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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 20-F
 (Mark One)
 o
    
    Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act
of 1934.
 OR
 þ
    
    Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the fiscal year ended December 31, 2008.
 OR
 o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the transition period from  to.
 OR
 o
    
    Shell Company Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 Date of event requiring this shell company report
 Commission File Number 000-27811
 CHARTERED SEMICONDUCTOR MANUFACTURING LTD.
  
 
 
  Title of Each Class
    
    Name of Each Exchange on Which RegisteredAmerican Depositary Shares,
    
    NASDAQ Global Select Marketeach represented by ten Ordinary Shares
 
 
   o þ
  o þ
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
  U.S. GAAP þ
    
    International Financial Reporting Standards as issued
by the International Accounting Standards Board o
    
    Other o
  o þ
  o þ




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TABLE OF CONTENTS
 PageCertain Definitions and Conventions
    
    
    1Presentation of Certain Financial Information
    
    
    1PART IITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    1ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    1ITEM 3. KEY INFORMATION
    
    
    1ITEM 4. INFORMATION ON OUR COMPANY
    
    
    18ITEM 4A. UNRESOLVED STAFF COMMENTS
    
    
    35ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    35ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    65ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    80ITEM
8. FINANCIAL INFORMATION
    
    
    81ITEM 9. THE OFFER AND LISTING
    
    
    82ITEM 10. ADDITIONAL INFORMATION
    
    
    83ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    101ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    103PART IIITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    103ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
    
    
    103ITEM 15. CONTROLS AND PROCEDURES
    
    
    103ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    106ITEM 16B. CODE OF ETHICS
    
    
    106ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    106ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    106ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
    
    
    106ITEM 16F. CHANGE OF REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    106ITEM
16G. CORPORATE GOVERNANCE
    
    
    107
    


PART IIIITEM 17. FINANCIAL STATEMENTS
    
    
    107ITEM 18. FINANCIAL STATEMENTS
    
    
    107ITEM 19. EXHIBITS
    
    
    108SIGNATURES
    
    
    116
 Index to Financial StatementsEX-4.4.1 Amendment dated as of March 27, 2007 (effective March 9, 2007) to the Letter of Confirmation from Goldman Sachs International to the company dated March 29, 2006EX-4.14 Lease Agreement dated June 25, 2008 by and between Jurong Town Corporation and Chartered Semiconductor Manufacturing (Tampines) Pte. Ltd. relating to Lot No. MK29-2300W.EX-8 List of the company's subsidiaries.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 relating to the incorporation of audit report relating to Chartered Semiconductor Manufacturing Ltd.EX-15.2 Consent of KPMG relating to the incorporation of audit report relating to Silicon Manufacturing Partners Pte Ltd.
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Certain Definitions and Conventions
   
 Presentation of Certain Financial Information
   
 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
  1




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Year Ended December 31,2004(6)
    
    
    2005(6)
    
    
    2006(6)
    
    
    2007(6)
    
    
    2008(6)(in thousands, except per share data and ratios)Consolidated Statement of Operations
Data(1):Net revenue
    
    $
    932,131
    
    
    $
    1,032,734
    
    
    $
    1,414,525
    
    
    $
    1,355,486
    
    
    $
    1,661,120Operating income (loss)
    
    
    (12,867
    )
    
    
    (103,362
    )
    
    
    100,956
    
    
    
    12,131
    
    
    
    (73,348
    )Net income (loss)(2)
    
    
    7,775
    
    
    
    (157,945
    )
    
    
    67,024
    
    
    
    101,688
    
    
    
    (92,579
    )Less: Accretion to redemption value of convertible
redeemable preference shares
    
    
    
    
    
    
    3,196
    
    
    
    9,476
    
    
    
    9,663
    
    
    
    10,042Net income (loss) available to ordinary shareholders
    
    $
    7,775
    
    
    $
    (161,141
    )
    
    $
    57,548
    
    
    $
    92,025
    
    
    $
    (102,621
    )Basic and diluted net earnings (loss) per ordinary share
    
    $
    0.00
    
    
    $
    (0.06
    )
    
    $
    0.02
    
    
    $
    0.04
    
    
    $
    (0.04
    )Number of shares used in computing net earnings (loss) per
ordinary share:Basic
    
    
    2,508,376
    
    
    
    2,511,428
    
    
    
    2,528,056
    
    
    
    2,538,357
    
    
    
    2,541,435Diluted
    
    
    2,516,942
    
    
    
    2,511,428
    
    
    
    2,534,065
    
    
    
    2,868,617
    
    
    
    2,541,435Basic net earnings (loss) per ADS
    
    $
    0.03
    
    
    $
    (0.64
    )
    
    $
    0.23
    
    
    $
    0.36
    
    
    $
    (0.40
    )Diluted net earnings (loss) per ADS
    
    $
    0.03
    
    
    $
    (0.64
    )
    
    $
    0.23
    
    
    $
    0.35
    
    
    $
    (0.40
    )Number of ADSs used in computing net earnings (loss) per ADS:Basic
    
    
    250,838
    
    
    
    251,143
    
    
    
    252,806
    
    
    
    253,836
    
    
    
    254,144Diluted
    
    
    251,694
    
    
    
    251,143
    
    
    
    253,407
    
    
    
    286,862
    
    
    
    254,144Other Data(3):Ratio of earnings to combined fixed charges and preferred
dividends
    
    
    
    
    
    
    
    
    
    
    1.77X
    
    
    
    
    
    
    
    Deficiency of earnings available to cover
combined fixed charges and preferred
dividends
    
    $
    18,064
    
    
    $
    131,026
    
    
    
    
    
    
    $
    17,149
    
    
    $
    106,029Consolidated Balance Sheet
Data:Cash and cash
equivalents(4)
    
    $
    539,399
    
    
    $
    819,856
    
    
    $
    718,982
    
    
    $
    743,173
    
    
    $
    524,501Working capital(5)
    
    
    167,387
    
    
    
    551,177
    
    
    
    570,661
    
    
    
    677,822
    
    
    
    466,897Net assets
    
    
    1,507,960
    
    
    
    1,601,019
    
    
    
    1,679,283
    
    
    
    1,796,986
    
    
    
    1,709,293Total assets
    
    
    3,091,616
    
    
    
    3,520,665
    
    
    
    3,621,936
    
    
    
    4,025,561
    
    
    
    4,025,173Long-term obligations
    
    
    960,660
    
    
    
    1,187,004
    
    
    
    1,329,908
    
    
    
    1,552,664
    
    
    
    1,734,366Convertible redeemable
preference shares
    
    
    
    
    
    
    250,663
    
    
    
    246,174
    
    
    
    255,837
    
    
    
    265,879Long-term obligations and
convertible redeemable
preference shares
    
    
    960,660
    
    
    
    1,437,667
    
    
    
    1,576,082
    
    
    
    1,808,501
    
    
    
    2,000,245Ordinary share capital
    
    
    2,682,638
    
    
    
    2,682,050
    
    
    
    2,704,215
    
    
    
    2,710,006
    
    
    
    2,706,244Total shareholders equity
    
    
    1,507,960
    
    
    
    1,350,356
    
    
    
    1,433,109
    
    
    
    1,541,149
    
    
    
    1,443,414
 
 Notes:(1)
    
    Consolidated statement of operations data for 2008 includes the operations of Chartered
Semiconductor Manufacturing (Tampines) Pte. Ltd., or Chartered Tampines, from April 1, 2008 to
December 31, 2008. Please see Item 10. Additional Information  C. Material Contracts 
Acquisition of Hitachi Semiconductor Singapore Pte Ltd for more details.(2)
    
    Net income (loss) is the same as income (loss) from continuing operations as we do not have
any discontinued operations in any of our last five financial years. 2




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(3)
    
    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 dividends consist of
accretion charges relating to our convertible redeemable preference shares.(4)
    
    Included in cash and cash equivalents was an investment in a private enhanced cash fund, or
Fund, of $44.9 million, $138.8 million and $94.3 million as of December 31, 2004, 2005 and
2006, respectively. This investment is managed by an external financial institution and
consists primarily of corporate debt, mortgage-backed securities and asset-backed securities.
Due to the nature of the securities that the Fund invests in, the Funds underlying securities
have been exposed to adverse market conditions that have affected the value of the collateral
and the liquidity of the Fund. As a result, in December 2007, the investment manager of the
Fund halted demand redemptions and announced its intention to liquidate the Fund. The
investment in the Fund was thus classified as Other investments as of December 31, 2007 and
2008 of $89.3 million and $19.6 million.(5)
    
    Working capital is calculated as the excess of current assets over current liabilities.(6)
    
    We have not declared or paid any dividends on our ordinary shares in any of our last five
financial years. 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 we may not be profitable in the future.
  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 plans and technology upgrades or migrations;
    
    require us to seek lenders 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 and other general corporate purposes. The term capital
expenditures means the amount we paid or will pay 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.
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We expect to incur substantial capital expenditures, research and development costs, operational
and other related 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, continuously improve our device yields and maintain the average selling prices
of, or avoid or mitigate the downward pricing pressure on, our products would seriously harm our
prospects and financial condition.
  
    
    maintain high capacity utilization;
    
    optimize the technology mix of our semiconductor wafer production;
    
    continuously improve our device yields; and
    
    maintain the average selling prices, or ASPs, of our products.
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If we are unable to accurately predict customer demand, we may hold excess inventory which could
reduce our profit margin.
  We have received grants from various agencies of the Government of Singapore. Such grants may not
be disbursed to us if the conditions attached to these grants are not complied with.
   Our investments in private enhanced cash funds are subject to risks which may affect the liquidity
of these investments and cause losses.
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We may be required to record a charge to earnings in the future if we determine that our long-lived
assets are impaired.
  Risks Related to Our Operations
 The current crisis in the global financial markets and deteriorating global economy could
materially and adversely affect our business, financial condition and results of operations.
   The downgrades by corporate credit rating agencies of our corporate credit ratings could affect our
ability to raise funds from the public and may seriously harm our financial condition.
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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.
   We depend on our technology partners to advance our portfolio of process technologies.
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We depend on a small number of customers for a significant portion of our net revenue.
  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 ASPs 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 collaborate 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 and tools, and our ability to meet our customers schedule and
budget requirements.
  Our customers generally do not place purchase orders far in advance. Therefore, we do not have any
significant backlog, resulting in reduced visibility of our future net revenue.
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Our growth, technology capabilities, planned capacity expansion and our competitive position depend
on the success of our more advanced manufacturing facilities.
  We depend on our strategic business alliances relating to our fabs. Any termination or modification
of these alliances could seriously harm our company.
    We may not be able to compete successfully in our industry.
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Our operating results fluctuate from quarter to quarter, which makes it difficult to predict our
future performance.
  
    
    the cyclical nature of, and changing economic, political and market conditions affecting,
the semiconductor industry and the markets served by our customers, including without
limitation, seasonality in sales of electronic products into which some of our customers
products are incorporated;
    
    pricing pressure from competitors in the foundry industry;
    
    shifts by IDMs between internal and outsourced production;
    
    changes in demand for products that incorporate semiconductors that 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 receivable in a timely manner;
    
    the rescheduling or cancellation of large orders;
    
    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 expansion of our existing 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, technology and supply
alliances on mutually beneficial terms;
    
    the rescheduling or cancellation of planned capital expenditures;
    
    actual capital expenditures differing from 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.
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We may be subject to intellectual property rights disputes.
  
    
    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 are subject to the risk of increased income taxes.
    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.
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We depend on our vendors of raw materials, supplies and equipment and do not generally have
long-term supply contracts with them.
    We depend on assembly and test subcontractors for our semiconductor assembly and testing
requirements.
  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 risks in expanding, constructing and equipping our fabrication plants.
  
    
    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 expansion plans 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 skilled 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 the global economy; and
    
    delays arising from shortages and long lead times for delivery of equipment during
periods of growth in the industry.
 We depend on key personnel and skilled and qualified employees for our business and operations and
we may have difficulty attracting and retaining sufficient numbers of skilled employees.
    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
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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
 We operate internationally and any negative or adverse economic, political and social development
in countries in which our customers and their markets are located may have a negative impact on our
revenue.
   
    
    global credit and financial crises;
    
    fluctuations in the values of currencies;
    
    changes in labor conditions;
    
    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;
    
    reversal of the current policies (including favorable tax and lending policies)
encouraging foreign investment or foreign trade by our host countries;
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
    
    longer payment cycles; and
    
    greater difficulty in collecting accounts receivable.
 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.
  Exchange rate fluctuations may increase our costs and capital expenditures, which could affect our
operating results and financial position.
  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.
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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 take-over of our company.
  Risks Related to Our Securities and Our Trading Market
 The future sales of securities by our company or existing shareholders may negatively impact the
price of our securities.
  The market prices of our securities fluctuate widely and may be more volatile as the Singapore
securities market is relatively smaller and consequently less liquid than the U.S. markets.
   Your voting rights with respect to the ADSs are limited by the terms of the deposit agreement for
the ADSs.
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
    
    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
  
    
    our business strategy;
    
    our outlook for 2009;
    
    our capacity utilization rate, production capacity and production capacity mix;
    
    our plan to lower our breakeven utilization rate to around
75% at the earnings before interest and tax level by
the fourth quarter of 2009;
    
    our plans to expand our production capacity for 65nm, 45nm and below process geometry
technologies to meet the anticipated needs of our customers;
    
    our 2009 planned capital expenditures, R&D expenditures, depreciation and amortization
and wafer capacity; and
    
    our sources of liquidity, cash flow, funding needs and financings.
  
    
    decreased consumer confidence;
    
    financial market turmoil and the deteriorating global economic conditions;
    
    the ability to access or renew existing or to obtain additional financing and the terms
thereof;
    
    changes in the demands from our major customers;
    
    excess inventory, life cycle, market outlook and trends or specific products;
    
    demand and supply outlook in the semiconductor market;
    
    competition from existing foundries and new foundry companies resulting in pricing
pressures;
    
    product mix;
    
    unforeseen delays, interruptions, performance level and technology mix in our fabrication
facilities;
    
    our progress on leading-edge products;
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
    
    changes in capacity plans, allocation and process technology mix;
    
    unavailability of materials, equipment, manpower and expertise;
    
    access to or delays in technological advances or our development of process technologies;
    
    the successful implementation of our technology and supply alliances (including our joint
development agreements with IBM, Infineon, Samsung, Toshiba, STMicroelectronics, AMD and
NEC);
    
    the growth rate of fabless companies, the outsourcing strategy of IDMs and our
expectation that IDMs will utilize foundry capacity more extensively; 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.
      
 B. BUSINESS OVERVIEW
 Overview
  18




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Industry Background
    The Growth of the Semiconductor Foundry Industry
    The Requirements of a Full-Service Foundry
  Systems Integration Expertise.
 19




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Leading-Edge Process Technologies and Mature Technologies.
  Comprehensive Prefabrication Services.
 Long-Term Relationships.
 Security.
 The Chartered Solution
      20




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Business Strategy
  Leverage improved technology position and improve revenue and margins
  Align manufacturing capacity with technology position, optimize capacity utilization and improve
cost structure
   Leading-edge Technologies.
 Mature Technologies.
 Focus on solutions that support the growing trend of product convergence
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Provide complete product support for customers
    Offer leading process technology
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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 communications, computer and
consumer markets.
    
    Mixed signal.Mixed signal semiconductor devices combine analog and digital devices on a
single
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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 Shipments and Capacity
 
 Data Including Chartereds Share of
    
    1Q
    
    2Q
    
    3Q
    
    4Q
    
    1Q
    
    2Q
    
    3Q
    
    4QSMP
    
    2007
    
    2007
    
    2007
    
    2007
    
    2008
    
    2008
    
    2008
    
    2008Thousand eight-inch equivalent wafers:Total wafers shipped
    
    
    325.6
    
    
    
    381.6
    
    
    
    426.1
    
    
    
    415.5
    
    
    
    457.2
    
    
    
    548.5
    
    
    
    544.5
    
    
    
    377.7Total capacity
    
    
    462.4
    
    
    
    483.0
    
    
    
    502.2
    
    
    
    512.4
    
    
    
    534.4
    
    
    
    624.8
    
    
    
    638.9
    
    
    
    645.2Utilization
    
    
    70
    %
    
    
    79
    %
    
    
    85
    %
    
    
    81
    %
    
    
    86
    %
    
    
    88
    %
    
    
    85
    %
    
    
    59
    %1Q
    
    2Q
    
    3Q
    
    4Q
    
    1Q
    
    2Q
    
    3Q
    
    4QCapacity by Fab
    
    2007
    
    2007
    
    2007
    
    2007
    
    2008
    
    2008
    
    2008
    
    2008Thousand eight-inch equivalent wafers:Fab 2
    
    
    142.6
    
    
    
    153.8
    
    
    
    155.5
    
    
    
    155.5
    
    
    
    153.8
    
    
    
    153.8
    
    
    
    155.5
    
    
    
    155.5Fab 3
    
    
    69.5
    
    
    
    70.3
    
    
    
    70.4
    
    
    
    70.4
    
    
    
    74.8
    
    
    
    80.4
    
    
    
    83.1
    
    
    
    83.1Fab 3E(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74.3
    
    
    
    75.1
    
    
    
    75.1Fab 5(2)
    
    
    34.6
    
    
    
    34.9
    
    
    
    35.3
    
    
    
    35.3
    
    
    
    35.5
    
    
    
    35.5
    
    
    
    35.9
    
    
    
    35.9Fab 6
    
    
    114.5
    
    
    
    115.8
    
    
    
    117.0
    
    
    
    120.0
    
    
    
    120.2
    
    
    
    126.2
    
    
    
    127.4
    
    
    
    130.2Fab 7
    
    
    101.2
    
    
    
    108.2
    
    
    
    124.0
    
    
    
    131.2
    
    
    
    150.1
    
    
    
    154.6
    
    
    
    161.9
    
    
    
    165.4Total
    
    
    462.4
    
    
    
    483.0
    
    
    
    502.2
    
    
    
    512.4
    
    
    
    534.4
    
    
    
    624.8
    
    
    
    638.9
    
    
    
    645.2
 24




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##### Table of Contents



Notes:(1)
    
    We acquired Fab 3E on March 31, 2008 upon our acquisition of 100% of the shares in Chartered
Tampines, which owns and operates Fab 3E.(2)
    
    49% of total capacity, based on Chartereds equity ownership. Wafer Capacity
   Fab 2
    
    Fab 3
    
    Fab 3E(1)
    
    Fab 5 (SMP)(1)
    
    Fab 6 (CSP)(1)
    
    Fab 7Production
commenced
    
    1995
    
    1997
    
    1997
    
    1999
    
    2000
    
    2005Estimated full
capacity(2)
    
    50,000 wafers
    
    28,000 wafers
    
    34,000 wafers
    
    26,000 wafers
    
    45,000 wafers
    
    45,000 wafersper month
    
    per month
    
    per month
    
    per month
    
    per month
    
    per month(3)Wafer size
    
    Eight-inch
    
    Eight-inch
    
    Eight-inch
    
    Eight-inch
    
    Eight-inch
    
    Twelve-inch(200-mm)
    
    (200-mm)
    
    (200-mm)
    
    (200-mm)
    
    (200-mm)
    
    (300-mm)Process
    
    0.6 to 0.3um(4)
    
    0.35 to 0.18um(4)
    
    0.25 to 0.18um(4)
    
    0.25 to 0.13um(4)
    
    0.18 to 0.11um(4)
    
    0.13um andtechnologies(4)
    
    
    
    
    
    
    
    
    
    
    
    below processgeometrytechnologiesincluding 90nm,65nm, 45nm and40nm(4)Manufacturing
    
    Digital; Mixed
    
    Digital; Mixed
    
    Digital; Mixed
    
    Digital; RF
    
    High
    
    Hightechnologies(5)
    
    Signal; RF
    
    Signal; RF
    
    Signal, RF
    
    CMOS;
    
    performance,
    
    performance,eSRAM
    
    CMOS;
    
    CMOS;
    
    BiCMOS;
    
    high-density
    
    high-densityHVCMOS;EEPROM;
    
    SRAM;eSRAM;
    
    eSRAM;HVCMOS;
    
    Mixed-Signal;SRAM;
    
    CMOS; highdensity SRAM;
    
    CMOS; eSRAM;DMOS;
    
    BiCMOS;
    
    eFlash
    
    eSRAM;
    
    eSRAM, Mixed
    
    Mixed signal;BiCMOS,
    
    OTP;
    
    
    
    OTP;
    
    signal; RF
    
    RFCMOS; OTP;BiPolar; OTP;
    
    HVCMOS,
    
    
    
    HVCMOS,
    
    CMOS; OTP;
    
    SOIPowerMos
    
    eFlash
    
    
    
    eFlash
    
    HVCMOSClean room
    
    111,700 sq. ft.
    
    82,300 sq. ft.
    
    129,100 sq. ft.
    
    97,800 sq. ft.
    
    139,800 sq. ft.
    
    238,200 sq. ft.Class-1
    
    Class-1
    
    Class-1
    
    Class-1
    
    Class-1 SMIF(6)
    
    Class-1 SMIF(6)SMIF(6)
    
    SMIF(6)
    
    Non SMIF(6)
    
    SMIF(6)
 
 Notes:(1)
    
    With respect to Fab 5 and Fab 6, the information includes capacity of our strategic partners.
With respect to Fab 3E, in March 2008, we completed our acquisition of 100% of the shares in
Chartered Tampines which owns and operates Fab 3E, an eight-inch wafer fabrication facility
located in Singapore.(2)
    
    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. 25




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##### Table of Contents



(3)
    
    Equivalent to 101,250 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 45,000 300-mm wafers per month, and
this is expected to take a number of years and will be paced by customer demand and industry
conditions.(4)
    
    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.(5)
    
    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. RFCMOS 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. SOI refers to Silicon-On-Insulator. PowerMos refers to discrete metal oxide silicon
transistor to control high power.(6)
    
    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 31,2004
    
    2005
    
    2006
    
    2007
    
    2008(in thousands)Total Shipments
    
    
    1,035
    
    
    
    1,052
    
    
    
    1,365
    
    
    
    1,549
    
    
    
    1,928
 Quality Assurance Programs
    Strategic Business and Technology Alliances
 IBM, Infineon, Samsung, Toshiba, STMicroelectronics, AMD and NEC
  26




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Chartered Silicon Partners
   27




---



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Silicon Manufacturing Partners
    28




---



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29




---



##### Table of Contents



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 TV.Qualcomm Global Trading, Inc.
    
    Mobile phone handsets
   2006
    
    2007
    
    2008Americas(1)
    
    
    77
    %
    
    
    72
    %
    
    
    64
    %Europe
    
    
    9
    
    
    
    8
    
    
    
    9Asia-Pacific Singapore
    
    
    3
    
    
    
    3
    
    
    
    3 Taiwan
    
    
    8
    
    
    
    15
    
    
    
    14 Others
    
    
    1
    
    
    
    1
    
    
    
    2Japan
    
    
    2
    
    
    
    1
    
    
    
    8Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %By $ (in thousands):2006
    
    
    2007
    
    
    2008Americas(1)
    
    $
    1,089,068
    
    
    $
    972,773
    
    
    $
    1,055,171Europe
    
    
    129,619
    
    
    
    114,178
    
    
    
    155,031Asia-Pacific Singapore
    
    
    37,716
    
    
    
    39,434
    
    
    
    54,333 Taiwan
    
    
    122,881
    
    
    
    205,285
    
    
    
    236,571 Others
    
    
    11,380
    
    
    
    14,984
    
    
    
    35,586Japan
    
    
    23,861
    
    
    
    8,832
    
    
    
    124,428Total
    
    $
    1,414,525
    
    
    $
    1,355,486
    
    
    $
    1,661,120
 
 Note:(1)
    
    Comprises the United States of America and Canada.  30




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Customer Service
    Research and Development
       31




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##### Table of Contents



Equipment and Materials
   Intellectual Property
      32




---



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Competition
    Environmental Matters and Compliance
   Insurance
    C. ORGANIZATIONAL STRUCTURE
  33




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##### Table of Contents



Proportion ofCountry of
    
    Date of
    
    OwnershipName of Subsidiary
    
    Incorporation
    
    Incorporation
    
    InterestChartered Silicon Partners Pte Ltd
    
    Singapore
    
    March 1997
    
    
    51
    %Chartered Semiconductor Manufacturing Incorporated
    
    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 Limited
    
    England and Wales
    
    March 2001
    
    
    100
    %Chartered Semiconductor Manufacturing (Tampines) Pte. Ltd.
    
