##### Table of Contents



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 1934.
 For the fiscal year ended December 31, 2005.
 OR
 o
    
    Transition Report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934. For the transition period from _____________ to _____________.
 OR
 o
    
    Shell Company Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.Date of event requiring this shell company report .........................
  CHARTERED SEMICONDUCTOR MANUFACTURING LTD.
  
 
  Title of Each Class
None
    
    Name of Each Exchange on Which Registered
Not Applicable
  
 
 
  þ o
  o þ
  þ o
  þ o o
  o þ
  o þ




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##### 



TABLE OF CONTENTS
 
 PART IITEM 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    3ITEM 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    3ITEM 3.
    
    KEY INFORMATION
    
    
    3ITEM 4.
    
    INFORMATION ON OUR COMPANY
    
    
    21ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    38ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    63ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    76ITEM 8.
    
    FINANCIAL INFORMATION
    
    
    78ITEM 9.
    
    THE OFFER AND LISTING
    
    
    79ITEM 10.
    
    ADDITIONAL INFORMATION
    
    
    80ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    96ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    98PART IIITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    98ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    98ITEM 15.
    
    CONTROLS AND PROCEDURES
    
    
    98ITEM 16.A.
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    99B.
    CODE OF ETHICS
    
    
    99C.

    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    99D.

    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    100E.

    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    100PART IIIITEM 17.
    
    FINANCIAL STATEMENTS
    
    
    100ITEM 18.
    
    FINANCIAL STATEMENTS
    
    
    100ITEM 19.
    
    EXHIBITS
    
    
    102SIGNATURESIndex to Financial StatementsEX-2.2 Specimen certificate for convertible redeemable preference shares.EX-4.10.3 Deed of Accession and Ratification dated January 26, 2006 relating to the Restated Joint Venture Agreement dated October 23, 2001 and as further amended by an amendment (No. 1).EX-4.19.1 Agreement for Sub-License and Sub-Lease (Private Lot A12787(k)) dated July 8, 2005 by and between Singapore Technologies Pte Ltd and the company.EX-4.19.2 Novation Agreement dated July 8, 2005 by and among Singapore Technologies Pte Ltd, Terra Investments Pte. Ltd. and the company dated July 8, 2005.EX-12.1 Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.EX-12.2 Certification of the Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.EX-13.1 Certification of the President and Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.EX-13.2 Certification of the Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.EX-15.1 Consent of KPMG addressed to the Board of Directors and Shareholders of the company.EX-15.2 Consent of KPMG addressed to the Board of Directors and Shareholders of Silicon Manufacturing Partners Pte Ltd.
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Certain Definitions and Conventions
 
  Presentation of Certain Financial Information
    2




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PART I
 
 ITEM 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 ITEM 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3.
    
    KEY INFORMATION
 A.
    
    SELECTED FINANCIAL DATA
  Year Ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(in thousands, except share and per share data and ratios)Consolidated Statements
of Operations Data:Net revenue
    
    $
    462,656
    
    
    $
    449,241
    
    
    $
    551,911
    
    
    $
    932,131
    
    
    $
    1,032,734Cost of revenue
    
    
    665,261
    
    
    
    628,726
    
    
    
    648,330
    
    
    
    769,318
    
    
    
    917,048Gross profit (loss)
    
    
    (202,605
    )
    
    
    (179,485
    )
    
    
    (96,419
    )
    
    
    162,813
    
    
    
    115,686Operating expenses:Research and
Development
    
    
    82,897
    
    
    
    95,285
    
    
    
    124,057
    
    
    
    118,281
    
    
    
    122,073Fab start-up costs
    
    
    13,329
    
    
    
    8,338
    
    
    
    9,219
    
    
    
    33,199
    
    
    
    22,697Sales and marketing
    
    
    38,659
    
    
    
    41,182
    
    
    
    38,748
    
    
    
    37,751
    
    
    
    42,181General and
administrative
    
    
    42,671
    
    
    
    43,103
    
    
    
    40,762
    
    
    
    33,850
    
    
    
    38,756Other operating
expenses (income),
net
    
    
    
    
    
    
    10,025
    (1)
    
    
    (11,001
    )(2)
    
    
    (8,994
    )(3)
    
    
    3,938
    (5)Total operating expenses
    
    
    177,556
    
    
    
    197,933
    
    
    
    201,785
    
    
    
    214,087
    
    
    
    229,645Operating income
(loss)
    
    
    (380,161
    )
    
    
    (377,418
    )
    
    
    (298,204
    )
    
    
    (51,274
    )
    
    
    (113,959
    )Other income (expense):Equity in income
(loss) of SMP
    
    
    (92,683
    )
    
    
    (84,846
    )
    
    
    23,194
    
    
    
    27,563
    
    
    
    6,486Other income, net
    
    
    19,718
    
    
    
    23,632
    
    
    
    23,186
    
    
    
    52,299
    (4)
    
    
    2,442
    (6)Interest income
    
    
    46,225
    
    
    
    16,637
    
    
    
    12,168
    
    
    
    11,530
    
    
    
    28,625Interest expense and
amortization of debt
discount
    
    
    (39,652
    )
    
    
    (41,661
    )
    
    
    (42,222
    )
    
    
    (30,093
    )
    
    
    (69,839
    )Foreign exchange gain
(loss), net
    
    
    4,216
    
    
    
    (1,966
    )
    
    
    (733
    )
    
    
    1,320
    
    
    
    (356
    )
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Year Ended December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(in thousands, except share and per share data and ratios)Income (loss) before
income taxes and
minority interest
    
    
    (442,337
    )
    
    
    (465,622
    )
    
    
    (282,611
    )
    
    
    11,345
    
    
    
    (146,601
    )Income tax expense(7)
    
    
    (14,244
    )
    
    
    (7,029
    )
    
    
    (11,671
    )
    
    
    (4,774
    )
    
    
    (12,997
    )Income (loss) before
minority interest
    
    
    (456,581
    )
    
    
    (472,651
    )
    
    
    (294,282
    )
    
    
    6,571
    
    
    
    (159,598
    )Minority interest in
loss of CSP
    
    
    72,629
    
    
    
    55,563
    
    
    
    9,491
    
    
    
    
    
    
    
    Net income (loss) prior
to cumulative effect
adjustment
    
    
    (383,952
    )
    
    
    (417,088
    )
    
    
    (284,791
    )
    
    
    6,571
    
    
    
    (159,598
    )Cumulative effect
adjustment for change
in accounting
principle(8)
    
    
    
    
    
    
    
    
    
    
    (6,421
    )
    
    
    
    
    
    
    Net income (loss)
    
    
    (383,952
    )
    
    
    (417,088
    )
    
    
    (291,212
    )
    
    
    6,571
    
    
    
    (159,598
    )Less: Accretion to redemption value
of convertible redeemable
preference shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,196
    )Net Income (loss) available to
common shareholders
    
    $
    (383,952
    )
    
    $
    (417,088
    )
    
    $
    (291,212
    )
    
    $
    6,571
    
    
    $
    (162,794
    )Basic and diluted net
earnings (loss) per common
share(9)
    
    $
    (0.24
    )
    
    $
    (0.23
    )
    
    $
    (0.12
    )
    
    $
    0.00
    
    
    $
    (0.06
    )Number of shares used in
computing net earnings
(loss) per common share:Basic
    
    
    1,588,969
    
    
    
    1,799,106
    
    
    
    2,502,294
    
    
    
    2,508,376
    
    
    
    2,511,428Diluted
    
    
    1,588,969
    
    
    
    1,799,106
    
    
    
    2,502,294
    
    
    
    2,516,942
    
    
    
    2,512,577Basic and diluted net earnings
(loss) per ADS(9)
    
    $
    (2.42
    )
    
    $
    (2.32
    )
    
    $
    (1.16
    )
    
    $
    0.03
    
    
    $
    (0.65
    )Number of ADSs used in
computing net earnings
(loss) per ADS:Basic
    
    
    158,897
    
    
    
    179,911
    
    
    
    250,229
    
    
    
    250,838
    
    
    
    251,143Diluted
    
    
    158,897
    
    
    
    179,911
    
    
    
    250,229
    
    
    
    251,694
    
    
    
    251,258Other
Data (unaudited)(10):Ratio of earnings to combined fixed
charges
and preferred dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deficiency of earnings
available to cover combined fixed
charges and preferred dividends
    
    $
    354,919
    
    
    $
    381,225
    
    
    $
    301,421
    
    
    $
    19,268
    
    
    $
    132,793
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As of December 31,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(in thousands)Consolidated Balance
Sheet Data:Cash and cash
equivalents
    
    $
    1,041,616
    
    
    $
    1,210,925
    
    
    $
    905,472
    
    
    $
    539,399
    
    
    $
    819,856Working capital(11)
    
    
    642,487
    
    
    
    942,059
    
    
    
    682,322
    
    
    
    162,746
    
    
    
    550,323Total assets
    
    
    3,144,342
    
    
    
    3,333,463
    
    
    
    3,021,027
    
    
    
    3,090,012
    
    
    
    3,517,294Long-term obligations
    
    
    980,368
    
    
    
    1,154,815
    
    
    
    1,049,837
    
    
    
    960,660
    
    
    
    1,187,004Convertible redeemable
preference shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,663Long-term obligations and
convertible redeemable
preference shares
    
    
    980,368
    
    
    
    1,154,815
    
    
    
    1,049,837
    
    
    
    960,660
    
    
    
    1,437,667Share capital
    
    
    280,480
    
    
    
    443,713
    
    
    
    444,953
    
    
    
    445,531
    
    
    
    446,181Total shareholders
equity
    
    
    1,582,632
    
    
    
    1,785,459
    
    
    
    1,494,555
    
    
    
    1,505,631
    
    
    
    1,346,374
 
 Notes: (1)
    
    Included in 2002 other operating expenses (income), net line was a charge of $10.0
million associated with a restructuring charge on workforce re-sizing and a fixed asset
impairment charge.
 (2)
    
    Included in 2003 other operating expenses (income), net line were:
 (a)
    
    A gain of $27.5 million associated with the cancellation of our employee bonus
award plan;(b)
    
    A gain of $4.9 million resulting from equipment disposition;(c)
    
    An impairment charge of $9.0 million on certain machinery and equipment, as part
of our fab capacity rationalization; and(d)
    
    A restructuring charge of $12.4 million relating to the phase out of Fab 1.
 (3)
    
    Included in 2004 other operating expenses (income), net line were:
 (a)
    
    A gain of $10.4 million resulting from an equipment disposition with CSMC
Technologies Corporation, or CSMC;(b)
    
    A gain of $4.9 million associated with the resolution of a goods and services
tax matter;(c)
    
    A restructuring charge of $4.6 million relating to the closing of Fab 1; and(d)
    
    An impairment charge of $1.7 million resulting from the migration to an
enhanced manufacturing system.
 (4)
    
    Included in 2004 other income, net line was a gain of $14.3 million from the sale of
technology to CSMC and a grant income of $29.5 million.
 (5)
    
    Other operating expenses (income), net in 2005 relate to a fixed asset impairment
charge on assets held for sale.
 (6)
    
    Included in 2005 other income, net line was an expense of $7.0 million related to the
termination of
hedging transactions and other costs as a result of the cash tender offer, or Tender Offer,
for and repurchase of any and all of our $575.0 million original principal amount of 2.5%
senior convertible notes due 2006, or Convertible Notes. A more detailed discussion of the
Tender Offer can be found under Item 5. Operating and Financial Review and Prospects 
Liquidity and Capital Resources.
 (7)
    
    The pioneer tax status of our fabs had the effect of increasing basic and diluted net
earnings per common share or decreasing basic and diluted net loss per common share by
$(0.05), $(0.04), $(0.02), $0.00 and $(0.01) and increasing basic and diluted net earnings
per ADS or by decreasing basic and diluted net loss per ADS by $(0.48), $(0.36), $(0.15),
$0.02 and $(0.11) for the years ended December 31, 2001, 2002, 2003, 2004 and 2005,
respectively.
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(8)
    
    Effective January 1, 2003, we adopted the provisions of Statement of Financial
Accounting Standards, or SFAS, No. 143, Accounting for Asset Retirement Obligations,
which addresses financial accounting and reporting for obligations associated with the
retirement of long-lived assets and associated asset retirement costs. This resulted in a
cumulative effect loss of $6.4 million, after a reduction in minority interest of $0.5
million, for 2003. The cumulative effect loss represents the depreciation and accretion
expense that would have been recorded previously if SFAS No. 143 had been in effect in
prior years.
 (9)
    
    For 2003, basic and diluted net loss per common share prior to cumulative effect
adjustment was $(0.11) and basic and diluted net loss per ADS prior to cumulative effect
adjustment was $(1.14).
 (10)
    
    For purposes of calculating the ratio of earnings to combined fixed charges and
preferred dividends and the deficiency of earnings available to cover combined fixed
charges and preferred dividends, if any, earnings consists of income (loss) before income
taxes and minority interest, adjusted to remove equity in income (loss) of equity
affiliates and to add fixed charges, amortization of capitalized interest and distributed
income of equity affiliates, less interest capitalized. Fixed charges consist of interest
expensed, interest capitalized, amortization of capitalized expenses related to
indebtedness, plus an estimated interest portion of rental expenses on operating leases.
Preferred dividend consists of accretion charges relating to our convertible redeemable
preference shares.
 (11)
    
    Working capital is calculated as the excess of current assets over current liabilities.
 B.
    
    CAPITALIZATION AND INDEBTEDNESS
  C.
    
    REASONS FOR THE OFFER AND USE OF PROCEEDS
  D.
    
    RISK FACTORS
  Risks Related to Our Financial Condition
 We have a history of losses and this may continue.
   We have a high level of debt. If we are unable to make interest and principal payments on our debt,
it could seriously harm our company.
  
    
    increase our vulnerability to general adverse economic and industry conditions;
    
    limit our ability to pursue our growth plan and technology upgrades or migrations;
    
    require us to seek the lenders consent prior to paying dividends on our ordinary shares;
    
    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
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and other general corporate purposes. The term capital expenditures means
the amount we paid during a particular period for property, plant and equipment;
    
    limit our flexibility in planning for, or reacting to, changes in our business and the
semiconductor industry; and
    
    limit our ability to incur additional borrowings or raise additional financing through
equity or debt instruments.
  We expect to incur substantial capital expenditures, research and development costs and fab
start-up costs in connection with our growth plans and may require additional financing that may
not be available.
    Failure to maintain high capacity utilization, optimize the technology mix of our semiconductor
wafer production and continuously improve our device yields would seriously harm our prospects and
financial condition.
  
    
    maintain high capacity utilization;
    
    optimize the technology mix of our semiconductor wafer production; and
    
    continuously improve our device yields.
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Risks Related to Our Operations
 The cyclical nature of the semiconductor industry and the periodic overcapacity that results from
this, as well as any rapid change in the end markets we serve, may seriously harm our company.
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We depend on our technology partners to advance our portfolio of process technologies.
     We depend on a small number of customers for a significant portion of our revenue.
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We may not be able to implement new technology as it becomes available which may affect our ability
to produce advanced products at competitive prices.
  A decrease in demand and average selling prices for end-use applications of semiconductor products
such as communications equipment, personal computers, computer peripherals and consumer products
may significantly decrease the demand for our services and may result in a decrease in our revenue
and gross profit margin.
  Our ability to successfully partner with electronic design automation, intellectual property and
design service providers to meet customers design needs depends on the availability and quality of
the relevant services, tools and technologies and our ability to meet our customers schedule and
budget requirements.
  Our customers do not place purchase orders far in advance. Therefore, we do not have any
significant backlog.
  Our growth, technology capabilities, planned capacity expansion and our competitive position depend
on the success of our more advanced manufacturing facilities.
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We depend on our strategic business alliances relating to our fabs. Termination or modification of
these alliances could seriously harm our company.
   We may not be able to compete successfully in our industry.
    Our operating results fluctuate from quarter to quarter, which makes it difficult to predict our
future performance.
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
    
    the cyclical nature of both the semiconductor industry and the markets served by our customers;
    
    changes in the economic conditions of geographical regions where our customers and their
markets are located;
    
    shifts by IDMs between internal and outsourced production;
    
    changes in demand for products that incorporate semiconductors we produce;
    
    inventory and supply chain management of our customers;
    
    the loss of a key customer or the postponement or reduction of an order from a key
customer or the failure of a key customer to pay accounts receivables in a timely manner;
    
    the occurrence of losses from a customers inability to pay our accounts receivables from them;
    
    the rescheduling or cancellation of large orders;
    
    the rescheduling or cancellation of planned capital expenditures;
    
    our inability to qualify new processes or customer products in a timely manner;
    
    the return of wafers due to quality or reliability issues;
    
    malfunction of our wafer production equipment;
    
    unforeseen delays or interruptions in our plans for new fabrication facilities;
    
    the timing and volume of orders relative to our available production capacity;
    
    our ability to obtain raw materials and equipment on a timely and cost effective basis;
    
    environmental events or industrial accidents such as fires or explosions;
    
    our susceptibility to intellectual property rights disputes;
    
    our ability to continue with existing, and to enter into new partnerships, technology
and supply alliances on mutually beneficial terms;
    
    actual capital expenditures exceeding planned capital expenditures;
    
    currency and interest rate fluctuations that may not be adequately hedged; and
    
    technological changes.
  Our business depends in part on our ability to obtain and preserve intellectual property rights.
  We may be subject to intellectual property rights disputes.
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
    
    discontinue using certain process technologies which could cause us to stop
manufacturing certain semiconductor products;
    
    pay substantial monetary damages;
    
    seek to develop non-infringing technologies, which may not be feasible; or
    
    seek to acquire licenses to the infringed technology which may not be available on
commercially reasonable terms, if at all.
  We may experience difficulty in obtaining insurance coverage without incurring increased costs.
  Risks Related to Manufacturing
 We may experience difficulty in achieving acceptable device yields, product performance and product
delivery times as a result of manufacturing problems.
  We depend on our vendors of raw materials, supplies and equipment and do not typically have
long-term supply contracts with them.
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We depend on assembly and test subcontractors for our semiconductor assembly and testing
requirements.
  As we migrate to more advanced technologies which may require access to advanced packaging and
wafer bumping services, we may experience difficulties in securing such access in a timely manner
due to the limited number of vendors providing such services.
  We are subject to the risk of loss due to fire because the materials we use in our manufacturing
processes are highly flammable.
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Our failure to comply with certain environmental regulations could seriously harm our company.
  Risks Related to Our Infrastructure
 We face several risks in constructing and equipping new fabrication plants.
  
    
    a major design and/or construction change caused by changes to the initial building
space utilization plan or equipment layout;
    
    technological, capacity and other changes to our plans for new fabrication plants
necessitated by changes in market conditions;
    
    shortages and late delivery of building materials and facility equipment;
    
    delays in the installation, commissioning and qualification of our facility equipment;
    
    a long and intensive wet season that limits construction;
    
    a shortage of foreign construction workers or a change in immigration laws preventing
such workers from entering Singapore;
    
    strikes and labor disputes;
    
    on-site construction problems such as industrial accidents, fires and structural collapse;
    
    delays in securing the necessary governmental approvals and land lease;
    
    delays arising from modifications in capacity expansion plans as a result of uncertainty
in economic conditions; and
    
    delays arising from demand exceeding supply and long lead times for delivery of
equipment during periods of growth in the industry.
 We depend on key personnel and due to the shortage of skilled labor in Singapore, we may have
difficulty attracting and retaining sufficient numbers of skilled employees.
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Risks Related to Covenants in Our Agreements
 Many of our loans contain financial and other covenants which may restrict our operational and
financing activities in ways that restrict our growth or are otherwise not in the best interests of
our company or holders of our securities.
   Risks Related to Investments in a Controlled Corporation
 Temasek controls our company and its interests may conflict with the interests of our other
shareholders.
   Risks Related to Investment in a Corporation with International Operations
 Economic conditions where our customers and their markets are located may have a negative impact on
our revenue.
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Terrorist attacks or a war could adversely affect our business, results of operations and financial
condition.
   Outbreak of an infectious disease or any other serious public health concerns in Asia (including
Singapore) and elsewhere could adversely impact our business, results of operations and financial
condition.
  We operate internationally and are therefore affected by problems in other countries.
  
    
    fluctuations in the values of currencies;
    
    changes in labor conditions;
    
    longer payment cycles;
    
    greater difficulty in collecting accounts receivable;
    
    burdens and costs of compliance with a variety of foreign laws;
    
    political and economic instability;
    
    increases in duties and taxation;
    
    imposition of restrictions on currency conversion or the transfer of funds;
    
    limitations on imports or exports;
    
    expropriation of private enterprises; and
    
    reversal of the current policies (including favorable tax and lending policies)
encouraging foreign investment or foreign trade by our host countries.
  Exchange rate fluctuations may increase our costs and capital expenditures, which could affect our
operating results and financial position.
  17




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We may be a passive foreign investment company.
  Our public shareholders may have more difficulty protecting their interests than they would as
shareholders of a U.S. corporation.
  It may be difficult for you to enforce any judgment obtained in the U.S. against us or our
affiliates.
   Singapore law contains provisions that could discourage a takeover of our company.
  18




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Risks Related to Our Securities and Our Trading Market
 The future sales of securities by our company or existing shareholders may hurt the price of our
securities.
  The market prices of our securities have been and may continue to be highly volatile.
  
    
    actual or anticipated variations in our quarterly operating results;
    
    announcements of technological innovations;
    
    changes in estimates of our performance or recommendations by financial analysts;
    
    market conditions in the semiconductor industry and economy as a whole;
    
    introduction of new services by us or our competitors;
    
    changes in market valuations of other foundries and semiconductor companies;
    
    announcements made by us or our competitors of significant acquisitions, strategic
partnerships or joint ventures;
    
    problems in our advanced manufacturing facilities;
    
    announcements made by our customers of their performance or financial results and of
their foundry alliances and relationships;
    
    market rumors or speculation about our business, operations, capital raising, change in
our controlling shareholder or affairs;
    
    issue of additional equity or equity linked offerings;
    
    significant reduction or increase of shareholding by our controlling shareholder;
    
    additions or departures of key personnel; and
    
    other events or factors, many of which are beyond our control.
  The Singapore securities market is relatively small and more volatile than the U.S. markets and may
cause the market price of our securities to fluctuate.
  19




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##### Table of Contents



Your voting rights with respect to the ADSs are limited by the terms of the deposit agreement for
the ADSs.
   
    
    the notice of such meeting;
    
    voting instruction forms; and
    
    a statement as to the manner in which instructions may be given by holders.
   Your ability to participate in any rights offering of our company is limited.
  FORWARD-LOOKING STATEMENTS
  
    
    statements relating to our business strategy;
    
    our outlook for 2006;
    
    our capacity utilization rate, production capacity and production capacity mix;
    
    our plans to expand our production capacity for 0.13um and smaller process geometry
technologies to meet the anticipated needs of our customers;
    
    our expectation that 0.13 um and smaller process geometry technologies, including 90nm,
will be a large contributor to our revenue in 2006;
    
    our 2006 planned capital expenditures, research and development expenditures,
depreciation and
 20




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##### Table of Contents



amortization and wafer capacity; and
    
    our sources of liquidity, cash flow, funding needs and financings;
  
    
    changes in the market outlook and trends;
    
    the growth rate of fabless companies and the outsourcing strategy of integrated device
manufacturers;
    
    demand and supply outlook in the semiconductor market;
    
    economic conditions in the United States as well as globally;
    
    customer demands, unforeseen delays or interruptions in our plans for our fabrication facilities;
    
    the performance level of and technology mix in our fabrication facilities;
    
    our progress on leading-edge products;
    
    access to or delays in technological advances or our development of process technologies;
    
    the successful implementation of our partnership, technology and supply alliances
(including our joint development agreements with IBM, Infineon and Samsung);
    
    changes in capacity allocation in process technology mix, changes in our capacity plans,
unavailability of materials, equipment, manpower, expertise and timely regulatory
approvals;
    
    our expectation that IDMs will utilize foundry capacity more extensively;
    
    the availability of financings and the terms thereof; and
    
    terrorist attacks, acts of war, or the possibility of an outbreak of Bird Flu or any other infectious disease in Singapore as well as other parts of the world.
  
 ITEM 4. INFORMATION ON OUR COMPANY
 A.
    
    HISTORY AND DEVELOPMENT OF OUR COMPANY
 However, information contained
in our website does not constitute a part of this document.
     21




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##### Table of Contents



B.
    
    BUSINESS OVERVIEW
 Overview
    Industry Background
    The Growth of the Semiconductor Foundry Industry
    22




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##### Table of Contents



The Requirements of a Full-Service Foundry
  Systems Integration Expertise.
 Leading-Edge
Process Technologies.
 Comprehensive Prefabrication Services.
 Long-Term Relationships.
 Security.
 The Chartered Solution
    23




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##### Table of Contents



Business Strategy
  Improve top-line growth by targeting first source business through our advanced technology while
continuing to serve the markets for mature technologies
   Optimize our capacity base
  Leading-edge Technologies.
 24




---



##### Table of Contents



Mature Technologies.
 Focus on solutions that support the growing trend of product convergence
  Provide a complete range of services
  Offer leading process technology
     25




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##### Table of Contents



Enhance and expand alliances
  Overview of Wafer Fabrication Services
  Pre-Fabrication Services
 Circuit Design.
  Mask Making.
 Wafer Fabrication
 Wafer Manufacturing.
  
    
    Logic.All digital electronic systems, such as computing devices, are controlled by
logic semiconductor devices which process data. Microcontrollers, microprocessors, digital
signal processors and graphics chipsets are all logic devices. We manufacture logic
semiconductor wafers primarily for the communication, computer and consumer markets.
 26




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##### Table of Contents




    
    Mixed-Signal.Mixed-signal semiconductor devices combine analog and digital devices on
a single semiconductor device to process both analog signals and digital data. Mixed-signal
semiconductor devices are used in applications including wireless equipment, fiber optic
communications and data networking. We make mixed-signal semiconductor wafers using both
CMOS and BiCMOS processes.
    
    Memory.Memory devices store data and can be manufactured as stand-alone devices or
embedded in system semiconductor devices that combine a number of functions, such as logic
and memory components. We manufacture stand-alone memory devices including EPROM, EEPROM,
SRAM and Flash memory and embedded memory including eSRAM, eEEPROM, and eFLASH memories.
For more information on what these mean, please see  Manufacturing Facilities. Memory
devices are used in a range of products from computers and mobile phones to smart chip
cards.
 Wafer Probe.
 Other Services
 Assembly and Test.
  Manufacturing Facilities
  Production Capacity and Utilization
  Quarterly Shipment and Capacity (1)
 Data
Including Chartereds Share of SMP
    
    3Q 2004
    
    4Q 2004
    
    1Q 2005
    
    2Q 2005
    
    3Q 2005
    
    4Q 2005Thousand eight-inch equivalent wafers:Total wafers shipped
    
    
    287.1
    
    
    
    200.8
    
    
    
    186.2
    
    
    
    224.5
    
    
    
    295.2
    
    
    
    345.8Total capacity
    
    
    322.5
    
    
    
    327.0
    
    
    
    317.0
    
    
    
    346.5
    
    
    
    401.4
    
    
    
    435.9Utilization
    
    
    89
    %
    
    
    61
    %
    
    
    59
    %
    
    
    65
    %
    
    
    74
    %
    
    
    79
    %
 27




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##### Table of Contents



Capacity by Fab(1)
    
    3Q 2004
    
    4Q 2004
    
    1Q 2005
    
    2Q 2005
    
    3Q 2005
    
    4Q 2005Thousand eight-inch equivalent wafers:Fab 2
    
    
    131.2
    
    
    
    131.8
    
    
    
    130.6
    
    
    
    137.7
    
    
    
    139.2
    
    
    
    145.7Fab 3
    
    
    73.0
    
    
    
    73.0
    
    
    
    71.4
    
    
    
    74.3
    
    
    
    74.2
    
    
    
    74.2Fab 5(2)
    
    
    37.2
    
    
    
    37.0
    
    
    
    34.5
    
    
    
    35.8
    
    
    
    36.2
    
    
    
    35.6Fab 6
    
    
    81.1
    
    
    
    85.2
    
    
    
    80.5
    
    
    
    89.4
    
    
    
    100.5
    
    
    
    112.9Fab 7(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.3
    
    
    
    51.3
    
    
    
    67.5Total
    
    
    322.5
    
    
    
    327.0
    
    
    
    317.0
    
    
    
    346.5
    
    
    
    401.4
    
    
    
    435.9
 
 Notes:(1)
    
    Fab 1 ceased operations at the end of March 2004, with some of its operations moved to Fab 2.(2)
    
    49% of total capacity, based on Chartereds equity ownership.(3)
    
    Fab 7, our first 300-mm wafer facility, started commercial shipments in June 2005. Wafer Capacity
  Fab 2
    
    Fab 3
    
    Fab 5 (SMP)(1)
    
    Fab 6 (CSP)(1)
    
    Fab 7Production
commenced
    
    1995
    
    1997
    
    1999
    
    2000
    
    2005(2)Estimated full
capacity(3)
    
    48,000 wafers
    
    25,000 wafers
    
    24,000 wafers
    
    39,000 wafers
    
    30,000 wafersper month
    
    per month
    
    per month
    
    per month
    
    per month(4)Wafer size
    
    Eight-inch
    
    Eight-inch
    
    Eight-inch
    
    Eight-inch
    
    Twelve-inch(200-mm)
    
    (200-mm)
    
    (200-mm)
    
    (200-mm)
    
    (300-mm)Process
technologies
    
    0.6 to 0.3um(5)
    
    0.35 to
    
    0.25 to
    
    0.25 to
    
    0.13um and0.18um(5)
    
    0.13um(5)
    
    0.11um(5)
    
    smaller processgeometrytechnologiesManufacturing
technologies(6)
    
    Digital; Mixed
    
    Digital; Mixed
    
    Digital; RF
    
    High
    
    HighSignal; RF
    
    Signal; RF
    
    CMOS;
    
    performance,
    
    performance,CMOS; SRAM;
    
    CMOS; SRAM
    
    BiCMOS;
    
    high-density
    
    high-densityFlash Memory;
    
    
    
    Mixed Signal;
    
    CMOS; high
    
    CMOS; MixedHVCMOS;
    
    
    
    eSRAM
    
    density SRAM
    
    Signal; SOIEEPROM;
    
    
    
    
    
    Mixed Signal; RFDMOS;
    
    
    
    
    
    CMOSBiCMOS,BiPolar; OTPClean room
    
    109,000 sq. ft.
    
    81,000 sq. ft.
    
    96,540 sq. ft.
    
    126,000 sq. ft.
    
    181,000 sq. ftClass-1 SMIF(7)
    
    Class-1 SMIF(7)
    
    Class-1 SMIF(7)
    
    Class-1 SMIF(7)
    
    Class-1 SMIF(7)
 
 Notes:(1)
    
    With respect to Fab 5 and Fab 6, the information includes capacity of our strategic partners. 28




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(2)
    
    Commercial shipments started in June 2005.(3)
    
    Estimated full capacity is the production output capability based on our current and
anticipated process technology mix, which may vary. Our projections of estimated full capacity
have varied from previous projections in terms of number of wafers because of revisions to our
earlier plans, including changes to our capacity expansion plans and capacity allocation in
process technology mix. Such changes reflect developments in market conditions and demand.(4)
    
    Equivalent to 67,500 eight-inch wafers per month. A conversion rate of 2.25 is utilized in
determining the number of eight-inch wafer equivalent to that of twelve-inch wafers. We are
taking a phased approach to the full equipping of Fab 7 to 30,000 300-mm wafers per month, and
this is expected to take a number of years and will be paced by customer demand and industry
conditions. As of December 31, 2005, Fab 7 has a capacity of approximately 10,000 300-mm
wafers per month.(5)
    
    Some of these manufacturing processes are preliminary and their successful implementation
depends on various factors, including our ability to achieve advances in process technology or
to obtain access to advanced process technology developed by others, or in the case of our
0.18um capability in Fab 3, our ability to leverage on certain tool capacities in SMP. These
fabs can be retrofitted to achieve smaller process geometry technologies than those shown
above.(6)
    
    Some of these manufacturing technologies are preliminary and their successful implementation
depends on various factors, including our ability to achieve advances in manufacturing
technology or to obtain access to advanced manufacturing technology developed by others.
EEPROMs are electrically erasable programmable read-only memory devices. SRAMs are static
random access memory devices. eSRAMs are embedded static random access memory devices. CMOS
means complementary metal oxide silicon. RF CMOS means radio frequency complementary metal
oxide silicon. BiCMOS means bipolar complementary metal oxide silicon. HVCMOS refers to high
voltage complementary metal oxide silicon. DMOS refers to double diffused vertical MOSFET
(metal oxide semiconductor field effect transistor). OTP refers to one time programmable
memory.(7)
    
    Class 1 is a measurement of air cleanliness in which the amount of particles is controlled to
no more that one particle at 0.5um per cubic foot of air. SMIF means standard mechanical
interface.   Year Ended December 31,2001
    
    2002
    
    2003
    
    2004
    
    2005(in thousands)Total Output
    
    
    398
    
    
    
    445
    
    
    
    722
    
    
    
    1,035
    
    
    
    1,052
 Quality Assurance Programs
    29




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Strategic Business and Technology Alliances
 IBM, Infineon and Samsung
      Chartered Silicon Partners
  30




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Silicon Manufacturing Partners
  31




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32




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Customers and Markets
   Customer
    
    Representative Products or ApplicationsBroadcom
    
    Local area network switches/routers, set-top boxes,
cable modems, ethernet transceivers, network
processors, bluetooth and High Definition TVIBM
    
    Video game devicesAgilent Technologies
    
    Mobile phone handsets and computer peripheralsMStar Semiconductor
    
    Computer peripherals and TVsMediaTek
    
    Optical storage
   2003
    
    2004
    
    2005Americas
    
    
    64
    %
    
    
    68
    %
    
    
    75
    %Europe
    
    
    13
    
    
    
    9
    
    
    
    9Asia-Pacific
    
    
    18
    
    
    
    20
    
    
    
    13Japan
    
    
    5
    
    
    
    3
    
    
    
    3Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  2003
    
    
    2004
    
    
    2005Americas
    
    $
    351,930
    
    
    $
    631,150
    
    
    $
    774,950Europe
    
    
    72,249
    
    
    
    85,125
    
    
    
    91,844Asia-Pacific Singapore
    
    
    2,862
    
    
    
    3,392
    
    
    
    8,995 Others
    
    
    100,071
    
    
    
    179,206
    
    
    
    123,449Japan
    
    
    24,799
    
    
    
    33,258
    
    
    
    33,496Total
    
    $
    551,911
    
    
    $
    932,131
    
    
    $
    1,032,734
   33




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Customer Service
     Research and Development
     34




---



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Equipment and Materials
   Intellectual Property
    35




---



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Competition
    Environmental Matters and Compliance
   Insurance
  36




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C.
    
