares or ADSs trade at or above
125% of the conversion price for a period of 20 trading days in any 30 consecutive trading day
period. In December 2004, the Company repurchased $16,500 aggregate principal of these convertible
notes for $18,150 and recorded loss of $266. On January 11, 2005, the Company repurchased a further
$26,080 aggregate principal amount of these convertible notes for $28,796. The note holders may
require the Company to repurchase all or a portion of their notes on March 18, 2005 at a price
equal to 110.081% of the principal amount of the notes being redeemed, plus any accrued and unpaid
interest accrued to the date of redemption. In addition, upon the occurrence of certain repayment
events, including a change in control, on or prior to March 18, 2007, each note holder may require
the Company to repurchase all or a portion of such holders notes at a price to yield 4.91% per
year to the redemption date. Subsequent to December 31, 2004, pursuant to the indenture governing
these convertible notes, the Company received demands for redemption of $125,420 aggregate
principal amount of these convertible notes from the note holders. The Company intends to finance
the redemption from cash and lines of credit. As at December 31, 2004, the loan amounts subject to
redemption were classified as current liabilities. On November 7, 2003, the Company issued $115,000 of senior unsecured and unsubordinated convertible
notes due November 7, 2008, for net proceeds of $112,345. The convertible notes have a yield to
maturity of 4.25%. At the maturity date, the Company will pay to the note holders 123.4% of the
principal amount, comprising principal and redemption interest. The notes can be converted into
the Companys ordinary shares or, subject to certain limitations, ADSs, each of which currently
represents ten ordinary shares, at an initial conversion price of S$3.05 per ordinary share
(equivalent to an initial number of 570.5902 ordinary shares per $1,000 principal amount of
convertible notes, based on a fixed exchange rate of US$1.00 = S$1.7403). The conversion price may
be subject to adjustments for certain events. The Company may elect to satisfy its obligations to
deliver ordinary shares or ADSs through delivery of cash in accordance with the terms of the notes.
The Company may redeem all or a portion of the convertible notes at any time on or after November
7, 2006 at a price to yield of 4.25% per annum to the redemption date if the Companys shares or
ADSs trade at or above 130% of the conversion price for a period of 20 trading days in any 30 F-34




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STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data) consecutive trading day period. The note holders may require the Company to repurchase all or a
portion of their notes on November 7, 2007 at a price equal to 118.32% of the principal amount of
the notes being redeemed, plus any
accrued and unpaid interest accrued to the date of redemption. In addition, upon the occurrence of
certain repayment events, including a change in control, on or prior to November 7, 2008, each note
holder may require the Company to repurchase all or a portion of such holders notes at a price to
yield of 4.25% per year to the redemption date. On August 5, 2004, in connection with the merger of ChipPAC, the Company assumed the outstanding
borrowings of ChipPAC. The face value of ChipPAC long-term debts consisted of $165,000 of 12.75%
senior subordinated notes due 2009, $50,000 of 8.0% convertible subordinated notes due 2011 and
$150,000 of 2.5% convertible subordinated notes due 2008. The $165,000 12.75% senior subordinated notes were issued by ChipPAC International Company Limited
(ChipPAC International), a wholly-owned subsidiary of ChipPAC. These notes were fully and
unconditionally guaranteed on a senior subordinated basis by ChipPAC and certain of its
subsidiaries. The notes would mature on August 1, 2009, with interest at the rate of 12.75% per
annum payable semi-annually on August 1 and February 1 of each year. ChipPAC International may
redeem all or a portion of these notes at any time on or after August 1, 2004 at designated
redemption prices. On September 3, 2004, ChipPAC International commenced a cash tender offer to
repurchase any and all of the outstanding $165,000 principal amount of these notes at a repurchase
price of 106.375% of the principal amount thereof plus accrued and unpaid interest. In conjunction
with the tender offer, ChipPAC International also solicited consents of holders of these notes to
adopt amendments to the indenture governing such notes that would eliminate substantially all of
the restrictive covenants and certain events of default in the indenture. On October 7, 2004, the
Company completed the tender offer and consent solicitation of any and all of the outstanding
notes. ChipPAC International received valid tenders of the notes and deliveries of related consents
from holders of approximately 62.1% or $102,500 aggregate principal amount of the notes
outstanding. ChipPAC International paid approximately $111,474, including accrued and unpaid
interest for the senior subordinated notes validly tendered and related consents validly delivered.
In November 2004, the Company repurchased the remaining 37.9%, or $62,500 aggregate principal
amount of the senior subordinated notes, as permitted under the indenture governing such notes. The
Company recorded a loss of $531 on the repurchase of the notes. The tender offer and repurchase of
the 12.75% senior subordinated notes were financed by part of the proceeds from the issuance of new
senior unsecured notes below. On November 5, 2004, the Company issued $215,000 of senior unsecured notes due November 15, 2011,
for net proceeds of $210,458. The senior notes bears interest of 6.75% per annum. At the maturity
date, the Company will pay to the note holders 100.0% of the principal amount, comprising principal
and redemption interest. Prior to November 15, 2008, the Company may redeem all or a part of the
senior notes at any time by paying a make whole premium plus accrued and unpaid interest. The
Company may redeem all, but not less than all, of these notes at any time in the event of certain
changes affecting withholding taxes at 100% of their principal amount plus accrued and unpaid
interest. On or after November 15, 2008, the Company may redeem all or a part of these notes at any
time at the redemption prices specified under the terms and conditions of the senior notes plus
accrued and unpaid interest. In addition, prior to November 15, 2007, the Company may redeem up to
35% of these notes with the net proceeds of certain equity offerings. Upon a change of control, the
Company will be required to offer to purchase these notes at 101.0% of their principal amount plus
accrued and unpaid interest. The $50,000 8.0% convertible subordinated notes due 2011 are ChipPACs unsecured and subordinated
obligations. These convertible notes will mature on June 15, 2011 and bear interest rate of 8.0%.
On the maturity date of these convertible notes, ChipPAC will pay to the note holders of these
convertible notes 100% of the principal amount. These convertible notes can be converted into the
Companys ADSs at a conversion price of $11.448 per ADS. The conversion price may be subject to
adjustments for certain events. ChipPAC may redeem all or a portion of these convertible notes at
any time on or after June 15, 2004 at the designated redemption price. Upon the occurrence of
specified change in control events, each holder of these convertible notes may require ChipPAC to
repurchase all or a portion of such holders notes at a purchase price equal to 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to, but excluding, the purchase
date. F-35