    Singapore
    
    June 1996(1)
    
    
    100
    %
 
 Note:(1)
    
    We acquired 100% of the shares in Hitachi Semiconductor Singapore Pte. Ltd. on March 31,
2008. Following our acquisition, we renamed the company Chartered Semiconductor Manufacturing
(Tampines) Pte. Ltd. D. PROPERTY, PLANT AND EQUIPMENT
 Leases
       34




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##### Table of Contents



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.
 EXECUTIVE OVERVIEW
    35




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##### Table of Contents



INDUSTRY OVERVIEW
  Cyclicality of the Semiconductor Industry
  Substantial Capital Expenditures
  Pricing, Product Mix and Technology Migration
  Capacity Utilization Rates (based on total shipments and total capacity, both of which include our
share of SMP)
  36




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##### Table of Contents



Year Ended December 31,2004(2)
    
    2005(3)
    
    2006
    
    2007
    
    2008(4)Average capacity utilization(1)
    
    
    80
    %
    
    
    70
    %
    
    
    77
    %
    
    
    79
    %
    
    
    79
    %
 
 Notes:(1)
    
    Based on total shipments and total capacity, both of which include our share of SMP.(2)
    
    Fab 1 ceased operations at the end of March 2004 and some of its operations moved to Fab 2.(3)
    
    Fab 7 started commercial shipment in June 2005.(4)
    
    Fab 3E was acquired on March 31, 2008.  2008 OVERVIEW
        37




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##### Table of Contents



2009 OUTLOOK AND PLANS
  2009 Outlook
  Workforce Re-sizing
  Breakeven Utilization Target
  2009 Planned Capacity
  2009 Planned Capital Expenditures
  38




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##### Table of Contents



2009 Planned Research and Development Expenditures
  2009 Liquidity Position
  Jobs Credit Scheme
  CRITICAL ACCOUNTING POLICIES
  Depreciation and Amortization of Long-lived Assets, including Technology License Agreements and
Other Intangible Assets
    39




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##### Table of Contents



Recoverability of Long-lived Assets, including Technology License Agreements and Other Intangible
Assets
   
    
    A significant decrease in the market price of a long-lived asset group;
    
    A significant adverse change in the extent or manner in which a long-lived asset group is
being used or in its physical condition;
    
    A significant adverse change in legal factors or in the business climate that could
affect the value of a long-lived asset group, including an adverse action or assessment by a
regulator;
    
    An accumulation of costs significantly in excess of the amount originally expected for
the acquisition or construction of a long-lived asset group;
    
    A current-period operating or cash flow loss combined with a history of operating or cash
flow losses or a projection or forecast that demonstrates continuing losses associated with
the use of a long-lived asset group; and
    
    A current expectation that, more likely than not, a long-lived asset group will be sold
or otherwise disposed of significantly before the end of its previously estimated useful
life.
   40




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Valuation of Inventory
  Cost
 Market
     41




---



##### Table of Contents



Revenue Recognition
     Sales Credits and Returns Allowances
    Collectibility of Accounts Receivable
  42




---



##### Table of Contents



Income Taxes
      Share-Based Compensation
    43




---



##### Table of Contents



Grants for Research and Development and Training
     Business Combinations
    44




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##### Table of Contents



Fair value measurements
   
    
    Marketable securities are recorded at fair value, which is generally based on quoted
prices in active markets for identical assets (Level 1);
    
    The fair values of forward foreign exchange contracts are determined using quantitative
models that require the use of multiple market inputs including interest rates, prices and
maturity dates to generate pricing curves, which are used to value
the positions. The market inputs are generally actively quoted and can
be validated through external sources, including brokers. For forward foreign exchange
contract asset and liability positions with maturity dates which fall between the dates of
quoted prices, interpolation of rate or maturity scenarios are used in determining fair
values (Level 3);
    
    The fair values of embedded derivatives are determined in a similar manner as forward
foreign exchange contracts, except that we make certain assumptions about the implied
maturity dates of such embedded derivatives as maturity dates are generally not included in
the host contracts (Level 3);
    
    The fair value of our investment in the Fund (refer to Other Investments), and its
underlying debt and securities is assessed by utilizing market prices as provided by
independent pricing services or, when such prices are not available, by using a valuation
approach based on the current investment ratings, valuation parameters and estimates of the
underlying debt and securities, redemptions of the Fund and the subsequent distributions of
cash. Based on this assessment, we determined that the fair value of the Fund and its
underlying debt and securities as of December 31, 2008 approximated the fair values provided
by the investment manager of the Fund. As such the amounts recorded in our consolidated
financial statements are based on the fair values provided by the investment manager of the
Fund. The assessment of the fair value of the Fund uses significant unobservable inputs
(Level 3); and
    
    The fair values of certain equity investments based primarily
upon our own estimates of the value of the underlying assets (Level 3).
  Other Investments
   45




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Asset Retirement Obligations
     ADOPTION OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 FIN No. 48, Accounting for Uncertainty in Income Taxes  An Interpretation of FASB Statement No.
109
  46




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SFAS No. 157, Fair Value Measurements
       RESULTS OF OPERATIONS
  47




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##### Table of Contents



Year ended December 31,2006
    
    2007
    
    2008Consolidated Statements of Operations data:Net revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenue
    
    
    75.7
    
    
    
    80.8
    
    
    
    87.1Gross profit
    
    
    24.3
    
    
    
    19.2
    
    
    
    12.9Other revenue
    
    
    1.5
    
    
    
    1.7
    
    
    
    0.8Operating expenses:Research and development
    
    
    10.8
    
    
    
    11.8
    
    
    
    10.7Sales and marketing
    
    
    3.9
    
    
    
    4.3
    
    
    
    4.2General and administrative
    
    
    3.0
    
    
    
    2.9
    
    
    
    2.6Other operating expenses, net
    
    
    1.0
    
    
    
    1.0
    
    
    
    0.6Total operating expenses, net
    
    
    18.7
    
    
    
    20.0
    
    
    
    18.1Equity in income of associated companies, net
    
    
    2.5
    
    
    
    2.5
    
    
    
    1.6Other income (loss), net
    
    
    (0.2
    )
    
    
    (0.2
    )
    
    
    0.2Interest income
    
    
    3.2
    
    
    
    2.0
    
    
    
    0.9Interest expense and amortization of debt discount
    
    
    (6.2
    )
    
    
    (4.4
    )
    
    
    (4.1
    )Income (loss) before income tax
    
    
    6.4
    
    
    
    0.8
    
    
    
    (5.8
    )Income tax expense (benefit)
    
    
    1.7
    
    
    
    (6.7
    )
    
    
    (0.3
    )Net income (loss)
    
    
    4.7
    %
    
    
    7.5
    %
    
    
    (5.5
    )%Less: Accretion to redemption value of convertible
redeemable preference shares
    
    
    0.7
    
    
    
    0.7
    
    
    
    0.6Net income (loss) available to ordinary shareholders
    
    
    4.0
    %
    
    
    6.8
    %
    
    
    (6.1
    )%
  Year ended December 31,2006
    
    2007
    
    2008Communications
    
    
    30
    %
    
    
    41
    %
    
    
    50
    %Computer
    
    
    31
    
    
    
    28
    
    
    
    14Consumer
    
    
    37
    
    
    
    28
    
    
    
    32Other (1)
    
    
    2
    
    
    
    3
    
    
    
    4Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Year ended December 31,2006
    
    
    2007
    
    
    2008Americas(2)
    
    
    77
    %
    
    
    72
    %
    
    
    64
    %Europe
    
    
    9
    
    
    
    8
    
    
    
    9Asia-Pacific
    
    
    12
    
    
    
    19
    
    
    
    20Japan
    
    
    2
    
    
    
    1
    
    
    
    7Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 48




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Year ended December 31,2006
    
    2007
    
    20080.065 and
below
    
    
    
    %
    
    
    9
    %
    
    
    17
    %Up to 0.09
    
    
    29
    
    
    
    12
    
    
    
    4Up to 0.13
    
    
    28
    
    
    
    34
    
    
    
    35Up to 0.18
    
    
    8
    
    
    
    9
    
    
    
    14Up to 0.25
    
    
    9
    
    
    
    12
    
    
    
    13Up to 0.35
    
    
    16
    
    
    
    14
    
    
    
    10Above 0.35
    
    
    10
    
    
    
    10
    
    
    
    7Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 
 Notes:(1)
    
    Includes revenue from generation of customers mask sets.(2)
    
    Comprises the United States of America and Canada. Years ended December 31, 2007 and December 31, 2008
 Net revenue
      49




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Cost of revenue
       Gross profit
   50




---



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Other revenue
  Research and development expenses
    Sales and marketing expenses
    General and administrative expenses
  Other operating expenses, net
  Equity in income of associated companies, net
  51




---



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Year ended December 31,2007
    
    2008(In millions)Net revenue (U.S. GAAP)
    
    $
    1,355.5
    
    
    $
    1,661.1Chartereds share of SMP revenue
    
    $
    102.5
    
    
    $
    81.7Net revenue including Chartereds share of SMP
    
    $
    1,458.0
    
    
    $
    1,742.8
  Year ended December 31,2007
    
    2008Excluding
    
    Including
    
    Excluding
    
    IncludingChartereds
    
    Chartereds
    
    Chartereds
    
    CharteredsShare of SMP
    
    Share of SMP
    
    Share of SMP
    
    Share of SMPShipments (in thousands)(1)
    
    
    1,419.7
    
    
    
    1,548.9
    
    
    
    1,825.2
    
    
    
    1,927.9ASP per wafer
    
    $
    930
    
    
    $
    918
    
    
    $
    884
    
    
    $
    879
 
 Note:(1)
    
    Eight-inch equivalent wafers.   Other income (loss), net
  52




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Interest income
  Interest expense and amortization of debt discount
  Income tax expense (benefit)
   Minority interest in CSP
  Accretion to redemption value of convertible redeemable preference shares
  Years ended December 31, 2006 and December 31, 2007
 Net revenue
  53




---



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Cost of revenue
      54




---



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Gross profit
    Other revenue
  Research and development expenses
   Sales and marketing expenses
  General and administrative expenses
  Other operating expenses, net
  Equity in income of associated companies, net
   55




---



##### Table of Contents



Year Ended December 31,2006
    
    2007(In millions)Net revenue (U.S. GAAP)
    
    $
    1,414.5
    
    
    $
    1,355.5Chartereds share of SMP revenue
    
    $
    112.1
    
    
    $
    102.5Net revenue including Chartereds share of SMP
    
    $
    1,526.6
    
    
    $
    1,458.0
  Year ended December 31,2007
    
    2008Excluding
    
    Including
    
    Excluding
    
    IncludingChartereds
    
    Chartereds
    
    Chartereds
    
    CharteredsShare of SMP
    
    Share of SMP
    
    Share of SMP
    
    Share of SMPShipments (in thousands)(1)
    
    
    1,248.6
    
    
    
    1,365.0
    
    
    
    1,419.7
    
    
    
    1,548.9ASP per wafer
    
    $
    1,112
    
    
    $
    1,099
    
    
    $
    930
    
    
    $
    918
 
 Note:(1)
    
    Eight-inch equivalent wafers.  Other loss, net
  Interest income
  Interest expense and amortization of debt discount
  Income tax expense (benefit)
   56




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##### Table of Contents



Minority interest in CSP
  Accretion to redemption value of convertible redeemable preference shares
  LIQUIDITY AND CAPITAL RESOURCES
 Current and expected liquidity
   December 31,2007
    
    
    2008(In thousands)Long-term debt consists of:$653.1 million EXIM Guaranteed Loan
    
    $
    543,501
    
    
    $
    459,771$610 million EXIM Guaranteed Loan
    
    
    
    
    
    
    90,463Société Générale Term Loan
    
    
    
    
    
    
    119,234JBIC/SMBC Term Loan (Tranche B)
    
    
    
    
    
    
    71,8415.645% JBIC/SMBC Term Loan (Tranche A)
    
    
    
    
    
    
    71,8415.75% senior notes due 2010
    
    
    372,700
    
    
    
    373,5466.00% amortizing bonds due 2010
    
    
    29,659
    
    
    
    20,3516.25% senior notes due 2013
    
    
    297,752
    
    
    
    298,1256.375% senior notes due 2015
    
    
    247,092
    
    
    
    247,397Others
    
    
    9,633
    
    
    
    7,775Long-term debt outstanding
    
    $
    1,500,337
    
    
    $
    1,760,344
  57




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58




---



##### Table of Contents



Historic cash flows
  Year ended December 31,2006
    
    2007
    
    2008(In thousands)Net cash provided by operating activities
    
    $
    521,149
    
    
    $
    478,873
    
    
    $
    586,357Net cash used in investing activities
    
    $
    420,384
    
    
    $
    845,550
    
    
    $
    756,903Net cash provided by (used in) financing activities
    
    $
    (204,987
    )
    
    $
    386,528
    
    
    $
    (48,374
    )
 59




---



##### Table of Contents



Historic operating cash flows
   Historic investing cash flows and capital expenditures
       60




---



##### Table of Contents



Historic financing cash flows
       Grants for research and development and training
   61




---



##### Table of Contents



Off-balance sheet arrangements
   Loan covenant compliance
      Contractual obligations
  62




---



##### Table of Contents



Payments due by period (in thousands)Less than
    
    


    
    


    
    
    More thanTotal
    
    
    1 year
    
    
1  3 years
    
    
3  5 years
    
    
    5 yearsShort-term and long-term debt including principal
and interest(1)
    
    $
    2,061,579
    
    
    $
    236,376
    
    
    $
    854,009
    
    
    $
    601,635
    
    
    $
    369,559Capital
lease obligations including principal and interest
    
    
    121,497
    
    
    
    11,233
    
    
    
    22,466
    
    
    
    21,939
    
    
    
    65,859Operating lease obligations
    
    
    114,911
    
    
    
    8,902
    
    
    
    14,356
    
    
    
    11,735
    
    
    
    79,918Purchase obligationsunder(2):Capital expenditures
    
    
    517,938
    
    
    
    272,882
    
    
    
    245,056
    
    
    
    
    
    
    
    Technology agreements
    
    
    359,316
    
    
    
    111,066
    
    
    
    199,250
    
    
    
    49,000
    
    
    
    Other
    
    
    213,893
    
    
    
    213,072
    
    
    
    393
    
    
    
    368
    
    
    
    60FIN 48 liability(3)
    
    
    4,097
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    20,417
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,417Total
    
    $
    3,413,648
    
    
    $
    853,531
    
    
    $
    1,335,530
    
    
    $
    684,677
    
    
    $
    535,813
 
 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
5.75% senior notes due 2010, the 6.25% senior notes due 2013 and the 6.375% senior notes due
2015 were issued at a price of 98.896%, 99.053% and 98.573%, respectively, of the principal
amount. As of December 31, 2008, the carrying amounts of the 5.75% senior notes due 2010, the
6.25% senior notes due 2013 and the 6.375% senior notes due 2015 were $373.5 million, $298.1
million and $247.4 million, respectively, as the unamortized debt discount was reported as a
direct reduction to the carrying 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, 2008. Actual payments could differ from
these estimates.(2)
    
    We have included purchase obligations that have been recorded on our consolidated balance
sheet as of December 31, 2008 in the above table. These
obligations amounted to $219.1 million, $5.0 million and $174.6 million for capital expenditures, technology agreements and
other purchase obligations primarily relating to operating expenses, respectively.(3)
    
    As of December 31, 2008, our FIN 48 liability was $4.0 million. We were unable to reasonably
estimate the timing of FIN 48 liability payments due to uncertainties in the timing of the
effective settlement of tax positions.   Special tax status
  
    
    the wafer fabrication of advanced semiconductor devices at Fab 3E for a ten-year period
beginning April 1, 1999; and
    
    the wafer fabrication of Application Specific Integrated Circuits, or ASICs, and other
advanced semiconductor devices at Fab 6 for a ten-year period beginning September 1, 2003.
  
    
    post-pioneer 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 status for the wafer fabrication of advanced semiconductor
devices at Fab 3E for a
 63




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five-year period beginning April 1, 2009; and
 
    
    development and expansion status for the wafer fabrication of ASICs and other advanced
semiconductor devices at Fab 6 for a five-year period beginning September 1, 2013.
     Foreign currency risk
  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
   64




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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. DIRECTORS AND SENIOR MANAGEMENT
  65




---



##### Table of Contents



Board of Directors
 Name
    
    Age
    
    PositionJames A. Norling(1)(2)(4)
    
    66
    
    Chairman of the BoardChia Song Hwee(1)
    
    46
    
    DirectorAndre Borrel(2)(4)(5)
    
    72
    
    DirectorCharles E. Thompson(2)(4)
    
    79
    
    DirectorTay Siew Choon(1)(2)(4)
    
    61
    
    DirectorPeter Seah Lim Huat(1)(2)(4)
    
    62
    
    DirectorPhilip Tan Yuen Fah(3)
    
    64
    
    DirectorPasquale Pistorio
    
    72
    
    DirectorSteven H. Hamblin (3)
    
    60
    
    DirectorMaurizio Ghirga (3)
    
    70
    
    Director
 Senior Management
 Name
    
    Age
    
    PositionChia Song Hwee
    
    46
    
    President and Chief Executive OfficerGeorge Thomas
    
    55
    
    Senior Vice President and Chief Financial OfficerAng Kay Chai(6)
    
    49
    
    Senior Vice President, Worldwide Sales and MarketingHsia Liang Choo, PhD
    
    60
    
    Senior Vice President, Technology DevelopmentSimon Yang, PhD
    
    49
    
    Senior Vice President, Fab Operations and Chief
Technology OfficerBaskara Rao Paidithali
    
    43
    
    Vice President, Chief Information OfficerLeow Kim Keat
    
    46
    
    Vice President, Customer Support Operations and
Supply Management OrganizationKevin Meyer
    
    56
    
    Vice President, Industry Marketing and Platform AlliancesNg Seng Huwi
    
    51
    
    Vice President, Human ResourcesTony Tsai
    
    59
    
    Vice President, Quality and Reliability Assurance
 
 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)
    
    Mr. Andre Borrel will be retiring at our annual general meeting of shareholders to be held on
April 30, 2009.(6)
    
    Resigned as Senior Vice President, Worldwide Sales and Marketing and his last day will be on
February 28, 2009. Biographical Information
 James A. Norling
  66




---



##### Table of Contents



Chia Song Hwee
  Andre Borrel
  Charles E. Thompson
  Tay Siew Choon
  Peter Seah Lim Huat
  Philip Tan Yuen Fah
  67




---



##### Table of Contents



Pasquale Pistorio
  Steven H. Hamblin
  Maurizio Ghirga
  George Thomas
  Ang Kay Chai
  68




---



##### Table of Contents



Hsia Liang-Choo, PhD
  Simon Yang, PhD
  Baskara Rao Paidithali
  Leow Kim Keat
  Kevin Meyer
  69




---



##### Table of Contents



Ng Seng Huwi
  Tony Tsai
  B. COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT
    70




---



##### Table of Contents



Cash-Based Compensation
    
    Share-Based($ in thousands)
    
    Compensation(4)Directors
    
    
    
    
    
    Number
    
    NumberSalary(1)
    
    Bonus
    
    Others(2)
    
    Fees(3)
    
    Total
    
    of RSUs(5)
    
    of PSUs(6)Chia Song Hwee
    
    
    522
    
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    599
    
    
    
    600,000
    
    
    
    276,410James A. Norling
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    134
    
    
    
    134
    
    
    
    70,920
    
    
    
    Andre Borrel
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    66
    
    
    
    39,900
    
    
    
    Charles E. Thompson
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    66
    
    
    
    39,320
    
    
    
    Tay Siew Choon
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    50
    
    
    
    30,190
    
    
    
    Peter Seah Lim Huat
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    58
    
    
    
    35,110
    
    
    
    Philip Tan Yuen Fah
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    55
    
    
    
    35,110
    
    
    
    Pasquale Pistorio
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59
    
    
    
    59
    
    
    
    28,790
    
    
    
    Steven H. Hamblin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    70
    
    
    
    42,830
    
    
    
    Maurizio Ghirga
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    70
    
    
    
    42,830
    
    
    
    Total as of December 31, 2008
    
    
    522
    
    
    
    
    
    
    
    77
    
    
    
    628
    
    
    
    1,227
    
    
    
    965,000
    
    
    
    276,410Total as of December 31, 2007
    
    
    542
    
    
    
    
    
    
    
    77
    
    
    
    570
    
    
    
    1,189
    
    
    
    
    
    
    
    
 
 Notes:(1)
    
    Base salary (inclusive of employers CPF).(2)
    
    Allowances (inclusive of employers CPF) and others.(3)
    
    Shareholders approved the payment of directors fees for 2008 of $585,000 (including the
directors fees of $20,000 to Dr. Tsugio Makimoto who retired in April 2008) at our last
annual general meeting held in
April 2008. Shareholders approval will be sought 71




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##### Table of Contents



at our annual general meeting to be held in April 2009 for the payment of additional directors
fees of $63,000 for the fiscal year ended December 31, 2008 and directors fees of up to
$600,000 for the fiscal year ending December 31, 2009.(4)
    
    No options to purchase shares were granted to our directors in 2008.(5)
    
    RSUs granted under the RSU Plan. One RSU entitles the holder thereof to one ordinary share
upon vesting. RSUs awarded under the RSU Plan are subject to time-based vesting conditions as
well as other conditions as may be determined by the ERCC in accordance with the provisions of
the RSU Plan.(6)
    
    PSUs granted under the PSU Plan. One PSU entitles the holder thereof to one ordinary share
upon vesting. PSUs granted under the PSU Plan are subject to certain pre-determined conditions
and time-based vesting conditions, which are determined by the ERCC at the grant date. The
final number of PSUs awarded, if any, will depend on the achievement of those conditions and
the PSUs awarded will vest after the third anniversary of the date of grant upon approval by
the ERCC.
  Cash-Based Compensation($ in thousands)Salary(1)
    
    
    Bonus
    
    
    Others(2)
    
    
    TotalUS$450,000 - US$699,999Chia Song Hwee
    
    
    522
    
    
    
    
    
    
    
    77
    
    
    
    59987
    %
    
    
    
    
    
    
    13
    %
    
    
    100
    %Aggregate of top four
senior executives for
2008
    
    
    1,564
    
    
    
    
    
    
    
    663
    
    
    
    2,227Average person
    
    
    391
    
    
    
    
    
    
    
    166
    
    
    
    557Ang Kay Chai
    
    
    88
    %
    
    
    0
    %
    
    
    12
    %
    
    
    100
    %George Thomas
    
    
    72
    %
    
    
    0
    %
    
    
    28
    %
    
    
    100
    %Hsia Liang Choo
    
    
    66
    %
    
    
    0
    %
    
    
    34
    %
    
    
    100
    %Yang Simon Shi-Ning
    
    
    60
    %
    
    
    0
    %
    
    
    40
    %
    
    
    100
    %
 
 Notes:(1)
    
    Base salary (inclusive of employers CPF).(2)
    
    Allowances (inclusive of employers CPF) and other benefits. Share-Based Compensation Granted in 2008ExerciseTotal
    
    
    
    
    
    Period of
    
    
    
    
    
    
    
    
    
    
    
    
    
    VestingOptions
    
    Exercise
    
    Options
    
    Number
    
    Vesting Period
    
    Number of
    
    Period ofGranted
    
    Price
    
    Granted
    
    of RSUs(1)
    
    of RSUs
    
    PSUs(2)
    
    PSUsChia Song Hwee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600,000
    
    
    30/05/2009 to30/05/2011
    
    
    276,410
    
    
    
    30/05/2011Ang Kay Chai
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    244,310
    
    
    30/05/2009 to30/05/2011
    
    
    171,830
    
    
    
    30/05/2011George Thomas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    590,900
    
    
    30/05/2009 to30/05/2011
    
    
    171,830
    
    
    
    30/05/2011Hsia Liang Choo
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    244,310
    
    
    30/05/2009 to30/05/2011
    
    
    171,830
    
    
    
    30/05/2011Yang Simon Shi-Ning (3))
    
    
    1,000,000
    
    
    $
    0.92
    
    
    16/05/2009 to16/05/2018
    
    
    284,090
    
    
    30/05/2009 to30/05/2011
    
    
    171,830
    
    
    
    30/05/2011
 
 Notes:(1)
    
    RSUs granted under the RSU Plan. One RSU entitles the holder thereof to one ordinary share
upon vesting. RSUs awarded under the RSU Plan are subject to time-based vesting conditions as
well as other conditions as may be determined by the ERCC in accordance with the provisions of
the RSU Plan.(2)
    
    PSUs granted under the PSU Plan. One PSU entitles the holder thereof to one ordinary share
upon vesting. PSUs granted under the PSU Plan are subject to certain pre-determined conditions
and time-based vesting conditions, which are determined by the 72




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##### Table of Contents



ERCC at the grant date. The final number of PSUs awarded, if any, will depend on the achievement
of those conditions and the PSUs awarded will vest after the third anniversary of the date of
grant upon approval by the ERCC.(3)
    
    Options granted in 2008 as set forth in his employment contract dated August 16, 2005. 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 determined 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 of directors must be made by a majority of the independent
directors on the full Board.
   Committees of the Board of Directors
 Executive Committee
  Audit Committee
  73




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##### Table of Contents



Executive Resource and Compensation Committee
   Nominating Committee
   D. EMPLOYEES
  Functions
    
    2006
    
    2007
    
    2008Engineering (Modules, Yield Engineering, Process
Integration, Product Engineering, Joint Venture
Technology, Metrology)
    
    
    1,856
    
    
    
    2,054
    
    
    
    2,529Manufacturing Operations
    
    
    1,011
    
    
    
    1,146
    
    
    
    1,321Manufacturing Support
    
    
    724
    
    
    
    727
    
    
    
    1,027Research and Development
    
    
    508
    
    
    
    543
    
    
    
    602Administration, Marketing and Finance
    
    
    582
    
    
    
    655
    
    
    
    525Total
    
    
    4,681
    
    
    
    5,125
    
    
    
    6,004
 As of December 31,Geographical Locations
    
    2006
    
    2007
    
    2008Singapore
    
    
    4,540
    
    
    
    4,967
    
    
    
    5,843United
States of America
    
    
    103
    
    
    
    119
    
    
    
    119Europe
    
    
    15
    
    
    
    14
    
    
    
    15Asia-Pacific (other than Singapore)
    
    
    23
    
    
    
    25
    
    
    
    27Total
    
    
    4,681
    
    
    
    5,125
    
    
    
    6,004
 74




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##### Table of Contents



E. SHARE OWNERSHIP FOR DIRECTORS AND SENIOR MANAGEMENT
  No. of Ordinary Shares(1)Directors
    
    Beneficially Owned(2)James A. Norling
    
    
    1,666,675Chia Song Hwee
    
    
    8,345,213Andre Borrel(3)
    
    
    331,000Charles E. Thompson
    
    
    330,690Tay Siew Choon
    
    
    229,940Peter Seah Lim Huat
    
    
    319,230Philip Tan Yuen Fah
    
    
    319,230Pasquale Pistorio
    
    
    2,669,940Steven H. Hamblin
    
    
    119,940Maurizio Ghirga
    
    
    39,940All directors and senior management(4) as a group (19 persons)(5)
    
    
    25,950,050
 
 Notes:(1)
    
    The number of ordinary shares listed in this table includes ordinary shares held in the form
of ADSs.(2)
    
    Gives effect to the ordinary shares issuable within 60 days from December 31, 2008 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 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.(3)
    
    Mr. Andre Borrel will be retiring at our annual general meeting of shareholders to be held on
April 30, 2009.(4)
    
    None of our directors or senior management individually owned 1% or more of our outstanding
ordinary shares as of December 31, 2008 based on an aggregate of 2,543,199,909 ordinary shares
outstanding as of such date.(5)
    
    This includes the number of ordinary shares beneficially owned by Mr. Ang Kay Chai, a member
of our senior management, who resigned from our company and whose last day will be on February
28, 2009. 75




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##### Table of Contents



Equity Awards for Directors
  Number ofOrdinary SharesIssuable Upon
    
    
    
    
    
    
    
    
    
    
    
    
    
    NumberExercise of
    
    Exercise Price
    
    
    
    
    
    Number of
    
    ofDirectors
    
    Options
    
    S$
    
    Exercise Period
    
    RSUs(1)
    
    PSUs(2)James A. Norling
    
    
    1,172,195
    
    
    
    3.88
    
    
    01/05/2002 to 01/05/2012
    
    
    87,890
    
    
    
    110,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/2009110,000
    
    
    
    1.16
    
    
    26/08/2006 to 26/08/2010120,000
    
    
    
    1.21
    
    
    25/08/2007 to 25/08/201160,000
    
    
    
    1.07
    
    
    31/08/2008 to 31/08/2012Chia Song Hwee
    
    
    26,444
    
    
    
    0.80
    
    
    30/04/1999 to 29/04/2009
    
    
    816,820
    
    
    
    516,730234,439
    
    
    
    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 26/08/20151,000,000
    
    
    
    1.21
    
    
    25/08/2007 to 25/08/2016470,000
    
    
    
    1.07
    
    
    31/08/2008 to 31/08/2017Andre Borrel
    
    
    85,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/2009
    
    
    49,800
    
    
    
    60,000
    
    
    
    1.16
    
    
    26/08/2006 to 26/08/201070,000
    
    
    
    1.21
    
    
    25/08/2007 to 25/08/201135,000
    
    
    
    1.07
    
    
    31/08/2008 to 31/08/2012Charles E. Thompson
    
    
    60,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/2009
    
    
    49,220
    
    
    
    60,000
    
    
    
    1.16
    
    
    26/08/2006 to 26/08/201070,000
    
    
    
    1.21
    
    
    25/08/2007 to 25/08/201135,000
    
    
    
    1.07
    
    
    31/08/2008 to 31/08/2012Peter Seah Lim Huat
    
    
    85,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/2009
    
    
    48,570
    
    
    
    85,000
    
    
    
    1.16
    
    
    26/08/2006 to 26/08/201095,000
    
    
    
    1.21
    
    
    25/08/2007 to 25/08/201147,500
    
    
    
    1.07
    
    
    31/08/2008 to 31/08/2012Tay Siew Choon
    
    
    60,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/2009
    
    
    40,090
    
    
    
    60,000
    
    
    
    1.16
    
    
    26/08/2006 to 26/08/201070,000
    
    
    
    1.21
    
    
    25/08/2007 to 25/08/201135,000
    
    
    
    1.07
    
    
    31/08/2008 to 31/08/2012
 76




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Number ofOrdinary SharesIssuable Upon
    
    
    
    
    
    
    
    
    
    
    
    
    
    NumberExercise of
    
    Exercise Price
    
    
    
    
    
    Number of
    
    ofDirectors
    
    Options
    
    S$
    
    Exercise Period
    
    RSUs(1)
    
    PSUs(2)Philip Tan Yuen Fah
    
    
    85,000
    
    
    
    1.70
    
    
    27/02/2005 to 27/02/2009
    
    
    48,570
    
    
    
    85,000
    
    
    
    1.16
    
    
    26/08/2006 to 26/08/201095,000
    
    
    
    1.21
    
    
    25/08/2007 to 25/08/201147,500
    
    
    
    1.07
    
    
    31/08/2008 to 31/08/2012Pasquale Pistorio
    
    
    60,000
    
    
    
    1.16
    
    
    26/08/2006 to 26/08/2010
    
    
    38,690
    
    
    
    70,000
    
    
    
    1.21
    
    
    25/08/2007 to 25/08/201135,000
    
    
    
    1.07
    
    
    31/08/2008 to 31/08/2012Steven H. Hamblin
    
    
    70,000
    
    
    
    1.21
    
    
    25/08/2007 to 25/08/2011
    
    
    52,730
    
    
    
    35,000
    
    
    
    1.07
    
    
    31/08/2008 to 31/08/2012Maurizio Ghirga
    
    
    35,000
    
    
    
    1.07
    
    
    31/08/2008 to 31/08/2012
    
    
    52,730
    
    
    
    
 
 Notes:(1)
    
    RSUs granted under the RSU Plan. One RSU entitles the holder thereof to one ordinary share
upon vesting. RSUs awarded under the RSU Plan are subject to time-based vesting conditions as
well as other conditions as may be determined by the ERCC in accordance with the provisions of
the RSU Plan.(2)
    