    ORGANIZATIONAL STRUCTURE
   Proportion ofCountry of
    
    Date of
    
    OwnershipName of Subsidiary
    
    Incorporation
    
    Incorporation
    
    InterestChartered Silicon Partners Pte Ltd
    
    Singapore
    
    March 1997
    
    
    51
    %Chartered Semiconductor Manufacturing, Inc.
    
    U.S.
    
    June 1991
    
    
    100
    %Chartered Semiconductor Japan Kabushiki Kaisha
    
    Japan
    
    October 2000
    
    
    100
    %Chartered Semiconductor Taiwan Ltd
    
    Taiwan
    
    August 2000
    
    
    100
    %Chartered Semiconductor Europe Ltd
    
    England and Wales
    
    March 2001
    
    
    100
    %
 D.
    
    PROPERTY, PLANT AND EQUIPMENT
 Leases
     37




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Production Capacity and Utilization
  ITEM 4A. UNRESOLVED STAFF COMMENTS
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 The following discussion of our financial condition and results of operations should be read
in conjunction with the consolidated financial statements and the related notes included elsewhere
in this document. This discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from those projected in the
forward-looking statements. Factors that might cause future results to differ significantly from
those projected in the forward-looking statements include, but are not limited to, those discussed
below and elsewhere in this document particularly in the cautionary risk factors described in Item
3. Key Information  D. Risk Factors above.
 INDUSTRY OVERVIEW
    38




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##### Table of Contents



2001
    
    2002
    
    2003
    
    2004(1)
    
    2005(2)Average capacity utilization
    
    
    35
    %
    
    
    37
    %
    
    
    58
    %
    
    
    80
    %
    
    
    70
    %
 
 Notes:(1)
    
    Fab 1 ceased operations at the end of March 2004, with some of its operations moved to Fab 2.(2)
    
    Fab 7 started commercial shipment in June 2005. 2005 OVERVIEW
 General Overview
    Leading-edge technologies (0.13um and smaller process geometry technologies)
 39




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
    
    Extension of our joint development efforts with IBM to include 45nm bulk CMOS process
technology. The Chartered-IBM joint development now spans three separate generations of
technologies from 90nm, 65nm to 45nm; and
 
    
    Availability of a comprehensive 65nm design manual and Simulation Program with
Integrated Circuit Emphasis, or SPICE, models and production of 65nm multi-project wafers
in the fourth quarter of 2005.
 Customers
   Electronic Design Automation/Intellectual Property
  Financing
  40




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2006 PLANS
 Planned Capacity
  Planned Capital Expenditures
  Planned Research and Development Expenditures
  CRITICAL ACCOUNTING POLICIES
  Depreciation and Amortization of Long-lived Assets
    41




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Recoverability of Long-lived Assets
     Valuation of Inventory
  Cost.
 Net Realizable Value.
  42




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Revenue Recognition
      Sales Credits and Returns Allowances
  43




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Collectibility of Accounts Receivable
  Income Taxes
       44




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RESULTS OF OPERATIONS
  Years ended December 31,2003
    
    2004
    
    2005Net revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenue
    
    
    117.5
    
    
    
    82.5
    
    
    
    88.8Gross profit (loss)
    
    
    (17.5
    )
    
    
    17.5
    
    
    
    11.2Operating expenses:Research and development
    
    
    22.5
    
    
    
    12.7
    
    
    
    11.8Fab start-up costs
    
    
    1.7
    
    
    
    3.6
    
    
    
    2.2Sales and marketing
    
    
    7.0
    
    
    
    4.0
    
    
    
    4.1General and administrative
    
    
    7.4
    
    
    
    3.6
    
    
    
    3.7Other operating expenses (income), net
    
    
    (2.0
    )
    
    
    (0.9
    )
    
    
    0.4Total operating expenses
    
    
    36.6
    
    
    
    23.0
    
    
    
    22.2Operating loss
    
    
    (54.1
    )
    
    
    (5.5
    )
    
    
    (11.0
    )Other income (expense):Equity in income (loss) of SMP
    
    
    4.2
    
    
    
    3.0
    
    
    
    0.6Other income
    
    
    4.3
    
    
    
    5.6
    
    
    
    0.2Interest expense and amortization of debt discount, net
    
    
    (5.5
    )
    
    
    (2.0
    )
    
    
    (4.0
    )Exchange gain (loss), net
    
    
    (0.1
    )
    
    
    0.1
    
    
    
    (0.0
    )Income (loss) before income taxes and minority interest
    
    
    (51.2
    )
    
    
    1.2
    
    
    
    (14.2
    )Income tax expense
    
    
    (2.1
    )
    
    
    (0.5
    )
    
    
    (1.3
    )Income (loss) before minority interest
    
    
    (53.3
    )
    
    
    0.7
    
    
    
    (15.5
    )Minority interest in loss of CSP
    
    
    1.7
    
    
    
    
    
    
    
    Net income (loss) prior to cumulative effect adjustment
    
    
    (51.6
    )
    
    
    0.7
    
    
    
    (15.5
    )Cumulative effect adjustment for change in accounting
principle
    
    
    (1.2
    )
    
    
    
    
    
    
    Net income (loss)
    
    
    (52.8
    )%
    
    
    0.7
    %
    
    
    (15.5
    )%Less: Accretion to redemption value of convertible
redeemable preference shares
    
    
    
    
    
    
    
    
    
    
    (0.3
    )%Net income (loss) available to common shareholders
    
    
    (52.8
    )%
    
    
    0.7
    %
    
    
    (15.8
    )%
  Years ended December 31,2003
    
    2004
    
    2005Communications
    
    
    46
    %
    
    
    51
    %
    
    
    35
    %Computer
    
    
    33
    
    
    
    30
    
    
    
    25Consumer
    
    
    17
    
    
    
    15
    
    
    
    35Other *
    
    
    4
    
    
    
    4
    
    
    
    5Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Years ended December 31,2003
    
    2004
    
    2005Americas
    
    
    64
    %
    
    
    68
    %
    
    
    75
    %Europe
    
    
    13
    
    
    
    9
    
    
    
    9Asia-Pacific
    
    
    18
    
    
    
    20
    
    
    
    13Japan
    
    
    5
    
    
    
    3
    
    
    
    3Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 45




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Years ended December 31,2003
    
    2004
    
    20050.09 and below
    
    
    
    %
    
    
    
    %
    
    
    19
    %Up to 0.13
    
    
    9
    
    
    
    19
    
    
    
    23Up to 0.18
    
    
    15
    
    
    
    16
    
    
    
    10Up to 0.25
    
    
    21
    
    
    
    19
    
    
    
    10Up to 0.35
    
    
    30
    
    
    
    29
    
    
    
    23Above 0.35
    
    
    25
    
    
    
    17
    
    
    
    12Other *
    
    
    
    
    
    
    
    
    
    
    3Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 Note:*
    
    Includes revenue from generation of customers mask sets Years ended December 31, 2004 and December 31, 2005
 Net revenue
       46




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Cost of revenue and gross profit
     Research and development expenses
  Fab start-up costs
  Sales and marketing expenses
  47




---



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General and administrative expenses
  Other operating expenses (income), net
  Equity in income of SMP
   2004
    
    
    2005(in millions)Net revenue (U.S. GAAP)
    
    $
    932.1
    
    
    $
    1,032.7Chartereds share of SMP revenue
    
    $
    170.8
    
    
    $
    99.2Net revenue including Chartereds share of SMP
    
    $
    1,102.9
    
    
    $
    1,131.9
  2004
    
    2005Excluding
    
    Including
    
    Excluding
    
    IncludingChartereds share
    
    Chartereds share
    
    Chartereds share
    
    Chartereds shareof SMP
    
    of SMP
    
    of SMP
    
    of SMPShipments (in thousands)*
    
    
    921.0
    
    
    
    1,035.5
    
    
    
    965.0
    
    
    
    1,051.8ASP per wafer
    
    $
    1,012
    
    
    $
    1,065
    
    
    $
    1,036
    
    
    $
    1,045
 
 Note:*
    
    Eight-inch equivalent wafers 48




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Other income, net
  Interest expense and amortization of debt discount, net
  Income tax expense
  Minority interest in CSP
  Accretion to redemption value of convertible redeemable preference shares
  Years ended December 31, 2003 and December 31, 2004
 Net revenue
  49




---



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Cost of revenue and gross profit (loss)
   Research and development expenses
  Fab start-up costs
  Sales and marketing expenses
  General and administrative expenses
  50




---



##### Table of Contents



Other operating expenses (income), net
    
    
    A gain of $27.5 million associated with the cancellation of our employee bonus award plan.
    
    A gain of $4.9 million resulting from equipment disposition.
  
    
    A restructuring charge of $12.4 million relating to the phase out of Fab 1.
    
    An impairment charge of $9.0 million on certain machinery and equipment that were
classified as held for sale on December 31, 2003, as part of our fab capacity
rationalization.
  Equity in income (loss) of SMP
    2003
    
    
    2004(in millions)Net revenue (U.S. GAAP)
    
    $
    551.9
    
    
    $
    932.1Chartereds share of SMP revenue
    
    $
    175.8
    
    
    $
    170.8Net revenue including Chartereds share of SMP
    
    $
    727.7
    
    
    $
    1,102.9
 51




---



##### Table of Contents



2003
    
    2004Excluding
    
    Including
    
    Excluding
    
    IncludingChartereds share
    
    Chartereds share
    
    Chartereds share
    
    Chartereds shareof SMP
    
    of SMP
    
    of SMP
    
    of SMPShipments (in thousands)*
    
    
    606.0
    
    
    
    722.2
    
    
    
    921.0
    
    
    
    1,035.5ASP per wafer
    
    $
    911
    
    
    $
    1,008
    
    
    $
    1,012
    
    
    $
    1,065
 
 Note:*
    
    Eight-inch equivalent wafers Other income, net
  Interest expense and amortization of debt discount, net
  Income tax expense
  Minority interest in CSP
  Quarterly Results
  52




---



##### Table of Contents



Quarter ended(in millions $)Mar 31,
    
    
    Jun 30,
    
    
    Sep 30,
    
    
    Dec 31,
    
    
    Mar 31,
    
    
    Jun 30,
    
    
    Sep 30,
    
    
    Dec 31,2004
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2005Consolidated Statements of
Operations Data:Net revenue
    
    
    228.4
    
    
    
    255.8
    
    
    
    257.3
    
    
    
    190.6
    
    
    
    181.4
    
    
    
    194.0
    
    
    
    290.1
    
    
    
    367.2Cost of revenue
    
    
    183.8
    
    
    
    195.8
    
    
    
    199.8
    
    
    
    189.9
    
    
    
    191.1
    
    
    
    193.6
    
    
    
    253.1
    
    
    
    279.3Gross profit (loss)
    
    
    44.6
    
    
    
    60.0
    
    
    
    57.5
    
    
    
    0.7
    
    
    
    (9.7
    )
    
    
    0.4
    
    
    
    37.0
    
    
    
    87.9Operating expensesResearch and development
    
    
    29.9
    
    
    
    32.3
    
    
    
    27.7
    
    
    
    28.5
    
    
    
    27.3
    
    
    
    27.7
    
    
    
    31.7
    
    
    
    35.3Fab start-up costs
    
    
    3.6
    
    
    
    8.1
    
    
    
    11.6
    
    
    
    9.9
    
    
    
    14.8
    
    
    
    7.9
    
    
    
    
    
    
    
    Sales and marketing
    
    
    8.7
    
    
    
    10.2
    
    
    
    9.9
    
    
    
    8.9
    
    
    
    10.5
    
    
    
    10.1
    
    
    
    11.4
    
    
    
    10.2General and administrative
    
    
    6.3
    
    
    
    10.4
    
    
    
    9.1
    
    
    
    8.0
    
    
    
    9.3
    
    
    
    10.6
    
    
    
    9.2
    
    
    
    9.7Other operating expenses
(income), net
    
    
    3.1
    
    
    
    2.4
    
    
    
    (4.5
    )
    
    
    (10.0
    )
    
    
    
    
    
    
    3.9
    
    
    
    
    
    
    
    Total operating expenses
    
    
    51.6
    
    
    
    63.4
    
    
    
    53.8
    
    
    
    45.3
    
    
    
    61.9
    
    
    
    60.2
    
    
    
    52.3
    
    
    
    55.2Operating income (loss)
    
    
    (7.0
    )
    
    
    (3.4
    )
    
    
    3.7
    
    
    
    (44.6
    )
    
    
    (71.6
    )
    
    
    (59.8
    )
    
    
    (15.3
    )
    
    
    32.7Other income (expense):Equity in income (loss) of SMP
    
    
    11.4
    
    
    
    10.4
    
    
    
    16.1
    
    
    
    (10.4
    )
    
    
    (9.0
    )
    
    
    0.8
    
    
    
    4.2
    
    
    
    10.5Other income (loss), net
    
    
    7.7
    
    
    
    17.0
    
    
    
    2.8
    
    
    
    24.8
    
    
    
    2.5
    
    
    
    3.0
    
    
    
    (4.9
    )
    
    
    1.9Interest expense and
amortization of debt
discount, net
    
    
    (7.7
    )
    
    
    (6.0
    )
    
    
    (3.6
    )
    
    
    (1.2
    )
    
    
    (2.5
    )
    
    
    (8.7
    )
    
    
    (14.0
    )
    
    
    (16.1
    )Exchange gain (loss), net
    
    
    0.0
    
    
    
    0.3
    
    
    
    (0.3
    )
    
    
    1.3
    
    
    
    (0.5
    )
    
    
    0.7
    
    
    
    0.5
    
    
    
    (1.1
    )Income (loss) before income taxes
    
    
    4.4
    
    
    
    18.3
    
    
    
    18.7
    
    
    
    (30.1
    )
    
    
    (81.1
    )
    
    
    (64.0
    )
    
    
    (29.5
    )
    
    
    27.9Income tax benefit (expense)
    
    
    (2.5
    )
    
    
    (3.0
    )
    
    
    (2.5
    )
    
    
    3.3
    
    
    
    (3.4
    )
    
    
    (3.1
    )
    
    
    (5.0
    )
    
    
    (1.4
    )Net income (loss)
    
    
    1.9
    
    
    
    15.3
    
    
    
    16.2
    
    
    
    (26.8
    )
    
    
    (84.5
    )
    
    
    (67.1
    )
    
    
    (34.5
    )
    
    
    26.5Less: Accretion to redemption value
of convertible redeemable
preference shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.8
    )
    
    
    (2.4
    )Net income (loss) available to
common shareholders
    
    
    1.9
    
    
    
    15.3
    
    
    
    16.2
    
    
    
    (26.8
    )
    
    
    (84.5
    )
    
    
    (67.1
    )
    
    
    (35.3
    )
    
    
    24.1
 53




---



##### Table of Contents



Quarter ended(as a percentage of net revenue)Mar 31,
    
    
    Jun 30,
    
    
    Sep 30,
    
    
    Dec 31,
    
    
    Mar 31,
    
    
    Jun 30,
    
    
    Sep 30,
    
    
    Dec 31,2004
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2005Consolidated Statements of
Operations Data:Net revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenue
    
    
    80.5
    
    
    
    76.6
    
    
    
    77.6
    
    
    
    99.6
    
    
    
    105.4
    
    
    
    99.8
    
    
    
    87.2
    
    
    
    76.0Gross profit (loss)
    
    
    19.5
    
    
    
    23.4
    
    
    
    22.4
    
    
    
    0.4
    
    
    
    (5.4
    )
    
    
    0.2
    
    
    
    12.8
    
    
    
    24.0Operating expensesResearch and development
    
    
    13.1
    
    
    
    12.6
    
    
    
    10.8
    
    
    
    14.9
    
    
    
    15.1
    
    
    
    14.3
    
    
    
    10.9
    
    
    
    9.6Fab start-up costs
    
    
    1.6
    
    
    
    3.2
    
    
    
    4.5
    
    
    
    5.2
    
    
    
    8.1
    
    
    
    4.0
    
    
    
    
    
    
    
    Sales and marketing
    
    
    3.8
    
    
    
    3.9
    
    
    
    3.8
    
    
    
    4.7
    
    
    
    5.8
    
    
    
    5.2
    
    
    
    3.9
    
    
    
    2.8General and administrative
    
    
    2.7
    
    
    
    4.1
    
    
    
    3.5
    
    
    
    4.2
    
    
    
    5.1
    
    
    
    5.5
    
    
    
    3.2
    
    
    
    2.7Other operating expenses
(income), net
    
    
    1.4
    
    
    
    1.0
    
    
    
    (1.7
    )
    
    
    (5.2
    )
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    Total operating expenses
    
    
    22.6
    
    
    
    24.8
    
    
    
    20.9
    
    
    
    23.8
    
    
    
    34.1
    
    
    
    31.0
    
    
    
    18.0
    
    
    
    15.1Operating income (loss)
    
    
    (3.1
    )
    
    
    (1.4
    )
    
    
    1.5
    
    
    
    (23.4
    )
    
    
    (39.5
    )
    
    
    (30.8
    )
    
    
    (5.2
    )
    
    
    8.9Other income (expense):Equity in income (loss)
of SMP
    
    
    5.0
    
    
    
    4.1
    
    
    
    6.2
    
    
    
    (5.5
    )
    
    
    (5.0
    )
    
    
    0.4
    
    
    
    1.4
    
    
    
    2.9Other income (loss), net
    
    
    3.4
    
    
    
    6.7
    
    
    
    1.1
    
    
    
    13.0
    
    
    
    1.4
    
    
    
    1.5
    
    
    
    (1.7
    )
    
    
    0.5Interest expense and
amortization of debt
discount, net
    
    
    (3.4
    )
    
    
    (2.3
    )
    
    
    (1.4
    )
    
    
    (0.6
    )
    
    
    (1.4
    )
    
    
    (4.4
    )
    
    
    (4.9
    )
    
    
    (4.4
    )Exchange gain (loss), net
    
    
    (0.0
    )
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    0.7
    
    
    
    (0.2
    )
    
    
    0.3
    
    
    
    0.2
    
    
    
    (0.3
    )Income (loss) before income
taxes
    
    
    1.9
    
    
    
    7.2
    
    
    
    7.3
    
    
    
    (15.8
    )
    
    
    (44.7
    )
    
    
    (33.0
    )
    
    
    (10.2
    )
    
    
    7.6Income tax benefit (expense)
    
    
    (1.1
    )
    
    
    (1.2
    )
    
    
    (1.0
    )
    
    
    1.7
    
    
    
    (1.9
    )
    
    
    (1.6
    )
    
    
    (1.7
    )
    
    
    (0.4
    )Net income (loss)
    
    
    0.8
    
    
    
    6.0
    
    
    
    6.3
    
    
    
    (14.1
    )
    
    
    (46.6
    )
    
    
    (34.6
    )
    
    
    (11.9
    )
    
    
    7.2Less: Accretion to
redemption value of
convertible redeemable
preference shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.6
    )Net income (loss) available
to common shareholders
    
    
    0.8
    %
    
    
    6.0
    %
    
    
    6.3
    %
    
    
    (14.1
    )%
    
    
    (46.6
    )%
    
    
    (34.6
    )%
    
    
    (12.2
    )%
    
    
    6.6
    %
 Net revenue
   54




---



##### Table of Contents



Gross margin
   Research and development expenses
  Fab start-up costs
  Other operating expenses (income), net
  Equity in income (loss) of SMP
  55




---



##### Table of Contents



Mar 31,
    
    Jun 30,
    
    Sep 30,
    
    Dec 31,
    
    Mar 31,
    
    Jun 30,
    
    Sep 30,
    
    Dec 31,2004
    
    2004
    
    2004
    
    2004
    
    2005
    
    2005
    
    2005
    
    2005(in millions)Net revenue (U.S. GAAP)
    
    $
    228.4
    
    
    $
    255.8
    
    
    $
    257.3
    
    
    $
    190.6
    
    
    $
    181.4
    
    
    $
    194.0
    
    
    $
    290.1
    
    
    $
    367.2Chartereds share of
SMP revenue
    
    $
    55.3
    
    
    $
    52.3
    
    
    $
    49.2
    
    
    $
    14.1
    
    
    $
    14.7
    
    
    $
    25.9
    
    
    $
    26.4
    
    
    $
    32.2Net revenue including
Chartereds share of
SMP
    
    $
    283.7
    
    
    $
    308.1
    
    
    $
    306.5
    
    
    $
    204.7
    
    
    $
    196.1
    
    
    $
    219.9
    
    
    $
    316.5
    
    
    $
    399.4
  Mar 31, 2004
    
    Jun 30, 2004
    
    Sep 30, 2004
    
    Dec 31, 2004Excluding
    
    Including
    
    Excluding
    
    Including
    
    Excluding
    
    Including
    
    Excluding
    
    IncludingChartereds
    
    Chartereds
    
    Chartereds
    
    Chartereds
    
    Chartereds
    
    Chartereds
    
    Chartereds
    
    Charteredsshare of
    
    share of
    
    share of
    
    share of
    
    share of
    
    share of
    
    share of
    
    share ofQuarter ended
    
    SMP
    
    SMP
    
    SMP
    
    SMP
    
    SMP
    
    SMP
    
    SMP
    
    SMPShipments (in
thousands)*
    
    
    232.8
    
    
    
    268.4
    
    
    
    244.0
    
    
    
    279.2
    
    
    
    252.4
    
    
    
    287.1
    
    
    
    191.8
    
    
    
    200.8ASP per wafer
    
    $
    981
    
    
    $
    1,057
    
    
    $
    1,048
    
    
    $
    1,103
    
    
    $
    1,019
    
    
    $
    1,068
    
    
    $
    994
    
    
    $
    1,019
 
 Note:*
    
    Eight-inch equivalent wafers Mar 31, 2005
    
    Jun 30, 2005
    
    Sep 30, 2005
    
    Dec 31, 2005Excluding
    
    Including
    
    Excluding
    
    Including
    
    Excluding
    
    Including
    
    Excluding
    
    IncludingChartereds
    
    Chartereds
    
    Chartereds
    
    Chartereds
    
    Chartereds
    
    Chartereds
    
    Chartereds
    
    Charteredsshare of
    
    share of
    
    share of
    
    share of
    
    share of
    
    share of
    
    share of
    
    share ofQuarter ended
    
    SMP
    
    SMP
    
    SMP
    
    SMP
    
    SMP
    
    SMP
    
    SMP
    
    SMPShipments (in
thousands)*
    
    
    175.8
    
    
    
    186.2
    
    
    
    203.8
    
    
    
    224.5
    
    
    
    270.7
    
    
    
    295.2
    
    
    
    314.8
    
    
    
    345.8ASP per wafer
    
    $
    996
    
    
    $
    1,019
    
    
    $
    913
    
    
    $
    944
    
    
    $
    1,035
    
    
    $
    1,039
    
    
    $
    1,139
    
    
    $
    1,130
 
 Note:*
    
    Eight-inch equivalent wafers 56




---



##### Table of Contents



Other income (loss), net
  Interest expense and amortization of debt discount, net
   Accretion to redemption value of convertible redeemable preference shares
  LIQUIDITY AND CAPITAL RESOURCES
 Current and expected liquidity
    57




---



##### Table of Contents



Historic operating cash flows
   Historic investing cash flows and capital expenditures
    58




---



##### Table of Contents



Historic financing cash flows
  Research and development and training grants
  Off-balance sheet arrangements
  59




---



##### Table of Contents



Outstanding indebtedness
  As ofDecember 31,2005(In thousands)2.5% senior convertible notes due 2006
    
    $
    97,155U.S. dollar loans at floating rates:CSP Syndicated Loan
    
    
    214,533SMBC/OCBC Term Loan
    
    
    300,000Exim Loan
    
    
    122,124Bank of America Term Loan
    
    
    50,0005.75% senior notes due 2010
    
    
    371,1616.375% senior notes due 2015
    
    
    246,5406.00% Amortizing bonds due 2010
    
    
    46,703Other
    
    
    (324
    )Total
    
    $
    1,447,892
  Loan Covenant Compliance
     60




---



##### Table of Contents



Contractual Obligations
  Expected Payment Date(in thousands)2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    TotalLong-term debt including principal and
interest (1)
    
    $
    402,400
    
    
    $
    207,976
    
    
    $
    209,859
    
    
    $
    197,637
    
    
    $
    503,651
    
    
    $
    370,049
    
    
    $
    1,891,572Capital lease obligations including
principal and interest
    
    
    5,613
    
    
    
    5,613
    
    
    
    5,613
    
    
    
    5,613
    
    
    
    5,613
    
    
    
    35,866
    
    
    
    63,931Capacity deposits (2)
    
    
    60,174
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,174Operating lease obligations (3)
    
    
    6,985
    
    
    
    4,293
    
    
    
    3,478
    
    
    
    3,194
    
    
    
    3,183
    
    
    
    52,132
    
    
    
    73,265Purchase obligations (4) under:Capital expenditures
    
    
    173,535
    
    
    
    32,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205,689Technology agreements
    
    
    80,775
    
    
    
    74,350
    
    
    
    38,250
    
    
    
    3,250
    
    
    
    3,250
    
    
    
    
    
    
    
    199,875Other
    
    
    108,889
    
    
    
    188
    
    
    
    188
    
    
    
    188
    
    
    
    158
    
    
    
    473
    
    
    
    110,084Other long-term liabilities
    
    
    
    
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,561
    
    
    
    17,361Total
    
    $
    838,371
    
    
    $
    325,374
    
    
    $
    257,388
    
    
    $
    209,882
    
    
    $
    515,855
    
    
    $
    475,081
    
    
    $
    2,621,951
 
 Notes:(1)
    
    These amounts represent the expected principal and interest repayments at each of the periods
indicated and do not include the unamortized debt discount relating to the senior notes. The
senior notes due 2010 were issued at a price of 98.896% of the principal amount and the senior
notes due 2015 were issued at a price of 98.573% of the principal amount. As of December 31,
2005, the face amounts of the senior notes due 2010 and the senior notes due 2015 were $371.2
million and $246.5 million, respectively, as the unamortized debt discount was reported as a
direct reduction to the face amounts of the senior notes. The estimated interest repayments on
floating-rate obligations were calculated using the prevailing floating interest rates related
to these obligations as of December 31, 2005. Actual outcome could differ from these
estimates.(2)
    
    This amount relates to our contractual obligation to refund deposits placed with us to secure wafer capacity for one of our
more advanced technologies.(3)
    
    As of December 31, 2005, we have included in the above table operating lease obligations in
respect of Fab 1 amounting to $4.1 million. In January 2006, we have sold and transferred our
leasehold interest in Fab 1 for a total consideration of $6.5 million.(4)
    
    We have not included purchase obligations that have been recorded on our consolidated balance
sheet as of December 31, 2005. These obligations amounted to $78.0 million, $10.2 million and
$227.2 million for capital expenditures, technology agreements and other purchase obligations
primarily relating to operating expenses, respectively.    61




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##### Table of Contents



Special Tax Status
  
    
    the manufacture of integrated circuits using submicron technology at Fab 2 for a
ten-year period beginning July 1, 1996;
    
    the manufacture of integrated circuits using submicron technology at Fab 3 for a
ten-year period beginning July 1, 1999;
    
    the wafer fabrication of Application Specific Integrated Circuits, or ASIC, and other
advanced semiconductor devices at Fab 6 for a ten-year period beginning September 1, 2003;
and
    
    the wafer fabrication of integrated circuits at Fab 7 for a fifteen year period
beginning October 1, 2005.
  
    
    post-pioneer enterprise status for the manufacture of integrated circuits using
submicron technology at Fab 2 for a five-year period beginning July 1, 2006;
    
    development and expansion incentive status for the manufacture of integrated circuits
using submicron technology at Fab 3 for a five-year period beginning July 1, 2009; and
    
    development and expansion incentive status for the wafer fabrication of ASICs and other
advanced semiconductor devices at Fab 6 for a five-year period beginning September 1, 2013.
     RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
  62




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##### Table of Contents



ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A.
    
    DIRECTORS AND SENIOR MANAGEMENT
  Board of Directors
 Name
    
    Age
    
    PositionJames A. Norling(1)(2)(4)
    
    63
    
    Chairman of the BoardChia Song Hwee(1)
    
    43
    
    DirectorSum Soon Lim(2)(3)(4)
    
    62
    
    DirectorRobert E. La Blanc(3)
    
    71
    
    DirectorAndre Borrel(2)(3)(4)
    
    69
    
    DirectorCharles E. Thompson(2)(4)
    
    76
    
    DirectorTsugio Makimoto, PhD
    
    68
    
    DirectorTay Siew Choon(1)(2)(4)
    
    58
    
    Director
 63




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##### Table of Contents



Name
    
    Age
    
    PositionPeter Seah Lim Huat(1)(2)(4)
    
    59
    
    DirectorPhilip Tan Yuen Fah(3)
    
    61
    
    DirectorPasquale Pistorio
    
    70
    
    DirectorSteven H. Hamblin (3)(5)
    
    57
    
    Director
 Senior Management
 Name
    
    Age
    
    PositionChia Song Hwee
    
    
    43
    
    
    President and Chief Executive OfficerGeorge Thomas
    
    
    52
    
    
    Senior Vice President and Chief Financial OfficerAng Kay Chai
    
    
    46
    
    
    Senior Vice President, Fab OperationsHsia Liang Choo, PhD
    
    
    57
    
    
    Senior Vice President, Technology DevelopmentMichael J. Rekuc
    
    
    56
    
    
    Senior Vice President, Worldwide Sales and MarketingSimon
Yang, PhD
    
    
    46
    
    
    Senior Vice President and Chief Technology OfficerAng Tang Yong
    
    
    48
    
    
    Vice President, Fab Support OperationsRoy Kannan
    
    
    53
    
    
    Vice President and Chief Information OfficerSeungil Kim
    
    
    53
    
    
    Vice President, Quality and Reliability AssuranceNg Seng Huwi
    
    
    48
    
    
    Vice President, Human ResourcesTan Seng Chai
    
    
    43
    
    
    Vice President, Strategy Resources
 
 Notes:(1)
    
    Member of the Executive Committee.(2)
    
    Member of the Executive Resource and Compensation Committee, or the ERCC.(3)
    
    Member of the Audit Committee.(4)
    
    Member of the Nominating Committee.(5)
    
    Appointed as Director to our Board of Directors on January 1, 2006. Biographical Information
 James A. Norling
  Chia Song Hwee
  Sum Soon Lim
  64




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##### Table of Contents



Robert E. La Blanc
  Andre Borrel
  Charles E. Thompson
  Tsugio Makimoto, PhD
  Tay Siew Choon
  65




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##### Table of Contents



Peter Seah Lim Huat
  Philip Tan Yuen Fah
  Pasquale Pistorio
  Steven H. Hamblin
  George Thomas
  66




---



##### Table of Contents



Ang Kay Chai
  Hsia Liang Choo, PhD
  Michael J. Rekuc
  Simon Yang, PhD
  Ang Tang Yong
  67




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##### Table of Contents



Roy Kannan
  Seungil Kim
  Ng Seng Huwi
  Tan Seng Chai
  68




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##### Table of Contents



B.
    
    COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT
  .
  Salary(1)
    
    Bonus
    
    Others(2)
    
    Director's Fees(3)
    
    Total(in $ thousands)James A. Norling
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    87Lim Ming Seong(4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14
    
    
    
    14Chia Song Hwee
    
    
    406
    
    
    
    194
    (5)
    
    
    35
    
    
    
    
    
    
    
    635Sum Soon Lim
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    40Robert E. La Blanc
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    50Andre Borrel
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56
    
    
    
    56Charles E. Thompson
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46
    
    
    
    46Tsugio Makimoto
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    40Tay Siew Choon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    34Peter Seah Lim Huat
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    40Philip Tan Yuen Fah
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    41Pasquale Pistorio(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    15Total as of December 31, 2005
    
    
    406
    
    
    
    194
    
    
    
    35
    
    
    
    463
    
    
    
    1,098Total as of December 31, 2004
    
    
    416
    
    
    
    
    
    
    
    29
    
    
    
    460
    
    
    
    905
 
 Notes:(1)
    
    Base salary (inclusive of employers Central Provident Fund, or CPF).(2)
    
    Allowances (inclusive of employers CPF) and others.(3)
    
    Shareholders approval will be sought at our annual general meeting to be held in April 2006
for the payment of our directors fees of approximately $462,334 for the fiscal year ended
December 31, 2005.(4)
    
    Mr. Lim Ming Seong retired in April 2005.(5)
    
    Bonus to be paid in 2006, inclusive of employer CPF contribution and converted to US$ based
on average buying rate on January 25, 2006 of S$1.6219 = $1.00.(6)
    
    Mr. Pasquale Pistorio was appointed a Director to our Board of Directors in May 2005.  69




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C.
    