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STATS CHIPPAC LTD. AND SUBSIDIARIES
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In thousands of U.S. Dollars (except per share data) The $150,000 2.5% convertible subordinated notes due 2008 are ChipPACs unsecured and subordinated
obligations. These convertible notes will mature on June 1, 2008 and bear interest rate of 2.5% per
annum payable. On the
maturity date of these convertible notes, ChipPAC will pay to the note holders of these convertible
notes 100% of the principal amount. These convertible notes can be convertible into the Companys
ADSs at a conversion price of $9.267 per ADS. The conversion price may be subject to adjustments
for certain events. These convertible notes are not redeemable at the option of ChipPAC. Upon the
occurrence of specified change in control events, each holder of these notes may require ChipPAC to
repurchase all or a portion of such holders notes at a purchase price equal to 100% of the
principal amount thereof on the date of purchase plus accrued and unpaid interest, if any. On
October 11, 2004, STATS ChipPAC, ChipPAC and the trustee for these convertible notes entered into a
second supplemental indenture to provide for an unconditional guarantee of these convertible notes
on a subordinated basis by STATS ChipPAC (but not by any of its subsidiaries). On October 18, 2004,
ChipPAC commenced a consent solicitation from holders of these convertible notes to amend the
indenture governing these convertible notes to replace ChipPACs obligation to file with the SEC
annual reports and such other information, documents and reports specified in Section 13 and 15(d)
of the Exchange Act with an obligation of STATS ChipPAC to file all such reports with the SEC as
are applicable to a foreign private issuer. The consent solicitation expired on November 1, 2004.
ChipPAC received valid deliveries of consents from holders of approximately $130,500 aggregate
principal amount, or 87%, of these convertible notes outstanding. Accordingly, ChipPAC obtained the
requisite consents authorizing the adoption of the proposed amendment to the indenture. The
consents were accepted and the amendments to the indenture became effective on November 2, 2004. In 2002, Winstek entered into three floating rate New Taiwan dollar loans of $1,766, $2,649 and
$7,359 with Chiaotung Bank. The interest rates on the loans are revised from time to time by
Chiaotung Bank. As at December 31, 2004, the interest rates on the loans were 4.1%, 4.1% and 3.1%
per annum, respectively. Interest on all three loans is payable on a monthly basis in New Taiwan
dollars. The principal on the $1,766 loan and the $2,649 loan are each repayable in 21 equal
quarterly installments commencing March 29, 2004 and May 15, 2004, respectively. The principal on
the $7,359 loan is repayable in 10 equal quarterly installments commencing June 27, 2003. As of
December 31, 2004, the $1,766 loan is secured by fixed deposit and land pledged to the bank of
$3,174, the $2,649 loan is secured by a fixed deposit and building pledged to the bank of $7,298
and the $7,359 loan is secured by a fixed deposit and machinery pledged to the bank of $6,830. In 2003, Winstek entered into five floating rate New Taiwan dollar loans of $2,944, $17,663,
$1,737, $4,416 and $2,944 with China Development Industrial Bank, Taishin International Bank, First
Commercial Bank, Chiaotung Bank and Hsinchu International Bank, respectively. The interest rates on
the loans are revised from time to time by the banks. As at December 31, 2004, the interest rates
on the loans were 3.0%, 3.5%, 2.7%, 3.1% and 2.9% per annum, respectively. Interest on all five
loans is payable on a monthly basis in New Taiwan dollars. The principal on the $2,944 loan is
repayable in 15 equal quarterly installments commencing June 24, 2005, and the principal on the
$17,663 loan is repayable in 16 equal installments every two months commencing September 26, 2004.
The principal on the $1,737 loan is repayable in 16 equal quarterly installments commencing July
25, 2004, the principal on the $4,416 loan is repayable in 13 equal quarterly installments
commencing November 10, 2004, and the principal on the $2,944 loan is repayable in 48 unequal
monthly installments commencing January 10, 2004. The loans are secured by property pledged to the
bank, comprising land and machinery of $42,026, as of December 31, 2004. In 2003, Winstek also obtained a multi-currency credit facility of NT$340.0 million ($10,712) with
Chiaotung Bank. The interest rate on a U.S. dollar loan under this facility is the intra-bank
interest rate of Chiaotung Bank for U.S. dollars plus 1.0% per annum. All drawdowns have been
repaid before December 31, 2004. In 2004, Winstek entered into
a floating rate New Taiwan dollar term loan facility of NT$1.8
billion ($56,711) with a syndicate of lenders, with Chiaotung Bank as the agent bank. The purpose
of the term loan is for the expansion of Winsteks testing capacity. The loan may also be accessed
through letters of credit. The term loan must be fully drawn within 18 months from August 27, 2004,
the date of the first drawdown. Winstek must satisfy certain conditions precedent with respect to
each drawdown. As of December 31, 2004, Winstek has drawn down NT$378.0 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) million ($11,918) under the
loan, which is repayable in eight equal installments commencing February 27, 2006 and ending on
August 27, 2009. The interest rate on the term loan is the rate set by Chunghwa Post Co. Ltd. plus
1.3% per annum. As of December 31, 2004, the interest rate on the loan was 2.9% per annum. Interest
on the loan is payable on a monthly basis. The loan is secured by certain machinery purchased with
the loan proceeds amounting to $14,779 as
of December 31, 2004. In 2004, Winstek entered into 2 floating rate New Taiwan dollar loans of $1,794 and $2,627 with
Taipei Commercial Bank and IBT Bank, respectively. The interest rates on the loans are revised
from time to time by the banks. As of December 31, 2004, the interest rates on the loans were 2.8%
and 3.0% per annum, respectively. Interest on the $1,794 and $2,627 loans are repayable on a
monthly basis, and the respective principals are repayable in 16 equal quarterly installments. As
of December 31, 2004, the $1,794 loan is secured by machinery
pledged to the bank of $2,694 and the
$2,627 loan is secured by machinery pledged to the bank of $4,081. In 2003, Winstek entered into a Taiwan dollar fixed rate loan with Taiwan Life Insurance Company.
The loan bears interest at the rate of 3.9% per annum. As at December 31, 2004, the outstanding
balance of this loan amounts to $1,885. Interest and principal are repayable in 12 equal quarterly
installments commencing December 26, 2003. The loan is secured by plant and machinery pledged to
Taiwan Life Insurance Company amounting to $3,382 as of December 31, 2004. In 2004, Winstek entered into a Taiwan dollar fixed rate loan with Taiwan Life Insurance Company of
$3,303. As of December 31, 2004, the interest rate on the loan is 3.6% per annum. Interest and
principal on the loan is repayable in 16 equal quarterly installments. As of December 31, 2004, the
loan is secured by machinery pledged to Taiwan Life Insurance Company amounting to $6,306. In 2004, two Taiwan dollar fixed rate commercial papers of NT$50.0 million ($1,577) each were
issued through Taching Bill Co. (guaranteed by Far East Commercial Bank) and Chung Hsing Bill Co.
(guaranteed by Fu-Hua Commercial Bank) for two years, commencing November 12, 2004 and December 24,
2004, respectively. The interest rates on the commercial papers were 1.7 % per annum for Taching
Bill Co. and 1.7% per annum for Chung Hsing Bill Co. Interest is repayable every two months and
principal is repayable on maturity. In addition to amounts disclosed above, the Company has deposits of $1,121 pledged as security for
bank credit and facility lines available to the Company as of December 31, 2004. As of December
31, 2003, $4,512 deposits were pledged as security. Annual maturities of long-term debt as of December 31, 2004 are as follows: Payable in year ending December 31,2005
    
    $
    154,4072006
    
    
    22,2482007
    
    
    75,3432008
    
    
    276,2442009
    
    
    3,340Thereafter
    
    
    265,000$
    796,582
 Substantially all assets of the STATS ChipPAC consolidated group, with the exception of the Winstek
and the China non-guarantor entities (comprising STATS ChipPAC Shanghai Co., Ltd. and STATS ChipPAC
Test Services Shanghai Co., Ltd.), have been pledged as collateral under the terms of the 6.75%
Senior Notes due 2011. The indenture governing the 6.75% senior notes has been fully and
unconditionally guaranteed, on an unsecured senior basis, by the parent company and the
guaranteeing subsidiaries. See Note 28, Condensed Consolidating Financial Information. 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)  18.

Unutilized Credit Facilities In January 2002, the Company established a $306,748 (S$500,000,000) Multicurrency Medium Term Note
Program (MTN Program). Under the MTN Program, the Company may from time to time issue notes in
series or tranches (Notes) in Singapore dollars or any other currencies as may be agreed between the dealers of the
MTN Program and the Company provided that various terms and conditions are satisfied, including a
condition that STPL must hold (either directly or indirectly through any one or more wholly-owned
subsidiaries) at least 51% of the Companys issued share capital. Pursuant to the completion of the
merger with ChipPAC, the Company issued ordinary shares to the former shareholders of ChipPAC, as a
result of which it no longer satisfy this condition as the shareholdings of STSPL (a wholly-owned
subsidiary of STPL) has been diluted below 51%. The Company has not issued any Notes under the MTN
Program as of December 31, 2003 and 2004. At December 31, 2004, the Company has undrawn banking and credit facilities consisting of long-term
loans and bank guarantees (excluding the MTN Program) of $197,472 with financial institutions.  19.

Other Non-Current Liabilities Other non-current liabilities consist of the following: December 31,2003
    
    
    2004Deferred grant
    
    $
    1,211
    
    
    $
    3,412Deferred tax liabilities
    
    
    3,250
    
    
    
    30,619Others
    
    
    2
    
    
    
    16,331$
    4,463
    
    
    $
    50,362
 The deferred grant refers to a 5-year grant of $13,878 obtained by the Company from the Economic
Development Board under its Research Incentive Scheme for Companies in 1997 to acquire equipment to
be used in certain research and development projects. The grant, which is a reimbursement of
specified costs, has no requirement for repayment. Amounts received for asset-related grant are
deferred and recognized in other income over the life of the related asset.  20.