    PSUs granted under the PSU Plan. One PSU entitles the holder thereof to one ordinary share
upon vesting. PSUs granted under the PSU Plan are subject to certain pre-determined conditions
and time-based vesting conditions, which are determined by the ERCC at the grant date. The
final number of PSUs awarded, if any, will depend on the achievement of those conditions and
the PSUs awarded will vest after the third anniversary of the date of grant upon approval by
the ERCC.
 Employee Benefit Plans
  Share Option Plan 1999
   
    
    the exercise price of the option was 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 was not exercisable
after the expiration of five years from the date of grant.
    77




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Employee Share Purchase Plans
      Restricted Share Unit Plan 2007
   78




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##### Table of Contents



Performance Share Unit Plan 2007
      79




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##### Table of Contents



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)
    
    
    1,510,324,883
    
    
    
    59.39
    %The Dodge & Cox International Stock Fund
    
    
    179,811,000
    
    
    
    7.07
    %
 
 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 1,510,324,883 ordinary shares deemed to be beneficially owned by Temasek are held by ST
Semiconductors. ST Semiconductors is a wholly-owned subsidiary of Temasek. Temasek may
therefore be deemed to beneficially own the shares owned by ST Semiconductors.  B. RELATED PARTY TRANSACTIONS
 The Temasek Group
   Transactions with the Temasek Group
   80




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##### Table of Contents



C. INTERESTS OF EXPERTS AND COUNSEL
  
 ITEM 8. FINANCIAL INFORMATION
 A. CONSOLIDATED FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION
  Export Sales
  Dividend Policy
  81




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##### Table of Contents



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
    
    Low2004
    
    $
    11.35
    
    
    $
    5.762005
    
    $
    9.01
    
    
    $
    5.522006
    
    $
    11.81
    
    
    $
    6.702007
    
    $
    10.48
    
    
    $
    6.562008
    
    $
    6.92
    
    
    $
    1.15Singapore ExchangeHigh
    
    Low2004
    
    S$
    1.89
    
    
    S$
    0.922005
    
    S$
    1.44
    
    
    S$
    0.922006
    
    S$
    1.84
    
    
    S$
    1.032007
    
    S$
    1.61
    
    
    S$
    0.962008
    
    S$
    0.97
    
    
    S$
    0.175
 (b) Quarterly high and low market prices
 NasdaqHigh
    
    LowJanuary 1, through March 31, 2007
    
    $
    10.48
    
    
    $
    8.08April 1, through June 30, 2007
    
    $
    9.84
    
    
    $
    8.17July 1, through September 30, 2007
    
    $
    8.79
    
    
    $
    6.64October 1, through December 31, 2007
    
    $
    7.80
    
    
    $
    6.56January 1, through March 31, 2008
    
    $
    6.59
    
    
    $
    4.74April 1, through June 30, 2008
    
    $
    6.92
    
    
    $
    5.36July 1, through September 30, 2008
    
    $
    5.65
    
    
    $
    2.61October 1, through December 31, 2008
    
    $
    2.85
    
    
    $
    1.15Singapore ExchangeHigh
    
    LowJanuary 1, through March 31, 2007
    
    S$
    1.61
    
    
    S$
    1.22April 1, through June 30, 2007
    
    S$
    1.48
    
    
    S$
    1.24July 1, through September 30, 2007
    
    S$
    1.34
    
    
    S$
    1.04
 82




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##### Table of Contents



Singapore ExchangeHigh
    
    LowOctober 1, through December 31, 2007
    
    S$
    1.14
    
    
    S$
    0.96January 1, through March 31, 2008
    
    S$
    0.965
    
    
    S$
    0.655April 1, through June 30, 2008
    
    S$
    0.97
    
    
    S$
    0.73July 1, through September 30, 2008
    
    S$
    0.77
    
    
    S$
    0.38October 1, through December 31, 2008
    
    S$
    0.39
    
    
    S$
    0.175
 (c) Monthly high and low market prices
 NasdaqHigh
    
    LowAugust 2008
    
    $
    4.32
    
    
    $
    3.37September 2008
    
    $
    3.19
    
    
    $
    2.61October 2008
    
    $
    2.85
    
    
    $
    1.52November 2008
    
    $
    2.00
    
    
    $
    1.19December 2008
    
    $
    1.27
    
    
    $
    1.15January 2009
    
    $
    2.00
    
    
    $
    1.25Singapore ExchangeHigh
    
    
    LowAugust 2008
    
    S$
    0.59
    
    
    S$
    0.485September 2008
    
    S$
    0.45
    
    
    S$
    0.38October 2008
    
    S$
    0.39
    
    
    S$
    0.225November 2008
    
    S$
    0.25
    
    
    S$
    0.19December 2008
    
    S$
    0.20
    
    
    S$
    0.175January 2009
    
    S$
    0.31
    
    
    S$
    0.18
   
 ITEM 10. ADDITIONAL INFORMATION
 A. SHARE CAPITAL
    B. OUR MEMORANDUM AND ARTICLES OF ASSOCIATION
  Objects and purposes
  83




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Directors
       Shares
  New ordinary shares
   Transfer of ordinary shares
  Convertible redeemable preference shares
  84




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##### Table of Contents




    
    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
    85




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##### Table of Contents



Dividends
   Bonus and rights issue
  Liquidation or other return of capital
   Redemption of preference shares
  
    
    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 call
 86




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If 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 calendar 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
  87




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
    
    commencing from 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.
  Limitations on rights to hold or vote shares
  Provisions discriminating against any existing or prospective holder of shares
  Take-overs
     88




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##### Table of Contents



Indemnity
  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
 Chartered Loan Agreements
 89




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##### Table of Contents



EXIM Guaranteed Loan
   BOA Term Loan
  90




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##### Table of Contents



SMBC Facility Agreement
   Japan Bank for International Cooperation and SMBC Facility Agreement
  Société Générale Term Loan Facility
  91




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##### Table of Contents



Equity Call Option
        5.75% senior notes due 2010 and 6.375% senior notes due 2015
  92




---



##### Table of Contents



Convertible Redeemable Preference Shares and 6% Amortizing Bonds due 2010
      6.25% senior notes due 2013
  93




---



##### Table of Contents



(b) Strategic business alliances
 CSP
     SMP
    94




---



##### Table of Contents



(c) Technology transfer, licenses, joint development and other related agreements
 Agere Systems
    IBM
     95




---



##### Table of Contents



IBM, Infineon and Samsung
  Motorola
  Toshiba
  (d) Leases
  (e) Acquisition of Hitachi Semiconductor Singapore Pte Ltd
  96




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##### Table of Contents



D. EXCHANGE CONTROLS
  Exchange rates
   Singapore Dollars Per US$1.00Noon Buying RateFiscal Year Ended December 31,
    Average(1)
    High
    
    Low
    
    Period End2004
    
    
    1.6870
    
    
    
    1.7291
    
    
    
    1.6308
    
    
    
    1.63192005
    
    
    1.6648
    
    
    
    1.7058
    
    
    
    1.6180
    
    
    
    1.66282006
    
    
    1.5804
    
    
    
    1.6521
    
    
    
    1.5338
    
    
    
    1.53382007
    
    
    1.5035
    
    
    
    1.5439
    
    
    
    1.4360
    
    
    
    1.43602008
    
    
    1.4098
    
    
    
    1.5310
    
    
    
    1.3472
    
    
    
    1.4377
 Singapore Dollars Per US$1.00Noon Buying RateMonth
    
    High
    
    LowAugust 2008
    
    
    1.4255
    
    
    
    1.3725September 2008
    
    
    1.4440
    
    
    
    1.4132October 2008
    
    
    1.5111
    
    
    
    1.4366November 2008
    
    
    1.5306
    
    
    
    1.4720December 2008
    
    
    1.5310
    
    
    
    1.4333January 2009
    
    
    1.5106
    
    
    
    1.4513
 
 Note :(1)
    
    The average of the daily noon buying rates on the last business day of each month during the
year. 97




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E. TAXATION
 Singapore Taxation
   Income tax
    Dividend distributions
  (one-tier
system).
  Tax on capital gains
  Stamp duty
   98




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##### Table of Contents



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, or
    
    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.
  Ownership of ADSs
  Dividends
     99




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##### Table of Contents



Sale or exchange of ordinary shares or ADSs
  PFIC rules
      Estate taxes
  Backup withholding tax and information reporting requirements
  100




---



##### Table of Contents



F. DIVIDENDS AND PAYING AGENTS
  G. STATEMENT BY EXPERTS
  H. DOCUMENTS ON DISPLAY
   I. SUBSIDIARY INFORMATION
  
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Quantitative and qualitative disclosures about market risk
  Interest rate risk
   101




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##### Table of Contents



As of December 31, 2008Expected Maturity Date(in thousands, except interest rates)Fair2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    2013
    
    
    Thereafter
    
    
    Total
    
    
    ValueLong-term debt:Floating rate debt (US$)
    
    
    $147,637
    
    
    
    $156,683
    
    
    
    $180,097
    
    
    
    $115,242
    
    
    
    $85,775
    
    
    
    $55,875
    
    
    
    $741,309
    
    
    
    $741,309Weighted average interest rate
    
    
    3.257%
    
    
    
    3.262%
    
    
    
    3.246%
    
    
    
    3.247%
    
    
    
    3.247%
    
    
    
    3.175%
    
    
    
    3.2465%
    (1)Fixed rate debt (US$)
    
    
    $9,875
    
    
    
    $385,476
    
    
    
    $14,368
    
    
    
    $14,368
    
    
    
    $314,368
    
    
    
    $278,737
    
    
    
    $1,017,192
    
    
    
    $816,544Weighted average interest rate
    
    
    6.000%
    
    
    
    5.757%
    
    
    
    5.645%
    
    
    
    5.645%
    
    
    
    6.222%
    
    
    
    6.300%
    
    
    
    6.0487%
    (1)Total
    
    $
    157,512
    
    
    $
    542,159
    
    
    $
    194,465
    
    
    $
    129,610
    
    
    $
    400,143
    
    
    $
    334,612
    
    
    $
    1,758,501
    
    
    $
    1,557,853
 As of December 31, 2007(in thousands)Total
    
    
    Fair ValueLong-term debt:Floating rate debt
    
    
    $543,501
    
    
    
    $544,362Fixed rate debt
    
    
    954,659
    
    
    
    964,842Total
    
    
    $1,498,160
    
    
    
    $1,509,204
 
 Note :(1)
    
    Average interest rates under Total are the weighted average interest rates of long-term debt
outstanding as of December 31, 2008.  Foreign currency risk
     102




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As of December 31, 2008Expected Maturity Date of Notional Amounts
    
    
    As of December 31, 2007(in thousands, except interest rates)
    
    
    (in thousands)2009
    
    
    Thereafter
    
    
    Total
    
    
    Fair Value
    
    
    Total
    
    
    Fair ValueFORWARD FOREIGN EXCHANGE
AGREEMENTS:(Receive Yen/Pay US$)Contract Amount
    
    
    $9,491
    
    
    
    
    
    
    
    $9,491
    
    
    
    $(65
    )
    
    
    $
    
    
    
    $Average Contractual Exchange Rate
    
    
    90.1501
    
    
    
    (Receive S$/Pay US$)Contract Amount
    
    
    $5,002
    
    
    
    
    
    
    
    $5,002
    
    
    
    $29
    
    
    
    $5,972
    
    
    
    $41Average Contractual Exchange Rate
    
    
    1.4455
    
    
    
    (Receive Euros/Pay US$)Contract Amount
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $17,328
    
    
    
    $(183
    )Average Contractual Exchange Rate
    
    
    
    
    
    
    Total Contract Amount
    
    
    $14,493
    
    
    
    
    
    
    
    $14,493
    
    
    
    $(36
    )
    
    
    $23,300
    
    
    
    $(142
    )
  Denominated in Japanese Yen (in thousands)
    
    
    325,758
  
 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
 Evaluation of Disclosure Controls and Procedures
  103




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Managements Report on Internal Control Over Financial Reporting
   
    
    pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect our transactions and the dispositions of our assets;
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and members of our board of directors; and
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of our assets that could have a material effect on our
financial statements.
     Changes in Internal Control over Financial Reporting
  104




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
         .
  
 105




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##### Table of Contents



ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM 16B. CODE OF ETHICS
   
 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Audit fees
    
    Audit-related fees
    
    Tax fees
    
    All other fees
    
    Total($ in thousands)2007
    
    
    1,359
    
    
    
    161
    
    
    
    188
    
    
    
    15
    
    
    
    1,7232008
    
    
    1,218
    
    
    
    94
    
    
    
    187
    
    
    
    21
    
    
    
    1,520
 Audit-related fees
  Tax fees
  
 All other fees
  
 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
  
 ITEM 16F. CHANGE OF REGISTRANTS CERTIFYING ACCOUNTANT
  106




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##### Table of Contents



ITEM 16G. CORPORATE GOVERNANCE
  
 PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  
 ITEM 18. FINANCIAL STATEMENTS
  Chartered Semiconductor Manufacturing Ltd. Consolidated Financial Statements
        Silicon Manufacturing Partners Pte Ltd Financial Statements
        107




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##### Table of Contents



ITEM 19. EXHIBITS
 1(1)
    
    Memorandum and Articles of Association of the company.2.1(2)
    
    Specimen certificate for ordinary shares issued prior to January 30, 2006.2.2(27)
    
    Specimen certificate for ordinary shares in respect of new issuances of
shares issued on and after January 30, 2006.2.3(27)
    
    Specimen certificate for ordinary shares transferred on and after January
30, 2006 in respect of shares issued before January 30, 2006.2.4 (23)
    
    Specimen certificate for convertible redeemable preference shares.2.5(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).2.5.1(29)
    
    Letter Agreement dated September 26, 2007 by and between the company and
Citibank, N.A., supplementing the 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.2.6(19)
    
    Conversion Price Certificate dated August 17, 2005 of the company.Loan Agreements and Indentures4.1.1(6)
    
    Indenture dated as of April 2, 2001 by and between the company and Wells
Fargo Bank Minnesota, National Association.4.1.2(20)
    
    Second Supplemental Indenture dated August 3, 2005 by and between the
company and The Bank of New York.4.1.3(20)
    
    Third Supplemental Indenture dated August 3, 2005 by and between the
company and The Bank of New York.4.1.4(21)
    
    Fourth Supplemental Indenture dated August 17, 2005 by and between the
company and The Bank of New York.4.1.5(24)
    
    Fifth Supplemental Indenture dated April 4, 2006 by and between the
company and The Bank of New York.4.2(21)
    
    Master Agency Agreement dated August 17, 2005 by and between the company
and The Bank of New York.4.3(18)(+)
    
    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 as guarantor and JPMorgan Chase Bank, N.A as Facility
Agent.4.3.1(28)
    
    Amendment No. 1 dated May 16, 2007 to 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 as guarantor and
JPMorgan Chase Bank, N.A as Facility Agent.4.3.2(32)
    
    Amendment No. 2 dated August 6, 2008 to 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 as guarantor and
JPMorgan Chase Bank, N.A. as Facility Agent.4.3.3(28)(+)
    
    Facility Agreement dated May 16, 2007 by and among the company as
Borrower, JPMorgan Chase Bank, N.A. as Lender, Export-Import Bank of the
United States as guarantor and JPMorgan Chase Bank, N.A. as Facility
Agent.
 108




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4.3.4(32)
    
    Amendment No. 1 dated August 6, 2008 to the Facility Agreement dated May
16, 2007 by and among the company as Borrower, JPMorgan Chase Bank, N.A.
as Lender, Export-Import Bank of the United States as guarantor and
JPMorgan Chase Bank, N.A. as Facility Agent.4.4(25)(+)
    
    Letter of Confirmation from Goldman Sachs International to the company
dated March 29, 2006 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.4.4.1(33)
    
    Amendment dated as of
March 27, 2007 (effective March 9, 2007) to the Letter of Confirmation from
Goldman Sachs International to the company dated March 29, 2006
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.4.5(29)(+)
    
    Loan Agreement dated October 5, 2007 by and among the company as Borrower
and Japan Bank for International Cooperation and Sumitomo Mitsui Banking
Corporation, as Lenders.4.6(30)(+)
    
    Credit Agreement dated January 28, 2008 by and among the company as
Borrower, Société Générale as Arranger, Lender and Facility Agent, and
The Bank of New York, as Security Trustee and Account Bank.Strategic AlliancesCSP4.7.1(7)
    
    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 by an amendment (No.1) dated July 4,
1997 and an amendment (No. 2) dated October 1, 1999 (attaching the form
of the Restated Joint Venture Agreement dated October 23, 2001
(as defined below)).4.7.2(7)
    
    Amendment Agreement No. 1 dated January 31, 2002 to the Joint Venture
Agreement originally dated March 13, 1997 and amended and restated on
October 23, 2001 by and among the company, EDB Investments Pte Ltd,
Agilent Technologies Europe B.V. and Singapex Investments Pte Ltd (the
Restated Joint Venture Agreement dated October 23, 2001).4.7.3(23)
    
    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.SMP4.8.1(2)(+)
    
    Joint Venture Agreement dated December 19, 1997 by and between the
company and Lucent Technologies Microelectronics Pte. Ltd. (now known as
LSI Technology Singapore Pte. Ltd.).4.8.2(17)
    
    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. and now known as LSI Technology Singapore
Pte. Ltd.).4.8.3(22)
    
    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.4.8.4(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.4.8.5(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.
 109




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4.8.6(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.4.8.7(14)(+)
    
    Amendment Agreement (No. 1) dated July 27, 2000 to License and Technology
Transfer Agreement dated February 17, 1998 by and between the company,
Lucent Technologies Microelectronics Pte. Ltd. and Silicon Manufacturing
Partners Pte Ltd.4.8.8(8)(+)
    
    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.4.8.9(9)(+)
    
    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.4.8.10(4)(+)
    
    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/Lucent4.9.1(2)(+)
    
    Technology Transfer Agreement dated February 17, 1998 by and between the
company and Lucent Technologies Inc.4.9.2(8)(+)
    
    Amendment Agreement (No. 1) dated July 31, 2000 to Technology Transfer
Agreement dated February 17, 1998 between Lucent Technologies Inc. and the
company.4.9.3(8)(+)
    
    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.4.9.4(9)(+)
    
    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.4.9.5(2)
    
    Patent License Agreement dated January 1, 1998 by and between the company
and Lucent Technologies Inc.4.9.6(14)(+)
    
    Patent License Agreement Amendment dated August 18, 2000 by and between the
company and Lucent Technologies Inc.4.9.7(10)
    
    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.Toshiba4.10(2)(+)
    
    Patent Cross License Agreement dated August 12, 1999 by and between the
company and Toshiba Corporation.IBM4.11.1(7)(+)
    
    Patent Cross-License Agreement dated January 1, 2001 by and between the
company and International Business Machines Corporation.
 110




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4.11.2(11)(+)
    
    Amendment No. 1 dated November 26, 2002 to Patent Cross-License Agreement
dated January 1, 2001 by and between the company and International Business
Machines Corporation.4.11.3(11)(+)
    
    SF Process Development and Cost Sharing Agreement dated November 26, 2002
by and between the company and International Business Machines Corporation.4.11.4(11)(+)
    
    Copper / Related FEOL Technology License Agreement dated November 26, 2002
by and between the company and International Business Machines Corporation.4.11.5(22)(+)
    
    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.4.11.6(12)(+)
    
    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.4.11.7(16)(+)
    
    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.4.11.8(27)(+)
    
    Third Amended and Restated Amendment No. 3 dated November 17, 2006 to SF
Process Development and Cost Sharing Agreement dated November 26, 2002 by
and between the company and International Business Machines Corporation.4.11.9(18)(+)
    
    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.4.11.10(11)(+)
    
    Refundable Cross Deposit Agreement dated November 26, 2002 by and between
the company and International Business Machines Corporation.4.11.11(15)(+)
    
    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.4.11.12(25)(+)
    
    Letter Agreement dated March 27, 2006 to vary the terms of the Refundable
Cross Deposit Agreement dated November 26, 2002, as amended and
supplemented, by and between the company and International Business
Machines Corporation.4.11.13(27)(+)
    
    Master IBM Joint Development Terms and Conditions dated December 15, 2006
for joint development projects with International Business Machines
Corporation.4.11.14(27)(+)
    
    Joint Development Project Agreement dated December 15, 2006 for 32nm
Bulk-Industry Standard Semiconductor Process Technology by and between the
company and International Business Machines Corporation.4.11.15(31)(+)
    
    Third Amended and Restated Participation Agreement dated March 26, 2008 by
and between the company and International Business Machines Corporation.4.11.16(31)(+)
    
    Joint Development Project Agreement dated May 14, 2007 for 22nm
Bulk-Industry Standard Semiconductor Process Technology by and between the
company and International Business Machines Corporation.Property AgreementsFabs 2, 3 and 54.12.1(18)
    
    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.
 111




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##### Table of Contents



4.12.2(5)
    
    Sub-Lease Agreement dated February 17, 1998 by and
between the company and Silicon Manufacturing Partners
Pte Ltd.4.12.3(18)
    
    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 Sembawang.Fab 3 Site Slurry Treatment Plant4.13.1(23)
    
    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.4.13.2(23)
    
    Novation Agreement dated July 8, 2005 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(k)) dated
July 8, 2005.4.13.3(27)
    
    Supplemental Agreement dated January 3, 2007 by and
between Terra Investments Pte. Ltd. and the company
relating to the Agreement for Sub-License and Sub-Lease
(Private Lot A12787(k) now known as A1964508) dated
July 8, 2005.Fab 3E4.14(33)
    
    Lease Agreement dated June 25, 2008 by and between
Jurong Town Corporation and Chartered Semiconductor
Manufacturing (Tampines) Pte. Ltd. relating to Lot No.
MK29-2300W.Fab 64.15.1(5)
    
    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.4.15.2(5)
    
    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.4.15.3(18)
    
    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 74.16.1(13)
    
    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.4.16.2(13)
    
    Building Agreement relating to Private Lot A12787(e)
G.S. No. 3696K, Mukim No. 13 dated July 30, 2001 by and
between Jurong Town Corporation and Singapore
Technologies Pte Ltd.4.16.3(18)
    
    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, 2001.4.16.4(27)
    
    Supplemental Agreement dated January 3, 2007 by and
between Terra Investments Pte. Ltd. and the company
relating to the Agreement for Sub-License and Sub-Lease
(Private Lot A12787(e) now known as A1964507) dated
July 30, 2001.4.17.1(27)
    
    Offer Letter dated February 16, 2006 from Jurong Town
Corporation to Terra Investments Pte. Ltd. for the
lease of land known as Private Lot A1964510 at Plot 6
Woodlands Industrial Park D in Woodlands Wafer Fab
Park.4.17.2(27)
    
    Acceptance of Offer dated February 21, 2006 from the
company to Terra Investments Pte. Ltd. relating to
Private Lot A1964510 at Plot 6 Woodlands Industrial
Park D in Woodlands Wafer Fab Park.
 112




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4.17.3(27)
    
    Acceptance of Offer dated February 24, 2006 from Terra
Investments Pte. Ltd. to Jurong Town Corporation
relating to Private Lot A1964510 at Plot 6 Woodlands
Industrial Park D in Woodlands Wafer Fab Park.Acquisition of Hitachi Semiconductor Singapore Pte. Ltd.4.18(30)
    
    Stock Purchase Agreement dated February 15, 2008 by and
amongst the company, Hitachi, Ltd. and Hitachi Asia
Ltd. for the purchase of 100% of the shares in Hitachi
Semiconductor Singapore Pte. Ltd.Related Party Agreements4.19(11)
    
    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.4.20(15)
    
    Mr. Chia Song Hwees, President and Chief Executive
Officer, Contract of Employment dated January 8, 2004.8(33)
    
    List of the companys subsidiaries.12.1(33)
    
    Certification of the President and Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.12.2(33)
    
    Certification of the Senior Vice President and Chief
Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.13.1(33)
    
    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(33)
    
    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(33)
    
    Consent of KPMG relating to the
incorporation of audit report relating to Chartered Semiconductor
Manufacturing Ltd.15.2(33)
    
    Consent of KPMG relating to the
incorporation of audit report relating to Silicon Manufacturing
Partners Pte Ltd.
 