    BOARD PRACTICES
 BOARD COMPOSITION
    
    
    the requirement that a majority of Board members must be independent;
    
    the requirement that the compensation committee must be comprised solely of independent
directors, or that compensation of our senior management must be made by a majority of the
independent directors on the full Board; and
    
    the requirement that the nomination committee must be comprised solely of independent
directors or that nominations must be made by a majority of the independent directors on
the full Board.
   70




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Committees of the Board of Directors
 Executive Committee
  Audit Committee
   Executive Resource and Compensation Committee
   Nominating Committee
  71




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D.
    
    EMPLOYEES
  As of December 31,Functions
    
    2003
    
    2004
    
    2005Engineering (Modules, Yield Engineering, Process
Integration, Product Engineering, Joint Venture
Technology, Metrology)
    
    
    1,186
    
    
    
    1,410
    
    
    
    1,677Manufacturing Operations
    
    
    890
    
    
    
    900
    
    
    
    880Manufacturing Support
    
    
    591
    
    
    
    572
    
    
    
    638Research and Development
    
    
    225
    
    
    
    253
    
    
    
    370Administration, Marketing and Finance
    
    
    391
    
    
    
    471
    
    
    
    508Total
    
    
    3,283
    
    
    
    3,606
    
    
    
    4,073
 As of December 31,Geographical Locations
    
    2003
    
    2004
    
    2005Singapore
    
    
    3,161
    
    
    
    3,479
    
    
    
    3,932Americas
    
    
    84
    
    
    
    87
    
    
    
    104Europe
    
    
    17
    
    
    
    17
    
    
    
    16Asia-Pacific (other than Singapore)
    
    
    21
    
    
    
    23
    
    
    
    21Total
    
    
    3,283
    
    
    
    3,606
    
    
    
    4,073
     E.
    
    SHARE OWNERSHIP FOR DIRECTORS AND SENIOR MANAGEMENT
  72




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##### Table of Contents



No. of OrdinarySharesDirectors
    
    Beneficially Owned(1)James A. Norling
    
    
    1,662,631
    
    
    öChia Song Hwee
    
    
    4,870,857
    
    
    ÷Sum Soon Lim
    
    
    716,166
    
    
    ÷Robert E. La Blanc
    
    
    302,470
    
    
    ÷Andre Borrel
    
    
    393,608
    
    
    ÷Charles E. Thompson
    
    
    312,966
    
    
    ÷Tsugio Makimoto
    
    
    256,216
    
    
    ÷Tay Siew Choon
    
    
    454,073
    
    
    ñ
    
    Please seePeter Seah Lim Huat
    
    
    240,330
    
    
    ÷
    
    Note (2) below.Philip Tan Yuen Fah
    
    
    85,000
    
    
    ÷Pasquale Pistorio
    
    
    250,000
    
    
    ÷All directors and senior management(3) as a group (21 persons))
    
    
    16,786,939
    
    
    ø
 
 Notes:(1)
    
    Gives effect to the ordinary shares issuable within 60 days from December 31, 2005 upon the
exercise of all options and other rights beneficially owned by the indicated shareholders on
that date. Beneficial ownership is determined in accordance with the rules of the SEC and
includes voting and investment power with respect to ordinary shares. Except for 36,000 shares
held by James A. Norling and 132,070 shares held by Michael J. Rekuc which are jointly held,
the persons named in the table have sole voting and sole investment control with respect to
all ordinary shares beneficially owned.(2)
    
    Less than 1% of our outstanding ordinary shares as of December 31, 2005.(3)
    
    None of our directors or senior management individually owns 1% or more of our outstanding
ordinary shares. Share Options for Directors
  Directors
    
    As of December 31, 2005
    
    Exercise Price S$
    
    Exercise PeriodJames A. Norling
    
    
    58,609
    
    
    
    4.05
    
    
    28/03/2002 to 28/03/200658,609
    
    
    
    4.26
    
    
    15/08/2002 to 15/08/200658,609
    
    
    
    3.46
    
    
    22/02/2003 to 22/02/20071,172,195
    
    
    
    3.88
    
    
    01/05/2002 to 01/05/201258,609
    
    
    
    1.86
    
    
    30/08/2003 to 30/08/200750,000
    
    
    
    0.72
    
    
    28/02/2004 to 28/02/200860,000
    
    
    
    1.10
    
    
    29/08/2004 to 29/08/2008110,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/2009110,000
    *
    
    
    1.16
    
    
    26/08/2006 to 26/08/2010Chia Song Hwee
    
    
    10,467
    
    
    
    1.18
    
    
    28/10/1997 to 28/10/200620,935
    
    
    
    1.00
    
    
    28/11/1998 to 28/11/200761,704
    
    
    
    0.80
    
    
    30/11/1998 to 29/11/200826,444
    
    
    
    0.80
    
    
    30/04/1999 to 29/04/2009234,439
    
    
    
    2.86
    
    
    29/10/1999 to 29/10/200970,331
    
    
    
    2.86
    
    
    29/04/2000 to 29/10/2009410,268
    
    
    
    14.24
    
    
    06/04/2001 to 06/04/2010527,487
    
    
    
    10.12
    
    
    03/10/2001 to 03/10/2010263,743
    
    
    
    4.05
    
    
    28/03/2002 to 28/03/2011263,743
    
    
    
    4.26
    
    
    15/08/2002 to 15/08/2011234,439
    
    
    
    3.46
    
    
    22/02/2003 to 22/02/20122,344,391
    
    
    
    1.86
    
    
    30/08/2003 to 30/08/2012300,000
    
    
    
    0.72
    
    
    28/02/2004 to 28/02/2013700,000
    
    
    
    1.10
    
    
    29/08/2004 to 29/08/20131,000,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/2014220,000
    
    
    
    1.02
    
    
    30/07/2004 to 30/07/20141,000,000
    *
    
    
    1.16
    
    
    26/08/2006 to 26/08/2015
 73




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##### Table of Contents



Directors
    
    As of December 31, 2005
    
    Exercise Price S$
    
    Exercise PeriodSum Soon Lim
    
    
    46,887
    
    
    
    4.05
    
    
    28/03/2002 to 28/03/200646,887
    
    
    
    4.26
    
    
    15/08/2002 to 15/08/200646,887
    
    
    
    3.46
    
    
    22/02/2003 to 22/02/200746,887
    
    
    
    1.86
    
    
    30/08/2003 to 30/08/200725,000
    
    
    
    0.72
    
    
    28/02/2004 to 28/02/200835,000
    
    
    
    1.10
    
    
    29/08/2004 to 29/08/200860,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/200960,000
    *
    
    
    1.16
    
    
    26/08/2006 to 26/08/2010Robert E. La Blanc
    
    
    29,304
    
    
    
    4.05
    
    
    28/03/2002 to 28/03/200629,304
    
    
    
    4.26
    
    
    15/08/2002 to 15/08/200629,304
    
    
    
    3.46
    
    
    22/02/2003 to 22/02/200729,304
    
    
    
    1.86
    
    
    30/08/2003 to 30/08/200725,000
    
    
    
    0.72
    
    
    28/02/2004 to 28/02/200835,000
    
    
    
    1.10
    
    
    29/08/2004 to 29/08/200860,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/200960,000
    *
    
    
    1.16
    
    
    26/08/2006 to 26/08/2010Andre Borrel
    
    
    46,887
    
    
    
    4.05
    
    
    28/03/2002 to 28/03/200646,887
    
    
    
    4.26
    
    
    15/08/2002 to 15/08/200646,887
    
    
    
    3.46
    
    
    22/02/2003 to 22/02/200746,887
    
    
    
    1.86
    
    
    30/08/2003 to 30/08/200740,000
    
    
    
    0.72
    
    
    28/02/2004 to 28/02/200845,000
    
    
    
    1.10
    
    
    29/08/2004 to 29/08/200885,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/200960,000
    *
    
    
    1.16
    
    
    26/08/2006 to 26/08/2010Charles E. Thompson
    
    
    29,304
    
    
    
    4.05
    
    
    28/03/2002 to 28/03/200629,304
    
    
    
    4.26
    
    
    15/08/2002 to 15/08/200629,304
    
    
    
    3.46
    
    
    22/02/2003 to 22/02/200729,304
    
    
    
    1.86
    
    
    30/08/2003 to 30/08/200725,000
    
    
    
    0.72
    
    
    28/02/2004 to 28/02/200835,000
    
    
    
    1.10
    
    
    29/08/2004 to 29/08/200860,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/200960,000
    *
    
    
    1.16
    
    
    26/08/2006 to 26/08/2010Tsugio Makimoto
    
    
    29,304
    
    
    
    4.05
    
    
    28/03/2002 to 28/03/200629,304
    
    
    
    4.26
    
    
    15/08/2002 to 15/08/200629,304
    
    
    
    3.46
    
    
    22/02/2003 to 22/02/200729,304
    
    
    
    1.86
    
    
    30/08/2003 to 30/08/200725,000
    
    
    
    0.72
    
    
    28/02/2004 to 28/02/200835,000
    
    
    
    1.10
    
    
    29/08/2004 to 29/08/200860,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/200960,000
    *
    
    
    1.16
    
    
    26/08/2006 to 26/08/2010Peter Seah Lim Huat
    
    
    23,443
    
    
    
    3.46
    
    
    22/02/2003 to 22/02/200746,887
    
    
    
    1.86
    
    
    30/08/2003 to 30/08/200740,000
    
    
    
    0.72
    
    
    28/02/2004 to 28/02/200845,000
    
    
    
    1.10
    
    
    29/08/2004 to 29/08/200885,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/200985,000
    *
    
    
    1.16
    
    
    26/08/2006 to 26/08/2010Tay Siew Choon
    
    
    23,443
    
    
    
    4.26
    
    
    15/08/2002 to 15/08/200629,304
    
    
    
    3.46
    
    
    22/02/2003 to 22/02/2007234,439
    
    
    
    3.88
    
    
    01/05/2002 to 01/05/200746,887
    
    
    
    1.86
    
    
    30/08/2003 to 30/08/200725,000
    
    
    
    0.72
    
    
    28/02/2004 to 28/02/200835,000
    
    
    
    1.10
    
    
    29/08/2004 to 29/08/200860,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/200960,000
    *
    
    
    1.16
    
    
    26/08/2006 to 26/08/2010Philip Tan Yuen Fah
    
    
    85,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/200985,000
    *
    
    
    1.16
    
    
    26/08/2006 to 26/08/2010Pasquale Pistorio
    
    
    60,000
    *
    
    
    1.16
    
    
    26/08/2006 to 26/08/2010
 
  Note:
 74




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##### Table of Contents



Employee Benefit Plans
 Share Option Plan 1999
   
    
    the exercise price of the option is at least 110% of the fair market value of an
ordinary share on the date of grant; and
    
    in the case of an incentive stock option, such option by its terms is not exercisable
after the expiration of five years from the date of grant.
       Employee Share Purchase Plans
    75




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##### Table of Contents



Equity Compensation Plan Information as of December 31, 2005
 (c)Number of Securities(a)
    
    
    
    Remaining AvailableNumber of Securities
    
    (b)
    
    for Future Issuanceto be Issued upon
    
    Weighted-average
    
    under EquityExercise of
    
    Exercise Price of
    
    Compensation PlansOutstanding Options,
    
    Outstanding Options,
    
    (Excluding SecuritiesPlan Category
    
    Warrants and Rights
    
    Warrants and Rights
    
    in Column (a))Equity compensation plans approved
by shareholders
    
    113,480,367
    
    $2.04
    
    90,521,003Equity compensation plans not
approved by shareholders
    
    N.A.*
    
    N.A.*
    
    N.A.*Total
    
    113,480,367
    
    $2.04
    
    90,521,003
 
 Note:*
    
    Chartered does not have any equity compensation plans which have not been approved by shareholders. 
 ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A.
    
    MAJOR SHAREHOLDERS
  Ordinary Shares(1)Beneficially Owned(2)Shareholders Holding 5% or More
    
    Number
    
    PercentageTemasek
Holdings (Private) Limited(3)
    
    
    1,511,831,883
    
    
    
    60.15
    %
 
 Notes:(1)
    
    The number of ordinary shares listed in this table includes ordinary shares held in the form of ADSs.(2)
    
    Beneficial ownership is determined in accordance with the rules of the SEC and includes
voting and investment power with respect to ordinary shares. Unless otherwise indicated, the
persons named in the table have sole voting and sole investment control with respect to all
ordinary shares beneficially owned.(3)
    
    The 1,511,831,883 ordinary shares beneficially owned by
Temasek includes (a) the 1,295,324,883 ordinary shares held by
ST Semiconductors; (b) the 215,000,000 ordinary shares subject
to the terms of a securities lending agreement entered into by ST
Semiconductors with a certain financial institution and (c) the
1,507,000 ordinary shares held by other companies within the Temasek
group. ST Semiconductors is a wholly-owned subsidiary of Temasek. Temasek may therefore be deemed to
beneficially own the shares owned by ST Semiconductors, because it is the parent company of ST
Semiconductors.  76




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##### Table of Contents



B.
    
    RELATED PARTY TRANSACTIONS
 The Temasek Group
    Financial Support Provided by Singapore Technologies
   Corporate Services Provided by Singapore Technologies
   77




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##### Table of Contents



Other Transactions
          C.
    
    INTERESTS OF EXPERTS AND COUNSEL
  
 ITEM 8.
    
    FINANCIAL INFORMATION
 A.
    
    CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
  Export Sales
  78




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##### Table of Contents



Dividend Policy
  Legal Proceedings
  B.
    
    SIGNIFICANT CHANGES
  
 ITEM 9.
    
    THE OFFER AND LISTING
 PRICE RANGE OF OUR ADSs AND ORDINARY SHARES
  (a)
    
    Annual high and low market prices
 NasdaqHigh
    
    LowJanuary 1, through December 31, 2001
    
    $
    32.37
    
    
    $
    14.72January 1, through December 31, 2002
    
    $
    27.10
    
    
    $
    3.94January 1, through December 31, 2003
    
    $
    11.00
    
    
    $
    3.48January 1, through December 31, 2004
    
    $
    11.35
    
    
    $
    5.76January 1, through December 31, 2005
    
    $
    9.01
    
    
    $
    5.52
 Singapore ExchangeHigh
    
    LowJanuary 1, through December 31, 2001
    
    
    S$5.46
    
    
    
    S$2.59January 1, through December 31, 2002
    
    
    S$4.81
    
    
    
    S$0.71January 1, through December 31, 2003
    
    
    S$1.93
    
    
    
    S$0.63January 1, through December 31, 2004
    
    
    S$1.89
    
    
    
    S$0.92January 1, through December 31, 2005
    
    
    S$1.44
    
    
    
    S$0.92
 79




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##### Table of Contents



(b)
    
    Quarterly high and low market prices
 NasdaqHigh
    
    LowJanuary 1, through March 31, 2004
    
    $
    11.35
    
    
    $
    8.50April 1, through June 30, 2004
    
    $
    10.55
    
    
    $
    7.54July 1, through September 30, 2004
    
    $
    8.13
    
    
    $
    5.80October 1, through December 31, 2004
    
    $
    6.65
    
    
    $
    5.76January 1, through March 31, 2005
    
    $
    7.37
    
    
    $
    5.62April 1, through June 30, 2005
    
    $
    8.21
    
    
    $
    5.56July 1, through September 30, 2005
    
    $
    9.01
    
    
    $
    6.58October 1, through December 31, 2005
    
    $
    7.90
    
    
    $
    5.52
 Singapore ExchangeHigh
    
    LowJanuary 1, through March 31, 2004
    
    
    S$1.89
    
    
    
    S$1.49April 1, through June 30, 2004
    
    
    S$1.76
    
    
    
    S$1.33July 1, through September 30, 2004
    
    
    S$1.40
    
    
    
    S$1.01October 1, through December 31, 2004
    
    
    S$1.11
    
    
    
    S$0.92January 1, through March 31, 2005
    
    
    S$1.20
    
    
    
    S$0.92April 1, through June 30, 2005
    
    
    S$1.35
    
    
    
    S$0.93July 1, through September 30, 2005
    
    
    S$1.44
    
    
    
    S$1.10October 1, through December 31, 2005
    
    
    S$1.34
    
    
    
    S$0.95
 (c)
    
    Monthly high and low market prices
 NasdaqHigh
    
    LowSeptember 1, through September 30, 2005
    
    $
    7.16
    
    
    $
    6.58October 1, through October 31, 2005
    
    $
    6.88
    
    
    $
    5.52November 1, through November 30, 2005
    
    $
    7.51
    
    
    $
    6.26December 1, through December 31, 2005
    
    $
    7.90
    
    
    $
    6.94January 1, through January 31, 2006
    
    $
    8.52
    
    
    $
    7.60February 1,
through February 28, 2006
    
    $
    8.60
    
    
    $
    8.09
 Singapore ExchangeHigh
    
    LowSeptember 1, through September 30, 2005
    
    
    S$1.21
    
    
    
    S$1.12October 1, through October 31, 2005
    
    
    S$1.16
    
    
    
    S$0.95November 1, through November 30, 2005
    
    
    S$1.24
    
    
    
    S$1.07December 1, through December 31, 2005
    
    
    S$1.34
    
    
    
    S$1.16January 1, through January 31, 2006
    
    
    S$1.40
    
    
    
    S$1.26February 1,
through February 28, 2006
    
    
    S$1.39
    
    
    
    S$1.33
   
 ITEM 10.
    
    ADDITIONAL INFORMATION
 A.
    
    SHARE CAPITAL
  B.
    
    OUR MEMORANDUM AND ARTICLES OF ASSOCIATION
  80




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##### Table of Contents



Objects and purposes
  Directors
       Shares
   New ordinary shares
   Transfer of ordinary shares
 81




---



##### Table of Contents



Convertible redeemable preference shares
  
    
    junior to all our existing and future debt obligations;
    
    junior to each class of our shares the terms of which provide that such class will rank
senior to the preference shares as regards repayment of amounts paid up or credited as paid
up on such class of shares;
    
    on a parity with any class of our shares that has terms which provide that such class
will rank on a parity with the preference shares as regards repayment of amounts paid up or
credited as paid up on such class of shares; and
    
    senior to our ordinary shares (including those represented by ADSs) and to any class of
our shares that has terms which provide that such class will rank junior to the preference shares
as regards payment of amounts paid up or credited as paid up on such class of shares.
 General meetings of shareholders
  Voting rights
 1 3
  82




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##### Table of Contents



Dividends
   Bonus and rights issue
  Liquidation or other return of capital
   Redemption of preference shares
  83




---



##### Table of Contents




    
    Tax callIf we determine that, as a result of:
 
    
    any change in or amendment to the laws or regulations of Singapore or any authority
of or in Singapore having power to tax, or rulings promulgated under any such laws or
regulations by any authority of or in Singapore having power to tax, or
    
    any change in the general application or official or judicial interpretation of any
such laws, regulations or rulings, or
    
    any change in the application or official or judicial interpretation of, or any
execution or amendment to, any treaty or treaties affecting taxation to which Singapore
is a party, which change, execution or amendment, in each case, becomes effective on
or after August 17, 2005, the date on which the preference shares are first allotted
and issued, we will be required to pay additional amounts with respect to the
preference shares (notwithstanding the foregoing, we may not redeem those preference
shares, the holders of which have irrevocably waived their rights to such additional
amounts at least seven business days prior to such redemption),we will have the option to redeem in whole, but not in part, the outstanding preference
shares at the early redemption price.
 
    
    Clean-up callIf at least 95% of the preference shares originally issued have been converted, redeemed or
purchased and cancelled, we will have the option to redeem in whole, but not in part, the
outstanding preference shares at the early redemption price.
    
    Optional call redemptionWe may, at any time on or after August 17, 2007, redeem the preference shares in whole or in
part at any time, at the early redemption price, if the closing sale price of our ordinary
shares on the Singapore Exchange for any 20 trading days (translated in U.S. dollars at the
U.S. dollar / Singapore dollar noon buying rate in New York on each such day, as certified
for customs purposes by the Federal Reserve Bank of New York) in any 45 consecutive calendar
day period ending not more than five business days prior to the date on which notice of such
redemption is given, is at least 125% of the conversion price per ordinary share, in each
case as adjusted through, and effective on, such notice date.
     Conversion rights of Preference Shareholders
  
    
    commencing on September 26, 2005; and
    
    ending on the date falling seven business days prior to the earlier of:
 
    
    in the case of any preference share called for redemption, the date fixed for such
redemption unless our company shall default in making the redemption payment, provided
that in no event shall any such conversion right extend beyond the maturity date; or
    
    the maturity date.
  84




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##### Table of Contents



Limitations on rights to hold or vote shares
  Provisions discriminating against any existing or prospective holder of shares
  Take-overs
     Indemnity
  85




---



##### Table of Contents



Substantial shareholdings
    Minority rights
  
    
    if the affairs of our company are being conducted or the powers of our Board of
Directors are being exercised in a manner oppressive to, or in disregard of the interests
of, one or more of our shareholders; or
    
    if our company takes an action, or threatens to take an action, or our shareholders pass
a resolution, or propose to pass a resolution, which unfairly discriminates against, or is
otherwise prejudicial to, one or more of our shareholders, including the applicant.
  
    
    direct or prohibit any act or cancel or vary any transaction or resolution;
    
    regulate the conduct of our affairs in the future;
    
    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;
    
    provide for the purchase of a minority shareholders shares by the other shareholders or
by our company and, in the case of a purchase of shares by us, a corresponding reduction of
our share capital;
    
    provide that the Memorandum or Articles of Association be amended; or
    
    provide that our company be wound up.
 C.
    
    MATERIAL CONTRACTS
  (a) Loan and financing agreements
 CSP Loan Agreements
   86




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##### Table of Contents



Chartered Loan Agreements
 EXIM Loan
  SMBC/OCBC Term Loan
 th
 BOA Term Loan
  Goldman Sachs International
  5.75% senior notes due 2010 and 6.375% senior notes due 2015
  87




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##### Table of Contents



(b) Strategic business alliances
 CSP
    SMP
   88




---



##### Table of Contents



(c) Technology transfer, licenses, joint development and other related agreements
 Agere Systems
    IBM
     89




---



##### Table of Contents



IBM, Infineon and Samsung
  Motorola
  (d) Leases
  D.
    
    EXCHANGE CONTROLS
  Exchange rates
   Singapore Dollars Per US$1.00Noon Buying RateFiscal Year Ended December 31,
    
    Average(1)
    
    High
    
    Low
    
    Period End2001
    
    
    1.7937
    
    
    
    1.8540
    
    
    
    1.7275
    
    
    
    1.84702002
    
    
    1.7908
    
    
    
    1.8525
    
    
    
    1.7310
    
    
    
    1.73522003
    
    
    1.7432
    
    
    
    1.7838
    
    
    
    1.6990
    
    
    
    1.69902004
    
    
    1.6870
    
    
    
    1.7291
    
    
    
    1.6308
    
    
    
    1.63192005
    
    
    1.6648
    
    
    
    1.7058
    
    
    
    1.6180
    
    
    
    1.6628
 90




---



##### Table of Contents



Singapore Dollars Per US$1.00Noon Buying RateMonth
    
    High
    
    LowSeptember 2005
    
    
    1.6935
    
    
    
    1.6738October 2005
    
    
    1.6959
    
    
    
    1.6825November 2005
    
    
    1.7058
    
    
    
    1.6908December 2005
    
    
    1.6906
    
    
    
    1.6621January 2006
    
    
    1.6521
    
    
    
    1.6206February 2006
    
    
    1.6353
    
    
    
    1.6211
 
 Note :
 (1)
    
    The average of the daily noon buying rates on the last business day of each month during the
year.
 E.
    
    TAXATION
 Singapore Taxation
   Income tax
 General
   Dividend distributions
  91




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##### Table of Contents



Dividends paid out of Tax-Exempt Income or Income subject to Concessionary Tax Rates
  Dividends paid out of income subject to normal corporate taxation
 Imputation System
  New one-tier corporate Tax System
     Gains on Disposal of the Ordinary Shares or ADSs
  92




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##### Table of Contents



Stamp duty
  Estate duty
   U.S. Federal Taxation
  
    
    citizens or residents of the U.S. for U.S. federal income tax purposes,
    
    corporations or other entities created or organized under the laws of the U.S. or of any
political subdivision thereof,
    
    estates the income of which is subject to U.S. federal income taxation regardless of
source,
    
    any trust the administration of which is subject to the primary supervision of a U.S.
court and which has one or more U.S. persons who have the authority to control all
substantial decisions of the trust, or, if the trust was in existence on August 20, 1996,
has elected to continue to be treated as a U.S. person, or
    
    persons otherwise subject to U.S. federal income taxation on their worldwide income
regardless of its source.
  93




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##### Table of Contents



Ownership of ADSs
  Dividends
     Sale or exchange of ordinary shares or ADSs
  PFIC rules
   94




---



##### Table of Contents



Estate taxes
  Backup withholding tax and information reporting requirements
  The above summary is not intended to constitute a complete analysis of all tax consequences
relating to ownership of ordinary shares or ADSs. You should consult your tax advisor concerning
the tax consequences of your particular situation.
 F.
    
    DIVIDENDS AND PAYING AGENTS
  G.
    
    STATEMENT BY EXPERTS
  H.
    
    DOCUMENTS ON DISPLAY
   I.
    
    SUBSIDIARY INFORMATION
  95




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##### Table of Contents



ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Quantitative and qualitative disclosures about market risk
  Interest rate risk
   As of December 31, 2005Expected Maturity Date(In thousands, except interest rates)WeightedAverageFair
    
    
    Interest2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    Thereafter
    
    
    Total
    
    
    Value
    
    
    RateLONG-TERM DEBT:U.S. dollar loans at floating rates(1)
    
    $
    214,533
    
    
    $
    112,212
    
    
    $
    124,425
    
    
    $
    124,425
    
    
    $
    74,425
    
    
    $
    36,637
    
    
    $
    686,657
    
    
    $
    686,657
    
    
    
    5.1050
    %Convertible Notes(2)
    
    
    97,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97,155
    
    
    
    111,485
    
    
    
    5.2500
    %5.75% senior notes due 2010(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    375,000
    
    
    
    
    
    
    
    375,000
    (5)
    
    
    373,043
    
    
    
    5.7500
    %6.375% senior notes due 2015(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    250,000
    (5)
    
    
    248,420
    
    
    
    6.3750
    %6.00% Amortizing bonds due 2010(4)
    
    
    8,270
    
    
    
    8,774
    
    
    
    9,308
    
    
    
    9,875
    
    
    
    10,476
    
    
    
    
    
    
    
    46,703
    
    
    
    46,820
    
    
    
    6.0000
    %Capital lease obligations
    
    
    5,613
    
    
    
    5,613
    
    
    
    5,613
    
    
    
    5,613
    
    
    
    5,613
    
    
    
    35,866
    
    
    
    63,931
    
    
    
    63,931
    
    
    
    6.4976
    %Total
    
    $
    325,571
    
    
    $
    126,599
    
    
    $
    139,346
    
    
    $
    139,913
    
    
    $
    465,514
    
    
    $
    322,503
    
    
    $
    1,519,446
    
    
    $
    1,530,356
 As ofDecember 31, 2004(In thousands)Total
    
    
    Fair ValueLONG-TERM DEBT :Singapore dollar loans at fixed rates(6)
    
    $
    73,650
    
    
    $
    75,567U.S. dollar loans at floating rates(1)
    
    
    589,066
    
    
    
    589,066Convertible Notes(2)
    
    
    575,000
    
    
    
    590,824Other(5)
    
    
    (1,986
    )
    
    
    Total
    
    $
    1,235,730
    
    
    $
    1,255,457
 96




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##### Table of Contents



As of December 31,2004
    
    
    2005(In thousands)PAYABLES :U.S Dollar
    
    $
    104,920
    
    
    $
    120,364Singapore Dollar
    
    
    17,490
    
    
    
    20,561Japanese Yen
    
    
    48,465
    
    
    
    20,035Others
    
    
    17,911
    
    
    
    5,721Total payable
    
    $
    188,786
    
    
    $
    166,681
 
 Notes:
 (1)
    
    In August 2004, we entered into two interest rate cap contracts
related to the floating rate obligations associated with $100.0
million of one of the U.S. dollar loans, with the effect of
placing an upper limit on the cash flow and earnings exposure due
to market interest rate changes. The floating rate obligations
under this U.S. dollar loan are based on LIBOR rates and are
payable semi-annually which commenced March 28, 2004. The
combination of the caps and the debt obligation results in a
maximum interest outflow equal to 2.75% which commenced March 28,
2005. The notional amount on the interest rate cap is reduced by
$25.0 million semi-annually and will mature on September 28, 2006.
The fair value of the two interest rate cap contracts as of
December 31, 2005 was $0.6 million.In March 2005, we entered into two additional interest rate cap
contracts related to the floating rate obligations associated with
$200.0 million of the above-mentioned U.S. dollar loan, with the
effect of placing an upper limit on the cash flow and earnings
exposure due to market interest rate changes. The combination of
the two additional caps and the debt obligation results in a
maximum interest outflow equal to 3.60% which commenced September
28, 2005. The notional amount on the interest rate cap contracts
is reduced by $66.7 million semi-annually and will mature on
September 28, 2006. The fair value of the two interest rate cap
contracts as of December 31, 2005 was $0.8 million.(2)
    
    The interest rate swap contracts, which were previously entered
into in respect of the fixed-rate obligations associated with the
Convertible Notes, were terminated in September 2005 following
completion of the Tender Offer for the Convertible Notes.(3)
    
    Interest on the Senior Notes due 2010 is payable at the rate of
5.75% per annum and interest on the Senior Notes due 2015 is
payable at the rate of 6.375% per annum, in each case, on February
3 and August 3 of each year, beginning on February 3, 2006.(4)
    
    The Amortizing Bonds pay semi-annual cash payments of $5.5 million
per payment, as a combination of principal and interest, on
February 17 and August 17 of each year, beginning on February 17,
2006, and amortize to zero at maturity on August 17, 2010.
Interest on the Amortizing Bonds is payable at the rate of 6.00%
per annum.(5)
    
    As of December 31, 2004, other long-term debt includes the
cumulative fair value change of the Convertible Notes due to
changes in interest rates since the date we entered into interest
rate swap contracts related to this debt. The interest rate swap
contracts were terminated following the completion of the Tender
Offer of the Convertible Notes in September 2005.(6)
    
    As of December 31, 2004, we had entered into forward foreign
contracts related to a portion of these amounts to exchange the
related cash flows to U.S. dollars, and a cross currency swap to
convert cash flows under one of the Singapore dollar fixed-rate
loans to a U.S. dollar denominated fixed-rate. We repaid these
loans early in full in March 2005, and the associated forward
foreign contracts and cross currency swap were also terminated in
March 2005.  Foreign currency risk
   97




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As of December 31, 2005
    
    
    As of December 31, 2004Expected Maturity Date Of Notional Amounts
    
    
    (in thousands)(in thousands, except exchange rates)2006
    
    
    Thereafter
    
    
    Total
    
    
    Fair Value
    
    
    Total
    
    
    Fair ValueFORWARD FOREIGN
EXCHANGE AGREEMENTS:(Receive Yen/Pay
US$) Contract Amount
    
    $
    30,024
    
    
    
    
    
    
    $
    30,024
    
    
    $
    (208
    )
    
    $
    69,210
    
    
    $
    2,520Average Contractual
Exchange Rate
    
    
    114.36
    
    
    
    (Receive S$/Pay US$)
Contract Amount
    
    $
    11,976
    
    
    
    
    
    
    $
    11,976
    
    
    $
    1
    
    
    $
    47,842
    
    
    $
    1,760Average Contractual
Exchange Rate
    
    
    1.67
    
    
    
    (Receive Euros/Pay
US$) Contract Amount
    
    $
    1,102
    
    
    
    
    
    
    $
    1,102
    
    
    $
    (107
    )
    
    $
    26,760
    
    
    $
    2,857Average Contractual
Exchange Rate
    
    
    1.32
    
    
    
    Total Contract Amount
    
    $
    43,120
    
    
    
    
    
    
    $
    43,102
    
    
    $
    (314
    )
    
    $
    143,812
    
    
    $
    7,137
 As of December 31, 2005
    
    
    As of December 31, 2004(in thousands, except percentages)
    
    
    (in thousands, except percentages)Carrying
    
    
    Amount
    
    
    Percentage
    
    
    Carrying
    
    
    Amount
    
    
    PercentageAmount
    
    
    Hedged
    
    
    Hedged
    
    
    Amount
    
    
    Hedged
    
    
    HedgedNON-U.S. DOLLAR LIABILITIES:PayablesJapanese Yen
    
    $
    20,035
    
    
    $
    20,035
    
    
    
    100
    %
    
    $
    48,465
    
    
    $
    48,465
    
    
    
    100
    %Singapore dollar
    
    
    20,561
    
    
    
    11,976
    
    
    
    58
    
    
    
    17,490
    
    
    
    17,490
    
    
    
    100Others
    
    
    5,721
    
    
    
    1,102
    
    
    
    19
    
    
    
    17,911
    
    
    
    17,911
    
    
    
    100Foreign Currency LoanSingapore dollar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,650
    
    
    
    73,650
    
    
    
    100Future Interest Payable on DebtSingapore dollar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,445
    
    
    
    1,445
    
    
    
    100Total
    
    $
    46,317
    
    
    $
    33,113
    
    
    
    71
    %
    
    $
    158,961
    
    
    $
    158,961
    
    
    
    100
    %
 
 ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 PART II
 
 ITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15.
    
    CONTROLS AND PROCEDURES
  98




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##### Table of Contents



ITEM 16.
 
 A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
  
 B.
    
    CODE OF ETHICS
   
 C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Audit fees
    
    Audit-related fees
    
    Tax fees
    
    All other fees
    
    Total(in $ thousands)2004
    
    
    473
    
    
    
    95
    
    
    
    219
    
    
    
    485
    
    
    
    1,2722005
    
    
    788
    
    
    
    76
    
    
    
    206
    
    
    
    233
    
    
    
    1,303
 Audit-related fees
  Tax fees
  99




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##### Table of Contents



All other fees
   
 D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 E.
    