Share Capital On November 5, 2003, the Company issued 83,389,375 new ordinary shares of par value S$0.25 each
with proceeds of $115 million (net proceeds of $111 million). The 83,389,375 new shares were
admitted to the Official List of the Singapore Exchange Securities Trading Limited on November 6,
2003. On August 5, 2004, the Company completed the acquisition of ChipPAC. The Company issued 861,907,530
new ordinary shares of par value S$0.25 each and assumed options to purchase 76,492,951 ordinary
shares to effect the acquisition. As a result of the employees exercising their share options during the years 2002, 2003 and 2004,
2,431,790, 1,115,470 and 5,802,800 ordinary shares were issued, respectively. Under Singapore law, all increases in share capital (including rights issues) require prior
shareholders approval. Singapore law does not provide for the issue of shares of no par value
and, except with court approval, prohibits the issue of shares at a discount to par value.  21.

Additional Paid-in Capital Additional paid-in capital represents principally the excess of proceeds received from issues of
share capital (net of the costs of issue) over the par value of shares issued, which under
Singapore law must be credited to the share 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) premium account. The share premium may only be applied
in paying up unissued shares to be issued to shareholders, paying up in whole or in part the
balance unpaid on shares in issue, in payment of dividends, if such dividends are satisfied by the
issue of shares to members of the Company, in writing off preliminary expenses and share and
debenture issue expenses and by provision for premiums payable on the redemption of redeemable
preferred shares. The Company has not utilized any amounts in the share premium account for the
above mentioned purposes. As of December 31, 2003 and 2004, the Companys share premium account amounted to $460,895 and
$1,406,019, respectively.  22.

Accumulated Other Comprehensive Loss The components of accumulated other comprehensive loss are as follows: December 31,2003
    
    
    2004Currency translation loss
    
    $
    9,152
    
    
    $
    5,865Unrealized gain on hedging instruments
    
    
    
    
    
    
    (3,785
    )Unrealized loss on available-for-sale marketable
securities
    
    
    769
    
    
    
    780$
    9,921
    
    
    $
    2,860
  23.

Share Options and Incentive Plans Effective May 1999, the Company adopted the Share Option Plan which provides for a maximum of 150
million shares (subject to adjustment under the plan) to be reserved for option plans. Options
granted under the plan may include non-statutory options as well as incentive stock options
intended to qualify under Section 422 of the United States Internal Revenue Code. Option periods
may not exceed 10 years from the date of grant. Upon leaving the employment of the Company,
outstanding options remain exercisable for a specified period. The plan is administered by a committee appointed by the directors. Employees, outside directors
and consultants are eligible for the grant of options except for (i) employees of affiliates, and
outside directors and consultants, who are not eligible for the grant of incentive stock options;
and (ii) employees, outside directors and consultants of affiliates resident in the United States,
who are not eligible for the grant of options. The exercise price of an incentive stock option is
the fair market value of the shares at the date of the grant. In certain circumstances, the
exercise price may be higher than the fair market value but in no event will the exercise price be
below the par value of the share. Prior to 2000, share options granted prior to May 1999 under the previous Employees Share
Ownership Scheme were converted using the higher of par value or net tangible asset value. In
April 2002, share options were granted with exercise prices determined by the average of the last
5-day closing prices prior to grant date. These two bases gave rise to exercise prices of the
share options being lower than their fair market values at grant date and resulted in the
recognition of stock compensation charges. In connection with the merger with ChipPAC, the Company adopted the Substitute Purchase and Option
Plan (Substitute Option Plan) and Substitute Equity Incentive Plan (Substitute EIP)
(collectively the Substitute Plans) to enable substitute options to be granted to holders of
options granted under the ChipPAC shares options and incentive plans. The number of ordinary shares
that may be issued under the Substitute Option Plan and Substitute EIP, may not exceed, in the
aggregate, 7.2 million and 73 million shares, respectively. On August 5, 2004, the Company effected
an amendment to the Share Option Plan to increase the shares to be reserved for option plans to 245
million shares (subject to adjustment under the plan). In August 2004, the Company adopted an employee share purchase plan (ESPP) for the benefit of its
employers. A maximum aggregate of 130 million shares have been reserved for issuance under the
ESPP. The ESPP qualifies in the 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) United States under Section 423 of the United States for Internal
Revenue Code. Under the ESPP, substantially all employees may purchase the Companys ordinary
shares through periodic payroll deductions or lump sum payments at a price equal to 85.0% of the
lower of the fair market value at the beginning or the end specified six-month offering
period commencing on each February 15 and August 16, except for the first purchase period which
commenced on September 1, 2004 and ends on February 14, 2005. Share purchases are limited to 15.0%
of an employees eligible compensation. The following table summarizes stock option activity for the years ended December 31, 2002, 2003
and 2004: WeightedAverageOptions
    
    
    Exercise Price(In thousands)Options outstanding at January 1, 2002
    
    
    51,770
    
    
    
    1.70Granted during the year
    
    
    19,653
    
    
    
    1.36Lapsed during the year
    
    
    (14,716
    )
    
    
    1.64Exercised during the year
    
    
    (2,432
    )
    
    
    0.53Options outstanding at December 31, 2002
    
    
    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
    
    
    $
    1.01Exercisable at December 31, 2002
    
    
    13,636
    
    
    $
    2.01Exercisable at December 31, 2003
    
    
    33,728
    
    
    $
    1.66Exercisable at December 31, 2004
    
    
    66,097
    
    
    $
    1.13
 Weighted-average grant-date fair value of options granted in 2002, 2003 and 2004 were $0.81, $0.60
and $0.92 respectively. The following table summarizes information about fixed stock options outstanding at December 31,
2004: Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    WeightedNumber
    
    
    Remaining
    
    
    Average
    
    
    Number
    
    
    WeightedRange of Exercise
    
    Outstanding at
    
    
    Contractual
    
    
    Exercise
    
    
    Exercisable at
    
    
    AveragePrices
    
    12/31/2004
    
    
    Life
    
    
    Price
    
    
    12/31/2004
    
    
    Exercise Price(In thousands)
    
    
    
    
    
    
    
    
    
    
    (In thousands)$0.14 to $0.15
    
    
    215
    
    
    4.8 years
    
    $
    0.15
    
    
    
    215
    
    
    $
    0.15$0.21 to $0.29
    
    
    22,884
    
    
    7.7 years
    
    $
    0.26
    
    
    
    12,975
    
    
    $
    0.25$0.32 to $0.47
    
    
    11,944
    
    
    6.2 years
    
    $
    0.41
    
    
    
    9,045
    
    
    $
    0.40$0.53 to $0.89
    
    
    47,266
    
    
    8.0 years
    
    $
    0.76
    
    
    
    15,669
    
    
    $
    0.78$0.91 to $1.09
    
    
    1,961
    
    
    7.5 years
    
    $
    0.95
    
    
    
    1,156
    
    
    $
    0.96$1.16 to $1.66
    
    
    37,877
    
    
    7.4 years
    
    $
    1.38
    
    
    
    18,532
    
    
    $
    1.46$2.01 to $2.61
    
    
    3,391
    
    
    5.0 years
    
    $
    2.06
    
    
    
    3,338
    
    
    $
    2.06$3.99
    
    
    6,459
    
    
    5.3 years
    
    $
    3.99
    
    
    
    5,167
    
    
    $
    3.99131,997
    
    
    
    
    
    
    
    
    
    
    
    66,097
 Total compensation expense recognized for stock-based compensation under the Share Option Plan for
the years ended December 31, 2002, 2003 and 2004 were $60, $97 and $658, respectively. 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)  24.