 Notes:(1)
    
    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 August 2, 2007,
which exhibit is incorporated herein by reference. The
Memorandum and Articles of Association were amended by
special resolution of our shareholders passed on April
24, 2007.(2)
    
    Filed as an exhibit to our companys Amended
Registration Statement on Form F-1/A (Registration No.
333-88397), 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 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.(5)
    
    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.(6)
    
    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.(7)
    
    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. 113




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(8)
    
    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.(9)
    
    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.(10)
    
    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.(11)
    
    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.(12)
    
    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.(13)
    
    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.(14)
    
    Submitted as an exhibit to our companys Third
Quarterly Report 2000 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.(15)
    
    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 3, 2004,
which exhibit is incorporated herein by reference.(16)
    
    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.(17)
    
    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.(18)
    
    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.(19)
    
    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 17, 2005,
which exhibit is incorporated herein by reference.(20)
    
    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, 2005,
which exhibit is incorporated herein by reference.(21)
    
    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.(22)
    
    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.(23)
    
    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 1, 2006,
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 April 5, 2006,
which exhibit is incorporated herein by reference.(25)
    
    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 10, 2006, which exhibit is incorporated herein
by reference. 114




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(26)
    
    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 9, 2006,
which exhibit is incorporated herein by reference.(27)
    
    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 15, 2007,
which exhibit is incorporated herein by reference.(28)
    
    Submitted as an exhibit to our companys Second
Quarterly Report on Form 6-K (File No. 000-27811), as
submitted with the Securities and Exchange Commission
on August 7, 2007, which exhibit is incorporated herein
by reference.(29)
    
    Submitted as an exhibit to our companys Third
Quarterly Report on Form 6-K (File No. 000-27811), as
submitted with the Securities and Exchange Commission
on November 7, 2007, which exhibit is incorporated
herein by reference.(30)
    
    Filed as 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 10, 2008, which
exhibit is incorporated herein by reference.(31)
    
    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 8, 2008, which exhibit is incorporated herein by
reference.(32)
    
    Submitted as an exhibit to our companys Third
Quarterly Report on Form 6-K (File No. 000-27811), as
submitted with the Securities and Exchange Commission
on November 5, 2008, which exhibit is incorporated
herein by reference.(33)
    
    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. 115




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SIGNATURES
 th
 CHARTERED
SEMICONDUCTOR MANUFACTURING LTD.By:
    
    /s/ George ThomasName: George ThomasTitle: Senior Vice President and Chief Financial Officer
  SIGNATURE
    
    TITLE
    
    DATE/s/ James A. Norling

James A. Norling
    
    Chairman of the Board
    
    February 27, 2009/s/ Chia Song Hwee

Chia Song Hwee
    
    President and Chief Executive
Officer (principal executive officer)
    
    February 27, 2009/s/ George Thomas

George Thomas
    
    Senior Vice President and Chief
Financial Officer (principal financial
and accounting officer)
    
    February 27, 2009/s/ Andre Borrel

Andre Borrel
    
    Director
    
    February 27, 2009/s/ Charles E. Thompson

Charles E. Thompson
    
    Director
    
    February 27, 2009/s/ Tay Siew Choon

Tay Siew Choon
    
    Director
    
    February 27, 2009/s/ Peter Seah Lim Huat

Peter Seah Lim Huat
    
    Director
    
    February 27, 2009/s/ Philip Tan Yuen Fah

Philip tan yuen fah
    
    Director
    
    February 27, 2009
 116




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SIGNATURE
    
    TITLE
    
    DATE/s/ Pasquale Pistorio

Pasquale Pistorio
    
    Director
    
    February 27, 2009/s/ Steven H. Hamblin

Steven H. Hamblin
    
    Director
    
    February 27, 2009/s/ Maurizio Ghirga

Maurizio Ghirga
    
    Director
    
    February 27, 2009
 117




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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
 
     
  F-1




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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS  in US Dollars
 As of
December 31
In thousands (except per share data)
 2007
    
    
    2008ASSETSCash and cash equivalents
    
    $
    743,173
    
    
    $
    524,501Restricted cash
    
    
    45,092
    
    
    
    69,560Marketable securities
    
    
    2,822
    
    
    
    950Receivables, net
    
    
    237,312
    
    
    
    224,428Inventories
    
    
    213,524
    
    
    
    189,498Other investments
    
    
    89,290
    
    
    
    19,634Prepaid expenses
    
    
    6,289
    
    
    
    5,323Other current assets
    
    
    16,231
    
    
    
    14,517Total current assets
    
    
    1,353,733
    
    
    
    1,048,411Investment in associated companies
    
    
    30,112
    
    
    
    28,924Technology licenses and other intangible assets, net
    
    
    62,699
    
    
    
    48,178Property, plant and equipment, net
    
    
    2,463,789
    
    
    
    2,845,668Other non-current assets
    
    
    115,228
    
    
    
    53,992Total assets
    
    $
    4,025,561
    
    
    $
    4,025,173LIABILITIES, CONVERTIBLE REDEEMABLE PREFERENCE SHARES AND
SHAREHOLDERS EQUITYPayables
    
    $
    212,618
    
    
    $
    311,264Short-term debt
    
    
    270,000
    
    
    
    Income tax payable
    
    
    5,459
    
    
    
    202Current installments of long-term debt and capital lease obligations
    
    
    78,663
    
    
    
    163,232Other current liabilities
    
    
    109,171
    
    
    
    102,153Total current liabilities
    
    
    675,911
    
    
    
    576,851Long-term debt and capital lease obligations, excluding current
installments
    
    
    1,499,917
    
    
    
    1,677,228Other non-current liabilities
    
    
    52,747
    
    
    
    61,801Total liabilities
    
    
    2,228,575
    
    
    
    2,315,880Convertible redeemable preference sharesIssued and outstanding: 28 shares in 2007 and 2008Redemption value at maturity: $10,000 per share
    
    
    255,837
    
    
    
    265,879Ordinary share capitalIssued and outstanding: 2,539,626 shares in 2007 and 2,543,200
shares
in 2008
    
    
    2,710,006
    
    
    
    2,706,244Accumulated deficit
    
    
    (1,115,587
    )
    
    
    (1,208,166
    )Accumulated other comprehensive loss
    
    
    (53,270
    )
    
    
    (54,664
    )Total shareholders equity
    
    $
    1,541,149
    
    
    $
    1,443,414Commitments and contingenciesTotal liabilities, convertible redeemable preference
shares and shareholders equity
    
    $
    4,025,561
    
    
    $
    4,025,173
 See accompanying notes to
consolidated financial statements.
 F-2




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##### Table of Contents



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)
 2006
    
    
    2007
    
    
    2008Net revenue
    
    $
    1,414,525
    
    
    $
    1,355,486
    
    
    $
    1,661,120Cost of revenue
    
    
    (1,070,512
    )
    
    
    (1,095,830
    )
    
    
    (1,447,309
    )Gross profit
    
    
    344,013
    
    
    
    259,656
    
    
    
    213,811Other revenue
    
    
    21,030
    
    
    
    22,930
    
    
    
    13,367OPERATING EXPENSESResearch and development
    
    
    152,756
    
    
    
    159,764
    
    
    
    177,866Sales and marketing
    
    
    55,007
    
    
    
    58,013
    
    
    
    69,469General and administrative
    
    
    42,558
    
    
    
    39,648
    
    
    
    43,053Other operating expenses, net
    
    
    13,766
    
    
    
    13,030
    
    
    
    10,138Total operating expenses, net
    
    
    264,087
    
    
    
    270,455
    
    
    
    300,526Equity in income of associated companies, net
    
    
    36,040
    
    
    
    33,836
    
    
    
    25,997Other income (loss), net
    
    
    (2,689
    )
    
    
    (2,418
    )
    
    
    2,905Interest income
    
    
    44,591
    
    
    
    27,031
    
    
    
    15,379Interest expense and amortization of debt discount
    
    
    (87,950
    )
    
    
    (60,325
    )
    
    
    (67,971
    )Income (loss) before income tax
    
    
    90,948
    
    
    
    10,255
    
    
    
    (97,038
    )Income tax expense (benefit)
    
    
    23,924
    
    
    
    (91,433
    )
    
    
    (4,459
    )Net income (loss)
    
    
    67,024
    
    
    
    101,688
    
    
    
    (92,579
    )Less: Accretion to redemption value of convertible redeemable
preference shares
    
    
    9,476
    
    
    
    9,663
    
    
    
    10,042Net income (loss) available to ordinary shareholders
    
    $
    57,548
    
    
    $
    92,025
    
    
    $
    (102,621
    )Basic net earnings (loss) per ordinary share
    
    $
    0.02
    
    
    $
    0.04
    
    
    $
    (0.04
    )Diluted net earnings (loss) per ordinary share
    
    $
    0.02
    
    
    $
    0.04
    
    
    $
    (0.04
    )Basic net earnings (loss) per ADS
    
    $
    0.23
    
    
    $
    0.36
    
    
    $
    (0.40
    )Diluted net earnings (loss) per ADS
    
    $
    0.23
    
    
    $
    0.35
    
    
    $
    (0.40
    )Number of ordinary shares used in computing:Basic net earnings (loss) per ordinary share
    
    
    2,528,056
    
    
    
    2,538,357
    
    
    
    2,541,435Effect of dilutive securities
    
    
    6,009
    
    
    
    330,260
    
    
    
    Diluted net earnings (loss) per ordinary share
    
    
    2,534,065
    
    
    
    2,868,617
    
    
    
    2,541,435Number of ADS used in computing:Basic net earnings (loss) per ADS
    
    
    252,806
    
    
    
    253,836
    
    
    
    254,144Effect of dilutive securities
    
    
    601
    
    
    
    33,026
    
    
    
    Diluted net earnings (loss) per ADS
    
    
    253,407
    
    
    
    286,862
    
    
    
    254,144
 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
 2006
    
    
    2007
    
    
    2008Net income (loss)
    
    $
    67,024
    
    
    $
    101,688
    
    
    $
    (92,579
    )Net unrealized gains (losses) on change in cash flow hedging fair
values
    
    
    (1,664
    )
    
    
    1,824
    
    
    
    (705
    )Share of cash flow hedging gains of associated companies
    
    
    9
    
    
    
    1
    
    
    
    Reclassification of cash flow hedging (gains) losses into earnings
    
    
    435
    
    
    
    (1,917
    )
    
    
    554Foreign currency translation
    
    
    568
    
    
    
    (33
    )
    
    
    (658
    )Unrealized losses on available-for-sale securities
    
    
    (11
    )
    
    
    (149
    )
    
    
    (1,872
    )Reclassification of realized losses on available-for-sale
securities into earnings
    
    
    2,350
    
    
    
    835
    
    
    
    1,287Other comprehensive income (loss), net
    
    
    1,687
    
    
    
    561
    
    
    
    (1,394
    )Comprehensive income (loss), net
    
    $
    68,711
    
    
    $
    102,249
    
    
    $
    (93,973
    )
 See accompanying notes to consolidated financial statements.
 F-4




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##### Table of Contents



CHARTERED SEMICONDUCTOR MANUFACTURING LTD AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY  in US Dollars
In thousands
 AccumulatedOther
    
    Total Share-Ordinary Share
    
    Accumulated
    
    Compre-
    
    holdersCapital
    
    Deficit
    
    hensive Loss
    
    EquityNo.
    
    $
    
    $
    
    $
    
    $Balance at January 1, 2006
    
    
    2,513,384
    
    
    
    2,690,164
    
    
    
    (1,284,299
    )
    
    
    (55,518
    )
    
    
    1,350,347Net income
    
    
    
    
    
    
    
    
    
    
    67,024
    
    
    
    
    
    
    
    67,024Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,687
    
    
    
    1,687Accretion to redemption
value of convertible
redeemable preference
shares
    
    
    
    
    
    
    (9,476
    )
    
    
    
    
    
    
    
    
    
    
    (9,476
    )Issuance of shares arising
from conversion of
convertible redeemable
preference shares
    
    
    18,924
    
    
    
    13,965
    
    
    
    
    
    
    
    
    
    
    
    13,965Issuance of shares arising
from share-based awards
    
    
    3,588
    
    
    
    2,357
    
    
    
    
    
    
    
    
    
    
    
    2,357Employee share-based
compensation
    
    
    
    
    
    
    7,376
    
    
    
    
    
    
    
    
    
    
    
    7,376Non-employee share-based
compensation
    
    
    
    
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    117Others
    
    
    
    
    
    
    (288
    )
    
    
    
    
    
    
    
    
    
    
    (288
    )Balance at December 31, 2006
    
    
    2,535,896
    
    
    
    2,704,215
    
    
    
    (1,217,275
    )
    
    
    (53,831
    )
    
    
    1,433,109Net income
    
    
    
    
    
    
    
    
    
    
    101,688
    
    
    
    
    
    
    
    101,688Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    561
    
    
    
    561Accretion to redemption
value of convertible
redeemable preference
shares
    
    
    
    
    
    
    (9,663
    )
    
    
    
    
    
    
    
    
    
    
    (9,663
    )Issuance of shares arising
from share-based awards
    
    
    3,730
    
    
    
    2,576
    
    
    
    
    
    
    
    
    
    
    
    2,576Employee share-based
compensation
    
    
    
    
    
    
    4,793
    
    
    
    
    
    
    
    
    
    
    
    4,793Non-employee share-based
compensation
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    25Issuance of call option
    
    
    
    
    
    
    8,060
    
    
    
    
    
    
    
    
    
    
    
    8,060Balance at December 31, 2007
    
    
    2,539,626
    
    
    
    2,710,006
    
    
    
    (1,115,587
    )
    
    
    (53,270
    )
    
    
    1,541,149Net loss
    
    
    
    
    
    
    
    
    
    
    (92,579
    )
    
    
    
    
    
    
    (92,579
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,394
    )
    
    
    (1,394
    )Accretion to redemption
value of convertible
redeemable preference
shares
    
    
    
    
    
    
    (10,042
    )
    
    
    
    
    
    
    
    
    
    
    (10,042
    )Issuance of shares arising
from share-based awards
    
    
    3,574
    
    
    
    1,871
    
    
    
    
    
    
    
    
    
    
    
    1,871Employee share-based
compensation
    
    
    
    
    
    
    4,432
    
    
    
    
    
    
    
    
    
    
    
    4,432Non-employee share-based
compensation
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    (23
    )Balance at December 31, 2008
    
    
    2,543,200
    
    
    
    2,706,244
    
    
    
    (1,208,166
    )
    
    
    (54,664
    )
    
    
    1,443,414
 See accompanying notes to consolidated financial statements.
 F-5




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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
 2006
    
    
    2007
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    67,024
    
    
    $
    101,688
    
    
    $
    (92,579
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Equity in income of associated companies, net
    
    
    (36,040
    )
    
    
    (33,836
    )
    
    
    (25,997
    )Cash dividends received from associated companies
    
    
    38,178
    
    
    
    33,602
    
    
    
    34,157Depreciation and amortization
    
    
    504,454
    
    
    
    494,774
    
    
    
    564,916Foreign exchange loss, net
    
    
    1,946
    
    
    
    252
    
    
    
    82Gain on disposal of property, plant and equipment, net
    
    
    (4,822
    )
    
    
    (1,010
    )
    
    
    (220
    )(Gain) Loss on derivatives, net
    
    
    2,391
    
    
    
    280
    
    
    
    (817
    )Impairment loss in value of other investments, marketable securities and other
equity securities
    
    
    2,698
    
    
    
    2,081
    
    
    
    8,767Share-based compensation expense
    
    
    7,376
    
    
    
    4,793
    
    
    
    5,314Others, net
    
    
    (1,417
    )
    
    
    10,494
    
    
    
    18,490Change in assets and liabilities, net of effects from purchase of a subsidiary:Receivables
    
    
    (61,687
    )
    
    
    8,197
    
    
    
    92,456Inventories
    
    
    (21,513
    )
    
    
    (55,032
    )
    
    
    41,339Other assets
    
    
    (5,716
    )
    
    
    (72,977
    )
    
    
    (5,945
    )Payables and other liabilities
    
    
    20,219
    
    
    
    3,049
    
    
    
    (39,505
    )Income tax payable
    
    
    8,058
    
    
    
    (17,482
    )
    
    
    (14,101
    )Net cash provided by operating activities
    
    
    521,149
    
    
    
    478,873
    
    
    
    586,357CASH FLOWS FROM INVESTING ACTIVITIESPayments for property, plant and equipment
    
    
    (554,771
    )
    
    
    (758,352
    )
    
    
    (576,010
    )Payments for technology licenses
    
    
    (9,667
    )
    
    
    (8,369
    )
    
    
    (13,751
    )Increase in other investments
    
    
    
    
    
    
    (99,373
    )
    
    
    Investment in associated companies
    
    
    
    
    
    
    (1,216
    )
    
    
    (8,041
    )Purchase of a subsidiary, net of cash acquired of $6,523
    
    
    
    
    
    
    
    
    
    
    (237,072
    )Refundable deposits placed with vendors
    
    
    (15,000
    )
    
    
    
    
    
    
    Refund of deposits placed with vendors
    
    
    111,656
    
    
    
    449
    
    
    
    1,753Proceeds from sale of property, plant and equipment
    
    
    9,975
    
    
    
    5,059
    
    
    
    11,936Proceeds from redemption, maturity and disposal of marketable securities,
term deposits and other investments
    
    
    20,998
    
    
    
    8,837
    
    
    
    64,223Return of capital from associated companies
    
    
    16,913
    
    
    
    7,350
    
    
    
    Others, net
    
    
    (488
    )
    
    
    65
    
    
    
    59Net cash used in investing activities
    
    
    (420,384
    )
    
    
    (845,550
    )
    
    
    (756,903
    )CASH FLOWS FROM FINANCING ACTIVITIESDebtBorrowings
    
    
    492,915
    
    
    
    542,848
    
    
    
    419,612Repayments
    
    
    (635,010
    )
    
    
    (123,629
    )
    
    
    (433,631
    )Capital lease payments
    
    
    (3,845
    )
    
    
    (3,981
    )
    
    
    (5,267
    )Receipts of refundable customer deposits
    
    
    45,183
    
    
    
    202
    
    
    
    Refund of customer deposits
    
    
    (72,108
    )
    
    
    (28,559
    )
    
    
    (5,609
    )Issuance of ordinary shares
    
    
    2,357
    
    
    
    2,576
    
    
    
    989Increase in cash restricted for debt repayment
    
    
    (40,231
    )
    
    
    (2,029
    )
    
    
    (24,468
    )Others, net
    
    
    5,752
    
    
    
    (900
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (204,987
    )
    
    
    386,528
    
    
    
    (48,374
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    3,348
    
    
    
    4,340
    
    
    
    248Net increase (decrease) in cash and cash equivalents
    
    
    (100,874
    )
    
    
    24,191
    
    
    
    (218,672
    )Cash and cash equivalents at the beginning of the year
    
    
    819,856
    
    
    
    718,982
    
    
    
    743,173Cash and cash equivalents at the end of the year
    
    $
    718,982
    
    
    $
    743,173
    
    
    $
    524,501Supplemental Cash Flow InformationInterest paid (net of amounts capitalized)
    
    $
    85,585
    
    
    $
    51,276
    
    
    $
    60,327Income tax paid (refund)
    
    $
    15,434
    
    
    $
    22,914
    
    
    $
    (93,389
    )Non-cash investing and financing activitiesProperty, plant and equipment acquired through capital lease
    
    $
    31,998
    
    
    $
    693
    
    
    $
    6,873Property, plant and equipment acquired on credit
    
    $
    193,742
    
    
    $
    91,644
    
    
    $
    189,632Issuance of ordinary shares arising from conversion of convertible redeemable
preference shares
    
    $
    13,965
    
    
    $
    
    
    
    $
    Property, plant and equipment contributed by landlord
    
    $
    858
    
    
    $
    
    
    
    $
    Deferred debt issuance costs
    
    $
    13,896
    
    
    $
    20,172
    
    
    $
    17,390
 See accompanying notes to consolidated financial statements.
 F-6




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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
 In this document, unless otherwise indicated, all references to the Company refer to
Chartered Semiconductor Manufacturing Ltd. (Chartered), and its subsidiaries.(a) Business and OrganizationThe Company is one of the worlds leading dedicated semiconductor foundries providing
comprehensive wafer fabrication services and technologies. The Company operates in Singapore
and has service operations in seven countries throughout North America, Europe and Asia,
including Singapore. Its principal markets are the United States of America, Taiwan, Europe
and Japan.Chartered was incorporated in the Republic of Singapore in 1987. As of December 31, 2008,
Singapore Technologies Semiconductors Pte Ltd (ST Semiconductors), a wholly-owned
subsidiary of Temasek Holdings (Private) Limited (Temasek), owns a majority of the shares
of Chartered. Temasek is a holding company through which corporate investments of the
Government of Singapore are held.Chartered Semiconductor Manufacturing (Tampines) Pte. Ltd. (CST or Fab 3E) was
incorporated in the Republic of Singapore in 1996. Chartered acquired CST on March 31, 2008
(see Note 2). As of December 31, 2008, CST is a wholly-owned subsidiary of Chartered. The
Company accounts for CST as a consolidated subsidiary.Chartered Silicon Partners Pte Ltd (CSP) was incorporated in the Republic of Singapore in
1997. Chartered, EDB Investments Pte Ltd, Avago Technologies General IP (Singapore) Pte. Ltd.
(Avago Singapore) (previously Agilent Europe B.V. who transferred its entire shareholding in
CSP to Avago Singapore in 2006) and Singapex Investments Pte Ltd own a 51.0%, 26.5%, 15.0% and
7.5% equity interest in CSP, respectively. The Company accounts for CSP as a consolidated
subsidiary.Silicon Manufacturing Partners Pte Ltd (SMP) was incorporated in the Republic of Singapore
in 1998. LSI Technology (Singapore) Pte. Ltd. (previously known as Agere Systems Singapore
Pte Ltd) (LSI) and Chartered 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 United States of
America (U.S.) generally accepted accounting principles (U.S. GAAP).The consolidated financial statements reflect the accounts of Chartered 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
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 of 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:
 2006
    
    2007
    
    2008Net losses not allocated to the minority
shareholders of CSP according to their
proportionate ownership
    
    $
    12,831
    
    
    $
    5,396
    
    
    $
    826
 The cumulative net losses not allocated to the minority shareholders of CSP according to
their proportionate ownership as of December 31, 2007 and 2008 are $212,670 and $213,496,
respectively.
 F-7




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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)
 (c) Cumulative Effect AdjustmentIn September 2006, the U.S. Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 108 (SAB 108), Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements which requires companies
to evaluate the materiality of identified unadjusted errors on each financial statement and
related financial statement disclosure using both the rollover approach and the iron curtain
approach (dual approach). The rollover approach quantifies misstatements based on the
amount of the error originating in the current year statement of operations whereas the iron
curtain approach quantifies misstatements based on the effects of correcting the misstatement
existing in the balance sheet at the end of the current year, irrespective of the
misstatements year(s) of origin. Financial statements would require adjustment when either
approach results in quantifying a misstatement that is material. The Company adopted SAB 108
effective January 1, 2006.As a transition accommodation SAB 108 permits a cumulative effect adjustment, without
restatement of previously issued financial statements, to be used for errors that are
determined to be immaterial pursuant to the Companys previous method of quantification of
unadjusted errors but are determined to be material under the dual approach. Prior to the
adoption of SAB 108, the Company had quantified unadjusted errors under the rollover approach
and had assessed these unadjusted errors to be immaterial  individually and in the
aggregate. Upon initial adoption of SAB 108 for the fiscal year 2006, the Company quantified
unadjusted errors under the dual approach and assessed that these unadjusted errors are
material. As such, the Company elected to report a cumulative effect adjustment as of January
1, 2006 for those unadjusted errors quantified as of January 1, 2006. The accumulated
deficit as of January 1, 2006 in the consolidated statement of shareholders equity reflects
this cumulative effect adjustment.(d) Use of EstimatesThe preparation of the consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosures about contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the respective reporting periods.
Significant items subject to judgment and estimate include the amount of income tax expense,
the estimated useful lives and salvage values of long-lived assets, the recoverability of the
carrying value of long-lived assets, other-than-temporary impairment assessments of other
investments, available-for-sale securities and investments in other equity securities, the
realization of deferred income tax assets, the valuation of accounts receivable and
inventories, the determination of normal capacity of the Companys production facilities, the
recognition of revenue, the recognition and measurement of the sales credits and returns
allowance, the likelihood of achieving the milestones attached to Government grants,
managements projections of achievement of performance conditions for grants under the
performance share units plan over the performance period, the fair value of share-based
employee compensation awards and financial instruments, the amount of asset retirement
obligations and costs, and the valuation of net assets acquired from purchase business
combinations. These estimates and assumptions are based on managements best estimates and
judgment. Management evaluates its estimates and assumptions on an ongoing basis using
historical experience and other factors, including the current economic environment, which
management believes to be reasonable under the circumstances. Management adjusts such
estimates and assumptions when facts and circumstances dictate. Illiquid credit markets;
volatile equity, foreign currency and energy markets; and declines in consumer spending have
combined to increase the uncertainty inherent in such estimates and assumptions. As future
events and their effects cannot be determined with precision, actual results could differ
significantly from these estimates. Changes in those estimates resulting from continuing
changes in the economic environment will be reflected in the financial statements in future
periods.
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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 2006, the Company changed the estimated salvage values in relation to certain
eight-inch process equipment and machinery to reflect higher expected salvage values than the
Company had historically estimated. The change in the estimated salvage values is a change in
accounting estimate that was applied prospectively from July 1, 2006. The impact of this
change was an increase in the Companys net income by $11,289, $10,801 and $1,851 for the
years ended December 31, 2006, 2007 and 2008, respectively. Basic and diluted net earnings
per American Depositary Shares (ADS) increased by $0.04 for the years ended December 31,
2006 and 2007, and basic and diluted net loss per ADS decreased by $0.01 for the year ended
December 31, 2008. Basic and diluted net earnings per ordinary share for the years ended
December 31, 2006, 2007 and 2008 were not affected by the impact of this change.During 2008, the Company observed a change in the expected technology lifecycle of the
twelve-inch process technology and, as a result, decided to perform a
detailed reassessment of the estimated useful lives of
the Companys twelve-inch process equipment and machinery and the related mechanical
and electrical installations. The assessment was finalized in the fourth quarter of 2008 and as a result,
the Company revised the estimated useful lives of these twelve-inch process equipment and
machinery from five years to eight years and the related mechanical and electrical
installations from ten years to fifteen years. In addition, the estimated salvage values of
the related process equipment and machinery were reduced to zero. These changes were made to
better reflect the expected pattern of economic benefits from the use of the equipment and
machinery over time based on an analysis of the expected technology lifecycle, historical
usage experience and industry practices. The change in estimated useful lives and residual
values is a change in accounting estimate that was applied prospectively from October 1,
2008. The impact of this change was a decrease in the Companys net loss by $18,090 for the
year ended December 31, 2008. Basic and diluted net loss per ADS and ordinary share
decreased by $0.07 and $0.01 respectively for the year ended December 31, 2008.The Company changed the estimated useful lives for certain technology-related intangible
assets classified under Technology licenses in the consolidated balance sheets from three
to five years during 2008. The change was made to better reflect the expected pattern of
economic benefits from the use of the intangible assets over time based on an analysis of the
expected future usage of the underlying technology and historical usage experience. The
change in estimated useful lives is a change in accounting estimate that was applied
prospectively from October 1, 2008. The impact of this change was a decrease in the Companys
net loss by $1,468 for the year ended December 31, 2008. Basic and diluted net loss per ADS
decreased by $0.01 for the year ended December 31, 2008. Basic and diluted net loss per
ordinary share for the year ended December 31, 2008 were not affected by the impact of this
change.During 2008, the Company revised its estimates for asset retirement obligations associated
with the Companys facilities built on land held under long-term operating leases. The
revision was made to reflect changes in the estimated amounts. The change will result in
higher accretion expense and lower depreciation over the remaining lives of the underlying
assets. The impact of this change was a decrease in the Companys net loss by $146 for the
year ended December 31, 2008. Basic and diluted net loss per ADS and ordinary share for the
year ended December 31, 2008 were not affected by the impact of this change.(e) Foreign CurrencyThe functional currency of Chartered and its subsidiaries is the U.S. 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 of assets and liabilities denominated in foreign
currencies at financial year-end exchange rates, are included in the line item Other
operating expenses, net in the 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)
 (f) Business and Credit ConcentrationsThe 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. The market for semiconductors is
characterized by rapid technological change, intense competition and fluctuations in
end-user demand. The Company depends, and will continue to depend, for a significant portion
of its revenue on a relatively limited number of customers who from time to time may be
concentrated in particular end markets. Customer concentration is more significant for the
Companys leading-edge process technologies. The five largest customers of the Company
accounted for 60%, 61% and 63% of net revenue in the years ended December 31, 2006, 2007 and
2008, respectively. Total accounts receivable from these customers was $95,336 and $106,604
at December 31, 2007 and 2008, respectively. The Companys top customer profile may change
from period to period depending on the strength of various market sectors.In terms of geographical concentration, a significant portion of the Companys business is
concentrated in the United States of America, while the Companys manufacturing activities
are entirely located in the Republic of Singapore. Composition of the Companys revenue and
long-lived assets by geographical area is presented in Note 24 to the consolidated financial
statements.Financial instruments that potentially subject the Company to concentrations of credit risk
consist principally of cash and cash equivalents, marketable securities, derivative financial
instruments, investments and receivables. The maximum exposure to credit risk is represented
by the carrying amount of each financial instrument in the consolidated balance sheets.The Company mitigates the concentration of its credit risk in trade receivables through its
credit evaluation process, credit policies and credit control and collection procedures. The
Companys exposure to credit risk in trade receivables is influenced mainly by individual
characteristics of each customer. The default risk of the country in which the customer is
located also has influence on credit risk but to a lesser extent. The Company does not
obtain collateral from customers.The Company mitigates the concentration of credit risk regarding cash and cash equivalents by
placing these amounts with major international banks and financial institutions. Cash and
cash equivalents are generally available upon demand. Cash and cash equivalents deposited
with a single counterparty bank accounted for 26% and 20% of total balances at December 31,
2007 and 2008, respectively.The Company is exposed to credit risk and market risk by using derivative instruments to
hedge exposures of changes in foreign currency rates and interest rates. 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, is not exposed to 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 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.The amounts related to derivative instruments which are subject to credit risk are
generally limited to the amounts, if any, by which a counterpartys obligations exceed the
obligations of the Company with that counterparty. The Companys hedging practices are
further described in Note 22.
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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 Company obtains most of its raw materials and supplies, including critical raw materials
such as raw semiconductor wafers, from a limited number of vendors. Some of these raw
materials and supplies are available from a limited number of vendors in limited quantities
and their procurement may require a long lead time. In certain instances, the Company only
has one qualified supplier for raw materials and supplies.The Company also depends on a limited number of original equipment manufacturers and vendors
that make and sell certain complex equipment and equipment spare parts that the Company uses
in its manufacturing processes. In the event of shortage of supply of equipment spare parts,
the Company would need to qualify alternative sources and/or equipment spare parts.Current adverse global economic conditions and further deterioration of those conditions
could cause our suppliers to experience credit or other financial difficulties that could
result in delays in their ability to supply the Company with necessary raw materials and
supplies, as well as equipment and equipment spare parts.(g) Cash EquivalentsCash equivalents consist of highly liquid investments in money market funds and short-term
deposits with banks that are readily convertible into cash and have original maturities of
three months or less.(h) Marketable SecuritiesThe 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. There are no investments
classified as trading or held-to-maturity as of December 31, 2007 and 2008. There have been
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 or impairment of available-for-sale
securities are determined on a specific-identification basis. The fair value of
available-for-sale securities is based on quoted market prices in active markets for
identical assets. 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
included in the line item Other income (loss), net in the consolidated statements of
operations. In determining whether a decline in fair value is other-than-temporary, the
Company considers various factors including market price (when available), analyst reports on
the companies it has invested in and relevant industry reports relating to these companies,
the financial condition and near-term prospects of the issuers, the length of time and the
extent to which the fair value has been less than cost and the Companys intent and ability
to hold the investments for a reasonable period of time sufficient to allow for any
anticipated recovery in fair value.(i) Accounts ReceivableThe Company reviews its accounts receivable on a periodic basis and makes specific allowances
when there is doubt as to the collectibility of individual receivable balances. In evaluating
the collectibility of individual receivable balances, the Company considers the age of the
balance, the customers payment history, their current credit-worthiness and current economic
conditions.(j) InventoriesInventories consist of work-in-progress, raw materials and consumable supplies and spares and
are stated at the lower of cost or market. 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, with costs arising from abnormal
under-utilization of capacity expensed when incurred. The Company routinely reviews its
inventories for their saleability and for indications of obsolescence to determine if
inventory carrying values are higher than market value. Some of the significant factors the
Company considers in estimating the market value of its inventories include the likelihood of
changes in market and customer demand and expected changes in market prices for its
inventories.
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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)
 (k) Other InvestmentsThe Company accounts for its investment in a non-marketable private enhanced cash fund
(the Fund) as a cost-method investment. Any decline in the fair value of the Fund below
cost that is deemed to be other-than-temporary will result in an impairment, which is
included in the line item Other income (loss), net in the consolidated statements of
operations. In determining whether a decline in fair value is other-than-temporary, the
Company considers various factors including market price of underlying holdings (when
available), investment ratings, the financial condition and near-term prospects of the
investee, the length of time and the extent to which the fair value has been less than cost,
and the Companys intent and ability to hold the investment for a reasonable period of time
sufficient to allow for any anticipated recovery in fair value.The fair value of the Fund and its underlying debt and securities is assessed by
utilizing market prices as provided by independent pricing services, or when such prices are
not available, by using a valuation approach based on the current investment ratings,
valuation parameters and estimates of the underlying debt and securities, redemptions of the
Fund and the subsequent distribution of cash. Based on this assessment, the Company
determined that the fair value of the Fund and its underlying debt securities approximated
the fair values as provided by the investment manager of the Fund.(l) Derivative Instruments and Hedging ActivitiesIn accordance with SFAS No. 133, Accounting for Derivative Instruments and Certain Hedging
Activities and related amendments and interpretations, the Company records derivatives on
the balance sheet as assets or liabilities measured at fair value. The fair values of
forward foreign exchange contracts are determined using quantitative models that require the
use of multiple market inputs including interest rates, prices and maturity dates to generate
pricing curves, which are used to value the positions. The market inputs are generally
actively quoted and can be validated through external sources, including brokers and market
transactions. For derivative asset and liability positions which fall between the dates of
quoted prices, extrapolation of rate or maturity scenarios are used in determining fair
values. The fair values of embedded derivatives are determined in a similar manner as
forward foreign exchange contracts, except that the Company makes certain assumptions about
the maturity dates of such embedded derivatives as maturity dates are generally not included
in the host contracts.On the date a derivative contract is entered into, the Company will consider if the
derivative instrument is part of a hedging relationship. Once a hedging relationship is
established, 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 (loss) 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 (loss), 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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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 determines 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 (loss) 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.(m) Technology Licenses and Other Intangible AssetsTechnology licenses are stated at cost and amortized on a straight-line basis over the
shorter of the expected life of the related technology or the license period. Other
intangible assets are amortized based on the pattern in which the economic benefits are
utilized and if such a pattern cannot be reliably determined, on a straight-line basis. The
amortization periods of technology licenses and other intangible assets are as follows :
 Years ended December 31,
    