    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
  
 PART III
 
 ITEM 17.
    
    FINANCIAL STATEMENTS
  
 ITEM 18.
    
    FINANCIAL STATEMENTS
  Chartered Semiconductor Manufacturing Ltd. Consolidated Financial Statements
    100




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##### Table of Contents



Silicon Manufacturing Partners Pte Ltd Financial Statements
       101




---



##### Table of Contents



ITEM 19.
    
    EXHIBITS
 1(1)
    
    Memorandum and Articles of Association of the company.2.1(2)
    
    Specimen certificate for ordinary shares.2.2 (28)
    
    Specimen certificate for convertible redeemable preference shares.2.3(3)
    
    Deposit Agreement dated November 4, 1999 by and among the
company, Citibank, N.A. and the holders and beneficial owners of
American Depositary Shares evidenced by American Depositary
Receipts issued thereunder (including as an exhibit, the form of
American Depositary Receipt).2.4(23)
    
    Conversion Price Certificate dated August 17, 2005 of the company.Loan Agreements and Indentures4.1.1(4)
    
    Credit Agreement dated September 28, 2000 by and among Chartered
Silicon Partners Pte Ltd, the banks on the signature pages
thereto, as Lenders, and ABN Amro Bank N.V., Singapore Branch, as
agent and security trustee (the CSP Second Phase Credit
Agreement).4.1.2(7)
    
    Supplemental Agreement dated September 18, 2003 by and among
Chartered Silicon Partners Pte Ltd as Borrower, the banks on the
signature pages thereto, as Lenders, and ABN Amro Bank N.V.,
Singapore Branch, as Agent and Security Trustee relating to the
CSP Second Phase Credit Agreement.4.1.3(5)
    
    Subordination Agreement dated June 28, 2002 by and among the
company, Chartered Silicon Partners Pte Ltd as Borrower and ABN
Amro Bank N.V. Singapore Branch as Security Trustee, relating to
the CSP Second Phase Credit Agreement.4.1.4(5)
    
    Letter dated June 26, 2002 from ABN Amro Bank N.V., Singapore
Branch to Chartered Silicon Partners Pte Ltd amending the CSP
Second Phase Credit Agreement by incorporating the Subordination
Agreement relating to the CSP Second Phase Credit Agreement.4.2(6)
    
    Shareholders Undertaking dated December 14, 2000 by and among
Chartered Silicon Partners Pte Ltd as Borrower, the company, EDB
Investments Pte Ltd, Agilent Technologies Europe B.V., as
Shareholders and ABN Amro Bank N.V., Singapore Branch as Security
Trustee.4.3.1(9)
    
    Indenture dated as of April 2, 2001 by and between the company
and Wells Fargo Bank Minnesota, National Association.4.3.2(9)
    
    Supplemental Indenture dated as of April 2, 2001 by and between
the company and Wells Fargo Bank Minnesota, National Association.4.3.3(24)
    
    Second Supplemental Indenture dated August 3, 2005 by and between
the company and The Bank of New York.4.3.4(24)
    
    Third Supplemental Indenture dated August 3, 2005 by and between
the company and The Bank of New York.4.3.5(25)
    
    Fourth Supplemental Indenture dated August 17, 2005 by and
between the company and The Bank of New York.4.4(25)
    
    Master Agency Agreement dated August 17, 2005 by and between the
company and The Bank of New York.4.5(21)(+)
    
    Facility Agreement dated December 23, 2004 by and among the
company as Borrower, JPMorgan Chase Bank, N.A. as Lender,
Export-Import Bank of the United States and JPMorgan Chase Bank,
N.A as Facility Agent.4.6(21)(+)
    
    Facility Agreement dated December 23, 2004 by and among the
company as Borrower, Sumitomo Mitsui Banking Corporation and
Oversea-Chinese Banking Corporation Limited as
 102




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Lenders and Arrangers.4.7
    
    <deleted>4.8(21)(+)
    
    Facility Agreement dated December 22, 2004 by and between the
company as Borrower and Bank of America as Lender.4.9(21)(+)
    
    Letter of Confirmation from Goldman Sachs International to the
company dated August 12, 2004 supplementing the ISDA Master
Agreement (Multicurrency-Cross Border) dated August 10, 2004 by
and between the company and Goldman Sachs International, as
counter-party together with the Schedule to the Master Agreement.Strategic AlliancesCSP4.10.1(10)
    
    Deed of Accession and Ratification dated October 22, 2001 by and
among the company, EDB Investments Pte Ltd, Agilent Technologies
Europe B.V. and Singapex Investments Pte Ltd relating to the
Joint Venture Agreement dated March 13, 1997, as amended and
restated on October 23, 2001(the Restated Joint Venture
Agreement dated October 23, 2001).4.10.2(10)
    
    Amendment Agreement No. 1 dated January 31, 2002 to Restated
Joint Venture Agreement dated October 23, 2001.4.10.3(28)
    
    Deed of Accession and Ratification dated January 26, 2006 by and
among the company, EDB Investments Pte Ltd, Singapex Investments
Pte Ltd, Agilent Technologies Europe B.V. and Avago Technologies
General IP (Singapore) Pte. Ltd. relating to the Restated Joint
Venture Agreement dated October 23, 2001 and as further amended
by an amendment (No. 1) dated January 31, 2002.SMP4.11.1(2)(+)
    
    Joint Venture Agreement dated December 19, 1997 by and between
the company and Lucent Technologies Microelectronics Pte Ltd.4.11.2(20)
    
    Supplemental Agreement dated September 17, 2004 to the Joint
Venture Agreement dated December 19, 1997 by and between the
company and Agere Systems Singapore Pte Ltd. (formerly known as
Lucent Technologies Microelectronics Pte. Ltd.).4.11.3(26)
    
    Second Supplemental Agreement dated January 1, 2005 to the Joint
Venture Agreement dated December 19, 1997 by and between the
company and Agere Systems Singapore Pte Ltd.4.11.4(2)(+)
    
    Assured Supply and Demand Agreement dated February 17, 1998 by
and among the company, Silicon Manufacturing Partners Pte Ltd and
Lucent Technologies Microelectronics Pte Ltd.4.11.5(2)(+)
    
    Supplemental Assured Supply and Demand Agreement dated September
3, 1999 by and among the company, Silicon Manufacturing Partners
Pte Ltd and Lucent Technologies Microelectronics Pte. Ltd.4.11.6(2)(+)
    
    License and Technology Transfer Agreement dated February 17, 1998
by and among the company, Lucent Technologies Microelectronics
Pte. Ltd. and Silicon Manufacturing Partners Pte Ltd.4.11.7(13)(+)
    
    Amendment Agreement (No. 1) to License and Technology Transfer
Agreement dated July 27, 2000 by and between the company, Lucent
Technologies Microelectronics Pte. Ltd. and Silicon Manufacturing
Partners Pte Ltd.4.11.8(11)(+)
    
    Amendment Agreement (No. 2) dated March 22, 2001 to License and
Technology Transfer Agreement dated February 17, 1998 by and
between the company, Agere Systems Singapore Pte Ltd (formerly
known as Lucent Technologies Microelectronics Pte. Ltd.) and
Silicon Manufacturing Partners Pte Ltd.
 103




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##### Table of Contents



4.11.9(12)(+)
    
    Amendment Agreement (No. 3) dated March 28, 2002 to License and
Technology Transfer Agreement dated February 17, 1998 by and
among the company, Agere Systems Singapore Pte Ltd (formerly
known as Lucent Technologies Microelectronics Pte. Ltd.) and
Silicon Manufacturing Partners Pte Ltd.4.11.10(7)(+)
    
    Amendment Agreement (No. 4) dated July 1, 2003 to License and Technology Transfer
Agreement dated February 17, 1998 by and among the company, Agere Systems Singapore Pte
Ltd (formerly known as Lucent Technologies Microelectronics Pte. Ltd.) and Silicon
Manufacturing Partners Pte Ltd.Technology transfer, license, joint development and other related agreementsAgere/Lucent4.12.1(2)(+)
    
    Technology Transfer Agreement dated February 17, 1998 by and between the company and
Lucent Technologies Inc.4.12.2(11)(+)
    
    Amendment Agreement (No. 1) dated July 31, 2000 to Technology Transfer Agreement dated
February 17, 1998 between Lucent Technologies Inc. and the company.4.12.3(11)(+)
    
    Amendment Agreement (No. 2) dated March 20, 2001 to Technology Transfer Agreement dated
February 17, 1998 between Agere Systems Inc. (formerly known as the Microelectronics
Group of Lucent Technologies Inc.) and the company.4.12.4(11)(+)
    
    Amendment Agreement (No. 3) dated March 28, 2002 to Technology Transfer Agreement dated
February 17, 1998 between Agere Systems Inc. (formerly known as the Microelectronics
Group of Lucent Technologies Inc.) and the company.4.12.5(2)(+)
    
    Patent License Agreement dated January 1, 1998 by and between the company and Lucent
Technologies Inc.4.12.6(17)(+)
    
    Patent License Agreement Amendment dated August 3, 2000 by and between the company and
Lucent Technologies Inc.4.12.7(13)
    
    Letter Agreement dated September 26, 2002 by and between the company and Agere Systems
Inc. amending the Patent License Agreement between the parties dated January 1, 1998.Toshiba4.13(2)(+)
    
    Patent Cross License Agreement dated August 12, 1999 by and between the company and
Toshiba Corporation.IBM4.14.1(10)(++)
    
    Patent Cross-License Agreement dated January 1, 2001 by and between the company and
International Business Machines Corporation.4.14.2(14)(+)
    
    Amendment No. 1 dated November 26, 2002 to Patent License Agreement dated January 1,
2001 by and between the company and International Business Machines Corporation.4.14.3(14)(++)
    
    SF Process Development and Cost Sharing Agreement dated November 26, 2002 by and
between the company and International Business Machines Corporation.4.14.4(14)(+)
    
    Copper / Related FEOL Technology License Agreement dated November 26, 2002 by and
between the company and International Business Machines Corporation.4.14.5(26)(++)
    
    Amendment No. 1 dated January 19, 2005 to the Copper / Related FEOL Technology License
Agreement dated November 26, 2002 by and between the company and International Business
Machines Corporation.
 104




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4.14.6(15)(++)
    
    Amendment No. 1 dated June 26, 2003 to SF Process Development and Cost Sharing
Agreement dated November 26, 2002 by and between the company and International Business
Machines Corporation.4.14.7(19)(++)
    
    Amended and Restated Amendment No. 2 dated March 9, 2004 to the SF Process Development
and Cost Sharing Agreement dated November 26, 2002 by and between the company and
International Business Machines Corporation.4.14.8(21)(+)
    
    Amendment No. 3 dated November 5, 2004 to SF Process Development and Cost Sharing
Agreement dated November 26, 2002 by and between the company and International Business
Machines Corporation.4.14.9(22)(++)
    
    Amended and Restated Amendment No.3 dated June 30, 2005 to SF Process Development and
Cost Sharing Agreement dated November 26, 2002 by and between the company and
International Business Machines Corporation.4.14.10(27)(++)
    
    Second Amended and Restated Amendment No.3 dated June 30, 2005 to SF Process
Development and Cost Sharing Agreement dated November 26, 2002 by and between the
company and International Business Machines Corporation.4.14.11(21)(+)
    
    Amendment No. 4 dated December 15, 2004 to SF Process Development and Cost Sharing
Agreement dated November 26, 2002 by and between the company and International Business
Machines Corporation.4.14.12(14)(+)
    
    Refundable Cross Deposit Agreement dated November 26, 2002 by and between the company
and International Business Machines Corporation.4.14.13(18)(+)
    
    First Supplemental Agreement dated December 19, 2003 to the Refundable Cross Deposit
Agreement dated November 26, 2002 by and between the company and International Business
Machines Corporation.IBM, Infineon and Samsung4.15(19)(+)
    
    SF Process 65nm/45nm Development and Cost Sharing Agreement dated March 5, 2004 by and
among the company, International Business Machines Corporation, Infineon Technologies AG
and Samsung Electronics Co., Ltd.Motorola4.16(7)(+)
    
    Patent License Agreement dated July 1, 2003 by and between the company and Motorola, Inc.Property AgreementsFab 24.17(21)
    
    Sub-Lease dated October 19, 2004 by and between Singapore Technologies Pte Ltd and
the company relating to Private Lots A12787 and A12787(a) Mukim No. 13 Sembawang.Fab 34.18.1(8)
    
    Sub-Lease dated February 17, 1998 by and between the company and Silicon
Manufacturing Partners Pte Ltd.4.18.2(21)
    
    Sub-Lease dated October 19, 2004 by and between Singapore Technologies Pte Ltd and
the company relating to Private Lot A12787(b) Mukim No. 13.Fabs 2 and 3 Site Slurry Treatment Plant4.19.1(28)
    
    Agreement for Sub-License and Sub-Lease (Private Lot A12787(k)) dated July 8, 2005
by and between Singapore Technologies Pte Ltd and the company.4.19.2(28)
    
    Novation Agreement dated July 8, 2005 by and among Singapore Technologies Pte Ltd,
Terra
 105




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Investments Pte. Ltd. and the company relating to the Agreement for
Sub-License and Sub-Lease (Private Lot A12787(k)) dated July 8, 2005.Fab 64.20.1(8)
    
    Building Agreement relating to Private Lot A12787(d) Mukim No. 13 Sembawang dated
September 24, 1999 by and between Jurong Town Corporation and Singapore
Technologies Pte Ltd.4.20.2(8)
    
    Agreement for Sub-License and Sub-Lease (Private Lot A12787(d)) dated September 24,
1999 by and between Singapore Technologies Pte Ltd and Chartered Silicon Partners
Pte Ltd.4.20.3(21)
    
    Novation Agreement dated December 31, 2004 by and among Singapore Technologies Pte
Ltd, Terra Investments Pte. Ltd. and Chartered Silicon Partners Pte Ltd relating to
the Agreement for Sub-License and Sub-Lease (Private Lot A12787(d)) dated September
24, 1999.Fab 74.21.1(16)
    
    Agreement for Sub-License and Sub-Lease (Private Lot A12787(e)) dated July 30, 2001
by and between Singapore Technologies Pte Ltd and the company.4.21.2(16)
    
    Building Agreement relating to Private Lot A12787(e) Woodlands Industrial Park D,
G.S. No. 3696K, Mukim No. 13 dated July 30, 2001 by and between Jurong Town
Corporation and Singapore Technologies Pte Ltd.4.21.3(21)
    
    Novation Agreement dated December 31, 2004 by and among Singapore Technologies Pte
Ltd, Terra Investments Pte. Ltd. and the company relating to the Agreement for
Sub-License and Sub-Lease (Private Lot A12787(e)) dated July 30, 2001.Related Party Agreements4.22(14)
    
    Amended and Restated Turnkey Subcontract Agreement for Sort, Assembly and/or Final
Test Services dated October 30, 2002 by and between the company and ST Assembly
Test Services Ltd.4.23(18)
    
    Mr. Chia Song Hwees, President and Chief Executive Officer, Contract of Employment.8(14)
    
    List of the companys subsidiaries.12.1(28)
    
    Certification of the President and Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.12.2(28)
    
    Certification of the Senior Vice President and Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.13.1(28)
    
    Certification of the President and Chief Executive Officer pursuant to 18 U.S.C
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.13.2(28)
    
    Certification of the Senior Vice President and Chief Financial Officer pursuant to
18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.15.1(28)
    
    Consent of KPMG addressed to the Board of Directors and Shareholders of the company.15.2(28)
    
    Consent of KPMG addressed to the
Board of Directors and Shareholders of Silicon Manufacturing Partners Pte Ltd.
 
 Notes:
 (1)
    
    Filed as an exhibit to our companys Registration Statement on Form F-1
(Registration No. 333-88397), as filed with the Securities and Exchange Commission
on October 4, 1999. The Memorandum and Articles of Association were first amended
by shareholders resolutions which were filed as an exhibit to our companys Current
Report on Form 6-K (File No. 000-27811), as submitted with the Securities and
Exchange Commission on June 29, 2001, and were as set forth in the proxy statement
for our companys annual general meeting in May 2001 which was filed as an exhibit
to our companys Current Report on Form 6-K (File No. 000-27811), as submitted with
the Securities and Exchange Commission on April 18, 2001. The Memorandum and
Articles of Association were further amended by shareholders resolutions which were
filed as an exhibit to our companys Current Report on Form 6-K (File No.
000-27811), as 106




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submitted with the Securities and Exchange Commission on August 18,
2005, and were set forth in the proxy statement for our extraordinary general
meeting in August 2005 which was filed as an exhibit to our companys Current
Report on Form 6-K (File No. 000-27811), as submitted with the Securities and
Exchange Commission on July 25, 2005. All such exhibits are incorporated herein by
reference.(2)
    
    Filed as an exhibit to our companys Amended Registration Statement on Form F-1/A,
as filed with the Securities and Exchange Commission on October 25, 1999, which
exhibit is incorporated herein by reference.(3)
    
    Submitted as an exhibit to our companys Current Report on Form 6-K (File No.
000-27811), as submitted with the Securities and Exchange Commission on November
23, 1999, which exhibit is incorporated herein by reference.(4)
    
    Submitted as an exhibit to our companys Current Report on Form 6-K (File No.
000-27811), as submitted with the Securities and Exchange Commission on September
28, 2000, which exhibit is incorporated herein by reference.(5)
    
    Submitted as an exhibit to our companys Second Quarterly Report 2002 on Form 6-K
(File No. 000-27811), as submitted with the Securities and Exchange Commission on
August 14, 2002, which exhibit is incorporated herein by reference.(6)
    
    Filed as an exhibit to our companys Annual Report on Form 20-F (File No.
000-27811), as filed with the Securities and Exchange Commission on March 21, 2001,
which exhibit is incorporated herein by reference.(7)
    
    Submitted as an exhibit to our companys Third Quarterly Report 2003 on Form 6-K
(File No. 000-27811), as submitted with the Securities and Exchange Commission on
November 13, 2003, which exhibit is incorporated herein by reference.(8)
    
    Filed as an exhibit to our companys Registration Statement on Form F-1
(Registration No. 333-88397), as filed with the Securities and Exchange Commission
on October 4, 1999.(9)
    
    Submitted as an exhibit to our companys Current Report on Form 6-K (File No.
000-27811), as submitted with the Securities and Exchange Commission on April 4,
2001, which exhibit is incorporated herein by reference.(10)
    
    Filed as an exhibit to our companys Annual Report on Form 20-F (File No.
000-27811), as filed with the Securities and Exchange Commission on March 11, 2002,
which exhibit is incorporated herein by reference.(11)
    
    Submitted as an exhibit to our companys First Quarterly Report 2001 on Form 6-K
(File No. 000-27811), as submitted with the Securities and Exchange Commission on
May 15, 2001, which exhibit is incorporated herein by reference.(12)
    
    Submitted as an exhibit to our companys First Quarterly Report 2002 on Form 6-K
(File No. 000-27811), as submitted with the Securities and Exchange Commission on
May 14, 2002, which exhibit is incorporated herein by reference.(13)
    
    Submitted as an exhibit to our companys Third Quarterly Report 2002 on Form 6-K
(File No. 000-27811), as submitted with the Securities and Exchange Commission on
November 14, 2002, which exhibit is incorporated herein by reference.(14)
    
    Filed as an exhibit to our companys Annual Report on Form 20-F (File No.
000-27811), as filed with the Securities and Exchange Commission on March 13, 2003,
which exhibit is incorporated herein by reference.(15)
    
    Submitted as an exhibit to our companys Second Quarterly Report 2003 on Form 6-K
(File No. 000-27811), as submitted with the Securities and Exchange Commission on
August 13, 2003, which exhibit is incorporated herein by reference.(16)
    
    Submitted as an exhibit to our companys Third Quarterly Report 2001 on Form 6-K
(File No. 000-27811), as submitted with the Securities and Exchange Commission on
November 14, 2001, which exhibit is incorporated herein by reference.(17)
    
    Submitted as an exhibit to our companys Current Report on Form 6-K (File No.
000-27811), as submitted with the Securities and Exchange Commission on November
14, 2000, which exhibit is incorporated herein by reference.(18)
    
    Filed as an exhibit to our companys Annual Report on Form 20-F (File No.
000-27811), as filed with the 107




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Securities and Exchange Commission on March 3, 2004,
which exhibit is incorporated herein by reference.(19)
    
    Submitted as an exhibit to our companys First Quarterly Report 2004 on Form 6-K
(File No. 000-27811), as submitted with the Securities and Exchange Commission on
May 10, 2004, which exhibit is incorporated herein by reference.(20)
    
    Submitted as an exhibit to our companys Third Quarterly Report 2004 on Form 6-K
(File No. 000-27811), as submitted with the Securities and Exchange Commission on
November 8, 2004, which exhibit is incorporated herein by reference.(21)
    
    Filed as an exhibit to our companys Annual Report on Form 20-F (File No.
000-27811), as filed with the Securities and Exchange Commission on March 7, 2005,
which exhibit is incorporated herein by reference.(22)
    
    Submitted as an exhibit to our companys Second Quarterly Report 2005 on Form 6-K
(File No. 000-27811), as submitted with the Securities and Exchange Commission on
July 22, 2005, which exhibit is incorporated herein by reference.(23)
    
    Submitted as an exhibit to our companys Current Report 2005 on Form 6-K (File No.
000-27811), as submitted with the Securities and Exchange Commission on August 17,
2005, which exhibit is incorporated herein by reference.(24)
    
    Submitted as an exhibit to our companys Current Report on Form 6-K (File No.
000-27811), as submitted with the Securities and Exchange Commission on August 4,
2006, which exhibit is incorporated herein by reference.(25)
    
    Submitted as an exhibit to our companys Current Report on Form 6-K (File No.
000-27811), as submitted with the Securities and Exchange Commission on August 18,
2005, which exhibit is incorporated herein by reference.(26)
    
    Submitted as an exhibit to our companys First Quarterly Report on Form 6-K (File
No. 000-27811), as submitted with the Securities and Exchange Commission on May 6,
2005, which exhibit is incorporated herein by reference.(27)
    
    Submitted as an exhibit to our companys Third Quarterly Report 2005 on Form 6-K
(File No. 000-27811), as submitted with the Securities and Exchange Commission on
November 2, 2005, which exhibit is incorporated herein by reference.(28)
    
    Filed herewith.(+)
    
    Certain portions of this exhibit have been omitted pursuant to a confidential
treatment order of the Securities and Exchange Commission. The omitted portions
have been separately filed with the Commission.(++)
    
    Certain portions of this exhibit have been omitted pursuant to a request for
confidential treatment filed with the Securities and Exchange Commission. The
omitted portions have been separately filed with the Commission. 108




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SIGNATURES
 st
 CHARTERED SEMICONDUCTOR MANUFACTURINGLTDBy:
    /s/ George ThomasName:
    George ThomasTitle:
    Senior Vice President and Chief Financial Officer  SIGNATURE
    
    TITLE
    
    DATE/s/ James A. Norling
    
    Chairman of the Board
    
    March 1, 2006James A. Norling/s/ Chia Song Hwee

Chia Song Hwee
    
    President and Chief Executive
Officer (principal executive officer)
    
    March 1, 2006/s/ George Thomas

George Thomas
    
    Senior Vice President and Chief
Financial Officer (principal financial
and accounting officer)
    
    March 1, 2006/s/ Sum Soon Lim
    
    Director
    
    March 1, 2006Sum Soon Lim/s/ Robert E. La Blanc
    
    Director
    
    March 1, 2006Robert E. La Blanc/s/ Andre Borrel
    
    Director
    
    March 1, 2006Andre Borrel/s/ Charles E. Thompson
    
    Director
    
    March 1, 2006Charles E. Thompson/s/ Tsugio Makimoto
    
    Director
    
    March 1, 2006Tsugio Makimoto/s/ Tay Siew Choon
    
    Director
    
    March 1, 2006Tay Siew Choon/s/ Peter Seah Lim Huat
    
    Director
    
    March 1, 2006Peter Seah Lim Huat/s/ Philip Tan Yuen Fah
    
    Director
    
    March 1, 2006Philip tan yuen fah
 109




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SIGNATURE
    
    TITLE
    
    DATE/s/ Pasquale Pistorio
    
    Director
    
    March 1, 2006Pasquale Pistorio/s/ Steven H. Hamblin
    
    Director
    
    March 1, 2006Steven H. Hamblin
 110




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CHARTERED SEMICONDUCTOR MANUFACTURING LTD
AND SUBSIDIARIES
 
 FINANCIAL STATEMENTS INDEX
 Page NumberReport of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets
    
    
    F-2Consolidated Statements of Operations
    
    
    F-3Consolidated Statements of Comprehensive Income (Loss)
    
    
    F-4Consolidated Statements of Shareholders Equity
    
    
    F-5Consolidated Statements of Cash Flows
    
    
    F-6Notes to the Consolidated Financial Statements
    
    
    F-7




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      Singapore
 F-1




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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS  in US Dollars
As of December 31
In thousands (except per share data)
 2004
    
    
    2005ASSETSCash and cash equivalents
    
    $
    539,399
    
    
    $
    819,856Marketable investments
    
    
    23,181
    
    
    
    22,467Receivables, net
    
    
    143,148
    
    
    
    184,897Inventories
    
    
    72,159
    
    
    
    134,240Prepaid expenses
    
    
    6,723
    
    
    
    7,670Other current assets
    
    
    1,857
    
    
    
    114,446Total current assets
    
    
    786,467
    
    
    
    1,283,576Marketable investments
    
    
    44,851
    
    
    
    Investment in SMP
    
    
    93,765
    
    
    
    50,384Technology licenses, net
    
    
    121,953
    
    
    
    106,612Property, plant and equipment, net
    
    
    1,914,515
    
    
    
    2,049,695Other non-current assets
    
    
    128,461
    
    
    
    27,027Total assets
    
    $
    3,090,012
    
    
    $
    3,517,294LIABILITIES, CONVERTIBLE REDEEMABLE PREFERENCE SHARES AND SHAREHOLDERS
EQUITYPayables
    
    $
    188,786
    
    
    $
    166,681Income taxes payable
    
    
    23,421
    
    
    
    27,674Current installments of long-term debt and capital lease obligations
    
    
    352,985
    
    
    
    322,453Other current liabilities
    
    
    58,529
    
    
    
    216,445Total current liabilities
    
    
    623,721
    
    
    
    733,253Long-term debt and capital lease obligations, excluding current installments
    
    
    882,745
    
    
    
    1,169,034Other non-current liabilities
    
    
    77,915
    
    
    
    17,970Total liabilities
    
    
    1,584,381
    
    
    
    1,920,257Convertible redeemable preference shares of $0.01 par valueAuthorized: 30 shares in 2005Issued and outstanding: 30 shares in 2005Redemption value at maturity: $10,000 per share
    
    
    
    
    
    
    250,663Share capital: ordinary shares of S$0.26 par valueAuthorized: 3,076,923 shares in 2004 and 4,615,385 shares in 2005Issued and outstanding: 2,509,238 shares in 2004 and 2,513,384 shares
in 2005
    
    
    445,531
    
    
    
    446,181Additional paid-in capital
    
    
    2,237,107
    
    
    
    2,235,869Accumulated deficit
    
    
    (1,118,654
    )
    
    
    (1,278,252
    )Accumulated other comprehensive loss
    
    
    (58,353
    )
    
    
    (57,424
    )Total shareholders equity
    
    $
    1,505,631
    
    
    $
    1,346,374Commitments and contingenciesTotal liabilities, convertible redeemable preference shares
and shareholders equity
    
    $
    3,090,012
    
    
    $
    3,517,294
 See accompanying notes to consolidated financial statements.
 F-2




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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS  in US Dollars
For the Years Ended December 31
In thousands (except per share data)
 2003
    
    
    2004
    
    
    2005Net revenue
    
    $
    551,911
    
    
    $
    932,131
    
    
    $
    1,032,734Cost of revenue
    
    
    (648,330
    )
    
    
    (769,318
    )
    
    
    (917,048
    )Gross profit (loss)
    
    
    (96,419
    )
    
    
    162,813
    
    
    
    115,686OPERATING EXPENSESResearch and development
    
    
    124,057
    
    
    
    118,281
    
    
    
    122,073Sales and marketing
    
    
    38,748
    
    
    
    37,751
    
    
    
    42,181General and administrative
    
    
    40,762
    
    
    
    33,850
    
    
    
    38,756Fab start-up costs
    
    
    9,219
    
    
    
    33,199
    
    
    
    22,697Other operating expenses (income), net
    
    
    (11,001
    )
    
    
    (8,994
    )
    
    
    3,938Total operating expenses
    
    
    201,785
    
    
    
    214,087
    
    
    
    229,645Operating loss
    
    
    (298,204
    )
    
    
    (51,274
    )
    
    
    (113,959
    )Equity in income of SMP
    
    
    23,194
    
    
    
    27,563
    
    
    
    6,486Other income, net
    
    
    23,186
    
    
    
    52,299
    
    
    
    2,442Interest income
    
    
    12,168
    
    
    
    11,530
    
    
    
    28,625Interest expense and amortization of debt discount
    
    
    (42,222
    )
    
    
    (30,093
    )
    
    
    (69,839
    )Foreign exchange gain (loss), net
    
    
    (733
    )
    
    
    1,320
    
    
    
    (356
    )Income (loss) before income taxes and minority interest
    
    
    (282,611
    )
    
    
    11,345
    
    
    
    (146,601
    )Income tax expense
    
    
    (11,671
    )
    
    
    (4,774
    )
    
    
    (12,997
    )Income (loss) before minority interest
    
    
    (294,282
    )
    
    
    6,571
    
    
    
    (159,598
    )Minority interest in loss of CSP
    
    
    9,491
    
    
    
    
    
    
    
    Net income (loss) prior to cumulative effect adjustment
    
    
    (284,791
    )
    
    
    6,571
    
    
    
    (159,598
    )Cumulative effect adjustment for change in accounting principle
    
    
    (6,421
    )
    
    
    
    
    
    
    Net income (loss)
    
    
    (291,212
    )
    
    
    6,571
    
    
    
    (159,598
    )Less: Accretion to redemption value of convertible redeemable
preference shares
    
    
    
    
    
    
    
    
    
    
    (3,196
    )Net income (loss) available to common shareholders
    
    $
    (291,212
    )
    
    $
    6,571
    
    
    $
    (162,794
    )Basic and diluted net earnings (loss) per common share:Prior to cumulative effect adjustment
    
    $
    (0.11
    )
    
    $
    0.00
    
    
    $
    (0.06
    )Cumulative effect adjustment
    
    
    (0.01
    )
    
    
    
    
    
    
    Net earnings (loss) per common share
    
    $
    (0.12
    )
    
    $
    0.00
    
    
    $
    (0.06
    )Basic and diluted net earnings (loss) per ADS:Prior to cumulative effect adjustment
    
    $
    (1.14
    )
    
    $
    0.03
    
    
    $
    (0.65
    )Cumulative effect adjustment
    
    
    (0.02
    )
    
    
    
    
    
    
    Net earnings (loss) per ADS
    
    $
    (1.16
    )
    
    $
    0.03
    
    
    $
    (0.65
    )Number of common shares used in computing:Basic net earnings (loss) per common share
    
    
    2,502,294
    
    
    
    2,508,376
    
    
    
    2,511,428Effect of dilutive options
    
    
    
    
    
    
    8,566
    
    
    
    1,149Diluted net earnings (loss) per common share
    
    
    2,502,294
    
    
    
    2,516,942
    
    
    
    2,512,577Number of ADSs used in computing:Basic net earnings (loss) per ADS
    
    
    250,229
    
    
    
    250,838
    
    
    
    251,143Effect of dilutive options
    
    
    
    
    
    
    856
    
    
    
    115Diluted net earnings (loss) per ADS
    
    
    250,229
    
    
    
    251,694
    
    
    
    251,258
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)  in US Dollars
For the Years Ended December 31
In thousands
 2003
    
    
    2004
    
    
    2005Net income (loss)
    
    $
    (291,212
    )
    
    $
    6,571
    
    
    $
    (159,598
    )Net unrealized gains (losses) on change in cash
flow hedging activity fair values
    
    
    (207
    )
    
    
    598
    
    
    
    112Share of cash flow hedging activity gains of SMP
    
    
    5,298
    
    
    
    3,945
    
    
    
    17Reclassification of cash flow hedging activity
(gains) losses into earnings
    
    
    1,003
    
    
    
    (2,942
    )
    
    
    469Foreign currency translation
    
    
    (1,716
    )
    
    
    
    
    
    
    1,721Unrealised losses on available-for-sale securities
    
    
    (266
    )
    
    
    (1,073
    )
    
    
    (1,390
    )Other comprehensive income, net
    
    
    4,112
    
    
    
    528
    
    
    
    929Comprehensive income (loss)
    
    $
    (287,100
    )
    
    $
    7,099
    
    
    $
    (158,669
    )
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY  in US Dollars
In thousands
 Accumulated
    
    
    TotalAdditional
    
    
    
    
    
    
    Other
    
    
    SharePaid-in
    
    
    Accumulated
    
    
    Compre-
    
    
    holdersOrdinary Shares
    
    
    Capital
    
    
    Deficit
    
    
    hensive Loss
    
    
    EquityNo.
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Balance at January 1, 2003
    
    
    2,497,179
    
    
    
    443,713
    
    
    
    2,238,752
    
    
    
    (834,013
    )
    
    
    (62,993
    )
    
    
    1,785,459Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (291,212
    )
    
    
    
    
    
    
    (291,212
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,112
    
    
    
    4,112Issuance of shares
    
    
    8,301
    
    
    
    1,240
    
    
    