Commitments and Contingencies  (a)

Commitments As of December 31, 2003 and 2004, capital commitments consist of the following: December 31,2003
    
    
    2004Capital commitmentsBuilding, mechanical and electrical installation
    
    $
    6,341
    
    
    $
    1,598Plant and machinery
    
    
    42,969
    
    
    
    34,717Other commitmentsInventories
    
    $
    8,413
    
    
    $
    47,210
 The Company is party to certain royalty and licensing agreements which have anticipated payments of
$476, $524, $576 and $634 in 2005, 2006, 2007 and 2008, respectively. Following the acquisition of
ChipPAC, the Company assumed the obligation to pay until June 30, 2007 additional contingent
incentive payments to Cirrus Logic, Inc. of up to approximately $2,500 based on achievement of
certain milestones. The Company leases its certain of its facilities in Singapore, South Korea and the United States
under operation lease arrangements and has lease agreements for the land located in Singapore,
Malaysia and China related to its facilities in these locations. Operating lease rental expense for
the years ended December 31, 2002, 2003 and 2004 was $2,007,
$2,597 and $4,781, respectively. The Company has leased certain plant and equipment under operating leases and under sale and
lease-back arrangements. These leases extend through 2004. Operating lease rental expenses,
including amortization of lease prepayments, in respect of these leases for the years ended
December 31, 2002, 2003 and 2004 were $20,965, $18,118 and
$39,543, respectively. Future minimum lease payments under non-cancelable operating leases as of December 31, 2004 were: Payable in year ending December 31,2005
    
    $
    12,7922006
    
    
    11,0072007
    
    
    7,8992008
    
    
    7,6562009
    
    
    2,570Thereafter
    
    
    30,908$
    72,832
  (b)

Contingent liabilities In the normal course of business, the Company is subject to claims and litigations. These claims
may include allegations of infringement of intellectual property rights of others as well as other
claims of liability. In addition, the company is subject to various taxes in the different
jurisdictions in which it operates. These include taxes on income, property, goods and services,
and other taxes. The Company submits tax returns and claims with the respective government taxing
authorities, which are subject to agreement by those taxing authorities. The Company accrues costs
associated with these matters when they are probable and reasonably estimable. The Company does
not believe 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) that it is probable that losses associated with these matters beyond those already
recognized will be incurred in amounts that would be material to its financial position, results of
operations, or cash flows. In connection with the merger with ChipPAC, the Company assumed certain contingent liabilities. In
2002, an assessment of approximately 16.0 billion South Korean Won (approximately $15,457) made by
the South Korean National Tax Service, or NTS, relating to withholding tax not collected on the
interest income on the loan between the ChipPACs subsidiaries in South Korea and Hungary for the
period from 1999 to September 2001. The prevailing tax treaty does not require withholding on the
transactions in question. ChipPAC has appealed the assessment through the NTSs Mutual Agreement
Procedure (MAP) and believes that the assessment will be overturned. On July 18, 2002, the
Icheon tax office of the NTS approved a suspension of the proposed assessment until resolution of
the disputed assessment. The NTS required a corporate guarantee amounting to the tax assessment in
exchange for the suspension. ChipPAC complied with the guarantee request on July 10, 2002. A
further assessment of 2.7 billion South Korean Won (approximately $2,608) was made on January 9,
2004, for the interest from October 2001 to May 2002. ChipPAC has applied for the MAP and obtained
an approval for a suspension of the proposed assessment by providing a corporate guarantee
amounting to the additional taxes. In the event that the Company is not successful with the
appeal, the maximum amount payable including potential interest and local surtax as of December 31,
2004 is estimated to be 28.2 billion South Korea Won (approximately $27,244). The Company does not
believe that the outcome of the resolution of this matter will have a material adverse effect on
its financial position, results of operations or cash flows. As of December 31, 2004, no accrual
has been made. However, the Companys evaluation of the likely impact of the above contingent
liabilities could change in the future and may result in additional liability assumed in the
initial purchase of ChipPAC. 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)  25.

Other Non-Operating Income (Expense), net For the Year EndedDecember 31,2002
    
    
    2003
    
    
    2004Government grant income
    
    $
    1,830
    
    
    $
    2,347
    
    
    $
    Gain (loss) on sale and maturity
of marketable securities
    
    
    125
    
    
    
    5,040
    
    
    
    (537
    )Other income (expense), net
    
    
    1,464
    
    
    
    183
    
    
    
    (399
    )$
    3,419
    
    
    $
    7,570
    
    
    $
    (936
    )
  26.

Fair Value of Financial Instruments December 31,2003
    
    
    2004Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value$
    
    
    $
    
    
    $
    
    
    $Financial Assets:Cash and cash equivalents
    
    
    313,163
    
    
    
    313,163
    
    
    
    227,509
    
    
    
    227,509Marketable securities
    
    
    34,457
    
    
    
    34,457
    
    
    
    20,181
    
    
    
    20,181Fixed deposits pledged
    
    
    4,512
    
    
    
    4,512
    
    
    
    1,121
    
    
    
    1,121Financial Liabilities:Short-term borrowings
    
    
    
    
    
    
    
    
    
    
    19,874
    
    
    
    19,874Long-term debt, excluding
senior and convertible
notes
    
    
    38,251
    
    
    
    38,099
    
    
    
    60,293
    
    
    
    60,163Senior and convertible notes
    
    
    327,379
    
    
    
    339,138
    
    
    
    736,289
    
    
    
    748,907
 The estimated fair value of financial instruments has been determined by the Company using
available market information and appropriate methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates for fair value. Accordingly, these
estimates are not necessarily indicative of the amounts that the Company could realize in a current
market exchange. Certain of these financial instruments are with major financial institutions and
expose the Company to market and credit risks and may at times be concentrated with certain
counterparties or groups of counterparties. The creditworthiness of counterparties is continually
reviewed, and full performance is anticipated. The methods and assumptions used to estimate the fair value of significant classes of financial
instruments is set forth below: Cash and cash equivalents Cash and cash equivalents are due on demand or carry a maturity date of less than three months when
purchased. The carrying amount of these financial instruments is a reasonable estimate of fair
value. Marketable securities The fair value is estimated based upon the quoted market price on the last business day of the
fiscal year. For securities where there are no quoted market prices, the carrying amount is
assumed to be its fair value. As of December 31, 2003 and 2004, such securities amounted to $22
and $nil, respectively. 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) Fixed deposits The fair value is based on current interest rates available to the Company for fixed deposits of
similar terms and remaining maturities. Short-term borrowings and long-term debt The fair value is based on current interest rates available to the Company for issuance of debts of
similar terms and remaining maturities. Senior and convertible notes The fair value is estimated by obtaining quotes from brokers. Limitations Fair value estimates are made at a specific point in time, and are based on relevant market
information and information about the financial instrument. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect the estimates.  27.

Business Segment, Geographic and Major Customer Data Operating segments, as defined under SFAS No. 131, Disclosures About Segments of an Enterprise and
Related Information, (SFAS 131) are components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Company has identified its individual geographic operating locations as its operating segments.
All material geographical operating locations qualify for aggregation under
SFAS 131 due to similarities in economic characteristics, nature of
services, market base and production process. Accordingly, the
operating segments have been aggregated into one reportable segment. 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) Revenues by major service line and by geographical areas (identified by location of customer
headquarters) were: For the Year Ended December 31,2002
    
    
    2003
    
    
    2004Singapore packaging  array
    
    $
    11
    
    
    $
    1
    
    
    $
    6 packaging  leaded
    
    
    811
    
    
    
    638
    
    
    
    830 test
    
    
    10,160
    
    
    
    13,301
    
    
    
    17,70810,982
    
    
    
    13,940
    
    
    
    18,544United States packaging  array
    
    
    32,469
    
    
    
    76,485
    
    
    
    253,595 packaging  leaded
    
    
    71,574
    
    
    
    93,841
    
    
    
    145,511 test
    
    
    78,272
    
    
    
    139,388
    
    
    
    195,082182,315
    
    
    
    309,714
    
    
    
    594,188Rest of Asia packaging  array
    
    
    341
    
    
    
    998
    
    
    
    49,500 packaging  leaded
    
    
    1,647
    
    
    
    3,895
    
    
    