    Year ended December 31,2006 and 2007
    
    2008Technology licenses
    
    3 to 10 years
    
    3 to 10 yearsOther intangible assets
    
    
    
    3 to 6 years
 During 2008, the Company changed the estimated useful lives for certain
technology-related intangible assets classified under Technology licenses in the
consolidated balance sheets from three to five years. The change in estimated useful lives
was applied prospectively from October 1, 2008.(n) 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:
 Years ended December 31,
    
    Year ended December
31,2006 and 2007
    
    2008Buildings
    
    20 years (or, if
shorter,the
remaining period of
the lease of the
land on which the
buildings are
erected)
    
    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 years
    
    6 to 15 yearsEquipment and machinery
    
    5 years
    
    5 to 8 yearsOffice and computer equipment
    
    2 to 5 years
    
    2 to 5 years
 During 2008, the Company changed the estimated useful lives of certain twelve-inch process
equipment and machinery from five years to eight years and the related mechanical and
electrical installations from ten years to fifteen years. In addition, the estimated salvage
values of the related process equipment and machinery were reduced to zero. These changes
were applied prospectively from October 1, 2008.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 related to purchases of property, plant and
equipment. 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 line item Other operating expenses, net in the 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)
 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.(o) Impairment of Long-Lived Assets, including Technology Licenses and Other
Intangible AssetsThe Company reviews long-lived assets, including technology license agreements and other
intangible assets, for impairment whenever events or changes in circumstances indicate that
the carrying amounts may not be recoverable. Recoverability of long-lived asset groups to
be held and used are measured by a comparison of the carrying amounts 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. Depreciation ceases when such long-lived assets are
classified as held-for-sale. Long-lived assets to be abandoned are considered held and used
until they are disposed of, which is the point at which they cease to be used.(p) Asset Retirement ObligationsThe Company records asset retirement obligations in accordance with the provisions of SFAS
No. 143, Accounting for Asset Retirement Obligations which requires recognition of a
liability for an asset retirement obligation in the period in which it is incurred at its
estimated fair value. Asset retirement obligations consist of the present value of the
estimated costs of dismantlement, removal, site reclamation and similar activities
associated with the Companys facilities built on land held under long-term operating
leases. The asset retirement obligations are recorded as a liability at the estimated
present value as of the assets inception discounted using a credit-adjusted risk-free rate.
The Company does not provide for a market risk premium associated with asset retirement
obligations because a reliable estimate cannot be determined. After initial recognition, the
liability is increased for the passage of time, with the increase being reflected as
accretion expense in the line item Other operating expenses, net in the consolidated
statements of operations. The associated asset retirement costs are capitalized as part of
the carrying amount of the underlying asset and depreciated over the estimated useful life
of the asset. Subsequent adjustments in the estimated amounts, timing and probability of the
estimated future costs other than changes resulting from the passage of time are recognized
as an increase or decrease in the carrying amount of the liability and the related asset
retirement cost capitalized as part of the carrying amount of the related long-lived asset.(q) Revenue RecognitionThe Company derives revenue primarily from fabricating semiconductor wafers and, to a lesser
extent, from providing associated subcontracted assembly and test services as well as
pre-fabricating services such as masks generation and engineering services. The Company
enters into arrangements with customers which typically include some or all of the above
deliverables.When arrangements include multiple deliverables, the Company first determines whether
each deliverable meets the separation criteria in Financial Accounting Standards Board
(FASB) Emerging Issues Task Force (EITF) Issue 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. In general, a deliverable (or a group of
deliverables) meets the separation criteria if the deliverable has standalone value to the
customer and if there is objective and reliable evidence of the fair value of the remaining
deliverables in the arrangement. Each deliverable that meets the separation criteria is
considered a separate unit of accounting. The total arrangement consideration is then
allocated to each separate unit of accounting based on their relative fair values.
Substantially all of the Companys arrangements for the sale of semiconductor wafers and
related services consist of a single unit of accounting.
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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)
 Revenue for each unit of accounting is recognized when the contractual obligations have been
performed 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, collection of the revenue is reasonably assured, and,
where applicable, delivery has occurred. 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.The Company also derives other revenue relating to rental income and management fees
which is recognized when the contractual obligations have been performed, there is evidence
of a final arrangement, fees are fixed or determinable and collection of the revenue is
reasonably assured. Generally, revenue from rental is recognized over the lease period and
management fee revenue is recognized when services are rendered. These are recorded in the
line item Other revenue in the consolidated statements of operations.Goods and services taxes collected from customers and remitted to Governmental authorities
are accounted for on a net basis and therefore excluded from revenues in the consolidated
statements of operations.(r) Government GrantsThe Company has received grants from various agencies of the Government of Singapore. The
Company recognizes grants when there is reasonable assurance that the conditions attached to
the grant will be complied with and that the grant will be received.Income-related grants are subsidies of expenses incurred, and are disbursed based on the
terms of the respective grants, the amount of qualifying expenditures incurred and the
achievement of the conditions attached to the grants. Income-related grants are recorded as a
reduction of the expenses which they are intended to reimburse.(s) Share-Based CompensationThe Company adopted the provisions of SFAS No. 123(R), Share-Based Payments on January 1,
2006. Under SFAS No. 123(R), share-based compensation expense related to employee grants is
measured based on the estimated fair value of the award at the grant date and is recognized
as expense over the employees requisite service period, adjusted for forfeitures.
Share-based compensation expense related to non-employees, primarily granted to employees of
SMP, is accounted for utilizing the measurement guidance of EITF 96-18 Accounting for
Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services. The Company adopted the provisions of SFAS No. 123(R)
using the modified prospective application. Under the modified prospective application,
prior periods are not revised for comparative purposes. The provisions of SFAS No. 123(R)
apply to new awards issued on or after the effective date (new awards), unvested awards
that are outstanding on the effective date, and to subsequent modification or cancellation
of awards. Share-based compensation expense for new awards granted to employees is
recognized on a straight-line basis over the vesting period for the entire award.
Share-based compensation expense for unvested awards that are outstanding on the effective
date and awards for non-employees continues to be recognized in accordance with FASB
Interpretation No. 28 (FIN 28), Accounting for Stock Appreciation Rights and Other
Variable Stock Option Award Plans.Share-based compensation expense is calculated based on awards ultimately expected to vest
after adjusting for estimated future pre-vesting forfeitures. SFAS No. 123(R) requires
forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent
reporting periods if actual forfeitures differ from those estimates.Share-based compensation expense for the market-based portion of awards granted is measured
based on the estimated fair value of the award at the grant date and is recognized as
expense over the employees requisite service period, adjusted for forfeitures.Share-based compensation expense for the performance-based portion of awards granted is
recorded as compensation expense over the employees requisite service period based on
managements estimate of the number of shares that will ultimately be issued. Accordingly,
for each reporting period, the Company determines the compensation expense based upon the
grant-date fair value, managements projections of achievement of performance-based
conditions over the performance period and the resulting estimate of shares that will
ultimately be issued.
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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)
 (t) 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.(u) Deferred Loan CostsExpenses associated with the issuance of long-term debt are capitalized and amortized
over the terms of the respective arrangements using the effective interest rate method.(v) 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.(w) 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 recognized if it is more likely than not that a portion or all of the deferred tax assets
will not be realized, based on the scheduled reversal of existing deferred tax liabilities,
tax planning strategies, taxable income in carryback years and the Companys expectations
of taxable income in future years.The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes  An Interpretation of FASB Statement No. 109, or FIN 48 on January 1, 2007. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in financial statements
in accordance with FASB Statement No. 109, Accounting for
Income Taxes. FIN 48 prescribes
a recognition threshold and measurement attributes for the financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. Only tax positions that meet the
more-likely-than-not recognition threshold at the effective date may be recognized or
continue to be recognized upon adoption of FIN 48. The Companys accounting policy is to
treat interest and penalties as a component of income taxes.
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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)
 (x) Net Earnings (Loss) Per Ordinary ShareBasic net earnings (loss) per ordinary 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 dividing the resulting amount of net income (loss) available to
ordinary shareholders by the weighted-average number of ordinary shares outstanding. Diluted
net earnings per ordinary share is computed using the weighted-average number of ordinary
shares outstanding plus potentially dilutive securities, which includes the dilutive effect
of share options using the treasury stock method, the dilutive effect of restricted share
units, the impact of contingently issuable share-based awards with performance conditions
and the dilutive effect of ordinary shares issuable upon the assumed conversion of the
Companys convertible securities. The accretion charges on convertible securities are added
back to net income available to ordinary shareholders when the related ordinary share
equivalents are included in computing diluted net earnings per ordinary share.The following table reconciles net income (loss) and ordinary shares outstanding used in the
computation of basic and diluted net earnings (loss) per ordinary share for 2006, 2007 and
2008:
 2006
    
    
    2007
    
    
    2008Basic
    
    
    Diluted
    
    
    Basic
    
    
    Diluted
    
    
    Basic
    
    
    DilutedNet income (loss)
available to ordinary
shareholders
    
    $
    57,548
    
    
    
    57,548
    
    
    $
    92,025
    
    
    
    92,025
    
    
    $
    (102,621
    )
    
    
    (102,621
    )Accretion to redemption
value of convertible
redeemable preference
shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,663
    
    
    
    
    
    
    
    Net income (loss)
available for per-share /
ADS computation
    
    $
    57,548
    
    
    
    57,548
    
    
    $
    92,025
    
    
    
    101,688
    
    
    $
    (102,621
    )
    
    
    (102,621
    )Per-share computation:Weighted-average number of
ordinary shares
outstanding
    
    
    2,528,056
    
    
    
    2,528,056
    
    
    
    2,538,357
    
    
    
    2,538,357
    
    
    
    2,541,435
    
    
    
    2,541,435Dilutive effect of
potential ordinary shares
issuable from share-based
awards
    
    
    
    
    
    
    6,009
    
    
    
    
    
    
    
    5,116
    
    
    
    
    
    
    
    Dilutive effect of
potential ordinary shares
issuable from conversion
of convertible redeemable
preference shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    325,144
    
    
    
    
    
    
    
    Weighted-average number of
ordinary shares
outstanding for per-share
computation
    
    
    2,528,056
    
    
    
    2,534,065
    
    
    
    2,538,357
    
    
    
    2,868,617
    
    
    
    2,541,435
    
    
    
    2,541,435Per-ADS computation:Weighted-average number of
ordinary shares
outstanding
    
    
    252,806
    
    
    
    252,806
    
    
    
    253,836
    
    
    
    253,836
    
    
    
    254,144
    
    
    
    254,144Dilutive effect of
potential ordinary shares
issuable from share-based
awards
    
    
    
    
    
    
    601
    
    
    
    
    
    
    
    512
    
    
    
    
    
    
    
    Dilutive effect of
potential ordinary shares
issuable from conversion
of convertible redeemable
preference shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,514
    
    
    
    
    
    
    
    Weighted-average number of
ordinary shares
outstanding for per-ADS
computation
    
    
    252,806
    
    
    
    253,407
    
    
    
    253,836
    
    
    
    286,862
    
    
    
    254,144
    
    
    
    254,144Net earnings (loss) per
ordinary share
    
    $
    0.02
    
    
    
    0.02
    
    
    $
    0.04
    
    
    
    0.04
    
    
    $
    (0.04
    )
    
    
    (0.04
    )Net earnings (loss) per ADS
    
    $
    0.23
    
    
    
    0.23
    
    
    $
    0.36
    
    
    
    0.35
    
    
    $
    (0.40
    )
    
    
    (0.40
    )
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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 excluded certain potentially dilutive securities for each financial year
presented from its diluted net earnings (loss) per ordinary share computation because:
 i.
    
    The exercise price or conversion price of the securities exceeded the
average fair value of the Companys share price; orii.
    
    The total assumed proceeds under the treasury stock method resulted in
negative incremental shares; oriii.
    
    The accretion to redemption value of convertible securities per ordinary
share obtainable on conversion was higher than the basic net earnings per ordinary
share, as adjusted for the effect of any potentially dilutive securities which were
more dilutive than the convertible securities; oriv.
    
    The conditions for the vesting of the performance share units were not
expected to be met; orv.
    
    The Company had net losses.
 A summary of the excluded potentially dilutive securities is as follow:
 December 31,2006
    
    2007
    
    2008Convertible redeemable preference shares
    
    
    325,144
    
    
    
    
    
    
    
    325,144Call options with Goldman Sachs International (GS)
    
    
    214,800
    
    
    
    214,800
    
    
    
    214,800Employee share options
    
    
    96,479
    
    
    
    94,086
    
    
    
    105,478Restricted share units
    
    
    
    
    
    
    
    
    
    
    11,328Performance share units
    
    
    
    
    
    
    2,316
    
    
    
    4,719
 The conversion price of the convertible redeemable preference shares is $0.8719 per share.
The call options with Goldman Sachs International (GS) have a per share exercise price of
S$1.600 as of December 31, 2006 and a per share exercise price of US$1.408 as of December 31,
2007 and 2008. The weighted-average exercise prices of employee share options outstanding
were $1.89, $1.82 and $1.81 as of December 31, 2006, 2007 and 2008, respectively.
 2.
    
    Acquisition of Hitachi Semiconductor Singapore Pte Ltd
 On March 31, 2008, the Company completed the acquisition of 100% of the shares in Hitachi
Semiconductor Singapore Pte Ltd from Hitachi, Ltd. and Hitachi Asia Ltd., for a total
consideration of $241,125 which consisted of cash and direct costs of the acquisition. In
June 2008, the closing working capital price adjustment was finalized as provided for in the
purchase agreement, resulting in a revised purchase consideration of $243,595. Upon the
completion of the acquisition, Hitachi Semiconductor Singapore Pte Ltd was renamed Chartered
Semiconductor Manufacturing (Tampines) Pte. Ltd. (CST or Fab 3E). Fab 3E owns and
operates an eight-inch wafer fabrication facility located in Singapore. This additional
facility is expected to augment the capacity of the four eight-inch fabs the Company
currently operates. This transaction also includes a manufacturing agreement with Renesas
Technology Corp. (Renesas), an existing customer of Fab 3E, to provide future wafer
fabrication services.
 The acquisition of Fab 3E was accounted for using the purchase method in accordance with SFAS
No. 141, Business Combinations. The assets and liabilities of Fab 3E were recorded as of
the acquisition date, at their respective fair values. The purchase price allocation is based
on the estimated fair value of assets acquired and liabilities assumed. The preparation of
the valuation required the use of significant assumptions and estimates. These estimates were
based on assumptions that the Company believes to be reasonable. The purchase price
allocation was finalized as of December 31, 2008. The table shown below reflects the final
purchase price allocation:
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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)
 Fair ValuesCurrent assets
    
    $
    41,459Property, plant and equipment
    
    
    243,724Identifiable intangible assets
    
    
    7,600Other assets
    
    
    28Total assets acquired
    
    
    292,811Current liabilities
    
    $
    30,337Deferred income taxes
    
    
    11,232Other liabilities
    
    
    7,647Total liabilities assumed
    
    
    49,216Net assets acquired
    
    $
    243,595Cash acquired
    
    
    6,523Purchase price, net of cash acquired
    
    $
    237,072
 The following were the identifiable intangible assets acquired and their respective useful lives:
 Amount
    
    
    Useful lives
(years)Manufacturing agreement
    
    $
    2,300
    
    
    
    3Manufacturing and process intellectual property
    
    
    5,300
    
    
    
    6Total identifiable intangible assets (weighted-average)
    
    $
    7,600
    
    
    
    5
 The manufacturing agreement is amortized based upon the pattern in which the economic benefit
of the agreement is expected to be utilized while the manufacturing and process intellectual
property is amortized on a straight-line basis.Supplemental pro forma financial information is presented below as if the acquisition of Fab
3E occurred as of the beginning of each period presented. The pro forma information presented
below does not purport to present what the actual results would have been had the acquisition
in fact occurred at the beginning of the respective period presented, nor does the
information project results for any future period.
 Twelve months endedDecember 31,2007
    
    2008Pro forma net revenue
    
    $
    1,548,985
    
    
    $
    1,705,464Pro forma net income (loss)
    
    $
    121,967
    
    
    $
    (86,435
    )Pro forma net income (loss) available to ordinary shareholders
    
    $
    112,304
    
    
    $
    (96,477
    )Pro forma basic net earnings (loss) per ordinary share
    
    $
    0.04
    
    
    $
    (0.04
    )Pro forma diluted net earnings (loss) per ordinary share
    
    $
    0.04
    
    
    $
    (0.04
    )Pro forma basic net earnings (loss) per ADS
    
    $
    0.44
    
    
    $
    (0.38
    )Pro forma diluted net earnings (loss) per ADS
    
    $
    0.43
    
    
    $
    (0.38
    )
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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)
 Combined results for the Company and Fab 3E were adjusted for the following in order to
present the pro forma results in the table above:
 
    
    Adjustment to revenue to reflect the lower selling prices under the
manufacturing agreement entered into with Renesas in connection with
the acquisition;
    
    Reversal of interest expense relating to a loan from a company related
to Hitachi, Ltd., that was recapitalized as Fab 3E shares in connection
with the acquisition;
    
    Amortization charges relating to intangible assets acquired;
    
    Increase in depreciation charges based on the assigned fair values of
property, plant and equipment acquired;
    
    Adjustments made to reflect the historical financial statements of Fab
3E in accordance with U.S. GAAP. Prior to the acquisition by the
Company, the financial statements of Fab 3E were prepared in
accordance with Singapore Financial Reporting Standards;
    
    Adjustment to foreign currency translation due to the change in
functional currency from the Singapore dollar to the U.S. dollar; and
    
    Income tax expense not recognizable post acquisition.
 The results of Fab 3Es operations from April 1, 2008 have been included in the Companys
consolidated statement of operations for 2008.
 3.
    
    Related Parties
 (a) Temasek and affiliatesThe Company is a majority-owned subsidiary of ST Semiconductors, which is a wholly-owned
subsidiary of Temasek. Temaseks sole shareholder is the
Minister for Finance (Incorporated) of Singapore and it is an Asia
Investment company with investments in a range of industries, which
include telecommunications and media, financial services, property,
transportation and logistics, energy and resources, infrastructure,
engineering and technology, as well as pharmaceuticals and biosciences. 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. These
include long-term operating leases from the Jurong Town Corporation (JTC), a statutory
board established by the Government of Singapore to develop and manage industrial estates in
Singapore, as well as Ascendas Land (Singapore) Pte Ltd (Ascendas), a private company
wholly-owned by JTC.The Company had the following significant transactions with Temasek and its affiliates:
 2006
    
    2007
    
    2008Affiliates of TemasekServices purchased from STATS ChipPAC
    
    $
    10,625
    
    
    $
    9,229
    
    
    $
    7,165Property, plant and equipment purchased
    
    
    1,762
    
    
    
    2,493
    
    
    
    1,172Services purchased
    
    
    531
    
    
    
    492
    
    
    
    1,269Sub-lease and lease rental billed for leasehold land from JTC
    
    
    3,170
    
    
    
    2,684
    
    
    
    3,887Rental billed for leasehold land from Ascendas
    
    
    108
    
    
    
    
    
    
    
    
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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)
 Included in payables to related parties are amounts due to affiliates of Temasek:
 December 31,2007
    
    2008Amounts due to affiliates of Temasek
    
    $
    3,174
    
    
    $
    2,094
 These were no amounts due from affliates of Temasek as of December 31, 2007 and 2008.The balances with affiliates of Temasek are unsecured, interest-free and repayable within 12
months.The fabrication facilities of the Company are built on land held under long-term operating
leases from JTC and Ascendas. Fab 1 was built on land leased by the Company from Ascendas.
Following the cessation of Fab 1 operations in March 2004, the Company classified its
leasehold interest in Fab 1 as held for sale. The sale was completed in January 2006.Fabs 2, 3, 5 (occupied by SMP), 6 (occupied by CSP) and 7 and Fab 2 and Fab 3 slurry
treatment plants occupy land leased by Terra Investments Pte Ltd (Terra) (a wholly-owned
subsidiary of Temasek) from JTC. The Company 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 3E occupies land leased from JTC. The lease runs until 2026 with an option, subject to
certain conditions, to extend for an additional 30 years.In 2006, the Company leased an additional plot of land from Terra which in turn leased the
land from JTC. The lease runs until 2030. The Company is using this additional plot of land
primarily for ancillary purposes to support the Companys business operations.Rental rates on the long-term leases are subjected to revisions at periodic intervals in
accordance with the rental agreements, with such scheduled increases generally capped between
5.5% to 9.0% per annum.Rental expense for land leased from related parties for the years ended December 31, 2006,
2007 and 2008 was $2,768, $3,476 and $4,453, respectively. Contingent rental included in
rental expense for land leased from related parties for the years ended December 31, 2006,
2007 and 2008 was $955, $1,059 and $1,929 respectively.Minimum future rental payments on non-cancellable operating leases of land from the above
related parties as of December 31, 2008 are as follows:
 Payable in year ending December 31,2009
    
    $
    4,3152010
    
    
    4,5002011
    
    
    4,7042012
    
    
    4,9252013
    
    
    5,166Thereafter
    
    
    79,918$
    103,528
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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)
 (b) SMPThe Company has a 49% ownership 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, LSI, 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 gain (loss) that is included in the Companys consolidated
statements of operations and consolidated balance sheets are different from the amounts that
would be obtained by applying a 49% ownership percentage. The difference in the equity income
of SMP recorded as compared to a 49% ratio is an increase of $18,380, $17,441 and $13,374 for
the years ended December 31, 2006, 2007 and 2008. The share of retained post-formation
results recorded was a surplus of $49,557 as compared to a surplus of $51,780 using the 49%
ratio and a surplus recorded of $75,780 as compared to a surplus of $64,629 using the 49%
ratio as of December 31, 2007 and 2008, respectively.Singapore law allows dividends to be paid only out of profits of a company. The Company and
LSI 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 and LSI have entered into an assured supply and demand agreement with SMP under
which the intention was to ensure that all of the fixed costs of SMP are recovered by
allocating all of its wafer capacity to the Company and LSI in accordance with the respective
parties equity interest in SMP and each party will bear the fixed costs attributable to its
allocated capacity. These billings, if any, do not change the equity in income (loss) of SMP
that the Company recognizes in its consolidated statements of operations. No amounts were
payable by the Company under this agreement for 2006, 2007 and 2008, respectively.In 2004, the Company and LSI entered into an agreement pursuant to which the Company and LSI
agreed to annually reimburse any losses suffered by SMP that are attributable to the
respective parties. SMP did not suffer any loss that was attributable to the Company in 2006,
2007 and 2008 and accordingly no reimbursements were payable by the Company to SMP under this
agreement for these years.The Company purchased $75, $47 and $60 of processed wafers from SMP for the years ended
December 31, 2006, 2007 and 2008, respectively.Certain management and corporate support functions, including accounting, financial, sales
and marketing, are shared by Chartered and SMP. Chartered allocates a portion of the shared
costs to SMP, which is recorded as a reduction of the related expenses. Such charges to SMP
amounted to $9,480, $9,482 and $9,988 for the years ended December 31, 2006, 2007 and 2008,
respectively.The Company sold property, plant and equipment at net book value, which approximates fair
value, of $9,237 to SMP during 2008. There were no such transactions with SMP during 2006 and
2007.SMP leases its fabrication facility from the Company under a long-term lease agreement that
expires in 2018. The rental income from SMP for the years ended December 31, 2006, 2007 and
2008 was $15,958, $16,810 and $7,695, respectively.Included in receivables from related parties and payables to related parties are amounts due
from or to SMP:
 December 31,2007
    
    2008Amounts due from SMP
    
    $
    10,193
    
    
    $
    12,175Amounts due to SMP
    
    $
    1,341
    
    
    $
    1,140
 The balances with SMP are unsecured, interest-free and repayable within 12 months.
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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)
 Investment in SMP
    
    December 31,2007
    
    
    2008Cost (net of return of capital)
    
    $
    80,936
    
    
    $
    80,936Share of retained post-formation gains
    
    
    49,557
    
    
    
    75,780Dividends received
    
    
    (101,240
    )
    
    
    (135,397
    )$
    29,253
    
    
    $
    21,319
 In October 2005, SMP reorganized its paid-up share capital and authorized a return of 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. In 2005, the Company received
$17,300 arising from the return of capital approved in 2005. In October 2006, the board of
directors of SMP approved a second capital reduction which was subsequently approved by the
High Court of Singapore and filed with the Accounting and Corporate Regulatory Authority of
Singapore in November 2006. The Companys entitlement arising from the second return of
capital from SMP was $19,061. In 2006, the Company received an additional $16,913 arising from
both the first and the second return of capital from SMP. In 2007, the Company received $7,350
arising from the second return of capital from SMP. As of December 31, 2007, the Company had
received in full its entitlement arising from both the first and second return of capital from
SMP.
 Shown below is summarized financial information for SMP:
 December 31,2007
    
    
    2008Current assets
    
    $
    65,343
    
    
    $
    48,079Property, plant and equipment
    
    
    18,436
    
    
    
    20,369Other assets
    
    
    669
    
    
    
    316Current liabilities
    
    
    (30,390
    )
    
    
    (22,489
    )Other liabilities
    
    
    (6
    )
    
    
    (157
    )Shareholders equity
    
    $
    54,052
    
    
    $
    46,118
 2006
    
    2007
    
    2008Net revenue
    
    $
    197,932
    
    
    $
    175,174
    
    
    $
    144,663Gross profit
    
    
    38,010
    
    
    
    34,507
    
    
    
    29,694Net income
    
    
    36,040
    
    
    
    34,198
    
    
    
    26,223
 (c) Gateway Silicon Inc.The Company has a 26.7% ownership interest in Gateway Silicon Inc. (GSI) that is accounted
for using the equity method. The remaining 73.3% interest in GSI is held by Macronix
International Co., Ltd. (Macronix).GSI is a Taiwan-based firm specializing in Application-Specific Integrated Circuit
(ASIC)/System-on-chip (SOC) design services and intellectual property development and
integration. The Company commenced equity accounting for GSI in March 2007. GSIs net
operating results are shared between the Company and GSIs majority shareholder, Macronix, in
the same ratio as the equity holdings.
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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 purchased $97 and $124 of design services from GSI and sold $94 and $443 of
processed wafers to GSI for the years ended December 31, 2007 and 2008, respectively.Included in receivables from related parties and payables to related parties are amounts due
from or to GSI:
 December 31,2007
    
    2008Amounts due from GSI
    
    $
    
    
    
    $
    19Amounts due to GSI
    
    $
    97
    
    
    $
    
 The balances with GSI are unsecured, interest-free and repayable within 12 months.The Company recorded an other-than-temporary impairment loss of $411 on its investment in GSI
for the year ended December 31, 2008. As of December 31, 2007 and 2008, the carrying value of
the Companys investment in GSI amounted to $859 and $Nil respectively.(d) Socle Technology Corp.The Company has a 36.8% ownership interest in Socle Technology Corp. (Socle) that is
accounted for using the equity method.Socle is a Taiwan-based firm specializing in SOC design services and embedded platforms that
reduce integrated circuit development time. The Company commenced equity accounting for
Socle in June 2008. Socles net operating results are shared between the Company and other
shareholders in the same ratio as the equity holdings.The Company purchased $235 of design services from Socle and sold $127 of processed wafers
to Socle for the year ended December 31, 2008.Included in receivables from related parties as of December 31, 2008 are amounts due
from Socle of $31. There were no amounts due to Socle as of December 31, 2008. The balances
with Socle are unsecured, interest-free and repayable within 12 months.As of December 31, 2008, the carrying value of the Companys investment in Socle amounted to
$7,605.
 4.
    