    1,753
    
    
    
    
    
    
    
    
    
    
    
    2,993Employee stock compensation
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Non-employee stock
compensation
    
    
    
    
    
    
    
    
    
    
    (6,801
    )
    
    
    
    
    
    
    
    
    
    
    (6,801
    )Balance at December 31, 2003
    
    
    2,505,480
    
    
    
    444,953
    
    
    
    2,233,708
    
    
    
    (1,125,225
    )
    
    
    (58,881
    )
    
    
    1,494,555Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,571
    
    
    
    
    
    
    
    6,571Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    528
    
    
    
    528Issuance of shares
    
    
    3,758
    
    
    
    578
    
    
    
    1,423
    
    
    
    
    
    
    
    
    
    
    
    2,001Employee stock compensation
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Non-employee stock
compensation
    
    
    
    
    
    
    
    
    
    
    173
    
    
    
    
    
    
    
    
    
    
    
    173Others
    
    
    
    
    
    
    
    
    
    
    1,800
    
    
    
    
    
    
    
    
    
    
    
    1,800Balance at December 31, 2004
    
    
    2,509,238
    
    
    
    445,531
    
    
    
    2,237,107
    
    
    
    (1,118,654
    )
    
    
    (58,353
    )
    
    
    1,505,631Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (159,598
    )
    
    
    
    
    
    
    (159,598
    )Accretion to redemption
value of convertible
redeemable preference
shares
    
    
    
    
    
    
    
    
    
    
    (3,196
    )
    
    
    
    
    
    
    
    
    
    
    (3,196
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    929
    
    
    
    929Issuance of shares
    
    
    4,146
    
    
    
    650
    
    
    
    1,737
    
    
    
    
    
    
    
    
    
    
    
    2,387Employee stock compensation
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1Non-employee stock
compensation
    
    
    
    
    
    
    
    
    
    
    220
    
    
    
    
    
    
    
    
    
    
    
    220Balance at December 31, 2005
    
    
    2,513,384
    
    
    
    446,181
    
    
    
    2,235,869
    
    
    
    (1,278,252
    )
    
    
    (57,424
    )
    
    
    1,346,374
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS  in US Dollars
For the years ended December 31
In thousands
 2003
    
    
    2004
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    (291,212
    )
    
    $
    6,571
    
    
    $
    (159,598
    )Adjustments to reconcile net income (loss) to net cash provided
by operating activities:Cumulative effect adjustment
    
    
    6,421
    
    
    
    
    
    
    
    Equity in income of SMP
    
    
    (23,194
    )
    
    
    (27,563
    )
    
    
    (6,486
    )Cash dividends received from SMP
    
    
    
    
    
    
    
    
    
    
    29,460Depreciation and amortization
    
    
    439,283
    
    
    
    437,590
    
    
    
    507,687Foreign exchange loss (gain), net
    
    
    26
    
    
    
    (19
    )
    
    
    434Gain on disposal of property, plant and equipment
    
    
    (5,917
    )
    
    
    (11,703
    )
    
    
    (1,594
    )Cancellation of employee bonus award plan
    
    
    (27,531
    )
    
    
    
    
    
    
    Minority interest in loss of CSP
    
    
    (9,491
    )
    
    
    
    
    
    
    Stock-based compensation
    
    
    4
    
    
    
    3
    
    
    
    1Others
    
    
    5,547
    
    
    
    (7,035
    )
    
    
    8,050Change in assets and liabilities:Receivables
    
    
    (54,753
    )
    
    
    16,327
    
    
    
    (44,280
    )Inventories
    
    
    (35,158
    )
    
    
    (15,726
    )
    
    
    (62,081
    )Prepaid expenses and other current assets
    
    
    (946
    )
    
    
    (180
    )
    
    
    853Payables and other liabilities
    
    
    36,975
    
    
    
    (61,395
    )
    
    
    127,675Income taxes payable
    
    
    8,029
    
    
    
    (5,186
    )
    
    
    4,253Net cash provided by operating activities
    
    
    48,083
    
    
    
    331,684
    
    
    
    404,374CASH FLOWS FROM INVESTING ACTIVITIESPayments for property, plant and equipment
    
    
    (220,761
    )
    
    
    (686,252
    )
    
    
    (628,127
    )Payments for technology licenses
    
    
    (59,705
    )
    
    
    (37,083
    )
    
    
    (9,351
    )Purchases of marketable investments
    
    
    (30,000
    )
    
    
    (30,000
    )
    
    
    Refundable deposits placed with a vendor
    
    
    (80,000
    )
    
    
    (35,000
    )
    
    
    Proceeds from sale of property, plant and equipment
    
    
    6,119
    
    
    
    31,217
    
    
    
    6,245Proceeds from redemption and maturity of marketable investments
    
    
    
    
    
    
    15,000
    
    
    
    45,000Return of capital from SMP
    
    
    
    
    
    
    
    
    
    
    17,300Others
    
    
    
    
    
    
    9,403
    
    
    
    (2,142
    )Net cash used in investing activities
    
    
    (384,347
    )
    
    
    (732,715
    )
    
    
    (571,075
    )CASH FLOWS FROM FINANCING ACTIVITIESDebtBorrowings
    
    
    125,000
    
    
    
    318,000
    
    
    
    1,128,592Repayments
    
    
    (65,033
    )
    
    
    (287,312
    )
    
    
    (990,172
    )Receipts of customer deposits
    
    
    
    
    
    
    450
    
    
    
    81,300Refund of customer deposits
    
    
    (32,123
    )
    
    
    
    
    
    
    (22,035
    )Issuance of ordinary shares
    
    
    2,993
    
    
    
    2,001
    
    
    
    2,387Issuance of convertible redeemable preference shares
    
    
    
    
    
    
    
    
    
    
    247,513Others
    
    
    
    
    
    
    1,800
    
    
    
    Net cash provided by financing activities
    
    
    30,837
    
    
    
    34,939
    
    
    
    447,585Net increase (decrease) in cash and cash equivalents
    
    
    (305,427
    )
    
    
    (366,092
    )
    
    
    280,884Effect of exchange rate changes on cash and cash equivalents
    
    
    (26
    )
    
    
    19
    
    
    
    (427
    )Cash and cash equivalents at the beginning of the year
    
    
    1,210,925
    
    
    
    905,472
    
    
    
    539,399Cash and cash equivalents at the end of the year
    
    $
    905,472
    
    
    $
    539,399
    
    
    $
    819,856Supplemental Cash Flow InformationInterest paid (net of amounts capitalized)
    
    $
    26,407
    
    
    $
    18,215
    
    
    $
    77,510Income taxes paid
    
    $
    6,291
    
    
    $
    11,276
    
    
    $
    9,576Non-cash investing and financing activitiesEquity securities received from sale of technology and equipment
    
    $
    
    
    
    $
    11,708
    
    
    $
    Property, plant and equipment acquired through capital lease
    
    $
    
    
    
    $
    
    
    
    $
    45,933Property, plant and equipment acquired on credit
    
    $
    22,309
    
    
    $
    129,147
    
    
    $
    52,280
 See accompanying notes to consolidated financial statements.
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
 
 NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS  in US
Dollars
In thousands (except per share data)
 1.
    
    Background and Summary of Significant Accounting Policies(a) Business and OrganizationThe Company is one of the worlds top dedicated semiconductor foundries providing wafer
fabrication services and technologies. The Company operates in Singapore and has service
operations in eight countries in North America, Europe and Asia, including Singapore. Its
principal markets are the United States of America, Taiwan, Europe and Japan.The Company was incorporated in Singapore in 1987. As of December 31, 2005, Singapore
Technologies Semiconductors Pte Ltd (ST Semiconductors), a wholly owned subsidiary of
Temasek Holdings (Private) Limited (Temasek), owns a
majority of the shares of the Company. Temasek is a holding company through which corporate investments
of the Government of Singapore are held.Chartered Silicon Partners Pte Ltd (CSP) was formed in March 1997. The Company, EDB
Investments Pte Ltd, Agilent Technologies Europe B.V. (Agilent Europe) and Singapex
Investments Pte Ltd own a 51.0%, 26.5%, 15.0% and 7.5% equity interest in CSP, respectively.
As part of Agilent Technologies, Incs restructuring in 2005, Agilent Europe transferred its
entire shareholding in CSP to Avago Technologies General IP (Singapore) Pte. Ltd. (Avago
Singapore) in January 2006. The Company accounts for CSP as a consolidated subsidiary.Silicon Manufacturing Partners Pte Ltd (SMP) was formed in January 1998. Agere Systems
Singapore Pte Ltd (Agere) and the Company own a 51.0% and 49.0% equity interest in SMP,
respectively. The Company accounts for SMP using the equity method.(b) Basis of PresentationThe consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (US GAAP).The consolidated financial statements reflect the accounts of Chartered Semiconductor
Manufacturing Ltd and its majority-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. Where losses applicable to the
minority interest in a subsidiary exceed the minority interest in the equity capital of the
subsidiary, such excess and any further losses applicable to the minority interest have been
charged to the Companys consolidated statements of operations, unless the minority interest
has a binding obligation, and is able, to make good the losses. When the subsidiary
subsequently reports profits, the profits applicable to the minority interest are taken to
the consolidated statements of operations until the minority interests share of losses
previously taken to the consolidated statements of operations is fully recovered.Due to cumulative losses, the obligation to the minority shareholders of CSP was reduced to
zero in the first quarter of 2003. Therefore none of CSPs losses from that point forward
have been allocated to the minority interest in the consolidated statements of operations.
The effect of this on the results of operations was losses not allocated to the minority
interest according to their proportionate ownership as follows:
 2003
    
    
    2004
    
    
    2005Losses not allocated to the minority
interest according to their
proportionate ownership
    
    $
    74,317
    
    
    $
    55,786
    
    
    $
    64,889
 The cumulative losses not allocated to the minority shareholders of CSP according to their
proportionate ownership as of December 31, 2004 and 2005 are $130,103 and $194,992,
respectively.(c) ReclassificationsCertain reclassifications have been made in prior years financial statements to conform to
classifications used in the current year.
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 (d) Use of EstimatesThe preparation of the consolidated financial statements in accordance with US 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. Estimates are
based on historical experience, current conditions and on various other assumptions that are
believed to be reasonable under the circumstances. Significant items subject to judgement and
such estimates include estimated useful lives and salvage values of long-lived assets, the
recoverability of the carrying value of long-lived assets, the realization of deferred income
tax assets, accounts receivable and inventories, the recognition and measurement of revenue
and sales credits and returns allowance, the fair value of stock-based employee compensation
awards and financial instruments. Actual results could differ from these estimates.(e) Foreign CurrencyThe functional currency of the Company and its subsidiaries is the US dollar. Assets and
liabilities which are denominated in foreign currencies are translated into the functional
currency at the rates of exchange prevailing at the balance sheet date. Foreign currency
transactions are translated using the exchange rates prevailing at the date of transactions.
Foreign exchange gains or losses, resulting from the settlement of foreign currency
transactions and from the translation at financial year-end exchange rates of assets and
liabilities denominated in foreign currencies, are included in the line item foreign
exchange gain (loss), net in the consolidated statements of operations.(f) Business and Credit ConcentrationsThe Company is a dedicated semiconductor foundry providing wafer fabrication services and
technologies. The worldwide semiconductor foundry industry is highly competitive. The
principal elements of competition in the wafer foundry market include technical competence,
time-to-market, research and development quality, available capacity, device yields,
customer service, price, design services, access to intellectual property, electronic design
automation and tool support. The semiconductor industry has historically been highly
cyclical and, at various times, has experienced significant economic downturns characterized
by production overcapacity, reduced product demand and rapid erosion of selling prices.
Periods of overcapacity in the semiconductor industry have frequently followed periods of
increased demand. In addition, the markets for semiconductors are characterized by rapid
technological change, intense competition and fluctuations in end-user demand. As a result,
changes in the industry may adversely affect managements estimates and the Companys
results of operations and financial position.Financial instruments that potentially subject the Company to concentrations of credit risk
consist principally of cash, investments, derivative financial instruments and receivables.
The five largest customers of the Company accounted for 41%, 52% and 56% of net revenue in
the years ended December 31, 2003, 2004 and 2005, respectively. Total accounts receivable
from these customers was $49,521 and $92,668 at December 31, 2004 and 2005, respectively. As
a result, loss or cancellation of business from, or significant changes in scheduled
deliveries or decreases in the prices of products sold to any of these customers could
materially and adversely affect the Companys results of operations or financial position.
The Company believes that the concentration of its credit risk in trade receivables is
mitigated substantially by its credit evaluation process, credit policies and credit control
and collection procedures.The Companys cash and cash equivalents and term deposits are placed with major international
banks and financial institutions with specific minimum credit standards. Cash and cash
equivalents and term deposits with a particular bank accounted for 43% and 20% of total
balances at December 31, 2004 and 2005, respectively.The amounts subject to credit risk related to derivative instruments are generally limited to
the amounts, if any, by which a counterpartys obligations exceed the obligations of the
Company with that counterparty. The risk management practices are further described in Note
19.(g) Cash EquivalentsCash equivalents consist of highly liquid investments that are readily convertible into cash
and have original maturities of three months or less.
 F-8




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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 (h) Marketable InvestmentsThe Company classifies its investments in marketable equity and debt securities as
available-for-sale, held to maturity or trading at the time of purchase in accordance
with the provisions of Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115). There
are no investments classified as trading or held-to-maturity as of December 31, 2004 and
2005. There are no transfers between investment classifications in any of the periods
presented.Available-for-sale securities are carried at fair value with unrealized gains and losses, net
of related tax, if any, reported as a component of other comprehensive income (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 any
available-for-sale security below cost that is deemed to be other than temporary will result
in an impairment, which is charged to earnings.(i) Derivative Instruments and Hedging ActivitiesIn accordance with SFAS No. 133, Accounting for Derivative Instruments and Certain Hedging
Activities, as amended, the Company records derivatives on the balance sheet as assets or
liabilities measured at fair value.On the date a derivative contract is entered into, the Company will consider if the
derivative instrument is part of a hedging relationship. If the derivative will be
designated as a hedge, the Company designates the derivative as either a hedge of the fair
value of a recognized asset or liability or of an unrecognized firm commitment (fair-value
hedge), a hedge of a forecasted transaction or of the variability of cash flows to be
received or paid related to a recognized asset or liability (cash-flow hedge), or a
foreign-currency fair-value or cash-flow hedge (foreign-currency hedge). The Company
formally documents all relationships between hedging instruments and hedged items, as well as
its risk-management objective and strategy for undertaking various hedge transactions at the
hedges inception. This process includes linking all derivatives that are designated as
fair-value, cash-flow, or foreign-currency hedges to specific assets and liabilities on the
balance sheet or to specific firm commitments or forecasted transactions. The Company also
formally assesses, both at the hedges inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items.Changes in the fair value of derivatives that are highly effective and that are designated
and qualify as fair-value hedges are recorded in earnings, along with the loss or gain on the
hedged assets or liabilities or unrecognized firm commitment of the hedged item that are
attributable to the hedged risks. Changes in the fair value of derivatives that are highly
effective and that are designated and qualify as cash-flow hedges are recorded in other
comprehensive income, until earnings are affected by the variability in cash flows of the
designated hedged items. Changes in the fair value of derivatives that are highly effective
as hedges and that are designated and qualify as foreign-currency hedges are recorded in
either earnings or other comprehensive income, depending on whether the hedge transaction is
a fair-value hedge or a cash-flow hedge. Changes in the fair value of derivative instruments
that are not designated as part of a hedging relationship are reported in current period
earnings.
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 The Company discontinues hedge accounting prospectively when it is determined that a
derivative is no longer effective in offsetting changes in the fair value or cash flows
of the hedged item, the derivative expires or is sold, terminated, or exercised, the
derivative is de-designated as a hedging instrument because it is unlikely that a
forecasted transaction will occur, a hedged firm commitment no longer meets the
definition of a firm commitment, or management determines that designation of the
derivative as a hedging instrument is no longer appropriate. When hedge accounting is
discontinued because it is determined that the derivative no longer qualifies as an
effective fair-value hedge, the Company no longer adjusts the hedged asset or liability
for changes in fair value. The adjustment of the carrying amount of the hedged asset or
liability is accounted for in the same manner as other components of the carrying amount
of that asset or liability. When hedge accounting is discontinued because the hedged
item no longer meets the definition of a firm commitment, the Company removes any asset
or liability that was recorded pursuant to recognition of the firm commitment from the
balance sheet and recognizes any gain or loss in earnings. When hedge accounting is
discontinued because it is probable that a forecasted transaction will not occur, gains
and losses that were accumulated in other comprehensive income are recognized
immediately in earnings. In all situations in which hedge accounting is discontinued,
the Company continues to carry the derivative at its fair value on the balance sheet,
and recognizes any changes in its fair value in earnings.(j) InventoriesInventories are stated at the lower of cost or market (net realizable value) and consist of
work in progress, raw materials and consumable supplies and spares. Cost is determined using
standard cost and an allocation of the cost variances arising in the period of production,
which approximates actual costs determined on the weighted average basis. Standard cost is
based on estimates of materials, labor and other costs incurred in each process step
associated with the manufacture of the Companys products. Labor and overhead costs are
allocated to each step in the wafer production process based on normal fab capacity
utilization, with costs arising from abnormal under-utilization of capacity expensed when
incurred.(k) Technology LicensesTechnology license agreements are stated at cost and amortized on the straight-line basis
over the shorter of the expected technology life or the license period.(l) Property, Plant and EquipmentProperty, plant and equipment are recorded at cost and depreciated to their estimated salvage
values using the straight-line method over their estimated useful lives as follows:
 Buildings
    
    
    
    20 years (or, if shorter, the
remaining period of the lease of
the land on which the buildings
are erected)Mechanical and electrical installations
    
    
    
    10 yearsEquipment and machinery
    
    
    
    5 yearsOffice and computer equipment
    
    
    
    2 to 5 years
 The Company capitalizes interest with respect to major assets under installation and
construction until such assets are ready for use. Interest capitalized is based on the
average cost of the Companys pooled borrowings. Repairs and replacements of a routine
nature are expensed, while those that extend the life of an asset are capitalized. Upon
retirement or disposal of assets, the cost and related accumulated depreciation are removed
from the consolidated balance sheets and any gain or loss is included in the consolidated
statements of operations.Property, plant and equipment acquired through capital leases are capitalized at the lower of fair value or the present value of the minimum
lease payments at the inception of the lease. The minimum lease payments are allocated
between interest expense and reductions of the lease obligation so as to produce a constant
periodic rate of interest on the remaining balance of the lease obligation. Assets under
capital leases are depreciated over the shorter of their estimated useful lives or the lease
term.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 (m) Impairment of Long-Lived Assets and Intangible AssetsThe Company reviews long-lived assets and intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable.
Recoverability of long-lived asset groups to be held and used are 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 group. If an asset group is considered to be impaired,
the impairment loss is measured as the amount by which the carrying amounts of the long-lived
assets exceed their fair value. The Company does not have any intangible assets with
indefinite useful lives.Long-lived assets to be disposed of by sale are measured at the lower of their carrying
amounts or fair value less cost to sell, and depreciation is ceased. Long-lived assets to be
abandoned are considered held and used until disposed of. Long-lived assets to be abandoned
are disposed of when they cease to be used.(n) Revenue RecognitionThe Company enters into arrangements with customers which typically include, in addition to
fabricating semiconductor wafers, pre-fabricating services such as engineering services and
masks generation, and associated assembly and test services.When arrangements include multiple deliverables, the Company evaluates whether to divide the
deliverables into separate units of accounting using certain specified criteria. The total
arrangement consideration is allocated to each unit of accounting based on fair values in
accordance with the methodology in FASB Emerging Issues Task Force (EITF) Issue 00-21,
Accounting for Revenue Arrangements with Multiple Deliverables. Substantially all of the Companys arrangements for the sale
of semiconductor wafers and related services consist of a single unit of accounting.Revenue for each unit of accounting is recognized when the contractual obligations have been
performed and, where applicable, delivery has occurred and title and risk of loss has passed
to the customer, there is evidence of a final arrangement as to the specific terms of the
agreed upon sales, selling prices to the customers are fixed or determinable and collection
of the revenue is reasonably assured. Generally this results in revenue recognition upon
shipment of wafers. Revenue represents the invoiced value of goods and services supplied
excluding goods and services tax, less allowances for estimated sales credits and returns.
The Company estimates allowances for sales credits and returns based on historical experience
and managements estimate of the level of future claims. Additionally, the Company accrues
for specific items at the time their existence is known and amounts are estimable.Other arrangements include sale of equipment and contemporaneous licensing of intellectual
property. Arrangement consideration is allocated between equipment and licensing of
intellectual property using the residual method based on the fair value of equipment sold.
Estimates of fair value of equipment are based on the resale prices of similar equipment sold
on the used equipment market. Income from intellectual property is classified as a component
of other income, net, in the consolidated statement of operations as it is not considered as
a source of income from principal operations, and is recognized when the title and risk of
loss have passed to the customer or the license is delivered, there is evidence of a final
arrangement, fees are fixed or determinable, and collectibility is reasonably assured.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 (o) GrantsAsset-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 other income on the straight-line basis
over the shorter of the estimated useful lives of the relevant assets or the remaining lives
of the relevant grant projects.Income-related government grants are subsidies of training and research and development
expenses. Income-related grants are credited to other 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.(p) Stock-Based Employee CompensationThe Company measures stock-based employee compensation cost for financial statement purposes
in accordance with the intrinsic method of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related interpretations. Employee
compensation cost is measured as the excess of fair market value of the stock subject to the
option at the grant date over the exercise price of the option.Compensation cost for stock options granted to non-employees, primarily employees of SMP, are
measured in accordance with the fair-value method as the fair market value of the stock
options based upon an option pricing model. This cost is recognized over the period in which
the options vest in accordance with SFAS No. 123, Accounting for Stock-Based Compensation,
as amended by SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure.Had the Company determined employee compensation cost based on the fair value at the grant
date for its share options under SFAS No. 123, as amended by SFAS No. 148, the Companys net
income (loss) would have changed to the pro forma amounts indicated below:
 2003
    
    
    2004
    
    
    2005Stock-based employee compensation costAs reported (intrinsic method)
    
    $
    4
    
    
    $
    3
    
    
    $
    1Pro forma (fair-value method)
    
    $
    13,526
    
    
    $
    16,744
    
    
    $
    7,073Net income (loss) available to common shareholdersAs reported
    
    $
    (291,212
    )
    
    $
    6,571
    
    
    $
    (162,794
    )Pro forma
    
    $
    (304,734
    )
    
    $
    (10,170
    )
    
    $
    (169,866
    )Basic and diluted net earnings (loss) per common shareAs reported
    
    $
    (0.12
    )
    
    $
    0.00
    
    
    $
    (0.06
    )Pro forma
    
    $
    (0.12
    )
    
    $
    (0.00
    )
    
    $
    (0.07
    )Basic and diluted net earnings (loss) per ADSAs reported
    
    $
    (1.16
    )
    
    $
    0.03
    
    
    $
    (0.65
    )Pro forma
    
    $
    (1.22
    )
    
    $
    (0.04
    )
    
    $
    (0.68
    )
 (q) Product warrantiesThe Company guarantees that products will meet the stated functionality as agreed to in each sales arrangement.
The Company provides for the estimated warranty costs under these guarantees based upon historical experience and
managements estimate of the level of future claims, and accrues for specific items at the time their existence
is known and the amounts are estimable. Expenses for warranty costs were not significant in any of the years presented.(r) Fab Start-up CostsThe Company records costs related to start-up activities, including fab start-up costs, as
expenses when they are incurred. Such costs primarily include employee related expenses and
engineering activities associated with the start-up of a fab.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 (s) Deferred Loan CostsExpenses associated with the issuance of long-term debt are capitalized and are amortized
over the terms of the respective arrangement, ranging from one to seven years, using the
effective interest rate method.(t) Operating LeasesRental on operating leases, including the effects of scheduled rent increases, lease incentives and rent holidays, are charged to expense on a straight-line basis over the
term of the lease. Contingent rentals are charged to expense when they are incurred.(u) Income TaxesIncome 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.(v) Net Income (Loss) Per Common ShareBasic net earnings (loss) per common share is computed by deducting from net income or adding
to net (loss) the accretion to redemption value of the convertible redeemable preference shares and using the weighted-average number of common shares outstanding. Diluted net
earnings (loss) per common share is computed by deducting from net income or adding to net
(loss) the accretion to redemption value of the convertible redeemable preference shares and
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 and convertible redeemable preference shares.The Company excluded potentially dilutive securities for each period presented from its
diluted net earnings (loss) per common share computation because either the exercise price or
conversion 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 and the range of related exercise
prices are as follows:
 Years ended December 31,2003
    
    
    2004
    
    
    2005Convertible debt and call options
    
    
    214,792
    
    
    
    429,584
    
    
    
    251,092Stock options
    
    
    104,223
    
    
    
    98,468
    
    
    
    71,841Convertible redeemable preference shares
    
    
    
    
    
    
    
    
    
    
    344,067
 The conversion price of convertible debt outstanding was S$4.7980 per share (equivalent to
approximately US$26.7701 per ADS) as of December 31, 2005. The weighted average exercise
prices of options outstanding were $2.67, $2.36 and $2.04 as of December 31, 2003, 2004 and
2005, respectively. The excluded stock options have per share exercise prices ranging from
$0.39 to $8.31, $0.63 to $8.31 and $0.69 to $8.31 for the years ended December 31, 2003, 2004
and 2005, respectively. The exercise price of the call options was $0.93 per share as of
December 31, 2005 and the conversion price of the convertible redeemable preference shares
was $0.8719 per share.
 F-13




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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 (w) Recent Accounting PronouncementsIn March 2005, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (FIN
47). FIN 47 clarifies that an entity must record a liability for a conditional asset
retirement obligation if the fair value of the obligation can be reasonably estimated.
The types of asset retirement obligations that are covered by this Interpretation are
those for which an entity has a legal obligation to perform an asset retirement
activity, however the timing and (or) method of settling the obligation are conditional
on a future event that may or may not be within the control of the entity. FIN 47 also
clarifies when an entity would have sufficient information to reasonably estimate the
fair value of an asset retirement obligation. FIN 47 is effective no later than the end
of fiscal years ending after December 15, 2005. The initial adoption of FIN 47 did not
have an impact on the Companys financial condition and consolidated statements of
operations.In December 2004, the FASB published FAS 123(R), Share-Based Payments. FAS 123(R)
requires that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair value
of the equity or liability instruments issued. FAS 123(R) replaces FASB Statement No.
123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. In March 2005, the SEC issued Staff
Accounting Bulletin No. 107, or SAB 107, on the interaction between FAS 123(R) and
certain SEC rules and regulations, and on SEC Staffs views regarding the valuation of
share-based payment arrangements for public companies. In April 2005, the SEC approved a
new rule that permits companies to defer the effective date of FAS 123(R). The Company
has elected to adopt FAS 123(R) on January 1, 2006.The Company currently determines the fair value of stock-based compensation using a
Black-Scholes option-pricing model. The adoption of FAS 123(R) on January 1, 2006 is expected to decrease the Companys net income in 2006 by as
much as $6,000. The pro forma amounts disclosed in Note 1(p) of the consolidated
financial statements are not necessarily indicative of the impact FAS 123(R) will have on the
Companys consolidated statements of operations.2.
    
    Related Party Transactions(a) Temasek and affiliatesThe Company is a majority owned subsidiary of ST Semiconductors, which is itself a
wholly-owned subsidiary of Temasek. Temasek is a holding company through which corporate
investments of the government of Singapore are held. The Company transacts business in the
normal course of its operations with Temasek and its affiliates as well as with other
companies and entities that are partially or wholly owned or controlled by the government of
Singapore.The Company had the following significant transactions with related parties:
 2003
    
    
    2004
    
    
    2005Affiliates of TemasekServices purchased from STATS ChipPAC
    
    $
    13,541
    
    
    $
    19,104
    
    
    $
    12,872Property, plant and equipment purchased
    
    
    175
    
    
    
    415
    
    
    
    4,016Services purchased
    
    
    1,398
    
    
    
    2,178
    
    
    
    883Interest income received
    
    
    6,689
    
    
    
    2,853
    
    
    
    Management fees paid
    
    
    3,384
    
    
    
    2,739
    
    
    
    Sub-lease rental for leasehold land from JTC
    
    
    2,482
    
    
    
    2,460
    
    
    
    2,416Rental for leasehold land from Ascendas
    
    
    276
    
    
    
    335
    
    
    
    331
 Included in receivables from related parties and payables to related parties are amounts due
from or to affiliates of Temasek:
 December 31,2004
    
    
    2005Amounts due from affiliates of Temasek
    
    $
    281
    
    
    $
    217Amounts due to affiliates of Temasek
    
    $
    4,135
    
    
    $
    8,008
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 The balances with affiliates of Temasek are unsecured, interest free and repayable within
12 months.The fabs of the Company are built on land held on long-term operating leases from entities
controlled by the government of Singapore. Fab 1 was built on land leased by the Company
from Ascendas Land (Singapore) Pte Ltd (Ascendas), a private company wholly-owned by Jurong
Town Corporation (JTC). JTC is a statutory board established by the Singapore government
to develop and manage industrial estates in Singapore. Following the cessation of Fab 1
operations in end March 2004, the Company classified its
leasehold interest in Fab 1 as held
for sale (see Note 22).Fabs 2, 3, 5 (occupied by SMP) and 6 (occupied by CSP) and Fab 2 and Fab 3 slurry treatment
plant occupy land leased by Terra Investments Pte Ltd (Terra) (a wholly-owned subsidiary of
Temasek) from JTC. The Company has entered into sub-leases for the underlying land for the
entire term of the leases between Terra and JTC, expiring between 2024 and 2030, with an
option, subject to certain conditions, to extend for another 30 years.Fab 7 occupies land also leased by Terra from JTC. The Company expects to enter into a
sub-lease with Terra for the underlying land, expiring in 2030, with an option, subject to
certain conditions, to extend for another 30 years.Rental rates on the long term leases are subject to revisions at periodic intervals in
accordance with the rental agreements, with such increases generally capped at 4% to 9% per
annum.Rental expense for land leased from related parties for the years ended December 31, 2003,
2004 and 2005 was $2,758, $2,795 and $2,747, respectively.Minimum future rental payments on non-cancellable operating leases of land from the related
parties above as of December 31, 2005 are as follows:
 Payable in year ending December 31,2006
    
    $
    2,7462007
    
    
    2,7982008
    
    
    2,8542009
    
    
    2,9162010
    
    
    2,982Thereafter
    
    
    52,132$
    66,428
 As of December 31, 2005, the Company has included above operating lease obligations in
respect of Fab 1 amounting to $4,100. In January 2006, the Company has sold and transferred
its leasehold interest in Fab 1.(b) SMPThe Company has a 49% equity interest in SMP that is accounted for using the equity method.
SMPs net operating results are not shared between the Company and SMPs majority
shareholder, Agere, in the same ratio as the equity holding. Instead, each party is entitled
to the gross profits from sales to the customers that it directs to SMP after deducting its
share of the overhead costs of SMP. Accordingly, the equity in income (loss) of SMP and the
share of retained post formation loss that is included in the Companys consolidated
statements of operations and consolidated balance sheets are different than the amount that
would be obtained by applying a 49% ownership percentage.The Company and Agere have entered into an assured supply and demand agreement with SMP under
which each is billed for allocated wafer capacity if the wafers started for them are less
than their allocated capacity. No amounts were payable by the Company under this agreement
for 2003, 2004 and 2005, respectively.During 2005, SMPs shareholders agreed to a reduction in wafer prices for Agere, related to the
wafer capacity allocated to Agere, to the minimum price allowed under the assured supply and demand
agreement. As each shareholder is entitled to the gross profits from sales to the customers that it
directs to SMP, the wafer price reduction did not affect the equity in income (loss) of SMP and the
share of retained post formation loss that is included in the Companys consolidated statements of
operations and consolidated balance sheets.Singapore law allows dividends to be paid only out of profits of a company. The Company and
Agere have agreed that dividends will be paid out of the profits of SMP determined on a
year-to-year basis rather than a cumulative basis.The Company bought $2,272, $1,641 and $218 of processed wafers from SMP for the years ended
December 31, 2003, 2004 and 2005, respectively.
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 The Company provides management and corporate support services including accounting,
financial, sales and marketing services to SMP and allocates a portion of its related costs
to SMP. Such charges to SMP amounted to $9,963, $9,622 and $8,811 in the years ended
December 31, 2003, 2004 and 2005, respectively.SMP leases its fab from the Company under a long-term lease agreement that expires in 2008.
The rental income from SMP for the years ended December 31, 2003, 2004 and 2005 was $15,024,
$15,307 and $15,662, respectively.The Company bought plant and equipment of $3,350, $Nil and $11 from SMP during 2003, 2004 and
2005, respectively. The Company also sold plant and equipment of $14,218, $505 and $53 to
SMP during 2003, 2004 and 2005, respectively.Included in receivables from related parties and payables to related parties are amounts due
from or to SMP:
 December 31,2004
    
    
    2005Amounts due from SMP
    
    $
    9,231
    
    
    $
    11,827Amounts due to SMP
    
    $
    552
    
    
    $
    94
 The balances with SMP are unsecured, interest free and repayable within 12 months.3.
    
    Cash and Cash EquivalentsCash and cash equivalents consist of the following:
 December 31,2004
    
    
    2005Cash at banks and on hand
    
    $
    87,485
    
    
    $
    393,083Short-term deposits with banks
    
    
    451,914
    
    
    
    426,773$
    539,399
    
    
    $
    819,856
 4.
    