    8,585 test
    
    
    16,569
    
    
    
    34,200
    
    
    
    63,19718,557
    
    
    
    39,093
    
    
    
    121,282Europe packaging  array
    
    
    672
    
    
    
    932
    
    
    
    9,264 packaging  leaded
    
    
    2,740
    
    
    
    4,015
    
    
    
    6,172 test
    
    
    10,472
    
    
    
    12,997
    
    
    
    19,671Total
    
    
    13,884
    
    
    
    17,944
    
    
    
    35,107 packaging  array
    
    
    33,493
    
    
    
    78,416
    
    
    
    312,365 packaging  leaded
    
    
    76,772
    
    
    
    102,389
    
    
    
    161,098 test
    
    
    115,473
    
    
    
    199,886
    
    
    
    295,658$
    225,738
    
    
    $
    380,691
    
    
    $
    769,121
 Long-lived assets by geographical area were: For the Year EndedDecember 31,2003
    
    
    2004Singapore
    
    $
    364,246
    
    
    $
    391,522United States
    
    
    12,144
    
    
    
    27,704Rest of Asia
    
    
    97,743
    
    
    
    619,577Total
    
    $
    474,133
    
    
    $
    1,035,803
 Net assets by geographical area were: For the Year EndedDecember 31,2003
    
    
    2004Singapore
    
    $
    480,451
    
    
    $
    689,100United States
    
    
    (6,214
    )
    
    
    23,190Rest of Asia
    
    
    1,719
    
    
    
    447,060Total
    
    $
    475,956
    
    
    $
    1,159,350
 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) Revenues from major customers, as a percentage of net revenues, were as follows: For the Year EndedDecember 31,2002
    
    
    2003
    
    
    2004%
    
    
    %
    
    
    %Customer A
    
    
    29.8
    
    
    
    31.6
    
    
    
    20.6Customer B
    
    
    13.3
    
    
    
    12.0
    
    
    
    11.1Customer C
    
    
    12.6
    
    
    
    13.6
    
    
    
    8.5Others
    
    
    44.3
    
    
    
    42.8
    
    
    
    59.8100.0
    
    
    
    100.0
    
    
    
    100.0
  28.

Condensed Consolidating Financial Information In connection with the merger with ChipPAC in August 2004, the Company assumed the $150,000 2.5%
Convertible Notes due 2008 issued by ChipPAC. In October 2004, in connection with the filing of the
prospectus to register the resale of the Convertible Notes issued by ChipPAC, the Company, but not
any of its direct or indirect subsidiaries, provided an unconditional guarantee of the Convertible
Notes. In November 2004, the Company issued $215,000 of 6.75% Senior Notes due 2011 in a private
placement. The Senior Notes issued by STATS ChipPAC are fully and unconditionally guaranteed,
jointly and severally, on a senior subordinated basis, by ChipPAC and STATS ChipPAC (Barbados)
Ltd., STATS ChipPAC (BVI) Limited, ChipPAC International Company Limited, STATS ChipPAC Korea Ltd.,
STATS ChipPAC Malaysia Sdn. Bhd., STATS ChipPAC, Inc., STATS ChipPAC Test Services, Inc., STATS
Holdings Limited, ChipPAC Luxembourg S.a.R.L. and ChipPAC Liquidity Management Hungary Limited
Liability Company (the Guarantor Subsidiaries). STATS ChipPAC Shanghai Co., Ltd., STATS ChipPAC
Test Services Shanghai Co., Ltd. and Winstek did not provide guarantees (the Non-Guarantor
Subsidiaries). The following is the consolidated financial information segregated between STATS ChipPAC as the
parent company of the Convertible Notes and issuer of the Senior Notes; ChipPAC as issuer of the
Convertible Notes and guarantor of the Senior Notes; the Guarantor Subsidiaries and Non-Guarantor
Subsidiaries of the Senior Notes. F-46




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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, 2002 STATS
    
    
    Guarantor
    
    
    Non-GuarantorChipPAC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    204,788
    
    
    $
    4,045
    
    
    $
    17,573
    
    
    $
    (668
    )
    
    $
    225,738Cost of revenues
    
    
    (227,811
    )
    
    
    (7,415
    )
    
    
    (13,115
    )
    
    
    398
    
    
    
    (247,943
    )Gross profit (loss)
    
    
    (23,023
    )
    
    
    (3,370
    )
    
    
    4,458
    
    
    
    (270
    )
    
    
    (22,205
    )Operating expenses:Selling, general and administrative
    
    
    34,062
    
    
    
    1,513
    
    
    
    1,574
    
    
    
    (456
    )
    
    
    36,693Research and development
    
    
    18,507
    
    
    
    
    
    
    
    585
    
    
    
    (236
    )
    
    
    18,856Asset impairments
    
    
    14,666
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,666Prepaid leases written off
    
    
    764
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    764Other general expenses (income), net
    
    
    (681
    )
    
    
    
    
    
    
    
    
    
    
    1,229
    
    
    
    548Total operating expenses
    
    
    67,318
    
    
    
    1,513
    
    
    
    2,159
    
    
    
    537
    
    
    
    71,527Operating income (loss)
    
    
    (90,341
    )
    
    
    (4,883
    )
    
    
    2,299
    
    
    
    (807
    )
    
    
    (93,732
    )Other income (expense), net:Interest income
    
    
    5,075
    
    
    
    3
    
    
    
    193
    
    
    
    
    
    
    
    5,271Interest expense
    
    
    (9,595
    )
    
    
    
    
    
    
    (819
    )
    
    
    
    
    
    
    (10,414
    )Foreign currency exchange gain (loss)
    
    
    (366
    )
    
    
    
    
    
    
    (146
    )
    
    
    
    
    
    
    (512
    )Equity loss from investment in subsidiaries
    
    
    (4,470
    )
    
    
    
    
    
    
    
    
    
    
    4,470
    
    
    
    Other non-operating income, net
    
    
    3,375
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    3,419Total other income (expense), net
    
    
    (5,981
    )
    
    
    3
    
    
    
    (728
    )
    
    
    4,470
    
    
    
    (2,236
    )Income (loss) before income taxes
    
    
    (96,322
    )
    
    
    (4,880
    )
    
    
    1,571
    
    
    
    3,663
    
    
    
    (95,968
    )Income tax benefit (expense)
    
    
    7,810
    
    
    
    (124
    )
    
    
    (523
    )
    
    
    
    
    
    
    7,163Loss before minority interest
    
    
    (88,512
    )
    
    
    (5,004
    )
    
    
    1,048
    
    
    
    3,663
    
    
    
    (88,805
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (514
    )
    
    
    (514
    )Net income (loss)
    
    $
    (88,512
    )
    
    $
    (5,004
    )
    
    $
    1,048
    
    
    $
    3,149
    
    
    $
    (89,319
    )
 F-47




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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, 2002 STATS
    
    
    Guarantor
    
    
    Non-GuarantorChipPAC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash Flows From Operating ActivitiesNet income (loss)
    
    $
    (88,512
    )
    
    $
    (5,004
    )
    
    $
    1,048
    
    
    $
    3,149
    
    
    $
    (89,319
    )Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:Depreciation and amortization
    
    
    92,685
    
    
    
    4,978
    
    
    
    8,204
    
    
    
    (401
    )
    
    
    105,466Asset impairments and prepaid expenses written off
    
    
    15,430
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,430Amortization of leasing prepayments
    
    
    18,755
    
    
    
    467
    
    
    
    
    
    
    
    
    
    
    
    19,222Debt issuance cost amortization
    
    
    882
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    882Loss (gain) on sale of property, plant and equipment
    
    
    (667
    )
    
    
    19
    
    
    
    142
    
    
    
    1,208
    
    
    
    702Accretion of discount on convertible notes
    
    
    5,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,013Foreign currency exchange loss
    
    
    367
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    367Deferred income taxes
    
    
    (8,660
    )
    
    
    208
    
    
    
    263
    
    
    
    
    
    
    
    (8,189
    )Non-cash compensation
    
    
    1,023
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,023Minority interest in income of subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    514
    
    
    