    Cash and Cash Equivalents and Restricted Cash
 December 31,2007
    
    
    2008Cash at banks and cash on hand
    
    $
    46,180
    
    
    $
    31,217Money market funds
    
    
    12,292
    
    
    
    Short-term deposits with banks
    
    
    684,701
    
    
    
    493,284Cash and cash equivalents
    
    $
    743,173
    
    
    $
    524,501Restricted cash
    
    $
    45,092
    
    
    $
    69,560
 Under the terms of the EXIM Guaranteed Loan agreement which is described in Note 16, the
Company is required to maintain on deposit with the lender a compensating balance,
restricted as to use, equal to the amount of principal, interest and commitment fees payable
at the next repayment date. The restricted cash is invested in interest-bearing money-market
funds and interest-bearing bank deposits as of December 31, 2007 and 2008, 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)
 5.
    
    Marketable Securities
 At December 31, 2007
 Cost
    
    
    UnrealizedGains
    
    
    Unrealized(Losses)
    
    
    Fair ValueCurrentAvailable-for-sale securities:Equity securities
    
    $
    2,526
    
    
    $
    296
    
    
    $
    
    
    
    $
    2,822
 At December 31, 2008
 Cost
    
    
    UnrealizedGains
    
    
    Unrealized(Losses)
    
    
    Fair ValueCurrentAvailable-for-sale securities:Equity securities
    
    $
    1,238
    
    
    $
    
    
    
    $
    (288
    )
    
    $
    950
 Proceeds from sale of available-for-sale securities were $5,990 and gross realized gains from
sale of available-for-sale securities were $348 in 2006. The Company realized losses
amounting to $835 and $1,287 as a result of other-than-temporary impairment assessments in
2007 and 2008, respectively.The following table shows the fair value and gross unrealized gains and (losses) recorded in
accumulated other comprehensive income (loss) related to the Companys available-for-sale
equity securities, aggregated by the length of time the securities have been in a continuous
unrealized gain and (loss) position.
 At December 31, 2007
    
    Less than 12 months
    
    
    TotalFair Value
    
    
    UnrealizedGains
    
    
    Fair Value
    
    
    UnrealizedGainsAvailable-for-sale securities:Equity securities
    
    $
    2,822
    
    
    $
    296
    
    
    $
    2,822
    
    
    $
    296
 At December 31, 2008
    
    Less than 12 months
    
    
    TotalFair Value
    
    
    UnrealizedLosses
    
    
    Fair Value
    
    
    UnrealizedLossesAvailable-for-sale securities:Equity securities
    
    $
    950
    
    
    $
    (288
    )
    
    $
    950
    
    
    $
    (288
    )
 The Companys investments in available-for-sale equity securities consist of investments in
the common stock of two companies in the semiconductor industry. The fair value of the
investments is based on quoted market prices in active markets at the balance sheet date.As of December 31, 2007, one of the investments was in an unrealized gain position while the
other was written down to its fair value as a result of an other-than temporary impairment
assessment.As of December 31, 2008, one of the investments was in an unrealized gain position while the
other was in an unrealized loss position and based on the Companys evaluation, this
investment in an unrealized loss position was not considered to be other-than-temporarily
impaired.As of December 31, 2007 and 2008, none of the investments were in continuous unrealized loss
positions for a period greater than twelve months.
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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.
    
    Receivables, net
 December 31,2007
    
    
    2008Trade receivables
    
    $
    173,959
    
    
    $
    178,612Allowance for doubtful accounts
    
    
    
    
    
    
    Allowance for sales credits and returns
    
    
    (3,280
    )
    
    
    (2,451
    )Trade receivables, net of allowances
    
    
    170,679
    
    
    
    176,161Receivables from related parties
    
    
    10,193
    
    
    
    12,225Other receivables
    
    
    56,440
    
    
    
    36,042$
    237,312
    
    
    $
    224,428
 Movement in the allowance for doubtful accounts is as follows:
 2007
    
    
    2008Beginning
    
    $
    1,149
    
    
    $
    Utilized during the year
    
    
    (926
    )
    
    
    Charge for the year
    
    
    330
    
    
    
    Reversal of specific allowances
    
    
    (553
    )
    
    
    Ending
    
    $
    
    
    
    $
    
 Movement in the allowance for sales credits and returns is as follows:
 2007
    
    
    2008Beginning
    
    $
    6,827
    
    
    $
    3,280Utilized during the year
    
    
    (8,087
    )
    
    
    (6,825
    )Charge for the year
    
    
    4,540
    
    
    
    5,996Ending
    
    $
    3,280
    
    
    $
    2,451
 As of December 31, 2008, other receivables included an amount of $11,537 arising from
the Companys acceptance of a licensing fee in connection with a technology arrangement by
one of the Companys technology partners which was concluded during 2008. This amount
represents the present value of $12,000, which the Company will receive as an offset against
future payments due under a related technology agreement, and is not contingent upon any
future performance requirements.
 7.
    
    Inventories
 December 31,2007
    
    
    2008Raw materials
    
    $
    14,149
    
    
    $
    12,509Work-in-progress
    
    
    194,255
    
    
    
    169,002Consumable supplies and spares
    
    
    5,120
    
    
    
    7,987$
    213,524
    
    
    $
    189,498
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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)
 8.
    
    Other Investments
 The Company has an investment in a private enhanced cash fund (Fund), which is managed by
an external financial institution and consists primarily of corporate debt, mortgage-backed
securities and asset-backed securities. Due to the nature of the securities that the Fund
invests in, the Funds underlying securities have been exposed to adverse market conditions
that have affected the value of the collateral and the liquidity of the Fund. As a result,
in December 2007, the investment manager of the Fund halted demand redemptions and announced
its intention to liquidate the Fund. The investment in the Fund which was classified as a
cash equivalent since the time of placement in 2003, was reclassified to Other investments
as of December 31, 2007.The Company received cash proceeds of $8,837 and $64,223 in redemptions from the Fund in
2007 and 2008 respectively, resulting in realized loss of $106 and $865 on the redemptions
for the years ended December 31, 2007 and 2008, respectively. The Company recorded an
other-than-temporary impairment loss of $1,140 and $4,568 for the years ended December 31,
2007 and 2008, respectively. As of December 31, 2007 and 2008, the fair value of the
Companys pro-rata share of investment in the Fund was $89,290 and $19,634 respectively.
 9.
    
    Technology Licenses, and Other Intangible Assets, net
 Weighted-averageamortizationperiod (years)December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2007
    
    
    2008Technology licenses and other intangible assets, at
cost
    
    $
    186,851
    
    
    $
    207,523
    
    
    6
    
    6Accumulated amortization
    
    
    (124,152
    )
    
    
    (159,345
    )Technology licenses and other intangible assets, net
    
    $
    62,699
    
    
    $
    48,178
 Amortization amounted to $30,877, $31,100 and $35,193 for 2006, 2007 and 2008, respectively.
Estimated amortization for future periods is as follows:
 2009
    
    $
    20,2862010
    
    
    12,0832011
    
    
    6,8042012
    
    
    5,7692013
    
    
    2,821Thereafter
    
    
    415$
    48,178
 10.
    
    Property, Plant and Equipment, net
 December 31,2007
    
    
    2008CostBuildings
    
    $
    264,846
    
    
    $
    283,560Mechanical and electrical installations
    
    
    643,006
    
    
    
    758,159Equipment and machinery
    
    
    4,514,325
    
    
    
    5,231,212Office and computer equipment
    
    
    192,884
    
    
    
    220,235Assets under installation and construction
    
    
    745,126
    
    
    
    763,110Total cost
    
    $
    6,360,187
    
    
    $
    7,256,276Accumulated depreciation and amortization
    
    $
    3,896,398
    
    
    $
    4,410,608Property, plant and equipment, net
    
    $
    2,463,789
    
    
    $
    2,845,668
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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)
 Depreciation expense amounted to $472,282, $465,267 and $531,219 for the years ended December
31, 2006, 2007 and 2008, respectively. The Company recorded grants amounting to $139, $2,988
and $3,056 as reduction of depreciation expense for the years ended December 31, 2006, 2007,
and 2008, respectively.Capitalized interest relating to property, plant and equipment amounted to $12,062,
$34,818 and $29,158 in the years ended December 31, 2006, 2007 and 2008, respectively.For assets under capital leases, total cost was $78,460 and $80,287 at December 31, 2007 and
2008, respectively and accumulated amortization was $12,993 and $18,779 at December 31, 2007
and 2008, respectively. Amortization of assets under capital leases, included in
depreciation expense, was $4,614, $5,493 and $5,786 for the years ended December 31, 2006,
2007 and 2008, respectively.
 11.
    
    Other Non-current Assets
 As of December 31, 2007 and 2008, the Company had a refundable deposit placed with a
vendor of $10,006 and $9,522 respectively to secure wafer capacity. The deposit is refundable
according to the utilization of such allocated capacity or at the end of the agreed period of
such allocated capacity. The deposit is initially recorded at the net present value of
payments due pursuant to its contractual terms. The related discount, which is offset by an
equal amount of deferred expense, is amortized to interest income using the effective
interest rate method. Deferred expense is amortized to cost of revenue over the length of the
contract using the straight-line method. The deposit is classified based on maturity, except
that the amounts are considered current if it is probable that the deposits will be refunded
within the next 12 months.As of December 31, 2008, other non-current assets also included a lease receivable of $8,849
relating to a direct financing lease arrangement with a customer for equipment that was
purchased by the Company from the customer for the production of an agreed number of wafers
for the customer over a ten-year period. The lease receivable was initially recorded based on
the gross investment on the equipment at the inception of the arrangement, and is reduced over
the term of the arrangement based on the usage of the equipment, which is dependent on the
number of wafers shipped. Subsequent recognition of interest income is based on the
difference between the gross investment on the equipment and the number of wafers shipped. The
lease receivable amount is considered non-current as the agreed number of wafers to be shipped
is not expected to be completed within the next 12 months. As of December 31, 2008, the
Company recorded $4,663 and $4,663 in Payables and Other non-current liabilities,
respectively representing payable on the gross investment on the equipment to the customer.
 12.
    
    Payables
 December 31,2007
    
    
    2008Trade and accrued purchases
    
    $
    116,459
    
    
    $
    118,398Purchases of property, plant and equipment
    
    
    91,644
    
    
    
    189,632Payables to related parties
    
    
    4,515
    
    
    
    3,234$
    212,618
    
    
    $
    311,264
 13.
    
    Other Current Liabilities
 December 31,2007
    
    
    2008Accrued employee-related expenses and bonuses
    
    $
    31,101
    
    
    $
    21,682Customer capacity guarantee deposits
    
    
    5,992
    
    
    
    384Accrued interest
    
    
    31,731
    
    
    
    32,055Customer prepayment
    
    
    16,844
    
    
    
    9,456Other accrued expenses
    
    
    4,942
    
    
    
    3,967Other current liabilities
    
    
    18,561
    
    
    
    34,609$
    109,171
    
    
    $
    102,153
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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 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 guaranteed 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 guaranteed 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 earnings over the term of the deposits 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 the next 12 months.The customer prepayment is for future purchases which also secures access to wafer capacity.
This amount will be used to offset certain trade receivables from that customer. The receipt
was recorded as an operating cash flow in the consolidated statement of cash flows.As of December 31, 2008, other current liabilities included accrued expenses relating to
equipment and machinery for supply of gases under construction by a vendor.
 14.
    
    Income Taxes
 The Company has been granted pioneer status under the Economic Expansion Incentives (Relief
from Income Tax) Act (Chapter 86) (EEIA) of Singapore for:
 
    
    the wafer fabrication of advanced semiconductor devices at Fab 3E for
a ten-year period beginning April 1, 1999; and
    
    the wafer fabrication of ASICs and other advanced semiconductor
devices at Fab 6 for a ten-year period beginning September 1, 2003.
 Under the EEIA, the Company has also been granted:
 
    
    post-pioneer 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 status for the wafer fabrication of advanced
semiconductor devices at Fab 3E for a five-year period beginning April
1, 2009; and
    
    development and expansion 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 in which pioneer status is effective, subject to compliance with certain
conditions, income arising from the pioneer trade is exempt from Singapore income tax.
During the period in which post-pioneer status or development and expansion status is
effective, subject to compliance with certain conditions, income arising from the incentive
activities is taxed at a concessionary rate of 10%. Based on these tax incentives, income
tax is assessed at the individual fab level. Income arising from activities not covered under
any of the abovementioned incentives (hereinafter referred to as non-qualifying income) is
taxed at the prevailing Singapore corporate tax rate, which was 20% for the year ended
December 31, 2006 and 18% for the years ended December 31, 2007 and 2008. The reduction in
corporate tax rate from 20% to 18% for the year of assessment 2008 and onwards was enacted in
2007. In 2008, there is a newly enacted Singapore tax law, which allows a further deduction
of up to 50% of qualifying research and development expenses incurred on qualifying research
and development activities conducted in Singapore. The effect of this enactment on research
and development expenses did not have a significant impact on the Companys consolidated
statement of operations for the year ended December 31, 2008. The effects of the change in
corporate tax rate and the enactment of the new tax law on enhanced deduction of research and
development expenses have been recognized in the Companys consolidated statements of
operations for the years ended December 31, 2007 and 2008, respectively.
 F-29




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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 Company was previously granted pioneer status for:
 
    
    the manufacture of integrated circuits using submicron technology at
Fab 3 for a ten-year period beginning July 1, 1999; and
    
    the wafer fabrication of integrated circuits at Fab 7
for a fifteen-year period beginning October 1, 2005.
 During the respective pioneer periods of Fab 3 and Fab 7, both fabs had accumulated
substantial wear and tear allowances on plant and machinery which the fabs were unable to
fully utilize against income from activities covered under the pioneer status. The fabs also
had pre-pioneer tax losses, which under the pioneer status, were not allowed for carry
forward. As such, the Company applied to revoke the pioneer status of Fab 3 and Fab 7 in 2007
and 2008 respectively.The application for revocation for Fab 3 was approved on retroactive basis in September 2007
and the Company recorded an income tax benefit of $119,451 in 2007. This tax benefit was
available to offset taxes paid or incurred by the Company in 2006 and before. Accordingly,
the Company recorded $35,506 and $63,171 in Receivables, net and Other non-current
assets, respectively as of December 31, 2007. The balance of the income tax benefit, after
offsetting taxes paid or incurred by the Company in prior years, was used to offset income
tax expense for the year ended December 31, 2007. In 2008, the Company received all the
amounts recorded under Receivables, net and Other non-current assets as of December 31,
2007.Fab 7s application for revocation was approved on a retroactive basis in June 2008 and upon
receiving the approval, the Company recorded net income tax benefit of $48,684 arising mainly
from additional deferred tax assets on the higher wear and tear allowances and tax losses
that have become available to be carried forward for use in future years. This tax benefit is
available to offset taxes paid or incurred by the Company in prior years. Relating to this,
the Company expects to receive a refund of taxes of approximately $5,107 previously paid on
non-qualifying income for 2007 and this amount was recorded in Other non-current assets as
of December 31, 2008.In June 2008, the Company was granted an investment allowance, for Fab 3 and Fab 7. Under
this tax incentive, the Company was granted an allowance based on an approved percentage of
its qualifying fixed capital expenditure incurred over a 5-year period with effect from
January 1, 2008, subject to compliance with certain conditions such as a minimum level of
investment of fixed capital expenditure during the qualifying period. This allowance was
given in addition to the normal wear and tear allowances. As of December 31, 2008, the
Company has unabsorbed investment allowances of $220,880, which can be carried forward
indefinitely, subject to compliance with certain conditions.Under Singapore tax law, loss carryforwards and wear and tear allowances are deductible to the
extent of income before loss carryforwards and wear and tear allowances. Unabsorbed tax
losses and wear and tear allowances can be carried forward indefinitely to set off against
income in future tax years, subject to compliance with certain conditions. As of December 31,
2007 and 2008, the Company has unabsorbed wear and tear allowances of approximately $1,355,977
and $1,484,204, respectively. As of December 31, 2007 and 2008, the Company has loss
carryforwards of $Nil and $85,399 respectively.Income (loss) before income tax consists of the following:
 2006
    
    
    2007
    
    
    2008Singapore
    
    $
    89,294
    
    
    $
    8,950
    
    
    $
    (98,343
    )Foreign
    
    
    1,654
    
    
    
    1,305
    
    
    
    1,305Total
    
    $
    90,948
    
    
    $
    10,255
    
    
    $
    (97,038
    )
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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)
 Income tax expense (benefit) consists of the following:
 2006
    
    
    2007
    
    
    2008Current tax expense (benefit)
     Singapore
    
    $
    22,011
    
    
    $
    (86,455
    )
    
    $
    (12,028
    ) Foreign
    
    
    573
    
    
    
    472
    
    
    
    449Deferred tax expense (benefit)
     Singapore
    
    
    1,502
    
    
    
    (5,233
    )
    
    
    7,407 Foreign
    
    
    (162
    )
    
    
    (217
    )
    
    
    (287
    )$
    23,924
    
    
    $
    (91,433
    )
    
    $
    (4,459
    )
 A reconciliation of the expected tax expense (benefit) computed by applying the Singapore
statutory tax rate of 20% for 2006 and 18% for 2007 and 2008 to income (loss) before income
tax to income tax expense (benefit) is as follows:
 2006
    
    
    2007
    
    
    2008Income tax expense (benefit) computed at the Singapore
statutory tax rate
    
    $
    18,190
    
    
    $
    1,846
    
    
    $
    (17,467
    )Non-deductible research and development expenses
    
    
    16,726
    
    
    
    16,277
    
    
    
    18,843Other non-deductible expenses
    
    
    7,137
    
    
    
    7,290
    
    
    
    3,160Investment allowances
    
    
    
    
    
    
    
    
    
    
    (39,758
    )Effect of revocation of a tax incentive
    
    
    
    
    
    
    (119,451
    )
    
    
    (48,684
    )Effect of valuation allowance on net deferred tax assets
    
    
    
    
    
    
    
    
    
    
    98,656Effect of pioneer status, including losses and allowances
not recognized as deferred tax benefit
    
    
    (4,556
    )
    
    
    12,470
    
    
    
    (1,041
    )Effect of post-pioneer status
    
    
    (6,833
    )
    
    
    (8,302
    )
    
    
    (7,253
    )Non-taxable income from equity investments
    
    
    (7,208
    )
    
    
    (6,091
    )
    
    
    (4,679
    )Impact from change in enacted tax rates
    
    
    
    
    
    
    2,973
    
    
    
    Impact from change in newly enacted tax law on enhanced
deduction of research and development expenses
    
    
    
    
    
    
    
    
    
    
    (3,433
    )Effect of change in liability for unrecognized tax benefits
    
    
    
    
    
    
    (317
    )
    
    
    (1,893
    )Effect of prior years adjustments on deferred tax benefit
    
    
    
    
    
    
    1,532
    
    
    
    (775
    )Others, net
    
    
    468
    
    
    
    340
    
    
    
    (135
    )Income tax expense (benefit)
    
    $
    23,924
    
    
    $
    (91,433
    )
    
    $
    (4,459
    )
 The pioneer status had the effect of increasing (decreasing) basic and diluted net earnings
(loss) per ordinary share by $0.00, $(0.00) and $0.00, and basic and diluted net earnings
(loss) per ADS by $0.02, $(0.04) and $0.00 for the years ended December 31, 2006, 2007 and
2008, respectively.The post-pioneer status had the effect of increasing basic and diluted net earnings per
ordinary share by $0.00, $0.00 and $0.00 and basic and diluted net earnings per ADS by $0.03,
$0.03 and $0.03, for the years ended December 31, 2006, 2007 and 2008, 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)
 Deferred tax assets and deferred tax liabilities are non-current and mainly relate to
Singapore.
 December 31,2007
    
    
    2008Deferred tax liabilitiesProperty, plant and equipment
    
    $
    (1,705
    )
    
    $
    (74,357
    )Intangible assets
    
    
    (1,329
    )
    
    
    (9,039
    )Unremitted offshore income
    
    
    (685
    )
    
    
    (505
    )Total gross deferred tax liabilities
    
    $
    (3,719
    )
    
    $
    (83,901
    )Deferred tax assetsAllowances and tax loss carryforwards
    
    $
    175,586
    
    
    $
    321,878Property, plant and equipment
    
    
    1,921
    
    
    
    2,876Other accrued expenses
    
    
    13,790
    
    
    
    23,886Total gross deferred tax assets
    
    
    191,297
    
    
    
    348,640Valuation allowance
    
    
    (173,683
    )
    
    
    (269,196
    )$
    17,614
    
    
    $
    79,444Net deferred tax assets (liabilities)
    
    $
    13,895
    
    
    $
    (4,457
    )
 The classification of net deferred tax assets (liabilities) in the Companys consolidated
balance sheets is as follows:
 December 31,2007
    
    2008Other non-current assets
    
    $
    13,895
    
    
    $
    5,507
    

Other non-current liabilities
    
    $
    
    
    
    $
    (9,964
    )
 Based on the historical level of taxable income, management has concluded that it is more
likely than not that sufficient future taxable income will not be available during the
periods in which certain deferred tax assets will reverse. As a result of the assessment, a
valuation allowance of $173,683 and $269,196 for the deferred tax assets is recorded as of
December 31, 2007 and 2008, respectively. The Company expects to continue to maintain the
valuation allowance on these future tax benefits until there is sufficient evidence to
support the reversal of the valuation allowance based upon current and preceding years
results of operations and anticipated future taxable income levels.The net change in the valuation allowance during the year ended December 31, 2007 was a
decrease of $100,131 mainly due to the adjustment arising from a substantial reduction in Fab
3s deductible temporary differences. Based on the Companys historical records of taxable
income, the Company assessed that it would have sufficient taxable income to fully utilize
these deductible temporary differences. The net change in the valuation allowance during the
year ended December 31, 2008 was an increase of $95,513 mainly due to valuation allowance
being provided on the additional deferred tax assets for deductible temporary differences
arising from investment allowances and the revocation of Fab 7s pioneer status.The adoption of FIN 48 on January 1, 2007 did not have an impact on the accumulated deficit
as of January 1, 2007 as the Company had previously recorded the full amount of the
unrecognized tax benefits as income tax payable. As of December 31, 2007 and 2008, the
balance was classified as Other non-current liabilities under FIN 48 because the Company
does not anticipate payment within the next 12 months.
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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 liability for unrecognized tax benefits is as follows:
 December 312007
    
    
    2008Balance as at January 1
    
    $
    6,307
    
    
    $
    5,990Gross decrease as a result of tax positions taken during prior years
    
    
    (1,482
    )
    
    
    (4,327
    )Gross increase as a result of tax positions taken during the current year
    
    
    1,671
    
    
    
    2,488Effect of foreign currency translation
    
    
    (506
    )
    
    
    (54
    )Balance as at December 31
    
    $
    5,990
    
    
    $
    4,097
 The total unrecognized tax benefits as of December 31,
2007 of $5,990, if recognized, would affect the companys
effective tax rate. The total unrecognized tax benefits as of December 31, 2008 of $4,097, if recognized, would
not affect the Companys effective tax rate as this amount would be offset by compensating
adjustment in deferred tax asset that would be subject to a valuation allowance based on the
conditions existing at the reporting date.The Company does not anticipate any significant changes to the total amounts of unrecognized
tax benefits within the next 12 months.The Companys accounting policy is to treat interest and penalties as a component of income
taxes. However, the tax law in the Companys primary tax jurisdiction, Singapore, only
imposes penalties on tax underpayments relating to tax positions which contravene the
provisions of the Singapore income tax legislation. In addition, interest may be imposed for
request by taxpayers to extend the time limit for tax payment. As such, as of December 31,
2007 and 2008, the Company has not recognized any interest or penalties in the consolidated
statement of operations or in the consolidated balance sheet.The Company is subject to taxation in Singapore and other foreign tax jurisdictions. A
summary of the tax years that remain subject to examination in the Companys major tax
jurisdictions are:
 Fiscal years that remain subject to examination as ofMajor tax jurisdiction
    
    December 31, 2007
    
    December 31, 2008Singapore
    
    1997 and forward
    
    2005 and forwardUnited States of America
    
    2004 and forward
    
    2005 and forward
 15.
    
    Short-term debt
 Short-term debt consists of:
 December 31,2007
    
    
    2008Bank of America short-term credit facility
    
    $
    70,000
    
    
    $
    Bank of America revolving facility
    
    
    50,000
    
    
    
    Sumitomo Mitsui Banking Corporation revolving facility
    
    
    150,000
    
    
    
    $
    270,000
    
    
    $
    
 Weighted-averageInterest Rates as ofDecember 31,2007
    
    2008Short-term debt obligations at floating rates
    
    
    5.59
    %
    
    
    
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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 Bank of America short-term credit facility is an uncommitted facility, for a maximum of
$20,000, which was temporarily increased to $70,000 in December 2007 for a three-month period
ended March 31, 2008. The facility was fully drawn down as of December 31, 2007, and remained
available as of December 31, 2008.The Bank of America Revolving Loan Facility is for a maximum of $50,000, which was fully drawn
down as at December 31, 2007. The availability period is for three years from April 2007.The Sumitomo Mitsui Banking Corporation Revolving Loan Facility is for a maximum of $150,000,
which was fully drawn down as at December 31, 2007. The availability period was for 364 days
from July 2, 2007. In July 2008, the Company renewed this facility with availability period
ending 364 days from July 1, 2008.As of December 31, 2008, these short-term debt obligations were fully repaid.The Companys loans and available credit facilities contain various financial, shareholding
and other restrictive covenants, discussed under Note 16.
 16.
    