    Marketable InvestmentsAt December 31, 2004
 Unrealised
    
    
    UnrealisedCost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair ValueCurrentAvailable-for-sale securities:Term deposits
    
    $
    15,000
    
    
    $
    
    
    
    $
    
    
    
    $
    15,000Equity securities
    
    
    9,371
    
    
    
    172
    
    
    
    (1,362
    )
    
    
    8,181$
    24,371
    
    
    $
    172
    
    
    $
    (1,362
    )
    
    $
    23,181Non-currentAvailable-for-sale securities:Term deposits
    
    $
    15,000
    
    
    $
    
    
    
    $
    
    
    
    $
    15,000Self-referenced credit-linked deposits
    
    
    30,000
    
    
    
    
    
    
    
    (149
    )
    
    
    29,851$
    45,000
    
    
    $
    
    
    
    $
    (149
    )
    
    $
    44,851
 The $30,000 self-referenced credit-linked deposit (CLD) was placed with a financial
institution in June 2003. If a credit event (as defined in the CLD) occurred, which
included default in the payment of the Companys Convertible Notes or bankruptcy of the
Company, the principal would not be returned in full. Rather, the Company would receive the
market value of $30,000 face amount of the Companys Convertible Notes, less costs incurred
by the financial institution. The Company redeemed $25,000 and $5,000 of the CLD in March
2005 and April 2005, respectively.
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 At December 31, 2005
 Unrealised
    
    
    UnrealisedCost
    
    
    Gains
    
    
    (Losses)
    
    
    Fair ValueCurrentAvailable-for-sale securities:Term deposits
    
    $
    15,000
    
    
    $
    
    
    
    $
    
    
    
    $
    15,000Equity securities
    
    
    10,196
    
    
    
    
    
    
    
    (2,729
    )
    
    
    7,467$
    25,196
    
    
    $
    
    
    
    $
    (2,729
    )
    
    $
    22,467
  At December 31, 2004
    
    Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalUnrealised
    
    
    
    
    
    
    Unrealised
    
    
    
    
    
    
    UnrealisedFair Value
    
    
    (Losses)
    
    
    Fair Value
    
    
    (Losses)
    
    
    Fair Value
    
    
    (Losses)Available-for-sale
securities:Equity securities
    
    $
    7,596
    
    
    $
    (1,362
    )
    
    $
    
    
    
    $
    
    
    
    $
    7,596
    
    
    $
    (1,362
    )
 At December 31, 2005
    
    Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalUnrealised
    
    
    
    
    
    
    Unrealised
    
    
    
    
    
    
    UnrealisedFair Value
    
    
    (Losses)
    
    
    Fair Value
    
    
    (Losses)
    
    
    Fair Value
    
    
    (Losses)Available-for-sale
securities:Equity securities
    
    $
    1,123
    
    
    $
    (115
    )
    
    $
    6,344
    
    
    $
    (2,614
    )
    
    $
    7,467
    
    
    $
    (2,729
    )
   5.
    
    Receivables, NetReceivables consist of the following:
 December 31,2004
    
    
    2005Trade receivables
    
    $
    122,986
    
    
    $
    181,079Allowance for doubtful accounts
    
    
    (1,178
    )
    
    
    (991
    )Allowance for sales credits and returns
    
    
    (6,537
    )
    
    
    (13,901
    )Trade receivables, net of allowances
    
    
    115,271
    
    
    
    166,187Receivables from related parties
    
    
    9,512
    
    
    
    12,044Other receivables
    
    
    18,365
    
    
    
    6,666$
    143,148
    
    
    $
    184,897
 Movement in the allowance for doubtful accounts is as follows:
 2003
    
    
    2004
    
    
    2005Beginning
    
    $
    2,460
    
    
    $
    1,083
    
    
    $
    1,178Utilized in year
    
    
    (1,022
    )
    
    
    (38
    )
    
    
    Charge for the year
    
    
    351
    
    
    
    1,106
    
    
    
    420Reversal of specific allowances due to collection
    
    
    (706
    )
    
    
    (973
    )
    
    
    (607
    )Ending
    
    $
    1,083
    
    
    $
    1,178
    
    
    $
    991
 Movement in the allowance for sales credits and returns is as follows:
 2003
    
    
    2004
    
    
    2005Beginning
    
    $
    10,687
    
    
    $
    9,556
    
    
    $
    6,537Utilized in year
    
    
    (7,026
    )
    
    
    (7,769
    )
    
    
    (10,940
    )Charge for the year
    
    
    5,895
    
    
    
    4,750
    
    
    
    18,304Ending
    
    $
    9,556
    
    
    $
    6,537
    
    
    $
    13,901
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 6.
    
    InventoriesInventories consist of the following:
 December 31,2004
    
    
    2005Raw materials
    
    $
    5,414
    
    
    $
    6,895Work-in-process
    
    
    60,293
    
    
    
    121,871Consumable supplies and spares
    
    
    6,452
    
    
    
    5,474$
    72,159
    
    
    $
    134,240
 7.
    
    Other current assetsUnder the terms of the Exim Loan agreement, the Company is required to maintain on deposit
with the bank a compensating balance, restricted as to use, equal to the amount of principal,
interest and commitment fees payable at the next repayment date. At December 31, 2005,
restricted cash included in other current assets amounted to $2,832.As of December 31, 2005, the Company also has a refundable deposit placed with a vendor of $109,581 to secure
wafer capacity.8.
    
    Investment in SMPThe investment in SMP is discussed further in Note 2(b) and consists of the following:
 December 31,2004
    
    
    2005SMPCost
    
    $
    120,959
    
    
    $
    100,535Share of retained post-formation losses
    
    
    (27,167
    )
    
    
    (20,681
    )Share of accumulated other comprehensive losses
    
    
    (27
    )
    
    
    (10
    )Dividends received
    
    
    
    
    
    
    (29,460
    )$
    93,765
    
    
    $
    50,384
 In August 2005, SMPs board of directors approved a change to SMPs fiscal year end from
December 31 to September 30 so as to coincide with the fiscal year end of Agere. The change in
SMPs fiscal year end does not affect how the Company accounts for its share of SMPs net
results.In October 2005, SMP reorganized its paid-up share capital and returned a portion to its
shareholders in the form of cash, the Companys entitlement being $20,424, in a capital reduction
sanctioned by the High Court of Singapore. During the year ended
December 31, 2005, the Company has received $17,300 of this amount from SMP. The capital reduction through the extinguishment
of accumulated losses does not qualify as a quasi-reorganization under US GAAP.Shown below is summarized financial information for SMP:
 December 31,2004
    
    
    2005Current assets
    
    $
    85,597
    
    
    $
    71,101Property, plant and equipment
    
    
    132,258
    
    
    
    55,758Other assets
    
    
    82
    
    
    
    34Current liabilities
    
    
    (23,078
    )
    
    
    (31,311
    )Other liabilities
    
    
    
    
    
    
    (8
    )Shareholders equity
    
    $
    194,859
    
    
    $
    95,574
 2003
    
    
    2004
    
    
    2005Net revenue
    
    $
    329,535
    
    
    $
    303,570
    
    
    $
    201,345Gross profit
    
    
    43,073
    
    
    
    34,827
    
    
    
    4,875Operating income
    
    
    42,419
    
    
    
    30,070
    
    
    
    449Net income
    
    $
    23,784
    
    
    $
    20,706
    
    
    $
    1,486
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 9.
    
    Technology Licenses, net
 Weighted averageamortizationperiod (years)December 31,
    
    
    December 31,2004
    
    
    2005
    
    
    2004
    
    
    2005Technology licenses, at cost
    
    $
    159,512
    
    
    $
    168,787
    
    
    
    7
    
    
    
    6Accumulated amortization
    
    
    (37,559
    )
    
    
    (62,175
    )Technology licenses, net
    
    $
    121,953
    
    
    $
    106,612
 Amortization charged to results of operations amounted to $14,383, $16,263 and $24,616 for
2003, 2004 and 2005, respectively. Estimated amortization for future periods is as follows:
 2006
    
    $
    30,9112007
    
    
    29,8672008
    
    
    28,3382009
    
    
    13,2632010
    
    
    4,233Thereafter
    
    
    $
    106,612
 10.
    
    Property, plant and equipment, netProperty, plant and equipment consist of the following:
 December 31,2004
    
    
    2005CostBuildings
    
    $
    192,230
    
    
    $
    269,276Mechanical and electrical installations
    
    
    426,975
    
    
    
    612,340Equipment and machinery
    
    
    2,818,804
    
    
    
    3,893,041Office and computer equipment
    
    
    96,058
    
    
    
    144,834Assets under installation and construction
    
    
    937,927
    
    
    
    140,733Total cost
    
    $
    4,471,994
    
    
    $
    5,060,224Accumulated depreciation and amortization
    
    $
    2,557,479
    
    
    $
    3,010,529Property, plant and equipment, net
    
    $
    1,914,515
    
    
    $
    2,049,695
 Depreciation was charged to consolidated statements of operations and amounted to $418,195,
$420,217 and $481,874 for the years ended December 31, 2003, 2004 and 2005,
respectively. Buildings consist of wafer plants, including administrative offices,
built on land sub-leased to the Company, as discussed in Note 2.Capitalized interest relating to property, plant and equipment amounted to $5,466, $15,177
and $19,032 in the years ended December 31, 2003, 2004 and 2005, respectively.At December 31, 2005, total cost and accumulated amortization of assets under capital leases
was $45,933 and $2,886 respectively. Amortization of assets under capital leases, included
in depreciation expense, was $2,886 for the year ended December 31, 2005.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 11.
    
    PayablesPayables relate to the following:
 December 31,2004
    
    
    2005Trade and accrued purchases
    
    $
    54,952
    
    
    $
    106,299Payables to related parties
    
    
    4,687
    
    
    
    8,102Fixed asset purchases
    
    
    129,147
    
    
    
    52,280$
    188,786
    
    
    $
    166,681
 12.
    
    Other Current Liabilities
 December 31,2004
    
    
    2005Accrued employee related expenses and bonuses
    
    $
    22,657
    
    
    $
    24,619Accrued interest
    
    
    5,251
    
    
    
    41,612Customer deposits
    
    
    
    
    
    
    58,410Other accrued expenses
    
    
    3,318
    
    
    
    5,857Other current liabilities
    
    
    27,303
    
    
    
    85,947$
    58,529
    
    
    $
    216,445
 The Company enters into capacity guarantee agreements with certain of its customers under which the customers are
required to maintain non-interest bearing deposits with the Company
to secure access to wafer capacity.
Such deposits are generally for periods exceeding one year and are refundable at the end of the agreed period of such allocated capacity, or in
certain cases, based on the cumulative wafers purchased from the
Company. Such deposits are initially recorded at the net present
value of payments due pursuant to their contractual terms. The
related discount, which is offset by an equal amount of deferred
revenue, is amortized to interest expense using the effective
interest rate method. Deferred revenue is amortized to income over
the term of the deposit using the straight-line method. Deposits are
classified based on maturity, except that the amounts are considered
current if it is probable that the deposits will be refunded within
one year.Included in other current liabilities at December 31,
2005 is a prepayment from a customer for future purchases which also
secures access to wafer capacity. This amount will be used to off-set
trade receivables from that customer.13.
    
    Income TaxesIncome tax expense consists of the following:
 2003
    
    
    2004
    
    
    2005Current expense
    
    $
    14,313
    
    
    $
    6,090
    
    
    $
    13,831Deferred benefit
    
    
    (2,642
    )
    
    
    (1,316
    )
    
    
    (834
    )Total
    
    $
    11,671
    
    
    $
    4,774
    
    
    $
    12,997
 All but an insignificant portion of pre-tax income (loss) and income tax expense is from
Singapore sources.The Company has been granted pioneer status under the Economic Expansion Incentives (Relief
from Income Tax) Act (Chapter 86) of Singapore for:
 
    
    the manufacture of integrated circuits using submicron technology at
Fab 2 for a ten year period beginning July 1, 1996;
    
    the manufacture of integrated circuits using submicron technology at
Fab 3 for a ten year period beginning July 1, 1999;
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 
    
    the wafer fabrication of Application Specific Integrated Circuits
(ASIC) and other advanced semiconductor devices at Fab 6 for a ten
year period beginning September 1, 2003 (granted on November 8, 2004);
and
    
    the wafer fabrication of integrated circuits at Fab 7 for a fifteen
year period beginning October 1, 2005 (granted on December 30, 2005).
 Under the Economic Expansion Incentives (Relief from Income Tax) Act (Chapter 86) of
Singapore, the Company has also been granted:
 
    
    post-pioneer enterprise status for the manufacture of integrated
circuits using submicron technology at Fab 2 for a five year period
beginning July 1, 2006;
    
    development and expansion incentive status for the manufacture of
integrated circuits using submicron technology at Fab 3 for a five
year period beginning July 1, 2009; and
    
    development and expansion incentive status for the wafer fabrication
of ASICs and other advanced semiconductor devices at Fab 6 for a five
year period beginning September 1, 2013.
 During the period for which pioneer status is effective, subject to compliance with certain
conditions, income from pioneer trade (that is, sale of qualifying integrated circuits) is
exempt from Singapore income tax. During the periods for which post-pioneer status and
development and expansion incentive status are effective, subject to compliance with certain
conditions, income from post-pioneer trade and development and expansion activities are taxed
at a concessionary rate of 10%. Without these exemptions from income tax or the concessionary
tax rate of 10%, the Company would be subject to income tax at the Singapore corporate income
tax rate of 22% for the year ended December 31, 2003 and 20% for the years ended December 31,
2004 and 2005.Tax losses accumulated before the pioneer status period cannot be carried forward. Tax losses
accumulated in the pioneer status period may be carried forward and may be offset against
income from the same pioneer trade arising both during the pioneer status and after the
expiration of the pioneer status period, subject to compliance with certain conditions.
Accordingly, loss carryforwards are determined on a fab-by-fab basis. As of December 31,
2005, the Company does not have any loss carryforwards.The Company was granted development and expansion incentive status for wafer fabrication of
integrated circuits at Fab 1 for a five-year period beginning January 1, 2001, subject to
compliance with certain conditions during that period. In February 2003, the Company
announced its plan to consolidate the business of Fab 1 into Fab 2, and close Fab 1 during
2004. This closure would result in non-compliance with the conditions of the development and
expansion incentive status, and accordingly at that time the Company accrued additional taxes
payable for the period subsequent to January 1, 2001 at the full corporate tax rate. During
2004, the relevant authority agreed to allow the development and expansion incentive status
through December 31, 2004, although the conditions would not be met for the original
five-year period. Accordingly, the Company revised its accruals to the concessionary tax rate
of 10% resulting in a reduction in tax expense of $9,784 for the year ended December 31,
2004.Under Singapore tax law, tax depreciation of property, plant and equipment (referred to as
wear and tear allowances) is deductible only to the extent of taxable income before tax
depreciation. Unutilized wear and tear allowances can be carried forward to future tax years.
The Company has unutilized wear and tear allowance carryforwards of approximately $968,000
and $1,583,000 as of December 31, 2004 and 2005, respectively. The deferred tax asset for
unutilized wear and tear allowances as of December 31, 2005 has been recognized at a 20% tax
rate. The amount at December 31, 2005 is higher than the amount at December 31, 2004 due to
changes in estimates.Loss carryforwards as well as unutilized wear and tear allowances are available indefinitely,
subject to 50% or more of the Companys equity staying with the same shareholders from the
incurrence of the tax loss to its utilization and in the case of wear and tear allowances, an
additional test that the same trade must be carried on.As of December 31, 2005, the Company no longer recognized a deferred tax asset for accrued
yield to maturity interest expense for the Companys Convertible Notes which is a non-pioneer
item (referred to as deferred interest) as there is no future interest income against which
this expense would be deductible.
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 Income that is non-qualifying income under pioneer status, post-pioneer status or the
development and expansion incentive status is not exempt from taxation during the pioneer
status period or entitled to the concessionary tax rate during the post-pioneer status period
or the development and expansion incentive status period and is referred to as non-pioneer
income. The income tax expense for the years ended December 31, 2003, 2004 and 2005
represents primarily income tax payable on non-pioneer income, primarily interest income,
rental income and income from the sale of wafers using technologies that do not benefit from
the preferential tax treatment.
 December 31,2004
    
    
    2005Deferred tax assetsUnutilized wear and tear allowances
    
    $
    55,324
    
    
    $
    316,550Deferred interest
    
    
    11,386
    
    
    
    Property, plant and equipment
    
    
    8,841
    
    
    
    7,112Other accrued expenses
    
    
    1,570
    
    
    
    8,19177,121
    
    
    
    331,853Valuation allowance
    
    
    (68,205
    )
    
    
    (322,413
    )$
    8,916
    
    
    $
    9,440Deferred tax liabilitiesProperty, plant and equipment
    
    $
    (1,316
    )
    
    $
    (802
    )Intangible assets
    
    
    (796
    )
    
    
    (1,000
    )$
    (2,112
    )
    
    $
    (1,802
    )Net deferred tax asset
    
    $
    6,804
    
    
    $
    7,638
 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.The valuation allowance was $6,285 as of January 1, 2003. During the years ended December
31, 2003, 2004 and 2005, the valuation allowance increased (decreased) by $75,718, $(13,798)
and $254,208 respectively.As of December 31, 2004 and 2005, the Company recorded deferred tax assets of $55,324 and
$316,550, respectively, for its unutilized wear and tear allowances. Based upon the level of
historical taxable income specific to Fabs 3, 6 and 7, management believes it is more likely
than not that the Company will not realize the benefits of these deductible differences.
Accordingly, a valuation allowance of $55,324 and $316,550 was recorded as of December 31,
2004 and 2005, respectively.As of December 31, 2004 and 2005, the Company recorded deferred tax assets of $8,841 and
$7,112, respectively, for the remaining difference in the tax and book basis of property,
plant and equipment. Based upon the level of historical taxable income specific to Fabs 2 and
3, management believes it is more likely than not that the Company will not realize the
benefits of these deductible differences. Accordingly, a valuation allowance of $143 and
$2,921 was recorded as of December 31, 2004 and 2005, respectively.As of December 31, 2004 and 2005, the Company recorded deferred tax assets of $1,352 and
$4,776, respectively, for its industrial building allowance claim against rental income and
asset retirement obligations. Based upon the level of historical taxable income specific to
Fab 2 and non-pioneer income, management believes it is more likely than not that the Company
will realize the benefits of these deductible differences. Accordingly, no valuation
allowance was recorded as of December 31, 2004 and 2005.
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 A reconciliation of the expected tax (benefit) expense computed by applying statutory
rates to pre-tax income (loss) to the actual tax expense is as follows:
 December 31,2003
    
    
    2004
    
    
    2005Income tax (benefit) expense computed at Singapore
statutory tax rate of 20% (22% in 2003, 20% in 2004 and
2005)
    
    $
    (62,174
    )
    
    $
    2,269
    
    
    $
    (29,320
    )Permanent non-deductible expenses
    
    
    44,360
    
    
    
    12,582
    
    
    
    23,150Effect of pioneer status, including losses and allowances
not recognized as deferred tax benefit
    
    
    38,480
    
    
    
    6,263
    
    
    
    27,561Effect of post-pioneer status
    
    
    (2,642
    )
    
    
    (2,263
    )
    
    
    Non-taxable increase (decrease) in equity method investment
    
    
    (5,103
    )
    
    
    (5,512
    )
    
    
    (1,332
    )Effect of change in concessionary tax status
    
    
    
    
    
    
    (6,884
    )
    
    
    Exempt dividend income
    
    
    
    
    
    
    
    
    
    
    (5,872
    )All other items, net
    
    
    (1,250
    )
    
    
    (1,681
    )
    
    
    (1,190
    )Actual income tax expense
    
    $
    11,671
    
    
    $
    4,774
    
    
    $
    12,997
 The pioneer status had the effect of increasing basic and diluted net earnings per share or
(decreasing) basic and diluted net (loss) per share by ($0.02), $0.00 and ($0.01) and
increasing basic and diluted net earnings per ADS or (decreasing) basic and diluted net
(loss) per ADS by ($0.15), $0.02 and ($0.11) for the years ended December 31, 2003, 2004 and
2005, respectively.14.
    
    Long-term Debt and Obligations under Capital LeasesLong-term debt consists of:
 December 31,2004
    
    
    2005Singapore dollar loans at fixed rates of 4.0% to 4.25%
    
    $
    73,650
    
    
    $
    US dollar loans at floating rates:CSP Syndicated Loan
    
    
    589,066
    
    
    
    214,533SMBC/OCBC Term Loan
    
    
    
    
    
    
    300,000Exim Loan
    
    
    
    
    
    
    122,124Bank of America Term Loan
    
    
    
    
    
    
    50,0002.5% senior convertible notes due 2006
    
    
    575,000
    
    
    
    97,1555.75% senior notes due 2010
    
    
    
    
    
    
    371,1616.375% senior notes due 2015
    
    
    
    
    
    
    246,540Amortizing bonds due 2010
    
    
    
    
    
    
    46,703Other
    
    
    (1,986
    )
    
    
    (324
    )1,235,730
    
    
    
    1,447,892Less current installments of long-term debt
    
    
    (352,985
    )
    
    
    (319,634
    )Long-term debt, excluding current installments
    
    $
    882,745
    
    
    $
    1,128,258
 Obligations under capital leases:
 2004
    
    
    2005Total minimum lease payments
    
    $
    
    
    
    $
    63,931Amount representing interest at rates of 6.2% to 7.0%
    
    
    
    
    
    
    (20,336
    )Present value of minimum lease payments
    
    
    
    
    
    
    43,595Less current installments of capital lease obligations
    
    
    
    
    
    
    (2,819
    )Obligations under capital leases, excluding current installments
    
    $
    
    
    
    $
    40,776
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 2004
    
    
    2005Current installments of:Long-term debt
    
    $
    352,985
    
    
    $
    319,634Capital lease obligations
    
    
    
    
    
    
    2,819$
    352,985
    
    
    $
    322,453Non-current portion, excluding current installments:Long-term debt
    
    $
    882,745
    
    
    $
    1,128,258Capital lease obligations
    
    
    
    
    
    
    40,776$
    882,745
    
    
    $
    1,169,034
 Weighted AverageInterest RatesDecember 31,2004
    
    
    2005Singapore dollar loans at fixed rates of 4% to 4.25%
    
    
    5.9129
    %
    
    
    US dollar loan at floating rates
    
    
    3.2375
    %
    
    
    5.1050
    %2.5% senior convertible notes due 2006
    
    
    5.1440
    %
    
    
    5.2500
    %5.75% senior notes due 2010
    
    
    
    
    
    
    5.7500
    %6.375% senior notes due 2015
    
    
    
    
    
    
    6.3750
    %Amortizing Bonds due 2010
    
    
    
    
    
    
    6.0000
    %
 The Singapore dollar fixed rate loans were from the Singapore Economic Development Board and
consisted of $58,450 due in September 2005 and $15,200 due in March 2006. The Company repaid
these loans early in full in March 2005.CSPs U.S. dollar syndicated floating rate loan arranged by ABN Amro Bank N.V., Singapore
branch, Citibank, N.A., Singapore, Overseas Union Bank Limited (now known as United Overseas
Bank Limited), Sumitomo Mitsui Banking Corporation Ltd, Danske Bank A/S, Industrial and
Commercial Bank of China, Singapore branch and Commerzbank Aktiengesellschaft, Singapore
branch matures in September 2006. This facility is for an amount of $820,000 which was fully
drawn down. The loan bears interest at 0.60% to 0.85% above the London Interbank Offering
Rate (LIBOR) rates for U.S. dollars deposits quoted by specified banks to the lender
(depending on certain criteria relating to wafer starts and debt/equity ratio). Interest is
payable semi-annually and principal is payable in six semi-annual installments which
commenced in March 2004. The Company made partial early repayments of $123,933 and $80,000 in
May and December 2005 respectively. Borrowings under this facility are secured by a floating
charge over a project bank account and a fixed charge over a debt service reserve account,
both of which were established pursuant to this loan.The SMBC/OCBC Term Loan is with Sumitomo Mitsui Banking Corporation, Oversea-Chinese Banking
Corporation, ABN AMRO Bank, United Overseas Bank, and Deutsche Bank for a maximum of
$300,000, which was fully drawn down in 2005. The loan bears interest at LIBOR plus 1.75%.
Interest is payable semi-annually and principal is payable in six semi-annual installments
commencing third quarter 2007.The Exim Loan is from J.P. Morgan, guaranteed by the Export-Import Bank of the United States,
for a maximum of $653,000. The loan is divided into two tranches, of which $122,124 has been
drawn down in 2005, and has an availability period of between two to four years. It may only
be used to finance the purchase of Fab 7 equipment from U.S. vendors and is drawn down in
accordance with the equipment purchases per the ramp schedule. The loan bears interest at
LIBOR plus 0.125%. Interest is payable semi-annually and each tranche is payable
semi-annually over five years.The Bank of America Term Loan is for a maximum of $50,000, which was fully drawn down in
2005. The loan bears interest at LIBOR plus 0.80%. Interest is payable semi-annually and
principal is repayable in full at maturity in 2007.
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 The senior unsecured convertible notes mature on April 2, 2006 (Convertible Notes). They
bear a coupon rate of 2.50% per annum and have a yield to maturity of 5.25% per annum. The
Company may redeem all or a portion of the Convertible Notes at any time on or after April 2,
2003 at a price to yield of 5.25% per year on the redemption date if the Companys shares or
ADSs trade at 125% of the conversion price for a period of 20 days in any consecutive 30
trading day period. The Convertible Notes are convertible into the Companys ordinary shares
or American Depository Shares (ADS).The conversion price per ordinary share, adjusted for the Companys rights offering in 2002,
is S$4.7980 (equivalent to approximately US$26.7701 per ADS, based on the terms of the
convertible notes for a fixed exchange rate of US$1.00 = S$1.7923 and the ordinary share to
ADS ratio of 10:1).In August 2005, the Company commenced a cash tender offer (Tender Offer) for any and all of
its $575,000 original principal amount of the Convertible Notes outstanding. In September
2005, at the time of expiration of the Tender Offer, $477,845 original principal amount of the
Convertible Notes, representing approximately 83.1% of the Convertible Notes, were purchased.In August 2005, the Company issued $375,000 of 5.75% senior notes due 2010 (Senior Notes due
2010) and $250,000 of 6.375% senior notes due 2015 (Senior Notes due 2015). Both the Senior
Notes due 2010 and the Senior Notes due 2015 are collectively referred to as Senior Notes.
The Senior Notes due 2010 were issued at a price of 98.896% of the principal amount and the
Senior Notes due 2015 were issued at a price of 98.573% of the principal amount. Interest on
the Senior Notes due 2010 is payable at the rate of 5.75% per annum and interest on the Senior
Notes due 2015 is payable at the rate of 6.375% per annum, in each case, on February 3 and
August 3 of each year, beginning on February 3, 2006. The Senior Notes due 2010 mature on
August 3, 2010 and the Senior Notes due 2015 mature on August 3, 2015. The Senior Notes
constitute senior, unsecured obligations of the Company.In August 2005, the Company completed its private placement of Units (Units
Private Placement). The Units comprise convertible redeemable preference shares of par value
$0.01 each (Preference Shares) and amortizing bonds due 2010 (Amortizing Bonds), with an
aggregate issue price of $300,000. The initial principal amount assigned to the Amortizing
Bonds was $46,703. Interest on the Amortizing Bonds is payable at the rate of 6.0% per annum
on the outstanding principal amount. The Amortizing Bonds pay semi-annual cash payments of
$5,475 per payment, as a combination of principal and interest, on February 17 and August 17
of each year, beginning on February 17, 2006, and amortize to zero at maturity on August 17,
2010. The Amortizing Bonds constitute senior, unsecured obligations of the Company. Refer to
Note 15 for details on the Preference Shares.Other long-term debt includes the cumulative fair value change of the Convertible Notes due to
changes in interest rates from the date the Company entered into interest rate swap contracts
related to this debt until the date they were terminated. The Company designated these
derivative instruments as fair value hedges and carried the same at fair value. The interest
rate swap contracts were terminated following the completion of the Tender Offer of the
Convertible Notes in September 2005. As of December 31, 2005, other long-term debt includes
the unamortized portion of the cumulative fair value change during the period the swap
contracts were outstanding of the remaining $97,155 outstanding Convertible Notes.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 Annual maturities of long-term debt as of December 31, 2005 are as follows:
 Payable in year ending December 31,2006
    
    $
    319,9582007
    
    
    120,9862008
    
    
    133,7332009
    
    
    134,3002010
    
    
    459,901Thereafter
    
    
    286,637$
    1,455,515
 These amounts represent the expected repayments at each of the periods indicated and do not
include the unamortized debt discount relating to the senior notes. As of December 31, 2005,
the face amounts of the senior notes due 2010 and the senior notes due 2015 were $371,161 and
$246,540, respectively, as the unamortized debt discount was reported as a direct reduction
to the face amounts of the senior notes.The Company has total unutilized banking facilities of $1,116,608 and $591,763 for short-term
advances, term loans and bankers guarantees as of December 31, 2004 and 2005, respectively.The Companys loans and available credit facilities contain various financial, shareholding
and other restrictive covenants. Under the financial covenants, the Company is required to
maintain certain financial conditions and ratios such as consolidated net worth, EBITDA, total
debt to net worth ratio, and historical debt service coverage ratio. The Company is also
required to ensure that its consolidated net worth is not at any time less than $1,000,000 and
its total debt does not at any time exceed 180% of its total net worth. Under the
shareholding covenants, Temasek is required to own, directly or indirectly, a certain
percentage of the Companys outstanding shares or is required to be the Companys single
largest shareholder. In addition, some of the loans and available credit facilities also
impose other restrictive covenants such as restrictions from incurring further indebtedness,
creating security interests over assets, payment of dividends, disposal of assets and mergers
and corporate restructuring.Future minimum lease payments under capital leases for equipment and machinery as of
December 31, 2005 are as follows:
 Payable in year ending December 31,2006
    
    $
    5,6132007
    
    
    5,6132008
    
    
    5,6132009
    
    
    5,6132010
    
    
    5,613Thereafter
    
    
    35,866Total minimum lease payments
    
    $
    63,931
 15.
    
    Convertible Redeemable Preference SharesIn August 2005, as part of the Units Private Placement, the Company issued 30 Preference
Shares of par value $0.01 each.The holders of the Preference Shares are not entitled to receive any dividends, regardless of
whether dividends are paid to the holders of the Companys ordinary shares (Ordinary
Shares). Holders of the Preference Shares may convert the Preference Shares into new
Ordinary Shares or, subject to certain limitations, American Depositary Shares (ADSs) at a
conversion price of $0.8719 per Ordinary Share at any time after 40 days from the original
issuance of the Preference Shares and before the close of business on the 7th
business day prior to maturity or early redemption.Unless previously redeemed, converted or purchased and cancelled, the Company will redeem, out
of funds legally available for such payment, each Preference Share at maturity on August 17,
2010 at a redemption price equal to $10,000 per Preference Share.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 Prior to maturity, the Company may redeem the Preference Shares at the early redemption
price:
 
    
    at any time, if at least 95% of the Preference Shares originally
issued have been converted, redeemed or purchased and cancelled;
    
    at any time after 2 years after the date of issuance of the Preference
Shares, if the closing sale price of the Ordinary Shares for any 20
trading days in a specified 45 consecutive calendar day period is at
least 125% of the conversion price per Ordinary Share; or
    
    at any time the Company is required to pay additional amounts as a
result of any change in or amendment to the laws or regulations of
Singapore or for certain other events.
 If certain events occur before the close of business on the 7th business day prior
to maturity or early redemption, holders of the Preference Shares may under certain
circumstances require the Company to redeem all or any of the Preference Shares at the early
redemption price.In the event of early redemption, each Preference Share will be redeemed for cash at the
accreted amount approximating its carrying value, which is the original allocated issue price
accreted to its present value using the effective interest rate method calculation as
follows:
 Elapsed days
1,800
 Allocated value * ($10,000/allocated value)The Preference Shares rank, with respect to rights upon liquidation, winding up or
dissolution:
 
    
    junior to all the Companys existing and future debt obligations;
    
    junior to each class of the Companys shares the terms of which
provide that such class will rank senior to the Preference Shares;
    
    on a parity with any class of the Companys shares that has terms
which provide that such class will rank on a parity with the
Preference Shares; and
    
    senior to the Companys Ordinary Shares (including those represented
by ADSs) and to any class of the Companys shares that has terms which
provide that such class will rank junior to the Preference Shares.
 The initial carrying amounts of the Preference Shares were stated at their fair values as of
the date of issuance, net of the associated issuance costs. The carrying amounts of the
Preference Shares are accreted to their redemption values over the remaining period until the
maturity date on August 17, 2010 using the effective interest method. Such accretion adjusts
net income (loss) available to common shareholders. Accretion charge for the year ended
December 31, 2005 was $3,196.16.
    