    514Loss (gain) on sale and maturity of marketable
securities
    
    
    (134
    )
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    (125
    )Equity loss from investment in subsidiaries
    
    
    4,470
    
    
    
    
    
    
    
    
    
    
    
    (4,470
    )
    
    
    Others
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )Changes in operating working capital:Accounts receivable
    
    
    (19,270
    )
    
    
    (880
    )
    
    
    (3,483
    )
    
    
    
    
    
    
    (23,633
    )Amounts due from affiliates
    
    
    (2,345
    )
    
    
    (406
    )
    
    
    
    
    
    
    721
    
    
    
    (2,030
    )Inventories
    
    
    (2,482
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,482
    )Other receivables, prepaid expenses and other assets
    
    
    (867
    )
    
    
    (8
    )
    
    
    (18
    )
    
    
    
    
    
    
    (893
    )Accounts payable, accrued operating expenses and
other payables
    
    
    4,610
    
    
    
    1,179
    
    
    
    1,374
    
    
    
    
    
    
    
    7,163Amounts due to affiliates
    
    
    (104
    )
    
    
    214
    
    
    
    
    
    
    
    (721
    )
    
    
    (611
    )Net cash provided by operating activities
    
    $
    20,191
    
    
    $
    767
    
    
    $
    7,539
    
    
    $
    
    
    
    $
    28,497Cash Flows From Investing ActivitiesProceeds from sales of marketable securities
    
    $
    105,829
    
    
    $
    
    
    
    $
    5,133
    
    
    $
    
    
    
    $
    110,962Proceeds from maturity of marketable securities
    
    
    2,844
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,844Purchases of marketable securities
    
    
    (151,748
    )
    
    
    
    
    
    
    (6,228
    )
    
    
    
    
    
    
    (157,976
    )Acquisition of intangible assets
    
    
    (65
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65
    )Acquisition of subsidiary, net of cash acquired
    
    
    (13,831
    )
    
    
    
    
    
    
    
    
    
    
    13,831
    
    
    
    Purchases of property, plant and equipment
    
    
    (73,131
    )
    
    
    (14,251
    )
    
    
    (27,447
    )
    
    
    1,660
    
    
    
    (113,169
    )Others, net
    
    
    2,342
    
    
    
    10
    
    
    
    59
    
    
    
    (1,660
    )
    
    
    751Net cash used in investing activities
    
    $
    (127,760
    )
    
    $
    (14,241
    )
    
    $
    (28,483
    )
    
    $
    13,831
    
    
    $
    (156,653
    )Cash Flows From Financing ActivitiesRepayment of long-term debt
    
    $
    (14,321
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (14,321
    )Proceeds from issuance of shares
    
    
    1,256
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    1,278Proceeds from issuance of convertible notes, net of
expenses
    
    
    195,032
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    195,032Proceeds from bank borrowings
    
    
    21
    
    
    
    
    
    
    
    20,571
    
    
    
    
    
    
    
    20,592Increase in restricted cash
    
    
    (3,500
    )
    
    
    
    
    
    
    (9,526
    )
    
    
    
    
    
    
    (13,026
    )Grants received
    
    
    1,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,150Capital lease payments
    
    
    (7,993
    )
    
    
    
    
    
    
    (2,089
    )
    
    
    
    
    
    
    (10,082
    )Cash proceeds from parent company
    
    
    
    
    
    
    13,831
    
    
    
    
    
    
    
    (13,831
    )
    
    
    Net cash provided by financing activities
    
    $
    171,645
    
    
    $
    13,831
    
    
    $
    8,978
    
    
    $
    (13,831
    )
    
    $
    180,623Net increase (decrease) in cash and cash equivalents
    
    $
    64,076
    
    
    $
    357
    
    
    $
    (11,966
    )
    
    $
    
    
    
    $
    52,467Effect of exchange rate changes on cash and cash
equivalents
    
    
    (340
    )
    
    
    
    
    
    
    320
    
    
    
    
    
    
    
    (20
    )Cash and cash equivalents at beginning of the year
    
    
    99,910
    
    
    
    41
    
    
    
    15,263
    
    
    
    
    
    
    
    115,214Cash and cash equivalents at end of the year
    
    $
    163,646
    
    
    $
    398
    
    
    $
    3,617
    
    
    $
    
    
    
    $
    167,661
 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, 2003 STATS
    
    
    Guarantor
    
    
    Non-GuarantorChipPAC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    297,165
    
    
    $
    221
    
    
    $
    15,777
    
    
    $
    
    
    
    $
    313,163Short-term marketable securities
    
    
    5,272
    
    
    
    
    
    
    
    5,872
    
    
    
    
    
    
    
    11,144Accounts receivable, net
    
    
    70,545
    
    
    
    1,760
    
    
    
    7,594
    
    
    
    
    
    
    
    79,899Amounts due from affiliates
    
    
    8,362
    
    
    
    5,905
    
    
    
    
    
    
    
    (7,217
    )
    
    
    7,050Other receivables
    
    
    2,459
    
    
    
    213
    
    
    
    101
    
    
    
    
    
    
    
    2,773Inventories
    
    
    19,839
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,839Prepaid expenses and other assets
    
    
    12,200
    
    
    
    139
    
    
    
    2,524
    
    
    
    
    
    
    
    14,863Total current assets
    
    
    415,842
    
    
    
    8,238
    
    
    
    31,868
    
    
    
    (7,217
    )
    
    
    448,731Long-term marketable securities
    
    
    23,162
    
    
    
    
    
    
    
    151
    
    
    
    
    
    
    
    23,313Prepaid expenses
    
    
    6,283
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,283Property, plant and equipment, net
    
    
    364,246
    
    
    
    12,780
    
    
    
    97,361
    
    
    
    (254
    )
    
    
    474,133Intangible assets
    
    
    1,548
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    
    1,940Investment in subsidiaries
    
    
    60,824
    
    
    
    
    
    
    
    
    
    
    
    (60,824
    )
    
    
    Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,209
    
    
    
    2,209Other assets
    
    
    29,316
    
    
    
    
    
    
    
    7,927
    
    
    
    
    
    
    
    37,243Total assets
    
    $
    901,221
    
    
    $
    21,018
    
    
    $
    137,699
    
    
    $
    (66,086
    )
    
    $
    993,852LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts and other payable
    
    $
    6,649
    
    
    $
    358
    
    
    $
    1,035
    
    
    $
    
    
    
    $
    8,042Payables related to property, plant and
equipment purchases
    
    
    40,825
    
    
    
    384
    
    
    
    12,880
    
    
    
    
    
    
    
    54,089Accrued operating expenses
    
    
    36,623
    
    
    
    1,944
    
    
    
    2,094
    
    
    
    
    
    
    
    40,661Income taxes payable
    
    
    2,195
    
    
    
    
    
    
    
    1,188
    
    
    
    
    
    
    
    3,383Amounts due to affiliates
    
    
    7,862
    
    
    
    134
    
    
    
    1,057
    
    
    
    (7,217
    )
    
    
    1,836Current obligations under capital leases
    
    
    1,880
    
    
    
    2,662
    
    
    
    754
    
    
    
    
    
    
    
    5,296Current installments of long-term debt
    
    
    
    
    
    
    
    
    
    
    6,841
    
    
    
    
    
    
    
    6,841Total current liabilities
    
    
    96,034
    
    
    
    5,482
    
    
    
    25,849
    
    
    
    (7,217
    )
    
    
    120,148Obligations under capital leases, excluding
current installments
    
    
    812
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    812Long-term debt, excluding current installments
    
    
    327,379
    
    
    
    
    
    
    
    31,410
    
    
    
    
    
    
    
    358,789Other non-current liabilities
    
    
    1,212
    
    
    
    
    
    
    
    3,251
    
    
    
    
    
    
    
    4,463Total liabilities
    
    
    425,437
    
    
    
    5,482
    
    
    
    60,510
    
    
    
    (7,217
    )
    
    
    484,212Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,684
    
    
    
    33,684Issued shares
    
    
    172,434
    
    
    
    
    
    
    
    71,140
    
    
    
    (71,140
    )
    