    Long-term Debt and Obligations under Capital Leases
 Long-term debt consists of:
 December 31,2007
    
    
    2008Floating rate loans:$653,131 EXIM Guaranteed Loan
    
    $
    543,501
    
    
    $
    459,771$609,733 EXIM Guaranteed Loan
    
    
    
    
    
    
    90,463Société Générale Term Loan
    
    
    
    
    
    
    119,234JBIC/SMBC Term Loan (Tranche B)
    
    
    
    
    
    
    71,8415.645% JBIC/SMBC Term Loan (Tranche A)
    
    
    
    
    
    
    71,8415.75% senior notes due 2010
    
    
    372,700
    
    
    
    373,5466.00% amortizing bonds due 2010
    
    
    29,659
    
    
    
    20,3516.25% senior notes due 2013
    
    
    297,752
    
    
    
    298,1256.375% senior notes due 2015
    
    
    247,092
    
    
    
    247,397Others
    
    
    9,633
    
    
    
    7,7751,500,337
    
    
    
    1,760,344Less: Current installments of long-term debt
    
    
    (74,163
    )
    
    
    (157,512
    )Long-term debt, excluding current installments
    
    $
    1,426,174
    
    
    $
    1,602,832
 Obligations under capital leases:
 2007
    
    
    2008Minimum future lease payments
    
    $
    123,409
    
    
    $
    121,497Amount representing interest at rates of 2007 and 2008: 5.9% to 7.8%
    
    
    (45,166
    )
    
    
    (41,381
    )Present value of minimum future lease payments
    
    
    78,243
    
    
    
    80,116Less: Current installments
    
    
    (4,500
    )
    
    
    (5,720
    )Obligations under capital leases, excluding current installments
    
    $
    73,743
    
    
    $
    74,396
 2007
    
    
    2008Current installments of:Long-term debt
    
    $
    74,163
    
    
    $
    157,512Obligations under capital leases
    
    
    4,500
    
    
    
    5,720$
    78,663
    
    
    $
    163,232Non-current portion, excluding current installments:Long-term debt
    
    $
    1,426,174
    
    
    $
    1,602,832Obligations under capital leases
    
    
    73,743
    
    
    
    74,396$
    1,499,917
    
    
    $
    1,677,228
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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)
 Weighted-averageInterest Rates as ofDecember 31,2007
    
    2008Debt obligations at floating rates
    
    
    5.44
    %
    
    
    3.25
    %Debt obligations at fixed rates
    
    
    6.08
    %
    
    
    6.05
    %Obligations under capital leases
    
    
    7.09
    %
    
    
    7.10
    %
 The $653,131 Export-Import Bank of the United States (EXIM) Guaranteed Loan is from
JPMorgan Chase Bank, N.A. (JP Morgan), guaranteed by EXIM, for a maximum of $653,131. The
Company has established a debt service reserve account with The Bank of New York (BNY)
charged in favor of EXIM. The loan may only be used to finance the purchase of equipment
from U.S. vendors for the Companys Fab 7 facility and is drawn down only in accordance with
equipment purchases per the Companys schedule for the construction of phase 1 of the Fab 7
facility. The loan is divided into two tranches, of which the first tranche of $324,277 had
been fully drawn down as of December 31, 2006. Principal repayment of the first tranche is
payable semi-annually over five years from January 16, 2007. As of December 31, 2008, the
Company has drawn down a total of $294,672 from the second tranche. The availability of the
remaining amount under the second tranche not drawn down by the Company under this facility
expired on August 15, 2008. Principal repayment of the second tranche is payable
semi-annually over five years from July 15, 2008. The loan bears interest at LIBOR plus
0.125%. Interest is payable semi-annually.The $609,733 EXIM Guaranteed Loan is from JP Morgan, guaranteed by EXIM, for a maximum of
$609,733. The Company has established a debt service reserve account with The Bank of New
York (BNY) charged in favor of EXIM. The loan is for the purpose of supporting phase 2 of
the Companys build up of production capacity in Fab 7. It may only be used to finance the
purchase of equipment from U.S. vendors for the Companys Fab 7 facility and may be drawn down
only in accordance with equipment purchases per the Companys schedule for the construction of
phase 2 of the Fab 7 facility. This credit facility is divided into two tranches and has an
availability period of between three to five years, which commenced in May 2007. As of
December 31, 2008, the Company has drawn down a total of $90,463 from the first tranche.
Principal repayment of the first tranche is payable semi-annually over five years beginning
not later than July 15, 2010. The Company may be required to commence repayment of the loan
earlier than the scheduled repayment dates set out in the loan agreement if certain production
milestones are achieved as specified under the loan agreement. These production milestones
relate to the production capacity and shipment of a certain number of wafers over a given time
period as specified in the loan agreement. The loan bears interest at LIBOR plus 0.0695%,
payable semi-annually.The Société Générale Term Loan is a $189,871 term loan facility obtained in January 2008 from
Société Générale, with Atradius Dutch State Business NV (Atradius) as export credit insurer
which covers the loan for commercial and political risks. The Company has established a debt
service reserve account with BNY which is charged in favor of Société Générale. The loan is
for the purpose of supporting phase 2 of the Companys build-up of production capacity in Fab
7. This credit facility may only be used to finance the purchase of equipment from ASML
Netherlands B.V, a European vendor, for the Companys Fab 7 facility as well as to finance the
premium payable by the Company in respect of the insurance provided by Atradius, and may be
drawn down only in accordance with the equipment purchases per the Companys schedule for the
construction of phase 2 of the Fab 7 facility. The facility is divided into two tranches and
is repayable over a period of five years on a semi-annual basis from March 1, 2009 for the
first tranche and not later than December 15, 2010 for the second tranche. As of December 31,
2008, the Company has fully drawn down a total of $119,234 from the first tranche. The
availability of the remaining amount of the first tranche not drawn down by the Company under
this facility expired on August 1, 2008. The availability of the second tranche B will expire
on December 15, 2009, if it is not cancelled at the discretion of the Company or fully
disbursed before such date. This facility bears interest at LIBOR plus 0.20% per annum and
interest is payable semi-annually.
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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 Japan Bank of International Cooperation (JBIC) and Sumitomo Mitsui Banking Corporation
(SMBC) (collectively JBIC/SMBC Term Loan) is a $300,000 term loan facility obtained in
October 2007. The Company has established a debt service reserve account with SMBC, Singapore
Branch, which is charged in favor of JBIC and SMBC. The loan is for the purpose of supporting
phase 2 of the Companys build-up of production capacity in Fab 7. This credit facility may
only be used to finance the purchase of equipment from Japanese vendors for the Companys Fab
7 facility and may be drawn down only in accordance with the equipment purchases per the
Companys schedule for the construction of phase 2 of the Fab 7 facility. As of December 31,
2008, the Company has drawn down $143,682 from the facility. The availability of the
remaining amount under this facility expires on October 15, 2010, if not cancelled at the
discretion of the Company or disbursed before such date. Fifty percent of the loan principal
bears interest at a rate of 5.645% per annum, while the remaining fifty percent bears interest
at LIBOR plus 0.15% per annum. Interest is payable semi-annually from the drawdown of the
loan, and the loan principal is payable over a period of five years on a semi-annual basis
from January 15, 2011.The senior notes due 2010 (Senior Notes due 2010) with face value of $375,000 were issued on
August 3, 2005 at a price of 98.896% of the principal amount. The senior notes due 2015
(Senior Notes due 2015) with face value of $250,000 were issued on August 3, 2005 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 from 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 due 2010 and Senior Notes due 2015 constitute senior,
unsecured obligations of the Company.The convertible redeemable preference shares (refer to Note 18) and the 6% amortizing bonds
due 2010 (Amortizing Bonds) have an aggregate issue price of $300,000 and were issued on
August 17, 2005. 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 from
February 17, 2006, and amortize to zero at maturity on August 17, 2010. The Amortizing Bonds
constitute senior, unsecured obligations of the Company.The senior notes due 2013 (Senior Notes due 2013) with a face value of $300,000 were issued
on April 4, 2006 at a price of 99.053% of the principal amount. Interest is payable at the
rate of 6.25% per annum on April 4 and October 4 of each year, from October 4, 2006. The
Senior Notes due 2013 mature on April 4, 2013, and constitute senior, unsecured obligations of
the Company.As of December 31, 2007 and 2008, other long-term debt included the unamortized portion of
the cumulative fair value change of the Senior Notes due 2013 due to changes in interest
rates for the period the Company designated an interest rate swap (IRS) transaction as a
fair value hedge of this debt. The IRS was terminated in 2007.The senior notes due 2010, senior notes due 2013 and senior notes due 2015 (collectively,
Senior Notes) and the Amortizing Bonds include a company call option and an investor put
option. If the Company were to exercise the call option, investors would receive an amount
equal to the outstanding principal amount, plus any accrued and unpaid interest through the
call/redemption date. If the investors were to exercise the put option upon the occurrence of specified change of control events, they would receive an
amount equal to 101% of the outstanding principal amount, plus any accrued and unpaid interest
to the put/repayment date.The Company evaluated the call and put options included in the Senior Notes and the
Amortizing Bonds in accordance with SFAS No. 133 and Derivatives Implementation Group (DIG)
Issue B16 Embedded Derivatives: Calls and Puts in Debt Instruments (DIG Issue B16). Based
on its evaluation, the Company determined that the call and put options are clearly and
closely related to the debt instrument. Therefore these embedded derivatives have not been
bifurcated.The above borrowings, Senior Notes and Amortizing Bonds, rank pari passu. There are no
collateral requirements on the Companys loans and credit facilities.
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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)
 Annual maturities of long-term debt as of December 31, 2008 are as follows:
 Payable in year ending December 31,2009
    
    $
    157,5122010
    
    
    542,1592011
    
    
    194,4652012
    
    
    129,6102013
    
    
    400,143Thereafter
    
    
    334,612$
    1,758,501
 These amounts represent the expected repayments in each of the periods indicated and do not
include the unamortized debt discount relating to the Senior Notes, which are reported as a
direct reduction to the face amounts of the Senior Notes, and the effect from the basis
adjustment due to the termination of the IRS.The Company has total unutilized banking facilities consisting of loans and bank credit lines
of $687,478 and $1,007,901 as of December 31, 2007 and 2008, respectively. Of these, $654,507
and $946,225 are available to the Company on a committed basis as of December 31, 2007 and
2008, respectively. These committed unutilized banking facilities relate primarily to the
purchase of equipment from certain vendors. The Company pays commitment fees ranging from
0.025% to 0.20% and 0.025% to 0.25% per annum for the remaining unutilized facilities for
2007 and 2008, respectively.As of December 31, 2008, 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 which is defined as the book value of shareholders equity, 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 on incurring further indebtedness, creating security interests over assets,
payment of dividends, disposal of assets and mergers and corporate restructuring. Breach of
some of these covenants may trigger early repayment provision and cancellation of available
credit facilities.The obligations under capital leases include contracts for supply of gases used by the
Companys fabrication facilities. The Company has assessed that such supply contracts contain
a lease pursuant to the consensus reached in EITF Issue 01-8, Determining Whether An
Arrangement Contains A Lease, and are accounted for as capital leases.Minimum future lease payments under capital leases for equipment and machinery for supply of
gases as of December 31, 2008 are as follows:
 Payable in year ending December 31,2009
    
    $
    11,2332010
    
    
    11,2332011
    
    
    11,2332012
    
    
    11,2332013
    
    
    10,706Thereafter
    
    
    65,859Total minimum lease payments
    
    $
    121,497
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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)
 17.
    
    Other Non-current LiabilitiesAs at December 31, 2007 and 2008, the asset retirement obligation related to the
requirements in the Companys lease agreements for the potential return of buildings to
tenantable condition and the potential return of land on which the fabrication facilities
have been built to its original condition amounted to $19,304 and $20,417, respectively.A reconciliation of the carrying amount of asset retirement obligations as of December 31,
2007 and 2008 is as follows:
 Asset retirement obligations as of December 31, 2006
    
    $
    17,909Accretion expense
    
    
    1,395Asset retirement obligations as of December 31, 2007
    
    
    19,304Accretion expense
    
    
    1,583Additions
    
    
    1,151Revision down
    
    
    (1,621
    )Asset retirement obligations as of December 31, 2008
    
    $
    20,417
 18.
    
    Convertible Redeemable Preference Shares
 The holders of the convertible redeemable preference shares (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,
ADSs at a conversion price of $0.8719 per Ordinary Share at any time 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.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 which was in August 2005, 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. Such events include the delisting of the Companys shares from the stock
exchanges on which they are currently traded, changes in the Companys controlling
shareholder or a majority of the board of directors, or the Companys share capital becoming
insufficient to cover the redemption amount.The Company has evaluated these call and put options under the provisions of SFAS No. 133
and DIG Issue B16. For purposes of assessing if the puts and calls are closely related to
the Preference Shares, the Company has referred to DIG Issue B16 as the Preference Shares
are akin to a debt instrument because they have a mandatory redemption feature at maturity
and holders are not entitled to vote at the Companys general meetings nor are they entitled
to receive dividends or otherwise participate in earnings. The Preference Shares do not
embody any claim to residual interest of the Company. Upon exercise of the call or put
options, investors would receive an amount equal to the accreted value of their shares and
such amount does not constitute an accelerated repayment of the redemption principal amount
of $10,000 per Preference Share. The call and put options are considered to be clearly and
closely related to the Preference Shares. Therefore these embedded derivatives have not been
bifurcated.
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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)
 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 of $8,443.24 per Preference Share accreted to its present value using the effective
interest rate method calculation as follows:
 Elapsed days1,800Allocated 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 as
regards to repayment of amounts paid up or credited as paid up on such
class of 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 as regards to repayment of amounts paid up or
credited as paid up on such class of 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 as
regards to repayment of amounts paid up or credited as paid up on such
class of 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 rate method. Such
accretion adjusts net income (loss) available to ordinary shareholders. Accretion charge for
the years ended December 31, 2006, 2007 and 2008 was $9,476, $9,663 and $10,042,
respectively.In 2006, 2 Preference Shares were converted and 18,924 ordinary shares were issued as a
result of the conversion. There were no conversions during 2007 and 2008.
 19.
    
    Shareholders Equity
 Ordinary Share CapitalUntil January 30, 2006, ordinary shares of the Company had a par value of S$0.26. The
Singapore Companies (Amendment) Act 2005, which came into effect on January 30, 2006,
abolished the concept of par value and authorized capital.In March 2006, the Company entered into a call option transaction (2006 Option)
with GS to replace the call option transaction that the Company had previously entered
into with GS in August 2004 with an expiration date of April 2, 2006. Under the 2006
Option, GS could purchase up to 214,800 of Chartered ordinary shares at S$1.60 per
share should the Company early terminate the 2006 Option in the first year and S$2.15
per share thereafter. Prior to the modification of the 2006 Option as mentioned below,
the 2006 Option was accounted for as a derivative instrument that was dual indexed to
the Companys ordinary share price and currency exchange rates, and changes in fair
value were recognized in earnings.On March 9, 2007, the Company modified the terms of the 2006 Option by simultaneously
terminating the Singapore dollar-denominated option and entering into a US
dollar-denominated option. The modification was based on the exchange rate of S$1.5268 per
US$1.00 on March 9, 2007. Under the modified terms of the 2006 Option, GS is entitled to
purchase up to 214,800 of new ordinary shares at US$1.408 per share and the Company may
terminate the transaction early, in whole or in part, if the closing price of Chartered
ordinary shares is equal to or higher than US$1.760 (equivalent to 125% of the US$1.408
exercise price) on each of any 20 business days in any consecutive 30 business-day period.
Should the Company exercise this right and opt for physical settlement, GS will be required
to buy the number of new ordinary shares relating to the terminated portion of the 2006
Option at US$1.408 per share. The Company continues to have the right to cash settle the
2006 Option. Under the terms of the 2006 Option, if the option is exercised, the Company has
the right either to issue new shares to GS or to settle the transaction in cash. If the 2006
Option is not exercised or terminated earlier, it will expire on March 29, 2011. As of
December 31, 2007 and 2008, the US dollar-denominated option is accounted for as
shareholders equity in the consolidated balance sheets.
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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)
 Accumulated DeficitSingapore law allows dividends to be paid only out of the Companys net profits for the year
or retained earnings. With effect from January 1, 2008, all such dividends are exempt from
income tax in the hands of the shareholders of ordinary shares. In 2007, shareholders of
ordinary shares were not liable for Singapore income tax on dividends paid by the Company out
of its tax exempt profits from pioneer activities and net profits after deduction of tax at
the concessionary rate from post-pioneer or development and expansion activities. Some of
the Companys loan agreements restrict the ability of the Company to pay dividends without
prior approval from the lender.Prior to and including 2007, distributions of profits from non-pioneer activities which had
been subject to tax at the normal corporate tax rate were paid with a franking tax credit
which Singapore tax-resident shareholders could apply as a prepayment of income tax on the
dividend. Shareholders who were not tax-residents in Singapore were not liable for further
Singapore income tax.The Company had up to December 31, 2007 to utilize any available franking tax credit balance
under the old imputation system to pay a franked dividend to its shareholders. The Company
had approximately S$52,416 of available balances under the old imputation system as of
December 31, 2007. With the cessation of the imputation system from January 1, 2008, the
full amount of the franking tax credit balance was nullified subsequent to December 31, 2007
and the Company moved on to the one-tier system.Under the one-tier system, tax payable by the Company on its non-qualifying chargeable
income constitutes a final tax. The Company can henceforth pay dividends that are exempted
from Singapore income tax in the hands of their shareholders.Accumulated Other Comprehensive LossAccumulated other comprehensive loss consists of the following:
 December 31,2007
    
    
    2008Cumulative foreign currency translation loss
    
    $
    52,124
    
    
    $
    52,782Net unrealized cash flow hedging losses
    
    
    1,442
    
    
    
    1,593Net unrealized (gains) losses on available-for-sale securities
    
    
    (296
    )
    
    
    289$
    53,270
    
    
    $
    54,664
 The foreign currency translation loss, net unrealized cash flow hedging losses and net
unrealized (gains) losses on available-for-sale securities are not adjusted for income taxes
because such (gains) losses are not taxable or deductible to the
Company under relevant tax laws.
 20.
    
    Share Options and Incentive Plans
 Total share-based compensation expense related to employee share options, restricted
share units and performance share units under SFAS No. 123(R) for the years ended December
31, 2006, 2007 and 2008 was:
 2006
    
    
    2007
    
    
    2008Cost of revenue
    
    $
    2,565
    
    
    $
    1,637
    
    
    $
    1,482Research and development
    
    
    712
    
    
    
    506
    
    
    
    629Sales and marketing
    
    
    1,031
    
    
    
    703
    
    
    
    980General and administrative
    
    
    3,068
    
    
    
    1,947
    
    
    
    2,223Total share-based compensation expense
    
    $
    7,376
    
    
    $
    4,793
    
    
    $
    5,314
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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)
 2006
    
    2007
    
    2008Total share-basedcompensationexpense
    
    Perordinaryshare
    
    Per ADS
    
    Perordinaryshare
    
    Per ADS
    
    Perordinaryshare
    
    Per ADSBasic
    
    $
    0.00
    
    
    $
    0.03
    
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.02Diluted
    
    $
    0.00
    
    
    $
    0.03
    
    
    $
    0.00
    
    
    $
    0.02
    
    
    $
    0.00
    
    
    $
    0.02
 As the share-based compensation expense does not satisfy the conditions for tax deduction in
Singapore, the recognition of the share-based compensation expense did not result in income
tax benefits.(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) 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 increased by 30,488 shares. The total shares
provided under the 1999 Option Plan are hence 227,648 shares. Options granted under the
plan may include non-statutory options as well as incentive share options intended to
qualify under Section 422 of the United States Internal Revenue Code of 1986 (the Code).
The Company issues new shares upon exercise of options. The remaining shares available for
future grants are 84,104 and 93,273 as of December 31, 2007 and 2008, respectively.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 contractual term of options does not exceed 10 years from the date of grant. Upon
leaving employment of the Company, employees are given a specified period to exercise
outstanding options. The exercise price of share 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 at the date of the grant.The weighted-average grant-date fair value of share options granted, the total intrinsic
value of share options exercised and the total fair value of share options vested during the
years ended December 31, 2006, 2007 and 2008 were as follows:
 2006
    
    2007
    
    2008Weighted-average grant-date fair value of share
options granted
    
    $
    0.43
    
    
    $
    0.35
    
    
    $
    0.41Total intrinsic value of share options exercised
    
    $
    320
    
    
    $
    207
    
    
    $
    10Total fair value of share options vested
    
    $
    14,495
    
    
    $
    10,893
    
    
    $
    6,139
 Share option activity for all outstanding options and the corresponding price information
for the year ended December 31, 2008 were as follows:
 Numberof options
    
    Weighted-averageexercisepriceOutstanding at January 1, 2008
    
    
    115,019
    
    
    $
    1.82Granted
    
    
    1,120
    
    
    $
    0.64Expired
    
    
    (1,405
    )
    
    $
    0.58Exercised
    
    
    (372
    )
    
    $
    0.43Forfeited
    
    
    (8,884
    )
    
    $
    2.09Outstanding at December 31, 2008
    
    
    105,478
    
    
    $
    1.81Exercisable at December 31, 2008
    
    
    89,810
    
    
    $
    2.00
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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)
 Information regarding outstanding and exercisable share options as of December 31, 2008, was
as follows:
 Options outstandingRange of exercise prices
    
    Number ofoptions
    
    
    Weighted-averageremainingcontractualterm
    
    
    Weighted-averageexerciseprice
    
    
    Intrinsicvalue$0.17 to $1.00
    
    
    64,473
    
    
    6.0 years
    
    $
    0.73
    
    
    $
    1,340$1.06 to $1.89
    
    
    15,821
    
    
    3.2 years
    
    $
    1.39
    
    
    $
    2,389$2.14 to $2.44
    
    
    11,346
    
    
    2.5 years
    
    $
    2.32
    
    
    $
    631$5.81
    
    
    7,978
    
    
    1.8 years
    
    $
    5.81
    
    
    $
    $8.31
    
    
    5,860
    
    
    1.3 years
    
    $
    8.31
    
    
    $
    105,478
    
    
    
    
    
    
    
    
    
    
    $
    4,360
 Options exercisableRange of exercise prices
    
    Number ofoptions
    
    
    Weighted-averageremainingcontractualterm
    
    
    Weighted-averageexerciseprice
    
    
    Intrinsicvalue$0.17 to $1.00
    
    
    48,805
    
    
    5.5 years
    
    $
    0.73
    
    
    $
    1,340$1.06 to $1.89
    
    
    15,821
    
    
    3.2 years
    
    $
    1.39
    
    
    $
    2,389$2.14 to $2.44
    
    
    11,346
    
    
    2.5 years
    
    $
    2.32
    
    
    $
    631$5.81
    
    
    7,978
    
    
    1.8 years
    
    $
    5.81
    
    
    $
    $8.31
    
    
    5,860
    
    
    1.3 years
    
    $
    8.31
    
    
    $
    89,810
    
    
    
    
    
    
    
    
    
    
    $
    4,360
 The options vest over one to five years and expire on dates ranging from February 2009 to
October 2018.Total share-based compensation expense recognized for employee share options for the years
ended December 31, 2006, 2007 and 2008 was $7,376, $4,450 and $3,101, respectively. As of
December 31, 2008, there was $4,163 of total unrecognized compensation expense related to
share options scheduled to be recognized over a weighted-average period of 2.1 years.Cash proceeds of $198 were received from option exercises during the year ended December 31,
2008.The fair values of the option grants awarded during the years ended December 31, 2006,
2007 and 2008 were estimated on the date of grant using the Black-Scholes option-pricing
model, with the following assumptions.
 2006
    
    2007
    
    2008Risk free interest rate
    
    4.59% to
5.22%
    
    4.05% to
4.94%
    
    3.60% to
4.07%Expected volatility
    
    40.45% to
57.86%
    
    35.01% to
49.09%
    
    46.19% to
48.79%Expected term
    
    3 to
6.25 years
    
    3 to
6.25 years
    
    10 yearsDividend yield
    
    0.00%
    
    0.00%
    
    0.00%
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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 risk-free interest rate for periods within the contractual term of the award is
based upon observed interest rates appropriate for the term of the Companys employee
share options. Expected volatilities are based on historical volatility rates of the
Companys ordinary shares. For options awarded during the years ended December 31, 2006
and 2007, the expected term is determined using the simplified approach as permitted by
Staff Accounting Bulletin No. 107 (SAB 107). For options awarded during the year
ended December 31, 2008, the expected term is based on the contractual term of the
options, expected exercise and post-vesting employment forfeiture behavior.Pre-vesting forfeitures for share options granted were estimated to be between approximately
1% to 21%, 6% to 22% and 3% to 23% for the years ended December 31, 2006, 2007 and
2008, respectively based on historical pre-vesting forfeitures.Options to purchase 390 and 177 shares of the Company were granted to employees of SMP in
2006 and 2007, respectively. No options to purchase shares of the Company were granted to
employees of SMP in 2008. SMP bears the share-based compensation expense in respect of
these options.The 1999 Option Plan expired on January 28, 2009.(b) 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).The ESPP 2004 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 compensation, commissions, overtime pay and shift
premiums. Employees of the Company and SMP are eligible for participation in the Chartered
ESPP 2004 and SMP ESPP 2004 Plans respectively, subject to certain employment conditions as
provided in the ESPP 2004 Plans. 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 is the lower of 95% 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 ESPP 2004 Plans were intended to qualify under Section 423 of the
Code.The ESPP 2004 Plans are administered by a committee appointed by the Directors (Committee).
The ESPP 2004 Plans give the Committee the right to stipulate the method to determine the
purchase price for each Ordinary Share purchased at the close of an offering period, if the
Committee determines that the existing method of determining the purchase price would cause
the Company to incur any stock-based compensation expense.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 aggregate number of ordinary shares
that are available for purchase under the ESPP 2004 Plans is 30,000 Ordinary Shares.1,284 and 1,942 shares were issued at prices from $0.67 to $0.91 (S$1.02 to S$1.40) and $0.33
to $0.50 (S$0.47 to S$0.70) during the years ended December 31, 2007 and 2008, respectively.Cash proceeds of $791 were received for the share purchase plans during the year ended
December 31, 2008.The ESPP 2004 Plans are non-compensatory as the purchase price is 95% of the fair market
value of the ordinary shares applied to the Companys average ordinary share price on the
last trading day of the offer period. Therefore, the Company does not recognize compensation
expense related to shares sold under the ESPP 2004 Plans.In February 2009, the Companys Board of Directors terminated the ESPP 2004 Plans with effect
from March 1, 2009.
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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)
 (c) Restricted Share Unit Plan 2007In April 2007, the Companys shareholders approved the Restricted Share Unit Plan 2007 (RSU
Plan) which is a share-based incentive plan designed to reward, retain and motivate the
Companys employees. This plan also extends to employees of SMP. The RSU Plan is
administered by a committee appointed by the Directors (Committee). The aggregate number
of ordinary shares that may be issued under the RSU Plan, together with the aggregate number
of ordinary shares that may be issued under other existing share-based compensation plans of
the Company, may not exceed 380,000 ordinary shares, with a limit of 50,000 ordinary shares
that may be granted under all share-based compensation plans of the Company per calendar
year. The maximum aggregate number of ordinary shares that may be granted under the RSU Plan
to any one grantee may not exceed 5,000 ordinary shares per calendar year. Each RSU will
entitle the holder to one ordinary share of the Company. All vested RSUs may be paid in cash
or ordinary shares of the Company as determined by the Committee. The Company has
historically settled all vested awards in shares and the intention is also to settle all
future vested awards in shares. The Company issues new shares upon vesting of the RSUs. The
RSUs awarded will vest according to the vesting schedule, and ordinary shares will be issued
provided the employee remains employed by the Company through the vesting dates; otherwise
the unvested RSUs will be forfeited.The weighted-average grant-date fair value of RSUs granted and the total fair value of RSUs
vested during the years ended December 31, 2007 and 2008 were as follows:
 2007
    
    2008Weighted-average grant-date fair value of RSUs granted
    
    $
    0.70
    
    
    $
    0.65Total fair value of RSUs vested
    
    $
    
    
    
    $
    890
 Movements in outstanding RSUs for the year ended December 31, 2008 were as follows:
 Weighted-averageNumber
    
    grant-dateof RSUs
    
    fair valueOutstanding at January 1, 2008
    
    
    4,036
    
    
    $
    0.70Granted
    
    
    9,052
    
    
    $
    0.65Vested
    
    
    (1,272
    )
    
    $
    0.70Forfeited
    
    
    (488
    )
    