    Shareholders EquityOrdinary Share CapitalOrdinary share capital consists of the following:
 December 31,2004
    
    
    2005Issued and paid-up ordinary share capital
    
    $
    384,370
    
    
    $
    385,020Capital reduction
    
    
    61,161
    
    
    
    61,161$
    445,531
    
    
    $
    446,181
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 In November 1992, the Company reorganized its ordinary paid-up share capital by the
extinguishment of accumulated losses of $61,161 against the ordinary paid-up share capital in
a capital reduction sanctioned by the High Court of Singapore. The capital reduction does
not qualify as a quasi-reorganization under US GAAP and accordingly has not been reflected in
the financial statements.In August 2004, the Company entered into a bilateral option transaction with Goldman Sachs
International as counter-party. Under the transaction, the Company has a choice of physical
or cash settlement. The counter-party may purchase 214,800 of the Companys ordinary shares
at $0.93 per share (approximately S$1.60 per share, based on an exchange rate of $1.00 =
S$1.71) and the Company will receive approximately $200,000. The number of ordinary shares
under the option transaction is equal to the number of shares that were originally planned
for issuance under the Convertible Notes. The option transaction, which is contractually
separate from the Convertible Notes, is exercisable by the counter-party from January 2, 2005
and will expire on April 2, 2006, matching the maturity date of
the Convertible Notes. As of December 31, 2005, Goldman
Sachs International did not exercise its rights under the option transaction. The
option transaction also has a feature that allows the Company to elect for early termination
if the trading price of the Companys ordinary shares listed and quoted on the Singapore
Exchange rises and remains above $1.17 for a defined period of time. In such an event, the
Company may elect to settle in cash or physically by delivering its
ordinary shares. The trading price of the Companys ordinary
shares did not remain above $1.17 for the defined period of time
during the year ended December 31, 2005.Additional Paid-in CapitalAdditional paid-in capital as of December 31, 2004 and 2005 represents principally the excess
of proceeds received from issue of ordinary share capital (net of the costs of issue) over
the par value of ordinary shares issued, which under Singapore law must be credited to a
share premium account. The share premium may only be applied in paying up unissued ordinary shares to be issued to common shareholders, paying up in whole or in part the balance unpaid
on shares in issue, 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 share premium account had a balance of $2,207,783 and $2,209,520 as of December
31, 2004 and 2005, respectively.Accumulated DeficitSingapore law allows dividends to be paid only out of profits of the Company. Shareholders
of ordinary shares are not liable for Singapore income tax on dividends paid by the Company
out of its tax exempt profits from pioneer activities. Some of the Companys loan agreements
restrict the ability of the Company to pay dividends without prior approval from the lender.Distributions of profits from non-pioneer activities which have been subject to income tax
are paid with a franking tax credit which Singapore tax-resident shareholders can apply as a
prepayment of income tax on the dividend. Shareholders who are not tax-resident in Singapore
are not liable for further Singapore income tax.Under the one-tier system with effect from January 1, 2003, tax payable by the Company on its
non-pioneer chargeable income constitutes a final tax. Companies that have moved to the
one-tier system can henceforth pay dividends that are exempt from tax in the hands of their
shareholders.During the transitional period, the Company has up to December 31, 2007 to utilize any
available balance under the old imputation system to pay a franked dividend to its
shareholders. The Company has approximately $54,000 of available balances under the old
imputation system both as of December 31, 2004 and 2005.Accumulated deficit includes $27,167 and $20,681 of post-formation losses of SMP as of
December 31, 2004 and 2005, respectively.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 Accumulated Other Comprehensive LossAccumulated other comprehensive loss consists of the following:
 December 31,2004
    
    
    2005Cumulative foreign currency translation loss
    
    $
    54,380
    
    
    $
    52,659Net unrealised losses on available-for-sale securities
    
    
    1,339
    
    
    
    2,729Net unrealized cash flow hedging activity losses
    
    
    2,634
    
    
    
    2,036$
    58,353
    
    
    $
    57,424
 The foreign currency translation loss is not adjusted for income taxes as it arose from a
change in functional currency in prior years which is not tax deductible. The net unrealized cash flow hedging activity losses are not adjusted for income taxes because such
losses are expected to be realized during the pioneer status. No income tax benefit is
recognized for unrealized losses on available for sale securities.17.
    
    Share Options and Incentive Plans(a) 1999 Option PlanEffective March 1999, the Company adopted the Chartered Semiconductor Manufacturing Ltd Share
Option Plan 1999 (the 1999 Option Plan) which provided for a maximum of 107,160 shares
(subject to adjustment under the plan) to be reserved for option grants. This amount was
increased to 197,160 shares in May 2002. As a result of the Companys rights offering in
October 2002, the shares available for future grants were increased by 30,488 shares. The
total shares provided under the 1999 Option Plan is hence 227,648 shares. The remaining shares available for future grants are 93,145 and 90,521 as of December 31, 2004 and 2005,
respectively. 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.The plan is administered by a committee appointed by the Directors. Employees, outside
directors and consultants are eligible for the grant of options subject to certain exceptions
as provided in the 1999 Option Plan.The exercise price of an incentive stock option is generally 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.As a result of the Companys rights offering which was completed in October 2002, changes
were made to both the exercise price and the number of shares of all outstanding options
offered or granted. The adjustments were made so that the aggregate intrinsic value of the
options and the ratio of the exercise price per share to the market value per share for each
outstanding option tranche remain unchanged immediately after the rights offering. The
adjustments were made by multiplying each existing option exercise price by 0.8531 and
dividing the number of shares issuable upon exercise of each option by 0.8531.Option periods do not exceed 10 years from the date of grant. Upon leaving the employment of
the Company, outstanding options remain exercisable for a specified period.
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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 Information on options granted is as follows:
 WeightedAverageExerciseOptions
    
    
    PriceOutstanding at January 1, 2003
    
    
    99,693
    
    
    $
    3.49Granted
    
    
    29,528
    
    
    $
    0.55Expired
    
    
    (4
    )
    
    $
    0.88Exercised
    
    
    (461
    )
    
    $
    0.52Lapsed
    
    
    (24,533
    )
    
    $
    3.52Outstanding at December 31, 2003
    
    
    104,223
    
    
    $
    2.67Granted
    
    
    20,905
    
    
    $
    0.93Expired
    
    
    (919
    )
    
    $
    1.65Exercised
    
    
    (1,074
    )
    
    $
    0.46Lapsed
    
    
    (10,481
    )
    
    $
    2.89Outstanding at December 31, 2004
    
    
    112,654
    
    
    $
    2.36Granted
    
    
    15,542
    
    
    $
    0.69Expired
    
    
    (2,695
    )
    
    $
    6.90Exercised
    
    
    (1,798
    )
    
    $
    0.54Lapsed
    
    
    (10,223
    )
    
    $
    2.41Outstanding at December 31, 2005
    
    
    113,480
    
    
    $
    2.04Exercisable at end of year
    
    
    65,267
    
    
    $
    2.88
 Weighted average fair values of options granted in 2003, 2004 and 2005 were $0.40, $0.63 and
$0.47 respectively.The following table summarizes information about fixed stock options outstanding at December
31, 2005.
 Options Outstanding
    
    
    Options ExercisableWeightedaverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedNumber
    
    
    remaining
    
    
    average
    
    
    Number
    
    
    averageoutstanding
    
    
    contractual
    
    
    exercise
    
    
    exercisable
    
    
    exerciseRange of exercise prices
    
    at 12/31/2005
    
    
    life
    
    
    price
    
    
    12/31/2005
    
    
    price$0.39 to $1.00
    
    
    57,397
    
    
    7.8 years
    
    $
    0.71
    
    
    
    19,020
    
    
    $
    0.67$1.06 to $1.95
    
    
    21,726
    
    
    5.7 years
    
    $
    1.41
    
    
    
    14,519
    
    
    $
    1.43$2.14 to $2.44
    
    
    16,586
    
    
    4.8 years
    
    $
    2.33
    
    
    
    13,957
    
    
    $
    2.32$5.81
    
    
    10,304
    
    
    4.8 years
    
    $
    5.81
    
    
    
    10,304
    
    
    $
    5.81$8.31
    
    
    7,467
    
    
    4.3 years
    
    $
    8.31
    
    
    
    7,467
    
    
    $
    8.31113,480
    
    
    
    
    
    
    
    
    
    
    
    65,267
 The options vest over one to five years and expire on dates ranging from March 2006 to
November 2015. The 1999 Option Plan is accounted for in accordance with fixed-plan
accounting under APB 25 and related interpretations. Total compensation expense recognized
for 2003, 2004 and 2005 totalled $4, $3 and $1 respectively.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 The fair values of the option grants are estimated using the Black-Scholes option
pricing model with the following assumptions used for grants in 2003, 2004 and 2005.
 2003
    
    
    2004
    
    
    2005Risk free interest rate
    
    2.710% to
    
    2.97% to
    
    4.06% to4.450%
    
    4.14%
    
    4.64%Expected volatility
    
    66.61% to
    
    61.94% to
    
    58.75% to70.16%
    
    65.04%
    
    61.04%Expected lives
    
    5 to
    
    5 to
    
    5 to9 years
    
    8 years
    
    9 yearsDividend yield
    
    NA
    
    NA
    
    NA
 Options of 1,284, 595 and 406 shares of the Company were granted to employees of SMP in 2003,
2004 and 2005, respectively. SMP bears the stock-based compensation charge in respect of
these options.(b) 2001 Share Purchase PlansAs approved by the shareholders in May 2001, the Company adopted the Chartered Semiconductor
Manufacturing Ltd Employee Share Purchase Plan 2001 (the Chartered Purchase Plan) and the
Share Purchase Plan 2001 for Employees of Silicon Manufacturing Partners Pte Ltd (the SMP
Purchase Plan), collectively the 2001 Plans, which provided for the issuance of a maximum
of 10,000 shares (subject to adjustment under the Plans). The amount was subsequently
revised to 11,722 shares as a result of the Companys rights offering which was completed in
October 2002.The 2001 Plans permitted eligible employees to purchase shares through payroll deductions of
between 1 percent to 10 percent of an employees compensation, including salaries, wages,
bonuses, incentive compensations, commissions, overtime pay and shift premiums. The offering
periods consisted of the six-month periods commencing on each March 1 and September 1. The
purchase price for each share purchased at the close of an offering period was the lower of
85% of the fair market value of the share on the last trading day in such offering period or
last trading day before the commencement of such offering period. The purchase price for
each share would in no event be less than the par value of each share. The 2001 Plans were
intended to qualify under Section 423 of the United States Tax Code.The 2001 Plans were administered by a committee appointed by the Directors. Approximately
2,700 shares were purchased at $0.56 (S$0.94) in 2004 under the 2001 Plans. As of February
2004, all shares available under the 2001 Plans had been issued and allotted and as a result,
the 2001 Plans were terminated.(c) 2004 Share Purchase PlansAs approved by the shareholders in April 2004, the Company has adopted the Chartered
Semiconductor Manufacturing Ltd Employee Purchase Plan 2004 (Chartered ESPP 2004) and a new
share purchase plan for the employees of Silicon Manufacturing Partners Pte Ltd (SMP ESPP
2004), collectively ESPP 2004 Plans. The ESPP 2004 Plans provide for the issuance of a
maximum of 30,000 shares (subject to adjustment under the Plans).The terms of the ESPP 2004 Plans and the 2001 Plans are similar except for the following
significant differences:
 (i)
    
    the ESPP 2004 Plans give the committee appointed by the Directors to administer the
plans (Committee) the right to stipulate that the purchase price for each Ordinary
Share purchased at the close of an offering period be determined by an alternative
method, which is to be prescribed by the Committee, if the Committee determines that the
existing method of determining the purchase price would cause the Company to incur any
stock-based compensation charge; and(ii)
    
    the ESPP 2004 Plans impose a limit of 3,000 Ordinary Shares per calendar year
(and a limit of 1,500
Ordinary Shares per offering period) on the number of Ordinary Shares available for
purchase by participants in the ESPP 2004 Plans. The ESPP 2004 Plans continue to
provide for two offering periods in a calendar year commencing on each March 1 and
September 1.
 The 2004 Plans are administered by a committee appointed by the Directors. No shares were
issued under the 2004 Plans during the year ended 2004. 2,400 shares were issued at price
from $0.56 to $0.63 (S$0.92 to S$1.06) during the year ended 2005.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 18.
    
    Commitments and Contingencies(a) CommitmentsThe Company has the following capital commitments:
 December 31,2004
    
    
    2005Contracts for capital expenditure
    
    $
    312,883
    
    
    $
    205,689
 Minimum future rental payments on non-cancellable operating leases, excluding amounts payable
to related parties disclosed in Note 2, as at December 31, 2005, are as follows:
 Payable in year ending December 31,2006
    
    $
    4,2392007
    
    
    1,4952008
    
    
    6242009
    
    
    2782010
    
    
    201$
    6,837
 Rental expense, excluding amounts payable to related parties disclosed in Note 2, for the
years ended December 31, 2003, 2004 and 2005 was $5,031, $5,473 and $5,660 respectively.The Company has a patent license agreement with a technology partner under which the parties
grant to one another a license to use certain of each others patents. Under the terms of
the patent license agreement, the Company may provide wafer capacity in lieu of payment for
royalties. Such royalties under the patent license agreement are waived until such time as
the interest of the technology partner in SMP falls below 49%. In exchange the Company has
waived capacity shortfall obligations from the technology partner. The patent license
agreement continues for as long as the joint venture agreement between the parties remains.The Company has entered into manufacturing agreements with several customers whereby the
Company has committed to make available production capacity to customers over the term of the
agreement.As discussed in Note 2, pursuant to the assured supply and demand agreement that the Company
and Agere signed with SMP, each partner is required to purchase a specified percentage of
SMPs output. However, if one party does not purchase its share of wafers, the other party
is entitled to utilize that unused capacity. In the event such other party does not utilize
the unused capacity, the party who does not purchase its entitlement will be required to
compensate SMP for any unrecovered costs it incurs in connection with such unused capacity.The Company has entered into agreements to purchase technology licenses, jointly perform
research and development, and swap capacity commitments. The future payment obligations under
these agreements at December 31, 2004 and 2005 are $266,000 and $200,000 respectively.(b) ContingenciesThe Company may from time to time be a party to claims that arise in the normal course of
business. These claims include allegations of infringement of intellectual property rights
of others as well as other claims of liability. In addition, the Company, on a case-by-case
basis, includes intellectual property indemnification provisions in the terms of sale and
technology licenses with third parties. The Company is also 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 become
probable and reasonably estimable. The Company does not believe 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 or consolidated statements of
operations.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 19.
    
    Derivative InstrumentsThe Company has the following notional amounts of derivative instruments:
 December 31,2004
    
    
    2005Forward foreign exchange contracts to hedge:- Singapore dollar transactions
    
    $
    47,842
    
    
    $
    11,976- Plant and equipment purchases (mainly Japanese yen and
Euro)
    
    
    95,970
    
    
    
    31,126Cross currency swap
    
    
    45,593
    
    
    
    Convertible notes interest rate swap
    
    
    575,000
    
    
    
    Interest rate cap
    
    
    100,000
    
    
    
    183,333$
    864,405
    
    
    $
    226,435
 To protect against volatility of future cash flows caused by changes in exchange rates, the
Company may use currency forward contracts and currency swaps on anticipated transactions such
as operating costs and expenses and capital purchases. To manage interest rate risk, the
Company may enter into interest rate swap or cap agreements to modify the interest
characteristics of its outstanding debts.Most of the Companys derivatives are formally designated as cash flow foreign currency
hedges and fair value hedges. However, certain derivative instruments are not designated as
part of a hedging relationship. These consist primarily of foreign currency forward
contracts related to groups of forecasted foreign currency denominated payments. While the
Company expects these derivatives to be effective in hedging the variability in cash flows
resulting from changes in foreign exchange rates, it does not believe it is practicable to
formally document the hedging relationship and link the derivatives to specific forecasted
transactions. Gains and losses on these instruments are included in foreign exchange gain
(loss).The Company uses derivative instruments to manage identified foreign currency risks resulting
from its Singapore dollar denominated debt and its foreign currency denominated purchase
commitments which are denominated principally in Japanese yen and Euro. The Company uses
foreign currency forward contracts to manage these risks and has designated them as foreign
currency cash-flow hedges. The Company uses foreign currency forward contracts which match
the terms of the individual foreign currency exposures and as a result, any ineffectiveness
of the Companys hedges is negligible. Amounts included in other comprehensive income (loss)
related to hedges of Singapore dollar denominated debt are reclassified into earnings in
amounts equal to the transaction gain or loss resulting from the remeasurement of the debt
into US dollars. The amounts reclassified into earnings are included in foreign exchange
gain (loss). Amounts included in other comprehensive income (loss) related to hedges of
foreign currency purchase commitments are reclassified into earnings (foreign exchange gain
(loss)) when the asset related to the purchase commitment is depreciated.In August 2004, the Company entered into two interest rate cap contracts in respect of the
floating rate obligations associated with $100,000 of the CSP Syndicated Loan, with the
effect of placing an upper limit on the cash flow and earnings exposure due to market
interest rate changes. In March 2005, the Company entered into two additional interest rate
cap contracts related to the floating rate obligations associated with $200,000 of the above
mentioned U.S dollar loan. Amounts included in other comprehensive income (loss) related to
hedges of the floating rate US dollar loan represent the intrinsic value of the interest rate
cap and are reclassified into earnings (interest expense) upon settlement.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 During 2001, the Company entered into an interest rate swap contract to hedge fixed-rate
interest obligations associated with $200,000 of the Convertible Notes issued in April 2001,
with the effect of swapping the fixed-rate coupon interest obligations to floating-rate
obligations based on LIBOR rates. The Company has designated this interest rate swap
contract as a fair-value hedge. In January 2003, the Company entered into an additional swap
to incorporate hedging of the accreting portion of the Convertible Notes which was not
included in the original swap, thereby increasing the hedge effectiveness. In August 2003,
the Company entered into an interest rate swap contract in respect of the fixed-rate coupon
interest obligations associated with the remaining $375,000 of the Convertible Notes issued
in April 2001, with the effect of swapping the fixed-rate interest obligations to a
floating-rate obligation based on LIBOR rates. The Company has designated this interest rate
swap contract as a fair-value hedge. The swap incorporated hedging of the accreting portion
of the Convertible Notes. For the fair-value hedge transactions, changes in fair value of
the derivative and changes in the fair value of the item being hedged are recorded in
earnings as interest expense. Net realized gains (losses) arising from ineffectiveness of
fair value hedges were $1,516 and ($1,771) and ($5,246) in the years ended December 31, 2003,
2004 and 2005, respectively. The interest rate swaps were terminated following the completion
of the tender offer of the Convertible Notes in September 2005.The estimated net amount of existing losses from cash flow hedges expected to be reclassified
into earnings within the next year is $285 and $543 as of December 31, 2004 and 2005,
respectively. Net realized (gains) loss recognized from cash flow
hedges was ($2,942) and $469 for the
years ended December 31, 2004 and 2005, respectively.The components of other comprehensive income (loss) related to derivative and hedging
activities consist of the following:
 December 31,2004
    
    
    2005Beginning
    
    $
    (4,235
    )
    
    $
    (2,634
    )Reclassification of cash flow hedging activity
(gains) losses into earnings
    
    
    (2,942
    )
    
    
    469Share of cash flow hedging activity gains of SMP
    
    
    3,945
    
    
    
    17Net unrealised gain (losses) on change in cash flow
hedging activity derivative fair values
    
    
    598
    
    
    
    112Ending
    
    $
    (2,634
    )
    
    $
    (2,036
    )
 By using derivative instruments to hedge exposures to changes in foreign currency rates and
interest rates, the Company exposes itself to credit risk and market risk. Credit risk is
the failure of the counterparty to perform under the terms of the derivative contract. When
the fair value of a derivative contract is positive, the counterparty owes the Company, which
creates credit risk for the Company. When the fair value of a derivative contract is
negative, the Company owes the counterparty and, therefore, it does not possess credit risk.
The Company anticipates, however, that counterparties will be able to fully satisfy their
obligations under the contracts. The Company does not obtain collateral or other security
to support financial instruments subject to credit risk but monitors the credit standing of
counterparties.Market risk is the adverse effect on the value of a financial instrument that results from a
change in interest rates or currency exchange rates. The market risk associated with
interest rate contracts is managed by establishing and monitoring parameters that limit the
types and degree of market risk that may be undertaken. The Company assesses interest rate
cash flow risk and currency exchange cash flow risk by continually identifying and monitoring
changes in interest rate or currency exchange rate exposures that may adversely impact
expected future cash flows and by evaluating hedging opportunities.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 20.
    
    Fair Values of Financial Instruments
 December 31,2004
    
    
    2005Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    Estimated fairamount
    
    
    fair value
    
    
    amount
    
    
    valueAsset/(Liability)
    
    $
    
    
    $
    
    
    $
    
    
    $Long term debt
    
    
    (1,235,730
    )
    
    
    (1,255,457
    )
    
    
    (1,447,892
    )
    
    
    (1,466,425
    )Forward foreign exchange contracts
    
    
    7,141
    
    
    
    7,141
    
    
    
    29
    
    
    
    29Forward foreign exchange contracts
    
    
    (4
    )
    
    
    (4
    )
    
    
    (344
    )
    
    
    (344
    )Cross currency swap
    
    
    (5
    )
    
    
    (5
    )
    
    
    
    
    
    
    Interest rate swap
    
    
    (61,299
    )
    
    
    (61,299
    )
    
    
    
    
    
    
    Interest rate cap
    
    
    456
    
    
    
    456
    
    
    
    1,394
    
    
    
    1,394
 Cash and cash equivalents, related party receivables and
payables, accounts receivables and accounts payables. The carrying amounts approximate fair
value in view of the short term nature of these balances.Marketable investments. Marketable investments are recorded at
fair values (see Note 4). The fair value of term deposits is estimated by
obtaining quotes from brokers. The fair value of equity securities is based on market
prices quoted on the last business day of the fiscal year.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, or by obtaining quotes from
brokers.Forward foreign exchange contracts.The fair value is estimated by reference to market
quotations for forward contracts with similar terms, adjusted where necessary for maturity
differences.Cross currency swap.The fair value is estimated by obtaining quotes from brokers.Interest rate swap.The fair value is estimated by obtaining quotes from brokers.Interest rate cap.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 instruments. 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.21.
    
    Operating Segment, Geographic and Major Customer InformationOperating segments, as defined under SFAS No. 131 Disclosure About Segments of an Enterprise
and Related Information, are components of an enterprise: (1) that engage in business
activities from which they may earn revenue and incur expenses, (2) has discrete financial
information, and (3) whose operating results are regularly reviewed by the chief operating
decision maker in deciding how to allocate resources and in assessing performance. Management
has determined that it does not have any operating segments because the chief operation
decision maker, which the Company has identified to be the Chief Executive Officer, does not regularly review financial operating results on a disaggregated basis for purposes of assessing performance and allocating resources. All of the Companys products are manufactured in Singapore.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 The following table presents a summary of revenues by country of domicile of customers
and long-lived assets by geographic region. The Company geographically categorizes a sale
based on the country in which the customer is headquartered.
 Years ended December 31,2003
    
    
    2004
    
    
    2005RevenuesUSA
    
    $
    350,946
    
    
    $
    618,743
    
    
    $
    743,431Taiwan
    
    
    92,245
    
    
    
    161,420
    
    
    
    112,089Japan
    
    
    24,799
    
    
    
    33,258
    
    
    
    33,496Singapore
    
    
    2,862
    
    
    
    3,392
    
    
    
    8,995Others
    
    
    81,059
    
    
    
    115,318
    
    
    
    134,723$
    551,911
    
    
    $
    932,131
    
    
    $
    1,032,734
 December 31,2004
    
    
    2005Property, Plant and Equipment, netSingapore
    
    $
    1,913,945
    
    
    $
    2,048,913Others
    
    
    570
    
    
    
    782$
    1,914,515
    
    
    $
    2,049,695
 Years ended December 31,2003
    
    
    2004
    
    
    2005Information by Major Customer:Customer A
    
    
    15.1
    %
    
    
    20.7
    %
    
    
    22.3
    %Customer B
    
    
    
    
    
    
    
    
    
    
    19.3Customer C
    
    
    *
    
    
    
    13.4
    
    
    
    *Customer D
    
    
    *
    
    
    
    10.1
    
    
    
    *
  *
    
    less than 10% of net revenue for the year 22.
    
    Other Operating Expenses (Income)Other operating expenses (income) consist of:A gain of $27,531 in 2003 associated with the cancellation of an employee bonus award plan.
As a result of the cancellation, compensation accrued for past services under the bonus award
plan of $27,531 was eliminated by decreasing compensation expense in the period of
cancellation.An impairment charge of $8,986 in 2003 on certain machinery and equipment which were
classified as held for sale at December 31, 2003. The impairment charge resulted from the
decision to rationalize capacity across the Company. The machinery and equipment were
expected to be sold on the open market within twelve months of classification as held for
sale. These assets were written down to the lower of their fair value, less costs to sell or
their net book value. At December 31, 2004 some of this machinery and equipment remained
unsold and were reclassified to held for use. This machinery and equipment was measured
individually at the lower of its (a) carrying amount before being classified as held for
sale, adjusted for any depreciation expense that would have been recognized had the asset
been continuously classified as held for use, or (b) fair value at date of reclassification.
A write-down of $979 was recorded on this machinery and equipment
during 2004 and it was subsequently sold in 2005.A gain of $15,257 in 2004 associated with the resolution of a goods and services tax matter
amounting to $4,900 and a gain of $10,357 resulting from an equipment disposition with CSMC
Technologies Corporation.An impairment charge of $1,705 in 2004 resulting from the migration to an enhanced
manufacturing system.
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CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  in US Dollars
In thousands (except per share data)
 A restructuring charge of $12,421, $4,558 and $Nil in December 31, 2003, 2004 and 2005
respectively, relating to the closing of the Companys Fab 1, in accordance with SFAS No.
146, Accounting for Costs Associated with Exit or Disposal Activities. In February 2003,
the Company announced that as a result of continuing under-utilization of its fabs resulting
from the deep and continuing semiconductor industry downturn, it would close Fab 1 and
consolidate that business into Fab 2. The production in Fab 1 ceased at the end of March
2004. A summary of estimated and actual costs incurred is shown below. These amounts do not
include gain on disposition of fixed assets. Plant closure, customer assistance and related
expenses mainly relate to product qualification, prototyping, reticles, unhook and
decommissioning of equipment and other activities to be carried out for consolidating the Fab
1 business into Fab 2.
 CumulativeexpenseTotal estimated costs
    
    
    to dateEmployee termination benefits
    
    $
    8,000
    
    
    $
    7,673Plant closure, customer assistance and related expenses
    
    
    9,000 to 12,000
    
    
    
    9,306Total
    
    $
    17,000 to 20,000
    
    
    $
    16,979
 Year Ended December 31, 2004Beginning
    
    
    
    
    
    
    
    
    
    
    Endingliability
    
    
    Current year
    
    
    Amount
    
    
    liabilitybalances
    
    
    additions
    
    
    paid
    
    
    balancesEmployee termination benefits
    
    $
    6,627
    
    
    $
    1,046
    
    
    $
    7,673
    
    
    $
    Plant closure, customer
assistance and related
expenses
    
    
    2,339
    
    
    
    3,512
    
    
    
    5,851
    
    
    
    Total
    
    $
    8,966
    
    
    $
    4,558
    
    
    $
    13,524
    
    
    $
    
 An impairment charge of $3,938 recorded in 2005 on certain
plant and equipments which were initially classified as held for
sale during the period ended June 30, 2004. These assets were expected to be sold on the open market within
twelve months of classification as held for sale. However, during this period, the market
conditions that existed at June 30, 2004 deteriorated and as a result, these assets
remained unsold. During that period, the Company actively solicited but did not receive any
offers it considered reasonable to purchase the assets. The assets were actively marketed at a price that
management considered reasonable given the change in market conditions, and the criteria under SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets were otherwise met. Accordingly,
as the assets remained unsold at the end of the initial twelve month period, the assets
continued to be classified as held for sale. These assets were
written down to $3,878 at December 31, 2005, being their fair
value less costs to sell.23.
    
    Other Income, netIn 2004, other income, net included grant income of $29,476 and the
recognition of a gain of $14,330 from the sale of technology to CSMC
Technologies Corporation.In 2005, other income, net included costs of $6,995 related to the termination
of hedging transactions and other costs as a result of the Tender
Offer for and repurchase of the Convertible
Notes.24.
    
    Cumulative Effect AdjustmentEffective January 1, 2003, the Company adopted the provisions of SFAS No. 143, Accounting for
Asset Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and associated asset
retirement costs. Accordingly, the Company recorded a liability of $13,223 related to the
requirements in its lease agreements for the return of buildings to tenantable condition and
the return of land on which fabs have been built to original condition. The associated cost
was capitalized as an increase in property, plant and equipment of the same amount and will
be depreciated over the remaining useful lives of the facilities. The adoption of SFAS No.
143 as of January 1, 2003, resulted in a cumulative effect loss of $6,421, after a reduction
in minority interest of $475. The cumulative effect loss represents the depreciation and
accretion expense that would have been recorded previously if SFAS No. 143 had been in effect
in prior years. The proforma effect of retroactive application of SFAS No. 143 in 2002 would
not have had a material impact on the net loss, net loss per share and net loss per ADS, as
reported.
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SILICON MANUFACTURING PARTNERS PTE LTD




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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
 FINANCIAL STATEMENTS INDEX
 Page NumberReport of Independent Registered Public Accounting Firm
    
    
    F-38Balance Sheets
    
    
    F-39Income
Statements
    
    
    F-40Statements of Comprehensive Income (Loss)
    
    
    F-41Statements of Shareholders Equity
    
    
    F-42Statements of Cash Flows
    
    
    F-43Notes to the Financial Statements
    
    
    F-44




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
        
 F-38




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SILICON MANUFACTURING PARTNERS PTE LTD
 
 BALANCE SHEETS  in US Dollars
In thousands (except per share data)
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)ASSETSCash and cash equivalents
    
    $
    37,427
    
    
    $
    20,788Receivables, net
    
    
    4,615
    
    
    
    6,447Receivables from related parties
    
    
    20,328
    
    
    
    22,633Inventories
    
    
    20,913
    
    
    
    19,003Prepaid expenses
    
    
    2,314
    
    
    
    2,230Total current assets
    
    
    85,597
    
    
    
    71,101Property, plant and equipment, net
    
    
    132,258
    
    
    
    55,758Other non-current assets
    
    
    82
    
    
    
    34Total assets
    
    $
    217,937
    
    
    $
    126,893LIABILITIES AND SHAREHOLDERS EQUITYPayables
    
    $
    7,630
    
    
    $
    10,258Payables to related parties
    
    
    9,356
    
    
    
    16,691Income taxes payable
    
    
    1,548
    
    
    
    272Other current liabilities
    
    
    4,544
    
    
    
    4,090Total current liabilities
    
    
    23,078
    
    
    
    31,311Other non-current liabilities
    
    
    
    
    
    
    8Total liabilities
    
    
    23,078
    
    
    
    31,319Share capital: ordinary shares of S$1.00 par valueAuthorized: 1,000,000 sharesIssued and
outstanding: 425,000 shares in 2004 and 323,965 shares in 2005
    
    
    252,389
    
    
    
    192,389Accumulated deficit
    
    
    (57,475
    )
    
    
    (96,797
    )Accumulated other comprehensive loss
    
    
    (55
    )
    
    
    (18
    )Total shareholders equity
    
    $
    194,859
    
    
    $
    95,574Commitments and contingenciesTotal liabilities and shareholders equity
    
    $
    217,937
    
    
    $
    126,893
  F-39




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SILICON MANUFACTURING PARTNERS PTE LTD
 
 INCOME STATEMENTS  in US Dollars
In thousands
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2003
    
    
    2004
    
    
    2005(Unaudited)
    
    
    
    
    
    (Unaudited)Net revenue
    
    $
    329,535
    
    
    $
    303,570
    
    
    $
    201,345Cost of revenue
    
    
    (286,462
    )
    
    
    (268,743
    )
    
    
    (196,470
    )Gross profit
    
    
    43,073
    
    
    
    34,827
    
    
    
    4,875OPERATING EXPENSESGeneral and administrative
    
    
    4,054
    
    
    
    4,757
    
    
    
    4,426Other operating income, net
    
    
    (3,400
    )
    
    
    
    
    
    
    Total operating expenses
    
    
    654
    
    
    
    4,757
    
    
    
    4,426Operating profit
    
    
    42,419
    
    
    
    30,070
    
    
    
    449Other income (loss), net
    
    
    9
    
    
    
    (1,767
    )
    
    
    8Interest income (expense), net
    
    
    (20,626
    )
    
    
    (7,735
    )
    
    
    1,386Foreign exchange gain (loss), net
    
    
    2,257
    
    
    
    203
    
    
    
    (5
    )Income before income taxes
    
    
    24,059
    
    
    
    20,771
    
    
    
    1,838Income tax expense
    
    
    (275
    )
    
    
    (65
    )
    
    
    (352
    )Net income
    
    $
    23,784
    
    
    $
    20,706
    
    
    $
    1,486
  F-40




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SILICON MANUFACTURING PARTNERS PTE LTD
 
 STATEMENTS OF COMPREHENSIVE INCOME (LOSS)  in US Dollars
In thousands
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2003
    
    
    2004
    
    
    2005(Unaudited)
    
    
    
    
    
    (Unaudited)Net income
    
    $
    23,784
    
    
    $
    20,706
    
    
    $
    1,486Net unrealized gains on change in
cash flow hedging activity fair
values
    
    
    10,812
    
    
    
    8,002
    
    
    
    Reclassification of cash flow hedging
activity losses into earnings
    
    
    3
    
    
    
    48
    
    
    
    37Other comprehensive income
    
    
    10,815
    
    
    
    8,050
    
    
    
    37Comprehensive income
    
    $
    34,599
    
    
    $
    28,756
    
    
    $
    1,523
  F-41




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SILICON MANUFACTURING PARTNERS PTE LTD
 
 STATEMENTS OF SHAREHOLDERS EQUITY  in US Dollars
In thousands
 AccumulatedOther
    
    
    Total ShareAccumulated
    
    
    Compre-
    
    
    holdersOrdinary Shares
    
    
    Deficit
    
    
    hensive Loss
    
    
    EquityNo.
    