    
    172,434Additional paid-in capital
    
    
    489,337
    
    
    
    21,903
    
    
    
    6,765
    
    
    
    (28,650
    )
    
    
    489,355Accumulated other comprehensive loss
    
    
    (9,921
    )
    
    
    
    
    
    
    (2,189
    )
    
    
    2,189
    
    
    
    (9,921
    )Accumulated earnings (deficit)
    
    
    (176,066
    )
    
    
    (6,367
    )
    
    
    1,473
    
    
    
    5,048
    
    
    
    (175,912
    )Total shareholders equity
    
    
    475,784
    
    
    
    15,536
    
    
    
    77,189
    
    
    
    (92,553
    )
    
    
    475,956Total liabilities and shareholders equity
    
    $
    901,221
    
    
    $
    21,018
    
    
    $
    137,699
    
    
    $
    (66,086
    )
    
    $
    993,852
 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, 2003 STATS
    
    
    Guarantor
    
    
    Non-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-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, 2003 STATS
    
    
    Guarantor
    
    
    Non-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 loss (gain)
    
    
    (2,875
    )
    
    
    
    
    
    
    (492
    )
    
    
    
    
    
    
    (3,367
    )Loss (gain) on sale and maturity of marketable
securities
    
    
    (5,025
    )
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    (5,040
    )Deferred income taxes
    
    
    (741
    )
    
    
    
    
    
    
    (505
    )
    
    
    
    
    
    
    (1,246
    )Minority interest in loss of subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,539
    
    
    
    1,539Equity 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 to 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 debt
    
    $
    
    
    
    $
    
    
    
    $
    (27,419
    )
    
    $
    
    
    
    $
    (27,419
    )Repayment of long-term debt
    
    
    (14,768
    )
    
    
    
    
    
    
    (4,945
    )
    
    
    
    
    
    
    (19,713
    )Proceeds from issuance of shares
    
    
    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-51




---



##### 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
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorChipPAC
    
    
    ChipPAC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    184,824
    
    
    $
    533
    
    
    $
    20,978
    
    
    $
    21,174
    
    
    $
    
    
    
    $
    227,509Marketable securities
    
    
    
    
    
    
    
    
    
    
    787
    
    
    
    1,273
    
    
    
    
    
    
    
    2,060Accounts receivable, net
    
    
    66,875
    
    
    
    
    
    
    
    70,444
    
    
    
    12,331
    
    
    
    
    
    
    
    149,650Amounts due from affiliates
    
    
    250,479
    
    
    
    194,605
    
    
    
    32,635
    
    
    
    3,719
    
    
    
    (478,815
    )
    
    
    2,623Other receivables
    
    
    8,022
    
    
    
    70
    
    
    
    8,483
    
    
    
    238
    
    
    
    
    
    
    
    16,813Inventories
    
    
    19,916
    
    
    
    
    
    
    
    28,440
    
    
    
    6,334
    
    
    
    
    
    
    
    54,690Prepaid expenses and other assets
    
    
    32,971
    
    
    
    1,525
    
    
    
    1,013
    
    
    
    3,327
    
    
    
    
    
    
    
    38,836Total current assets
    
    
    563,087
    
    
    
    196,733
    
    
    
    162,780
    
    
    
    48,396
    
    
    
    (478,815
    )
    
    
    492,181Marketable securities
    
    
    18,097
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    18,121Prepaid expenses
    
    
    7,072
    
    
    
    
    
    
    
    5,224
    
    
    
    
    
    
    
    
    
    
    
    12,296Property, plant and equipment, net
    
    
    391,523
    
    
    
    4,912
    
    
    
    376,014
    
    
    
    263,530
    
    
    
    (176
    )
    
    
    1,035,803Investment in subsidiaries
    
    
    750,620
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (750,620
    )
    
    
    Intangible assets
    
    
    1,398
    
    
    
    2,802
    
    
    
    120,174
    
    
    
    1,456
    
    
    
    
    
    
    
    125,830Goodwill
    
    
    
    
    
    
    
    
    
    
    415,349
    
    
    
    106,040
    
    
    
    2,209
    
    
    
    523,598Other assets
    
    
    34,614
    
    
    
    487
    
    
    
    23,202
    
    
    
    5,570
    
    
    
    
    
    
    
    63,873Total assets
    
    $
    1,766,411
    
    
    $
    204,934
    
    
    $
    1,102,743
    
    
    $
    425,016
    
    
    $
    (1,227,402
    )
    
    $
    2,271,702LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    7,957
    
    
    $
    2,314
    
    
    $
    43,596
    
    
    $
    14,714
    
    
    $
    (8
    )
    
    $
    68,573Payables related to property, plant
and equipment purchases
    
    
    20,028
    
    
    
    4
    
    
    
    17,878
    
    
    
    13,728
    
    
    
    
    
    
    
    51,638Accrued operating expenses
    
    
    36,773
    
    
    
    8,307
    
    
    
    11,335
    
    
    
    7,484
    
    
    
    
    
    
    
    63,899Income taxes payable
    
    
    
    
    
    
    13
    
    
    
    2,005
    
    
    
    20
    
    
    
    
    
    
    
    2,038Short term borrowings
    
    
    
    
    
    
    
    
    
    
    19,874
    
    
    
    
    
    
    
    
    
    
    
    19,874Amounts due to affiliates
    
    
    4,941
    
    
    
    173
    
    
    
    440,622
    
    
    
    33,216
    
    
    
    (478,815
    )
    
    
    137Current obligations under capital leases
    
    
    805
    
    
    
    
    
    
    
    6,782
    
    
    
    
    
    
    
    
    
    
    
    7,587Current installments of long-term debt
    
    
    137,107
    
    
    
    
    
    
    
    
    
    
    
    17,300
    
    
    
    
    
    
    
    154,407Total current liabilities
    
    
    207,611
    
    
    
    10,811
    
    
    
    542,092
    
    
    
    86,462
    
    
    
    (478,823
    )
    
    
    368,153Obligations under capital leases, excluding
current installments
    
    
    
    
    
    
    
    
    
    
    10,771
    
    
    
    
    
    
    
    
    
    
    
    10,771Long-term debt, excluding current installments
    
    
    399,182
    
    
    
    200,000
    
    
    
    
    
    
    
    42,993
    
    
    
    
    
    
    
    642,175Other non-current liabilities
    
    
    268
    
    
    
    
    
    
    
    45,981
    
    
    
    4,113
    
    
    
    
    
    
    
    50,362Total liabilities
    
    
    607,061
    
    
    
    210,811
    
    
    
    598,844
    
    
    
    133,568
    
    
    
    (478,823
    )
    
    
    1,071,461Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,891
    
    
    
    40,891Issued shares
    
    
    298,233
    
    
    
    991
    
    
    
    
    
    
    
    81,535
    
    
    
    (82,526
    )
    
    
    298,233Additional paid-in capital
    
    
    1,507,854
    
    
    
    291,795
    
    
    
    682,651
    
    
    
    261,866
    
    
    
    (1,236,554
    )
    
    
    1,507,612Accumulated other comprehensive loss
    
    
    (2,860
    )
    
    
    (5,993
    )
    
    
    12,492
    
    
    
    4,417
    
    
    
    (10,916
    )
    
    
    (2,860
    )Accumulated earnings (deficit)
    
    
    (643,877
    )
    
    
    (292,670
    )
    
    
    (191,244
    )
    
    
    (56,370
    )
    
    
    540,526
    
    
    
    (643,635
    )Total shareholders equity
    
    
    1,159,350
    
    
    
    (5,877
    )
    
    
    503,899
    
    
    
    291,448
    
    
    
    (789,470
    )
    
    
    1,159,350Total liabilities and shareholders equity
    
    $
    1,766,411
    
    
    $
    204,934
    
    
    $
    1,102,743
    
    
    $
    425,016
    
    
    $
    (1,227,402
    )
    
    $
    2,271,702
 F-52




---



##### 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
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorChipPAC
    
    
    ChipPAC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet revenues
    
    $
    462,697
    
    
    $
    9,703
    
    
    $
    259,785
    
    
    $
    83,382
    
    
    $
    (46,446
    )
    