    
    $
    
    
    $
    
    
    $
    
    
    $Year ended December 31,
2003 (Unaudited)Balance at January 1, 2003
    
    
    425,000
    
    
    
    252,389
    
    
    
    (10,543
    )
    
    
    (18,920
    )
    
    
    222,926Net income
    
    
    
    
    
    
    
    
    
    
    23,784
    
    
    
    
    
    
    
    23,784Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,815
    
    
    
    10,815First interim dividend
declared of $0.0011 per B
ordinary share less tax at
22%
    
    
    
    
    
    
    
    
    
    
    (234
    )
    
    
    
    
    
    
    (234
    )Second interim dividend
declared of $0.2515 per B
ordinary share, tax exempt
    
    
    
    
    
    
    
    
    
    
    (54,508
    )
    
    
    
    
    
    
    (54,508
    )Balance at December 31, 2003
    
    
    425,000
    
    
    
    252,389
    
    
    
    (41,501
    )
    
    
    (8,105
    )
    
    
    202,783Year ended December 31, 2004Balance at January 1, 2004
    
    
    425,000
    
    
    
    252,389
    
    
    
    (41,501
    )
    
    
    (8,105
    )
    
    
    202,783Net income
    
    
    
    
    
    
    
    
    
    
    20,706
    
    
    
    
    
    
    
    20,706Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,050
    
    
    
    8,050Third interim dividend paid
of $0.0308 per B ordinary
share, tax exempt
    
    
    
    
    
    
    
    
    
    
    (6,680
    )
    
    
    
    
    
    
    (6,680
    )Fourth interim dividend
paid of $0.1384 per B
ordinary share, tax exempt
    
    
    
    
    
    
    
    
    
    
    (30,000
    )
    
    
    
    
    
    
    (30,000
    )Balance at December 31, 2004
    
    
    425,000
    
    
    
    252,389
    
    
    
    (57,475
    )
    
    
    (55
    )
    
    
    194,859Year
ended December 31, 2005
(Unaudited)Balance at January 1, 2005
    
    
    425,000
    
    
    
    252,389
    
    
    
    (57,475
    )
    
    
    (55
    )
    
    
    194,859Net income
    
    
    
    
    
    
    
    
    
    
    1,486
    
    
    
    
    
    
    
    1,486Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    37Capital
reduction
    
    
    (101,035
    )
    
    
    (60,000
    )
    
    
    
    
    
    
    
    
    
    
    (60,000
    )Fourth interim dividend paid
of $0.0524 per B
ordinary share, tax
exempt
    
    
    
    
    
    
    
    
    
    
    (11,348
    )
    
    
    
    
    
    
    (11,348
    )Fourth interim dividend paid
of $0.0553 per A
ordinary share, tax
exempt
    
    
    
    
    
    
    
    
    
    
    (11,523
    )
    
    
    
    
    
    
    (11,523
    )Fifth interim dividend paid
of $0.0806 per A
ordinary share, tax
exempt
    
    
    
    
    
    
    
    
    
    
    (16,786
    )
    
    
    
    
    
    
    (16,786
    )Sixth interim dividend paid
of $0.0055 per A
ordinary share, tax
exempt
    
    
    
    
    
    
    
    
    
    
    (1,151
    )
    
    
    
    
    
    
    (1,151
    )Balance at
December 31,
2005
    
    
    323,965
    
    
    
    192,389
    
    
    
    (96,797
    )
    
    
    (18
    )
    
    
    95,574
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SILICON MANUFACTURING PARTNERS PTE LTD
 
 STATEMENTS OF CASH FLOWS  in US Dollars
In thousands
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2003
    
    
    2004
    
    
    2005(Unaudited)
    
    
    
    
    
    (Unaudited)Operating ActivitiesNet income
    
    $
    23,784
    
    
    $
    20,706
    
    
    $
    1,486Adjustments
to reconcile net income to net
cash provided by operating activities:Depreciation of property, plant and equipment
    
    
    160,015
    
    
    
    137,415
    
    
    
    84,105Asset impairment
    
    
    178
    
    
    
    
    
    
    
    Gain on disposal of property, plant and equipment
    
    
    
    
    
    
    (5
    )
    
    
    Amortisation of deferred finance expenses
    
    
    1,008
    
    
    
    1,680
    
    
    
    Others
    
    
    (2,597
    )
    
    
    (2,773
    )
    
    
    183Change in assets and liabilities:Receivables
    
    
    (5,926
    )
    
    
    9,675
    
    
    
    (1,849
    )Receivables and payables with related parties, net
    
    
    (7,776
    )
    
    
    1,757
    
    
    
    (3,470
    )Inventories
    
    
    (14,011
    )
    
    
    10,214
    
    
    
    1,910Prepaid expenses and other current assets
    
    
    (182
    )
    
    
    111
    
    
    
    85Payables and other current liabilities
    
    
    381
    
    
    
    (8,784
    )
    
    
    1,380Income taxes payable
    
    
    216
    
    
    
    165
    
    
    
    (1,276
    )Net cash provided by operating activities
    
    
    155,090
    
    
    
    170,161
    
    
    
    82,560Investing ActivitiesProceeds from sale of property, plant and equipment
    
    
    3,350
    
    
    
    54
    
    
    
    11Payments for property, plant and equipment
    
    
    (14,159
    )
    
    
    (19,797
    )
    
    
    (6,902
    )Capital
reduction
    
    
    
    
    
    
    
    
    
    
    (51,500
    )Net cash used in investing activities
    
    
    (10,809
    )
    
    
    (19,743
    )
    
    
    (58,391
    )Financing ActivitiesDebt repayments
    
    
    (107,143
    )
    
    
    (171,428
    )
    
    
    Dividends paid
    
    
    (20,234
    )
    
    
    (71,188
    )
    
    
    (40,808
    )Net cash used in financing activities
    
    
    (127,377
    )
    
    
    (242,616
    )
    
    
    (40,808
    )Net increase (decrease) in cash and cash equivalents
    
    
    16,904
    
    
    
    (92,198
    )
    
    
    (16,639
    )Cash and cash equivalents at the beginning of the year
    
    
    112,721
    
    
    
    129,625
    
    
    
    37,427Cash and cash equivalents at the end of the year
    
    $
    129,625
    
    
    $
    37,427
    
    
    $
    20,788Supplemental Cash Flow InformationInterest paid (net of amounts capitalized)
    
    
    21,357
    
    
    
    7,764
    
    
    
    Income taxes paid
    
    
    59
    
    
    
    
    
    
    
    1,579
  F-43




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SILICON MANUFACTURING PARTNERS PTE LTD
 
 NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
 In thousands
 1
    
    Background and Summary of Significant Accounting Policies
 (a) Business and Organization
 Silicon Manufacturing Partners Pte Ltd (the Company) is incorporated and domiciled in the
Republic of Singapore and has its registered office at 60 Woodlands Industrial Park D Street 2,
Singapore 738406.The principal activities of the Company are those relating to an independent foundry of
semiconductor integrated circuits using its advanced production facilities and proprietary
integrated circuit designs of its customers. The Company is an independent foundry that fabricates
integrated circuits on silicon wafers for customers in the semiconductor industry.The immediate and ultimate holding companies are Agere Systems Singapore Pte Ltd (Agere) and
Agere Systems Inc., which are incorporated in the Republic of Singapore and the United States of
America, respectively.In August 2005, the Companys board of directors approved a change to the Companys fiscal year end
from December 31 to September 30 so as to coincide with the
fiscal year end of Agere as required by Singapore law. Under requirements of
S-X Rule 3-09, insofar as practicable, the financial statements of the Company should
be as of the same dates and for the same periods as the audited consolidated financial
statements of Chartered Semiconductor Manufacturing Ltd
(Chartered),
its minority shareholder, for purposes of Chartereds filing of
Form 20-F.
Accordingly, the Company is presenting financial statements for the twelve months
ended December 31, 2005, (referred to as year ended
December 31, 2005).
 (b) Accounting Principles
 The financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (US GAAP) consistently applied for all periods.
 (c) Use of Estimates
 The preparation of the financial statements in accordance with US 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 items subject to such
estimates and judgements include the recoverability of the carrying value of long-lived assets, the
realizability of deferred income tax assets and inventories. Actual results could differ from these
estimates.
 (d) Foreign Currency
 The functional currency of the Company is the US dollar. Assets and liabilities which are
denominated in foreign currencies are translated into the functional currency at the rates of
exchange prevailing at the balance sheet date. Foreign currency transactions are translated using
the exchange rates prevailing at the date of transactions. Foreign exchange gains or losses,
resulting from the settlement of foreign currency transactions and from the translation at
financial year-end exchange rates of assets and liabilities denominated in foreign currencies, are
included in the line item foreign exchange gain (loss), net in the statements of operations.
 F-44




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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 (e) Revenue Recognition
 The Company enters into arrangements with customers which typically include, in addition to
fabricating semiconductors wafers, pre-fabricating services such as engineering services and masks
generation and associated assembly and test services.When arrangements include multiple deliverables, the Company evaluates whether to divide the
deliverables into separate units of accounting using certain specified criteria. The total
arrangement consideration is allocated to each unit of accounting based on fair values in
accordance with the methodology in FASB Emerging Issues Task Force (EITF) Issue 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables. Substantially all
of the Companys arrangements for the sale of semiconductor wafers and
related services consist of a single unit of accounting.Revenue for each unit of accounting is recognized when the contractual obligations have been
performed and, where applicable, delivery has occurred and title and risk of loss has passed to the
customer, there is evidence of a final arrangement as to the specific terms of the agreed upon
sales, selling prices to the customers are fixed or determinable and collection of the revenue is
reasonably assured. Generally this results in revenue recognition upon shipment of wafers. Revenue
represents the invoiced value of goods and services supplied excluding goods and services tax, less
allowances for estimated sales credits and returns. The Company estimates allowances for sales
credits and returns based on historical experience and managements estimate of the level of future
claims. Additionally, the Company accrues for specific items at the time their existence is known
and amounts are estimable.
 (f) Grants
 Income-related government grants are subsidies of training expenses.
Income-related grants are credited to other 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.
 (g) 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.
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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 (h) Derivative Instruments and Hedging Activities
 In accordance with Statement of Financial Accounting Standards (SFAS) No. 133, Accounting
for Derivative Instruments and Certain Hedging Activities, as amended, the Company records
derivatives on the balance sheet as assets or liabilities measured at fair value.On the date a derivative contract is entered into, the Company will consider if the
derivative instrument is part of a hedging relationship. If the derivative will be designated as a
hedge, the Company designates the derivative as either a hedge of the fair value of a recognized
asset or liability or of an unrecognized firm commitment (fair-value hedge), a hedge of a
forecasted transaction or of the variability of cash flows to be received or paid related to a
recognized asset or liability (cash-flow hedge), or a foreign-currency fair-value or cash-flow
hedge (foreign-currency hedge). The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and strategy for undertaking
various hedge transactions at the hedges inception. This process includes linking all derivatives that are designated as
fair-value, cash flows, or foreign-currency hedges to specific assets and liabilities on the
balance sheet or to specific firm commitments or forecasted transactions. The Company also
formally assesses, both at the hedges inception and on an ongoing basis, whether the derivatives
that are used in hedging transactions are highly effective in offsetting changes in fair values or
cash flows of hedged items.Changes in the fair value of derivatives that are highly effective and that are designated and
qualify as fair-value hedges are recorded in earnings, along with the loss or gain on the hedged
assets or liabilities or unrecognized firm commitment of the hedged item that are attributable to
the hedged risks. Changes in the fair value of derivative that are highly effective and that are
designated and qualify as cash-flow hedges are recorded in other comprehensive income, until
earnings are affected by the variability in cash flows of the designated hedged items. Changes in
the fair value of derivatives that are highly effective as hedges and that are designated and
qualify as foreign-currency hedges are recorded in either earnings or other comprehensive income,
depending on whether the hedge transaction is a fair-value hedge or a cash-flow hedge. Changes in
the fair value of derivative instruments that are not designated as part of a hedging relationship
are reported in current period earnings.The Company discontinues hedge accounting prospectively when it is determined that a derivative is
no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the
derivative expires or is sold, terminated, or exercised, the derivative is de-designated as a
hedging instrument, because it is unlikely that a forecasted transaction will occur, a hedged firm
commitment no longer meets the definition of a firm commitment, or management determines that
designation of the derivative as a hedging instrument is no longer appropriate. When hedge
accounting is discontinued because it is determined that the derivative no longer qualifies as an
effective fair-value hedge, the Company no longer adjusts the hedged asset or liability for changes in fair value. The
adjustment of the carrying amount of the hedged asset or liability is accounted for in the same
manner as other components of the carrying amount of that asset or liability.
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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 When hedge accounting is discontinued because the hedged item no longer meets the definition
of a firm commitment, the Company removes any asset or liability that was recorded pursuant to recognition of the firm
commitment from the balance sheet and recognizes any gain or loss in earnings. When hedge
accounting is discontinued because it is probable that a forecasted transaction will not occur, gains and
losses that were accumulated in other comprehensive income are recognized immediately in earnings.
In all situations in which hedge accounting is discontinued, the Company continues to carry
the derivative at its fair value on the balance sheet, and recognizes any changes in its fair value
in earnings.
 (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.
 (j) Inventories
 Inventories are stated at the lower of cost or market (net realizable value) and consist of
work in progress, raw materials and consumable supplies and spares. Cost is determined using
standard cost and an allocation of the cost variances arising in the period of production, which
approximates actual costs determined on the weighted average basis. Standard cost is based on
estimates of materials, labor and other costs incurred in each process step associated with the
manufacture of the Companys products. Labor and overhead costs are allocated to each step in the
wafer production process based on normal fab capacity utilization, with costs arising from abnormal
under-utilization of capacity expensed when incurred.
 (k) Property, Plant and Equipment
 Property, plant and equipment are recorded at cost and depreciated to their estimated salvage
values using the straight-line method over their estimated useful lives as follows:
 Mechanical and electrical installations
    
    
    
    10 yearsEquipment and machinery
    
    
    
    5 yearsOffice and computer equipment
    
    
    
    2 to 5 years
 The Company capitalizes interest with respect to major assets under installation and construction
until such assets are ready for use. Interest capitalized is based on the average cost of the
Companys pooled borrowings. Repairs and replacements of a routine nature are expensed, while those
that extend the life of an asset are capitalized. Upon retirement or disposal of assets, the cost
and related accumulated depreciation are removed from the balance sheet and any gain or loss is
included in the statement of operations.
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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 (l) Impairment of Long-Lived Assets
 The Company reviews long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. Recoverability of
long-lived asset groups to be held and used are 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 group. If an asset group is considered to be impaired, the impairment loss is measured
as the amount by which the carrying amount of the long-lived assets exceed their fair value.Long-lived assets to be disposed of by sale are measured at the lower of their carrying amounts or
fair value less cost to sell, and depreciation is ceased. Long-lived assets to be abandoned will
be considered held and used until disposed of.
 (m) Business and Credit Concentrations
 The Company is a dedicated semiconductor foundry providing wafer fabrication services and
technologies. The worldwide semiconductor foundry industry is highly competitive. The principal
elements of competition in the wafer foundry market include technical competence, time-to-market,
research and development quality, available capacity, device yields, customer service, price, design
services, access to intellectual property, electronic design automation and tool support. The
semiconductor industry has historically been highly cyclical and, at various times, has experienced
significant economic downturns characterized by production overcapacity, reduced product demand
and rapid erosion of selling prices. Periods of overcapacity in the semiconductor industry have
frequently followed periods of increased demand. In addition, the markets for semiconductors are
characterized by rapid technological change, intense competition and fluctuations in end-user demand.
As a result, changes in the industry may adversely affect
managements estimates and the Companys
results of operations and financial position.Financial instruments that potentially subject the Company to concentrations of credit risk
consist principally of cash, derivative financial instruments and receivables. The top three
customers of the Company from third parties accounted for 78%, 73%
and 77% of the Companys net
revenue from third parties in the years ended December 31, 2003,
2004 and 2005, respectively. Total accounts receivable from these
customers was $9,532, $3,723 and $4,765 at
December 31, 2003, 2004 and 2005, respectively. As a result, loss or cancellation of
business from, or significant changes in scheduled deliveries or decreases in the prices of
products sold to any of these customers could materially and adversely affect the Companys results
of operations or financial position. The Company believes that the concentration of its credit
risk in trade receivables is mitigated substantially by its credit evaluation process, credit
policies and credit control and collection procedures.The Companys cash and cash equivalents are placed with major international banks and financial
institutions with specific minimum credit standards. Cash and cash equivalents with a particular
bank accounted for 67% and 68% of total balances at December 31, 2004 and 2005,
respectively.The amounts subject to credit risk related to derivative instruments are generally limited to the
amounts, if any, by which a counterpartys obligations exceed the obligations of the Company with
that counterparty. The risk management practices are further
described in Note 14.(n) Product Warranties
 The Company guarantees that products will meet the stated functionality as agreed to in each sales
arrangement. The Company provides for the estimated warranty costs under these guarantees based upon
historical experience and managements estimate of the level of future claims, and accrues for
specific items at the time their existence is known and the amounts are estimable. Expenses for warranty costs
were not significant in any of the years presented.
 (o) Recent Accounting Pronouncements
 In March 2005, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 47, Accounting for Conditional Asset Retirement Obligations (FIN 47). FIN 47 clarifies
that an entity must record a liability for a conditional asset retirement obligation if the fair
value of the obligation can be reasonably estimated. The types of asset retirement obligations
that are covered by this Interpretation are those for which an entity has a legal obligation to
perform an asset retirement activity, however the timing and (or) method of settling the
obligation are conditional on a future event that may or may not be within the control of the
entity. FIN 47 also clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. FIN 47 is effective no later than the
end of fiscal years ending after December 15, 2005. The initial adoption of FIN 47 did not have an
impact on the Companys financial condition and consolidated statements of operations.
 F-48




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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 2
    
    Related Party Transactions
 Significant related party transactionsFor the purpose of these financial statements, parties are considered to be related to the Company
if the Company has the ability, directly or indirectly, to control the party or exercise
significant influence over the party in making financial and operating decisions, or vice versa, or
where the Company and the party are subject to common control or common significant influence.
Related parties may be individuals or other entities.Other than those disclosed elsewhere in these financial statements, there were the following
significant transactions with related parties on terms agreed between the parties:
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2003
    
    
    2004
    
    
    2005(Unaudited)
    
    
    
    
    
    
    (Unaudited)Immediate Parent CompanyRecharge of employee related
and other expenses to the
Company
    
    $
    117
    
    
    $
    82
    
    
    $
    640Sale of processed wafers
    
    
    191,493
    
    
    
    162,927
    
    
    
    96,800Purchase of wafers
    
    
    2,277
    
    
    
    
    
    
    
    Affiliates of Immediate Parent CompanyRecharge of employee related and
other expenses to the Company
    
    
    2,271
    
    
    
    3,882
    
    
    
    3,083Sale of processed wafers
    
    
    3,593
    
    
    
    12,773
    
    
    
    31,561Purchase of processed wafers
    
    
    
    
    
    
    
    
    
    
    856Purchase of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    976Minority ShareholderPurchase of property, plant and equipment
    
    
    12,703
    
    
    
    462
    
    
    
    Payment of rental expense
    
    
    15,024
    
    
    
    15,307
    
    
    
    15,662Recharge of employee related and other
expenses to the Company
    
    
    46,552
    
    
    
    33,199
    
    
    
    36,435Sale of processed wafers
    
    
    1,818
    
    
    
    1,371
    
    
    
    149Sale of property, plant and equipment
    
    
    3,350
    
    
    
    
    
    
    
    11Recharge of other expenses from the
Company
    
    
    195
    
    
    
    499
    
    
    
    302Affiliates of Minority ShareholderPurchase of property, plant and equipment
    
    
    1,515
    
    
    
    43
    
    
    
    53Purchase of processed wafers
    
    
    447
    
    
    
    180
    
    
    
    155Recharge of other expenses to the Company
    
    
    215
    
    
    
    217
    
    
    
    161Sale of processed wafers
    
    
    454
    
    
    
    270
    
    
    
    68Recharge of other expenses from the
Company
    
    
    101
    
    
    
    
    
    
    
    24Interest income
    
    
    338
    
    
    
    
    
    
    
    
 F-49




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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 2
    
    Related Party Transactions (Contd)
 The amounts due from related parties are:
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)Amount due from immediate parent company
    
    $
    17,698
    
    
    $
    15,234Amount due from affiliates of immediate parent company
    
    
    2,048
    
    
    
    7,304Amount due from minority shareholder
    
    
    582
    
    
    
    65Amount due from affiliates of minority shareholder
    
    
    
    
    
    
    30$
    20,328
    
    
    $
    22,633
  December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)Amount due to immediate parent company
    
    $
    31
    
    
    $
    4,528Amount due to affiliates of immediate parent company
    
    
    63
    
    
    
    336Amount due to minority shareholder
    
    
    8,850
    
    
    
    11,729Amount due to affiliates of minority shareholder
    
    
    412
    
    
    
    98$
    9,356
    
    
    $
    16,691
 3
    
    Cash and Cash Equivalents
 Cash and cash equivalents consist of the following:
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)Cash at banks and on hand
    
    $
    13,421
    
    
    $
    5,283Short-term deposits with banks
    
    
    24,006
    
    
    
    15,505$
    37,427
    
    
    $
    20,788
 F-50




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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 4
    
    Receivables, net
 Receivables consist of the following:
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)Trade receivables
    
    $
    6,081
    
    
    $
    7,897Allowance for sales credits and returns
    
    
    (1,505
    )
    
    
    (1,537
    )Trade receivables, net of allowances
    
    
    4,576
    
    
    
    6,360Other receivables
    
    
    39
    
    
    
    87$
    4,615
    
    
    $
    6,447
 Movements in the allowance for sales credits and returns are as follows:
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)Beginning
    
    $
    3,055
    
    
    $
    1,505Utilized in year
    
    
    (4,086
    )
    
    
    (2,142
    )Charge for the year
    
    
    2,536
    
    
    
    2,174Ending
    
    $
    1,505
    
    
    $
    1,537
 5
    
    Inventories
 Inventories consist of the following:
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)Raw materials
    
    $
    522
    
    
    $
    967Work-in-process
    
    
    20,168
    
    
    
    17,996Consumable supplies and spares
    
    
    223
    
    
    
    40$
    20,913
    
    
    $
    19,003
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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 6
    
    Property, Plant and Equipment
 Property, plant and equipment consist of the following:
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)CostMechanical and electrical installations
    
    $
    4,256
    
    
    $
    4,814Equipment and machinery
    
    
    796,821
    
    
    
    801,946Office and computer equipment
    
    
    10,367
    
    
    
    10,130Assets under installation and construction
    
    
    482
    
    
    
    834Total cost
    
    $
    811,926
    
    
    $
    817,724Accumulated depreciation
    
    $
    679,668
    
    
    $
    761,966Property, plant and equipment (net)
    
    $
    132,258
    
    
    $
    55,758
 Depreciation was charged to statements of operations and amounted to $160,015, $137,415 and $84,105
for the years ended December 31, 2003, 2004 and 2005, respectively.Capitalized interest relating to property, plant and equipment amounted to $237, $19 and $Nil in
the years ended December 31, 2003, 2004 and 2005, respectively.
 7
    
    Payables
 Payables relate to the following:
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)Trade and accrued purchases
    
    $
    7,456
    
    
    $
    9,291Fixed assets purchases
    
    
    174
    
    
    
    967$
    7,630
    
    
    $
    10,258
 F-52




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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 8
    
    Other Current Liabilities
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)Accrued operating expensesEmployee bonuses and related expenses
    
    $
    4,066
    
    
    $
    3,380Others
    
    
    159
    
    
    
    5424,225
    
    
    
    3,922Other current liabilities
    
    
    319
    
    
    
    168$
    4,544
    
    
    $
    4,090
 9
    
    Income Taxes
 Income tax expense consists of the following:
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2003
    
    
    2004
    
    
    2005(Unaudited)
    
    
    
    
    
    
    (Unaudited)Current expense
    
    $
    257
    
    
    $
    165
    
    
    $
    304Deferred expense (benefit)
    
    
    18
    
    
    
    (100
    )
    
    
    48Total
    
    $
    275
    
    
    $
    65
    
    
    $
    352
 The Companys pre-tax loss and income tax expense (benefit) is from Singapore sources.The Company has been granted pioneer status for a period of ten years under the Singapore Economic
Expansion Incentives (Relief from Income Tax) Act, Chapter 86 (the Income Tax Act), for the wafer
fabrication of integrated circuits effective from 1 May 2000. During the pioneer status period,
income from pioneer trade is exempt from income tax, subject to compliance with the conditions
stated in the pioneer certificate and the Income Tax Act.Without this exemption from income tax, the Company would be subject to income tax at the Singapore
corporate income tax rate of 20% for the years ended
December 31, 2005 and 2004 and 22% for the year ended December 31, 2003.Tax losses accumulated before the pioneer status period cannot be carried forward. Tax losses
accumulated in the pioneer status period may be carried forward and may be offset against income
from the same pioneer trade arising both during the pioneer status and after the expiration of the
pioneer status period, subject to compliance with certain conditions. As of December 31, 2005, the
Company does not have any loss carryforwards.
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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 Under Singapore tax law, tax depreciation of property, plant and equipment (referred to as
wear and tear allowances) is deductible only to the extent of taxable income before tax
depreciation. Unutilized wear and tear allowances are carried forward to future tax years. As of
December 31, 2005, the Company has unutilized wear and tear allowance carryforwards of
approximately $32,652 and the amount is expected to be utilized within the pioneer tax-exempt
period, and accordingly has been recognized at a zero percent tax rate.Loss carryforwards as well as unutilized wear and tear allowances from the end of pioneer status
period are available indefinitely, subject to 50% or more of the Companys equity staying with the
same shareholders from the incurrence of the tax loss to its utilization and in the case of wear
and tear allowances, an additional test that the same trade must be carried on.Interest income is not exempt from taxation during the pioneer status period. The income tax
expense for the years ended December 31, 2003, 2004 and 2005 primarily
represents income tax payable on non-pioneer interest income.A reconciliation of the expected tax expense (benefit) computed by applying statutory rates to
pre-tax loss to the actual tax expense is as follows:
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,
    
    
    December 31,2003
    
    
    2004
    
    
    2005(Unaudited)
    
    
    
    
    
    
    (Unaudited)Income tax expense (benefit)
computed at Singapore statutory
tax rate of 20% (22% in 2003,
20% in 2004)
    
    $
    5,293
    
    
    $
    4,154
    
    
    $
    367Permanent non-deductible expenses
    
    
    (181
    )
    
    
    767
    
    
    
    53Losses and wear and tear
allowances expected to be
utilized in the pioneer tax
exempt period
    
    
    
    
    
    
    
    
    
    
    1,972Exempt pioneer profits
    
    
    (4,837
    )
    
    
    (4,856
    )
    
    
    (2,096
    )Others
    
    
    
    
    
    
    
    
    
    
    56Actual income tax expense
    
    $
    275
    
    
    $
    65
    
    
    $
    352
 Included in other non-current assets are $82 and $34 of net deferred tax assets as of December 31,
2004 and 2005 which primarily relate to the difference in the tax and book basis of
property, plant and equipment. The Company believes that it is more likely than not that the
results of future operations will generate sufficient taxable income to realize the deferred tax
assets. Deferred tax asset is also recognized for wear and tear allowances and tax losses carried
forward to the extent that it is more likely than not that the related tax benefits would be
realized through future taxable profits. As at December 31, 2005, the Company has unutilized wear
and tear allowances of $32,652 which are expected to be utilized within the pioneer tax-exempt
period and accordingly have been recognized at a zero percent tax rate.
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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 10
    
    Share Capital
 Share capital consist of the following:
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)Issued and
paid-up share capital
    
    $
    252,389
    
    
    $
    84,040Capital
reduction
    
    
    
    
    
    
    108,349$
    252,389
    
    
    $
    192,389
 In October 2005, the Company reorganized its paid-up share capital
by the extinguishment of accumulated losses of $108,349 against paid-up
share capital and the return of a portion to its shareholders in the
form of cash amounting to $60,000 in a capital reduction sanctioned by the High Court
of Singapore. During the year ended December 31, 2005, the Company
paid cash of $51,500 to its shareholders. The capital reduction through the
extinguishment of accumulated losses does not qualify as a quasi-reorganization
under US GAAP and accordingly has not been reflected in the financial statements.
 11
    
    Accumulated Deficit
 Singapore law allows dividends to be paid only out of profits of the Company. Shareholders of
ordinary shares are not liable for Singapore income tax on dividends paid by the Company out of its
tax exempt profits from pioneer activities. Tax payable by the Company on its
non-pioneer chargeable income constitutes a final tax, and dividends are exempt from tax in the hands of its shareholders.
 12
    
    Accumulated Other Comprehensive Loss
 Accumulated other comprehensive loss consists of the following:
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)Net unrealized cash flow hedging activity losses
    
    $
    (55
    )
    
    $
    (18
    )
 The net unrealized cash flow hedging activity losses are not adjusted for income taxes
because such losses are expected to be realized during the pioneer status.
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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 13
    
    Commitments and Contingencies
 Capital commitments
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)Contracted but not received
    
    $
    1,079
    
    
    $
    2,036
 Operating lease commitmentsThe Company leases its fab from its minority shareholder under a lease agreement which expires in
2008. At balance sheet date, the Company had commitments for future minimum lease payments under
the non-cancellable operating leases as follows:
 December 31,2005(Unaudited)Payable in
the year ending December 31,2006
    
    $
    15,6612007
    
    
    15,6532008
    
    
    3,913$
    35,227
 ContingenciesThe Company may from time to time be a party to claims that arise in the normal course of business.
These claims 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 jurisdiction 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 become probable and reasonably
estimable. The Company does not believe 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 or statement of operations.
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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 14
    
    Derivative Instruments
 The Company has the following notional amounts of derivative instruments:
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)Forward foreign exchange contracts to
hedge plant and equipment purchases
    
    $
    (2,005
    )
    
    $
    
 To protect against volatility of future cash flows caused by changes in exchange rates, the Company
may use currency forward contracts and currency swaps on anticipated transactions such as operating
costs and expenses and capital purchases. To manage interest rate risk, the Company may enter into
interest rate cap agreements to modify the interest characteristics of its outstanding debts.Most of the Companys derivatives are formally designated as cash flow hedges. However, certain
derivative instruments are not designated as part of a hedging relationship. These consist
primarily of foreign currency forward contracts related to groups of forecasted foreign currency
denominated payments. While the Company expects these derivatives to be effective in hedging the
variability in cash flows resulting from changes in foreign exchange rates, it does not believe it
is practicable to formally document the hedging relationship and link the derivatives to specific
forecasted transactions. Gains and losses on these instruments are included in foreign exchange
gain (loss).The Company uses derivative instruments to manage identified foreign currency risks resulting from
its Singapore dollar denominated debt and its foreign currency denominated purchase commitments
which are denominated principally in Japanese yen and Euro. The Company uses foreign currency
forward contracts which match the terms of the individual foreign currency exposures and as a
result, any ineffectiveness of the Companys hedges is negligible. Amounts included in other
comprehensive income (loss) related to hedges of foreign currency purchase commitments are
reclassified into earnings (foreign exchange gain (loss)) when the asset related to the purchase
commitment is depreciated.The estimated net amount of existing losses from cash flow hedges expected to
be reclassified into earnings within the next year is $26 and $16 as
of December 31, 2004 and 2005, respectively. Net realized losses
recognized from cash flow hedges were $48 and $37 for the years ended December 31, 2004 and 2005, respectively.
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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 14
    
    Derivative Instruments (Contd)
 The components of other comprehensive loss related to derivative and hedging activities
consist of the following:
 December 31,
    
    
    December 31,2004
    
    
    2005(Unaudited)Beginning
    
    $
    8,105
    
    
    $
    55Reclassification of cash flow
hedging activity losses into
earnings
    
    
    (48
    )
    
    
    (37
    )Net unrealized gains on change
in cash flow hedging activity fair
values
    
    
    (8,002
    )
    
    
    Ending
    
    $
    55
    
    
    $
    18
 By using derivative instruments to hedge exposures to changes in foreign currency rates, the
Company exposes itself to credit risk and market risk. Credit risk is the failure of the
counterparty to perform under the terms of the derivative contract. When the fair value of a
derivative contract is positive, the counterparty owes the Company, which creates credit risk for
the Company. When the fair value of a derivative contract is negative, the Company owes the
counterparty and, therefore, it does not possess credit risk. The Company anticipates, however,
that counterparties will be able to fully satisfy their obligations under the contracts. The
Company does not obtain collateral or other security to support financial instruments subject to
credit risk but monitors the credit standing of counterparties.Market risk is the adverse effect on the value of a financial instrument that results from a change
in currency exchange rates. The Company assesses currency exchange cash flow risk by continually
identifying and monitoring changes in currency exchange rate exposures that may adversely impact
expected future cash flows and by evaluating hedging opportunities.
 15
    
    Fair Values of Financial Instruments
 December 31, 2004
    
    
    December 31, 2005(Unaudited)Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    Estimatedamount
    
    
    fair value
    
    
    amount
    
    
    fair valueAssets/(Liability)Forward foreign exchange contracts
    
    $
    11
    
    
    $
    11
    
    
    $
    
    
    
    $
    
 Cash and cash equivalents, amounts owing from and to immediate parent company, other related
companies and affiliated companies, accounts receivable and accounts payable. The carrying amounts
approximate fair value in view of the short-term nature of these balances.
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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in US Dollars
In thousands
 Forward foreign exchange contracts.The fair value is estimated by reference to market
quotations for forward contracts with similar terms, adjusted where necessary for maturity
differences.Limitations.Fair value estimates are made at a specific point in time, and are based on relevant
market information and information about the financial instruments. 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.
 16
    
    Other Operating Expenses (Income), net
 Other operating expenses (income) consisted of:
 A gain of $3,578 in 2003 associated with the cancellation of an employee bonus award plan. As a
result of the cancellation, compensation accrued for past services under the bonus award plan of
$3,578 was eliminated by decreasing compensation expense in the period of cancellation.
 An impairment charge of $178 in 2003 on certain property, plant and equipment which were identified
for sale as of December 31, 2003. These assets were written down
to their estimated net selling prices. The estimated
selling prices were determined based on independent quotes from third party vendors.
 F-59