    $
    769,121Cost of revenues
    
    
    (390,673
    )
    
    
    (203
    )
    
    
    (225,543
    )
    
    
    (73,690
    )
    
    
    46,569
    
    
    
    (643,540
    )Gross profit (loss)
    
    
    72,024
    
    
    
    9,500
    
    
    
    34,242
    
    
    
    9,692
    
    
    
    123
    
    
    
    125,581Operating expenses:Selling, general and administrative
    
    
    42,887
    
    
    
    7,682
    
    
    
    29,133
    
    
    
    5,273
    
    
    
    
    
    
    
    84,965Research and development
    
    
    10,811
    
    
    
    1,047
    
    
    
    4,885
    
    
    
    894
    
    
    
    
    
    
    
    17,637Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    360,869
    
    
    
    92,131
    
    
    
    
    
    
    
    453,000Other general expenses (income), net
    
    
    (618
    )
    
    
    121
    
    
    
    33
    
    
    
    (44
    )
    
    
    44
    
    
    
    (464
    )Total operating expenses
    
    
    53,070
    
    
    
    8,850
    
    
    
    394,920
    
    
    
    98,254
    
    
    
    44
    
    
    
    555,138Operating income (loss)
    
    
    18,954
    
    
    
    650
    
    
    
    (360,678
    )
    
    
    (88,562
    )
    
    
    79
    
    
    
    (429,557
    )Other income (expense), net:Interest income
    
    
    7,774
    
    
    
    9
    
    
    
    2,770
    
    
    
    123
    
    
    
    (6,246
    )
    
    
    4,430Interest expense
    
    
    (19,173
    )
    
    
    (2,875
    )
    
    
    (11,458
    )
    
    
    (1,556
    )
    
    
    6,246
    
    
    
    (28,816
    )Foreign currency exchange gain (loss)
    
    
    (206
    )
    
    
    
    
    
    
    (1,034
    )
    
    
    118
    
    
    
    
    
    
    
    (1,122
    )Equity income (loss) from investment in subsidiaries
    
    
    (472,535
    )
    
    
    (67,882
    )
    
    
    (87,677
    )
    
    
    
    
    
    
    628,094
    
    
    
    Other non-operating income, net
    
    
    (675
    )
    
    
    12
    
    
    
    (531
    )
    
    
    258
    
    
    
    
    
    
    
    (936
    )Total other income (expense), net
    
    
    (484,815
    )
    
    
    (70,736
    )
    
    
    (97,930
    )
    
    
    (1,057
    )
    
    
    628,094
    
    
    
    (26,444
    )Income (loss) before income taxes
    
    
    (465,861
    )
    
    
    (70,086
    )
    
    
    (458,608
    )
    
    
    (89,619
    )
    
    
    628,173
    
    
    
    (456,001
    )Income tax benefit (expense)
    
    
    (1,862
    )
    
    
    (14
    )
    
    
    (7,015
    )
    
    
    997
    
    
    
    
    
    
    
    (7,894
    )Loss before minority interest
    
    
    (467,723
    )
    
    
    (70,100
    )
    
    
    (465,623
    )
    
    
    (88,622
    )
    
    
    628,173
    
    
    
    (463,895
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,828
    )
    
    
    (3,828
    )Net income (loss)
    
    $
    (467,723
    )
    
    $
    (70,100
    )
    
    $
    (465,623
    )
    
    $
    (88,622
    )
    
    $
    624,345
    
    
    $
    (467,723
    )
 F-53




---



##### 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
    
    
    
    
    
    
    Guarantor
    
    
    Non-GuarantorChipPAC
    
    
    ChipPAC
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCash Flows From Operating ActivitiesNet income (loss)
    
    $
    (467,723
    )
    
    $
    (70,100
    )
    
    $
    (465,623
    )
    
    $
    (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
    
    
    
    54,320
    
    
    
    29,638
    
    
    
    (44
    )
    
    
    188,683Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    360,869
    
    
    
    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 early debt extinguishment
    
    
    266
    
    
    
    
    
    
    
    531
    
    
    
    
    
    
    
    
    
    
    
    797Foreign currency exchange loss (gain)
    
    
    (516
    )
    
    
    
    
    
    
    
    
    
    
    (314
    )
    
    
    
    
    
    
    (830
    )Deferred income taxes
    
    
    9,145
    
    
    
    
    
    
    
    6,665
    
    
    
    (805
    )
    
    
    
    
    
    
    15,005Minority interest in income (loss) of subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,828
    
    
    
    3,828Equity loss from investment in subsidiaries
    
    
    472,535
    
    
    
    67,882
    
    
    
    87,677
    
    
    
    
    
    
    
    (628,094
    )
    
    
    (Gain) Loss 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
    
    
    
    6,882
    
    
    
    15,986
    
    
    
    197,310
    
    
    
    4,427Inventories
    
    
    (77
    )
    
    
    
    
    
    
    (946
    )
    
    
    (148
    )
    
    
    
    
    
    
    (1,171
    )Other receivables, prepaid expenses and other assets
    
    
    (64,078
    )
    
    
    (1,442
    )
    
    
    224
    
    
    
    875
    
    
    
    
    
    
    
    (64,421
    )Accounts payable, accrued operating expenses and
other payables
    
    
    (2,709
    )
    
    
    (23,934
    )
    
    
    (11,138
    )
    
    
    (3,625
    )
    
    
    
    
    
    
    (41,406
    )Amounts due to affiliates
    
    
    (2,918
    )
    
    
    (85
    )
    
    
    190,199
    
    
    
    8,415
    
    
    
    (197,310
    )
    
    
    (1,699
    )Net cash provided by operating activities
    
    $
    (150,085
    )
    
    $
    (438
    )
    
    $
    237,775
    
    
    $
    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
    )
    
    
    (555
    )
    
    
    (474
    )
    
    
    
    
    
    
    (1,428
    )Acquisition of subsidiary, net of cash acquired
    
    
    (14,049
    )
    
    
    
    
    
    
    
    
    
    
    4,680
    
    
    
    16,577
    
    
    
    7,208Purchases of property, plant and equipment
    
    
    (172,320
    )
    
    
    (1,090
    )
    
    
    (60,327
    )
    
    
    (81,225
    )
    
    
    27,388
    
    
    
    (287,574
    )Others, net
    
    
    20,926
    
    
    
    33
    
    
    
    3,144
    
    
    
    4,014
    
    
    
    (27,388
    )
    
    
    729Net cash used in investing activities
    
    $
    (154,557
    )
    
    $
    (1,456
    )
    
    $
    (57,516
    )
    
    $
    (67,872
    )
    
    $
    16,577
    
    
    $
    (264,824
    )Cash Flows From Financing ActivitiesRepayment of short-term debt
    
    $
    (50,000
    )
    
    $
    
    
    
    $
    
    
    
    $
    (22,006
    )
    
    $
    
    
    
    $
    (72,006
    )Repayment of long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,982
    )
    
    
    
    
    
    
    (8,982
    )Proceeds from issuance of shares, net of expenses
    
    
    1,968
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,968Proceeds from issuance of convertible and senior
notes, net of expenses
    
    
    210,458
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    210,458Repurchase 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
    )
    
    
    
    
    
    
    (4,390
    )
    
    
    (778
    )
    
    
    
    
    
    
    (7,210
    )Net cash provided by (used in) financing activities
    
    $
    192,301
    
    
    $
    
    
    
    $
    (171,938
    )
    
    $
    20,765
    
    
    $
    
    
    
    $
    41,128Net decrease in cash and cash equivalents
    
    $
    (112,341
    )
    
    $
    (1,894
    )
    
    $
    8,321
    
    
    $
    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/period
    
    
    297,165
    
    
    
    2,427
    
    
    
    12,657
    
    
    
    17,491
    
    
    
    (16,577
    )
    
    
    313,163Cash and cash equivalents at end of
the year
    
    $
    184,824
    
    
    $
    533
    
    
    $
    20,978
    
    
    $
    21,174
    
    
    $
    
    
    
    $
    227,509
 F-54