    $
    0.68Outstanding at December 31, 2008
    
    
    11,328
    
    
    $
    0.66
 Out of the 4,061 RSUs granted and accepted in 2007, 38 RSUs were granted to employees of SMP.
Out of the 9,052 RSUs granted and accepted in 2008, 63 RSUs were granted to employees of
SMP. These RSUs vest equally on each anniversary of the grant date over three years. Total
share-based compensation expense recognized for the RSUs for the year ended December 31, 2007
and 2008 was $304 and $1,978. As of December 31, 2008, the total compensation expense related
to unvested RSUs not yet recognized is estimated at approximately $6,025 which is expected to
be recognized over a weighted-average period of 2.2 years. The
weighted-average grant-date
fair value of RSUs outstanding as of December 31, 2007 and 2008 is $0.70 and $0.66.The grant-date fair value of awards granted under the RSU Plan is based on the average of the
high and low quotes of the Companys ordinary shares at the date of grant. SMP reimburses the
Company for the share-based compensation expense in respect of the RSUs that were granted to
its employees.Pre-vesting forfeitures for RSUs granted were estimated to be between approximately 0.95% to
2.18% and 0.47% to 1.09% for the years ended December 31, 2007 and 2008, respectively, based
on historical and expected attrition rates.
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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)
 (d) Performance Share Unit Plan 2007In April 2007, the Companys shareholders approved the Performance Share Unit Plan 2007 (PSU
Plan) which is a share-based incentive for senior executives in key positions who are able
to drive the strategic direction and performance of the Company. The PSU Plan is
administered by a committee appointed by the Directors (Committee). The aggregate number
of ordinary shares that may be issued under the PSU Plan, together with the aggregate number
of ordinary shares that may be issued under other existing share-based compensation plans of
the Company, may not exceed 380,000 ordinary shares, with a limit of 50,000 ordinary shares
that may be granted under all share-based compensation plans of the Company per calendar
year. The maximum aggregate number of ordinary shares that may be granted under the PSU Plan
to any one grantee may not exceed 5,000 ordinary shares per calendar year. Each PSU will
entitle the holder to one ordinary share of the Company. All vested PSUs may be paid in cash
or ordinary shares of the Company as determined by the Committee. The Company has
historically settled all vested awards in shares and the intention is also to settle all
future vested awards in shares. The Company issues new shares upon vesting of the PSUs. The
PSUs will generally vest at the end of the requisite service period once the Committees
approval is obtained and vesting is contingent upon the achievement of pre-determined
conditions.A base number of PSUs that may be awarded at the end of a three-year performance period was
granted under the PSU Plan. The vesting of the awards granted in 2007 is contingent upon the
achievement of pre-determined levels of Economic Value Added (EVA) spread and Absolute
Total Shareholder Return (TSR) as those measures are defined in the PSU Plan. The vesting
of the awards granted in 2008 is contingent upon the achievement of pre-determined levels of
EVA spread, Absolute TSR and Relative TSR as those measures are defined in the PSU Plan. All
pre-determined levels have been established at the grant date. All conditions are determined
based on the average of three financial years EVA spread, Absolute TSR and Relative TSR.
The EVA spread is calculated by deducting weighted-average cost of capital from the return
on invested capital, while Absolute TSR is calculated by adding dividend yield to the change
in the opening and closing share price of the Companys ordinary shares for the performance
period. The Relative TSR is calculated by comparing the TSR of the Company against the TSR
of a pre-defined peer in the semiconductor industry. The achievement of EVA spread is a
performance condition while the achievement of Absolute TSR and Relative TSR are a market
conditions. For the PSUs granted in 2007, half of the base number of PSUs will vest
according to the achievement of the EVA spread and the other half will vest according to the
achievement of the TSR. For the PSUs granted in 2008, one third of the base number of PSUs
will vest according to the achievement of the EVA spread, one third will vest according to
the achievement of the Absolute TSR and one third will vest according to the achievement of
the Relative TSR. The number of PSUs ultimately vested will range from 30% to 150% of the
base number of PSUs awarded, or zero, subject to the achievement of either of the
abovementioned performance condition or market conditions, as applicable.The weighted-average grant-date fair value of PSUs granted during the years ended December
31, 2007 and 2008 was as follows:
 2007
    
    2008Weighted-average grant-date fair value of PSUs granted
    
    $
    0.52
    
    
    $
    0.49
 Movements in outstanding PSUs for the year ended December 31, 2008 were as follows:
 Weighted-averageNumber
    
    grant-dateof PSUs
    
    fair valueOutstanding at January 1, 2008
    
    
    2,316
    
    
    $
    0.52Granted
    
    
    2,706
    
    
    $
    0.49Forfeited
    
    
    (303
    )
    
    $
    0.51Outstanding at December 31, 2008
    
    
    4,719
    
    
    $
    0.50
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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)
 Total share-based compensation expense recognized for the PSUs for the year ended December 31,
2007 and 2008 was $39 and $235, respectively. Depending upon the Companys performance against
target performance measures specified in the award agreements, as of December 31, 2008, the
total compensation expense related to unvested PSUs not yet recognized is estimated to be
approximately $777. This estimated compensation expense is expected to be recognized over a
weighted-average period of 2.4 years. The weighted-average grant-date fair value of PSUs
outstanding as of December 31, 2007 and 2008 is $0.52 and $0.50 respectively.The grant-date fair value for the performance-based portion of the awards is based on the
average of the high and low quotes of the Companys ordinary shares at the date of grant.The grant-date fair value for the market-based portion of the awards is calculated by an
independent third-party appraiser which adopted the Monte-Carlo valuation model with the
following assumptions:
 2007
    
    2008Risk-free interest rate
    
    
    2.37
    %
    
    
    1.67
    %Expected volatility
    
    
    38.0
    %
    
    
    39.0
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
 The risk-free rate is based upon observed interest rates appropriate for the term of the
Companys PSUs. Expected volatility is based on historical volatility rates of the Companys
ordinary shares.Pre-vesting forfeitures for PSUs granted were estimated to be approximately 3.81% and 1.41% to
2.03% for the years ended December 31, 2007 and 2008, respectively, based on historical and
expected attrition rates.
 21.
    
    Commitments and Contingencies
 (a) CommitmentsThe Company has the following commitments:
 December 31,2007
    
    2008Contracts for capital expenditures
    
    $
    280,576
    
    
    $
    298,859Technology agreements
    
    
    261,402
    
    
    
    354,270Others
    
    
    83,812
    
    
    
    39,251
 As of December 31, 2007 and 2008, commitments payable within one year amounted to $475,291
and $207,287, respectively. Commitments from technology agreements relate primarily to
expenses on research and development.Minimum future rental payments on non-cancellable operating leases, excluding amounts payable
to related parties disclosed in Note 3, as at December 31, 2008, are as follows:
 Payable in year ending December 31,2009
    
    $
    4,5872010
    
    
    3,1832011
    
    
    1,9692012
    
    
    1,3392013
    
    
    305Thereafter
    
    
    $
    11,383
 Rental expense on operating leases, excluding amounts payable to related parties disclosed in
Note 3, for the years ended December 31, 2006, 2007 and 2008 was $5,687, $5,031 and $5,752
respectively. There was no contingent rental included in the above rental expense for all the
years ended December 31, 2006, 2007 and 2008.
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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 Company has a patent license agreement with LSI 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 LSI in SMP falls below 49%. In exchange the Company has waived capacity shortfall
obligations from LSI. Should the interest of LSI in SMP fall below 49%, the Company may be
required to make royalty payments to LSI under this patent license agreement. The patent
license agreement continues for as long as the joint venture agreement between the parties
remains.
 (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 property, goods and services,
and other non-income taxes. The Company accrues costs associated with these matters when
they become probable and reasonably estimable. The Company does not believe it is probable
that losses associated with these matters beyond those already recognized will be incurred in
amounts that would be material to its consolidated balance sheets or consolidated statements
of operations.
 22.
    
    Derivative Instruments
 At December 31, 2008
 Derivative Instrument
    
    Notional Amount
    
    Average Rate/Price
    
    MaturityForward Contracts Yen Forward Contracts
    
    
    860,754
    
    

    
    90.15/USD
    

    
    
    2009 SGD Forward Contracts
    
    
    7,227
    
    

    
    1.45/USD
    

    
    
    2009Embedded derivatives denominated in Yen
    
    
    325,758
    
    
    
    
    
    
    
    
 To protect against volatility of future cash flows caused by changes in exchange rates, the
Company may use forward exchange contracts, currency options and currency swap instruments for
forecasted transactions such as operating expenses and capital purchases. To manage interest
rate risk, the Company may utilize interest rate derivative instruments to modify the interest
characteristics of its outstanding debts.Most of the Companys derivatives are formally designated as foreign currency cash flow or
fair value hedges except for certain foreign currency forward contracts and embedded foreign
currency derivatives in purchase contracts. These certain foreign currency forward contracts
relate to groups of forecasted foreign currency denominated payments. While the Company
expects the forward contracts which have not been formally designated as hedges 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. The embedded foreign currency
derivatives are in purchase contracts for which payments are denominated in currencies other
than the functional currency or the local currency of the parties to the contracts or, in
some cases, their parent company where the parent company provides the majority of resources
required under the contract on behalf of the subsidiary who is a party to the contract.
Gains and losses on these certain foreign currency forward contracts and embedded foreign
currency derivatives in purchase contracts are included in Other operating expenses, net.The Company uses derivative instruments to manage identified foreign currency risks resulting
from its foreign currency denominated purchase commitments which are denominated principally
in Japanese yen and Euro. The maximum tenure for these transactions is 18 months. The
Company uses foreign currency forward contracts to manage these risks and designates 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. For the year ended December 31, 2008,
the ineffective amount reclassified from other comprehensive income into earnings was a loss
of $363 and was included in Other operating expenses, net. Amounts included in other
comprehensive income (loss) related to hedges of foreign currency purchase commitments are
reclassified into earnings (Other operating expenses, net) upon the commencement of
depreciation of the asset related to the purchase commitment over the remaining useful life
of the asset.
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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)
 As of December 31, 2005, the Company had four interest rate cap contracts associated with a
certain US dollar loan. The amount relating to time value, which is excluded from the
assessment of hedge effectiveness, was $(989) for the year ended December 31, 2006. For the
year ended December 31, 2006, the ineffective amount reclassified into earnings (Other loss,
net) was a gain of $806. The interest rate cap contracts matured following the maturity of
the loan in 2006.In 2006, the Company entered into an IRS contract to hedge the fixed-rate interest
obligations of 6.25% per annum associated with the Senior Notes due 2013 with the effect of
swapping the fixed-rate interest obligations to a floating-rate obligation based on US LIBOR
rates. In August 2006, the Company designated the IRS as a fair-value hedge of changes in
the fair value of the Senior Notes due 2013 attributable to changes in the benchmark interest
rate, which is US dollar six-month LIBOR. From that date, changes in the fair value of the
derivative and changes in the fair value of the item being hedged are recorded in earnings
(Other loss, net). Net recognized gain arising from ineffectiveness of fair value hedges
was $574 and $1,013 for the years ended December 31, 2006 and 2007, respectively. The IRS
contract was terminated in November 2007. The cash proceeds from the termination of the IRS
contract of $9,050 were recorded as an operating cash flow in the consolidated statement of
cash flows for the year ended December 31, 2007.As of December 31, 2008, the estimated net amount of existing losses from cash flow hedges
expected to be reclassified into earnings within the next 12 months is $415. Net realized
gains (losses) recognized from cash flow hedges were $1,917 and $(554) for the years ended
December 31, 2007 and 2008, respectively.The components of accumulated other comprehensive loss related to derivative and hedging
activities consist of the following:
 December 31,2007
    
    
    2008Beginning
    
    $
    (1,350
    )
    
    $
    (1,442
    )Reclassification of cash flow hedging (gains) losses into earnings
    
    
    (1,917
    )
    
    
    554Share of cash flow hedging activity gains of SMP
    
    
    1
    
    
    
    Net unrealized gains (losses) on change in cash flow hedging
derivative fair values
    
    
    1,824
    
    
    
    (705
    )Ending
    
    $
    (1,442
    )
    
    $
    (1,593
    )
 23.
    
    Fair Values of Financial Instruments
 In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No.
157), which provides guidance for measuring the fair value of assets and liabilities, and
requires expanded disclosures about fair value measurements. SFAS No. 157 indicates that fair
value should be determined based on the assumptions that marketplace participants would use in
pricing the asset or liability, and provides additional guidelines to consider in determining
the market-based measurement.In February 2008, the FASB issued FASB Staff Position (FSP) SFAS No. 157-1,
Application of FASB SFAS No. 157 to SFAS No. 13 and Its Related Interpretive Accounting
Pronouncements That Address Leasing Transactions, and FSP SFAS No. 157-2, Effective Date of
SFAS No. 157. FSP SFAS No. 157-1 excludes from the scope of SFAS No. 157 certain leasing
transactions accounted for under SFAS No. 13, Accounting for Leases. FSP SFAS No. 157-2
delays the effective date of SFAS No. 157 from 2008 to 2009 for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually).SFAS No. 157 clarifies that the definition of fair value retains the exchange price
notion and focuses on the price that would be received to sell the asset or paid to transfer
the liability (an exit price), not the price that would be paid to acquire the asset or
received to assume the liability (an entry price). SFAS No. 157 also emphasizes that fair
value is a market-based measurement, not an entity-specific measurement, therefore a fair
value measurement should be determined based on the assumptions that market participants
would use in pricing the asset or liability including assumptions about risk, the effect of
sale or use restrictions on an asset and non-performance risk including an entitys own
credit risk relative to a liability. SFAS No. 157 establishes a fair value hierarchy that
distinguishes between (1) market participant assumptions developed based on market data
obtained from sources independent of the reporting entity (observable inputs) and (2) the
reporting entitys own assumptions about market participant assumptions developed based on
the best information available in the circumstances (unobservable inputs). SFAS No. 157
emphasizes that valuation techniques should maximize the use of observable inputs and
minimize the use of unobservable inputs.
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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 additional disclosure requirements of SFAS No. 157 focus on the inputs used to
measure fair value and for recurring fair value measurements using significant unobservable
inputs and the effect of the measurement on earnings (or changes in net assets) for the
reporting period. Inputs are categorized by a fair value hierarchy, Level 1 through Level 3,
the highest priority being given to Level 1 and the lowest priority to Level 3. Level 1 inputs
are quoted prices (unadjusted) in active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs
other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset
or liability. Unobservable inputs shall be used to measure fair value to the extent that
observable inputs are not available.In October 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active. FSP SFAS No. 157-3 clarifies
the application of SFAS No. 157 in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. This FSP became effective upon issuance,
including prior periods for which financial statements have not been issued. The Company
adopted FSP SFAS No. 157-3 in the third quarter of 2008.In 2008, the Company adopted SFAS No. 157, except for non-financial assets and
non-financial liabilities as described in FSP SFAS No. 157-2. The adoption of SFAS No. 157 and
its related FSPs did not have a material impact on the Companys consolidated financial
statements.The following table presents the Companys financial assets and financial liabilities
measured at fair value on a recurring basis as of December 31, 2008 and the amounts as they
correspond to the respective levels within the fair value hierarchy established by SFAS No.
157.
 Fair Value Measurements as of December 31, 2008Quoted Pricesin Active
    
    SignificantMarkets for
    
    other
    
    SignificantIdentical
    
    Observable
    
    UnobservableAssets
    
    Inputs
    
    InputsTotal
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)$
    
    $
    
    $
    
    $Assets:Marketable securities
    
    
    950
    
    
    
    950
    
    
    
    
    
    
    
    Forward foreign
exchange contracts
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    29Liabilities:Forward foreign
exchange contracts
    
    
    65
    
    
    
    
    
    
    
    
    
    
    
    65Embedded derivatives
    
    
    469
    
    
    
    
    
    
    
    
    
    
    
    469
 Marketable securities are recorded at fair value, which is based on quoted prices in
active markets for identical assets.The fair values of forward foreign exchange contracts are determined using quantitative
models that require the use of multiple market inputs including interest rates, prices and maturity
dates to generate pricing curves, which are used to value the
positions. The market
inputs are generally actively quoted and can be validated through external sources,
including brokers. For forward foreign exchange contract asset and liability positions
with maturity dates which fall between the dates of quoted prices, interpolation of rate
or maturity scenarios are used in determining fair values.The fair values of embedded derivatives are determined in a similar manner as
forward foreign exchange contracts, except that the Company makes certain
assumptions about the maturity dates of such embedded derivatives as maturity dates
are generally not included in the host contracts.
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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 reconciliation for all assets and liabilities measured at
fair value on a recurring basis using significant unobservable inputs (Level 3) during
2008.
 Fair Value Measurements as of December 31, 2008ForwardForeignExchangeEmbedded
    
    ContractsNet liabilities
    
    derivatives
    
    (Net)
    
    Total$
    
    $
    
    $Balance as of January 1, 2008
    
    
    (4
    )
    
    
    (142
    )
    
    
    (146
    )Total gain/(losses) (realized/unrealized)
included in earnings (Other operating
expenses, net)
    
    
    (469
    )
    
    
    26
    
    
    
    (443
    )Included in other comprehensive income
    
    
    
    
    
    
    (62
    )
    
    
    (62
    )Purchases, issuances, and settlement (net)
    
    
    4
    
    
    
    142
    
    
    
    146Balance as of December 31, 2008
    
    
    (469
    )
    
    
    (36
    )
    
    
    (505
    )Amount of total gains or losses for the
period included in earnings attributable
to the change in unrealized gains/(losses) relating to assets/liabilities
still held at reporting date
    
    
    (469
    )
    
    
    26
    
    
    
    (443
    )
 The Company accounts for the Fund (see Note 8) as a cost-method investment. Because the
Fund has suffered an other-than-temporary impairment, it is measured at fair value on a
non-recurring basis. The fair value of the Fund and its underlying debt and securities
is assessed by utilizing market prices as provided by independent pricing services or,
when such prices are not available, by using a valuation approach based on current
investment ratings, valuation parameters and estimates of the underlying debt and
securities, redemptions of the Fund and the subsequent distribution of cash. Based on
this assessment, the Company determined that the fair value of the Fund and its
underlying debt securities approximated the fair values as provided by the investment
manager of the Fund. Such assessment of the fair value of the Fund uses significant
unobservable inputs (Level 3). The Company recorded an other-than-temporary impairment
loss of $4,568 for the year ended December 31, 2008. As of December 31, 2008, the fair
value of the Companys pro-rata share of investment in the Fund was $19,634.The Company also holds certain equity investments which have suffered an
other-than-temporary impairment in 2008 and are thus measured at fair value on a
non-recurring basis. The fair values of these investments are based
primarily upon the Companys own estimates of the value of the underlying assets.
Such assessment of the fair value of the investments uses significant unobservable inputs
(Level 3). The Company recorded an other-than-temporary loss of $1,637 for the year
ended December 31, 2008 related to these investments. The fair value of these investments
as at December 31, 2008 was $86.SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires the
disclosure of the estimated fair value of financial instruments including those financial
instruments for which the Company did not elect the fair value option.Fair values of other financial instruments are as follows:
 December 31,2007
    
    2008Carrying
    
    Estimated
    
    Carrying
    
    Estimated fairamount
    
    fair value
    
    amount
    
    valueAsset/(Liability)
    
    $
    
    $
    
    $
    
    $Short-term debt
    
    
    (270,000
    )
    
    
    (270,018
    )
    
    
    
    
    
    
    Long-term debt
    
    
    (1,500,337
    )
    
    
    (1,509,896
    )
    
    
    (1,760,344
    )
    
    
    (1,557,853
    )
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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)
 Cash and cash equivalents, related party receivables and payables, accounts receivable, other
current receivables, accounts payable and other current payables.The carrying amounts
approximate fair value in view of the short-term nature of these balances.Short-term debt.The fair value is based on current interest rates available to the Company
for issuance of debt with similar terms and remaining maturities.Long-term debt.The fair values are estimated based on the type of loan and maturity. The
Company uses valuations from brokers when available, and when these are not available, the
Company estimates the fair value using market interest rates for its debts with similar
maturities.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.
 24.
    
    Operating Segment, Geographic and Major Customer Information
 Operating 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 as 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.The following table presents a summary of revenues by country of domicile of customers
and long-lived assets by country. The Company geographically categorizes a sale based on the
country in which the customer is headquartered.
 2006
    
    
    2007
    
    
    2008RevenueUS
    
    $
    1,079,187
    
    
    $
    958,795
    
    
    $
    1,035,814Taiwan
    
    
    122,881
    
    
    
    205,285
    
    
    
    236,571Japan
    
    
    23,861
    
    
    
    8,833
    
    
    
    124,428Singapore
    
    
    37,716
    
    
    
    39,434
    
    
    
    54,333Others
    
    
    150,880
    
    
    
    143,139
    
    
    
    209,974$
    1,414,525
    
    
    $
    1,355,486
    
    
    $
    1,661,120
 December 31,2007
    
    
    2008Long-lived assets, including
Property, Plant and Equipment,
net, Technology Licence Agreements
and Other Intangible Assets, netSingapore
    
    $
    2,524,923
    
    
    $
    2,892,410Others
    
    
    1,565
    
    
    
    1,436$
    2,526,488
    
    
    $
    2,893,846
 2006
    
    2007
    
    2008Revenue by Major Customer:Customer A
    
    
    24.0
    %
    
    
    29.1
    %
    
    
    27.0
    %Customer B
    
    
    
    
    
    
    *
    
    
    
    12.4
    %Customer C
    
    
    18.9
    
    
    
    *
    
    
    
    *Customer D
    
    
    10.3
    
    
    
    10.1
    
    
    
    *
 *
    
    less than 10% of net revenue for the year
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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)
 25.
    
    Other Operating Expenses, net
 Other operating expenses, net primarily consists of:A gain of $2,611 in 2006 related to the disposal of certain plant and equipment for which an
impairment charge of $3,938 was previously recorded in 2005 and included in Other operating
expenses, net.Expenses related to rental property of $11,121, $10,846 and $5,274 for 2006, 2007 and 2008,
respectively.Foreign exchange loss of $6,125, $1,856 and $2,967 for 2006, 2007 and 2008, respectively.Included in Other operating expenses, net in 2006, 2007 and 2008 was also amounts of $339,
$1 and $1,316, respectively, relating to fixed assets written off.
 26.
    
    Other Income (Loss), net
 In 2006, Other loss, net included an other-than-temporary impairment loss of $2,698 on
available-for-sale securities.In 2007, Other loss, net included other-than-temporary impairment losses of $1,975 on
other investments and available-for-sale securities.In 2008, Other income, net included the recognition of $11,537 arising from the
Companys acceptance of a licensing fee in connection with a technology arrangement by one of
the Companys technology partners which was concluded during 2008 (see Note 6). Other
income, net for 2008 also included other-than-temporary impairment losses of $5,855 on other
investments and available-for-sale securities, as well as $1,637 on investments in other
equity securities.
 27.
    
    Defined Contribution Plan
 Under Singapore law, the Company makes monthly contributions based on the statutory funding
requirement into a Central Provident Fund (CPF) for substantially all of our Singapore
employees who are Singapore citizens and Singapore permanent residents. The aggregate
expenses under this plan were $13,186, $15,476 and $19,205 for 2006, 2007 and 2008,
respectively.
 28.
    
    Subsequent Events
 Workforce Re-sizingOn January 30, 2009, the Company announced that as a result of further decline in utilization
rate into the first quarter of 2009 and lack of visibility in the end markets, the Company
would be reducing its worldwide workforce by approximately 500 people, or about 7 percent of
its total employment. The Company expects a one-time charge of approximately $7,000
associated with this workforce reduction which will be recorded in its consolidated statement
of operation for the first quarter of 2009. The workforce reduction relating to SMP of
approximately 100 people, or about 16% percent of SMPs total employment amounting to
approximately a one-time charge of $1,000, will be recorded in SMPs statement of operation
for the first quarter of 2009, and the Company will record its share of this one-time charge
in its equity in the income (loss) of SMP in the first quarter of 2009 accordingly.
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SILICON MANUFACTURING PARTNERS PTE LTD
 FINANCIAL STATEMENTS INDEX
 Page NumberReport of Independent Registered Public Accounting Firm
    
    FS-1Balance Sheets
    
    FS-2Statements of Operations
    
    FS-3Statements of Comprehensive Income
    
    FS-4Statements of Shareholders Equity
    
    FS-5Statements of Cash Flows
    
    FS-6Notes to the Financial Statements
    
    FS-7




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
  FS-1




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SILICON MANUFACTURING PARTNERS PTE LTD
 
 BALANCE SHEETS  in U.S. Dollars
 As of December 31
In thousands
 2007
    
    
    2008ASSETSCash and cash equivalents
    
    $
    24,697
    
    
    $
    24,245Receivables, net
    
    
    11,238
    
    
    
    4,974Receivables from related parties
    
    
    11,218
    
    
    
    3,850Inventories
    
    
    16,041
    
    
    
    13,712Prepaid expenses
    
    
    1,900
    
    
    
    928Other current assets
    
    
    249
    
    
    
    370Total current assets
    
    
    65,343
    
    
    
    48,079Property, plant and equipment, net
    
    
    18,436
    
    
    
    20,369Other non-current assets
    
    
    669
    
    
    
    316Total assets
    
    $
    84,448
    
    
    $
    68,764LIABILITIES AND SHAREHOLDERS EQUITYTrade payables and accrued purchases
    
    $
    11,914
    
    
    $
    7,282Payables to related parties
    
    
    13,432
    
    
    
    12,622Other current liabilities
    
    
    5,044
    
    
    
    2,585Total current liabilities
    
    
    30,390
    
    
    
    22,489Other non-current liabilities
    
    
    6
    
    
    
    157Total liabilities
    
    
    30,396
    
    
    
    22,646Ordinary share capitalIssued and outstanding: 323,965 shares in 2007 and 2008
    
    
    152,389
    
    
    
    152,389Accumulated deficit
    
    
    (98,337
    )
    
    
    (106,271
    )Total shareholders equity
    
    $
    54,052
    
    
    $
    46,118Commitments and contingenciesTotal liabilities and shareholders equity
    
    $
    84,448
    
    
    $
    68,764
 See accompanying notes to financial statements
 FS-2




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SILICON MANUFACTURING PARTNERS PTE LTD
 
 STATEMENTS OF OPERATIONS  in U.S. Dollars
 For the Twelve-Month Periods and Year Ended December 31
In thousands
 2006
    
    
    2007
    
    
    2008Net revenue
    
    $
    197,932
    
    
    $
    175,174
    
    
    $
    144,663Cost of revenue
    
    
    (159,922
    )
    
    
    (140,667
    )
    
    
    (114,969
    )Gross profit
    
    
    38,010
    
    
    
    34,507
    
    
    
    29,694OPERATING EXPENSESGeneral and administrative
    
    
    3,175
    
    
    
    3,089
    
    
    
    3,294Sales and marketing
    
    
    
    
    
    
    
    
    
    
    670Other operating expenses (income), net
    
    
    126
    
    
    
    112
    
    
    
    (331
    )Total operating expenses, net
    
    
    3,301
    
    
    
    3,201
    
    
    
    3,633Other income, net
    
    
    13
    
    
    
    13
    
    
    
    10Interest income
    
    
    1,535
    
    
    
    1,247
    
    
    
    423Income before income tax
    
    
    36,257
    
    
    
    32,566
    
    
    
    26,494Income tax expense (benefit)
    
    
    216
    
    
    
    (1,632
    )
    
    
    271Net income
    
    $
    36,041
    
    
    $
    34,198
    
    
    $
    26,223
 See accompanying notes to financial statements
 FS-3




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SILICON MANUFACTURING PARTNERS PTE LTD
 
 STATEMENTS OF COMPREHENSIVE INCOME  in U.S. Dollars
 For the Twelve-Month Periods and Year Ended December 31
In thousands
 2006
    
    
    2007
    
    
    2008Net income
    
    $
    36,041
    
    
    $
    34,198
    
    
    $
    26,223Reclassification of cash flow hedging
losses into earnings
    
    
    17
    
    
    
    1
    
    
    
    Other comprehensive income
    
    
    17
    
    
    
    1
    
    
    
    Comprehensive income
    
    $
    36,058
    
    
    $
    34,199
    
    
    $
    26,223
 See accompanying notes to financial statements
 FS-4




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SILICON MANUFACTURING PARTNERS PTE LTD
 
 STATEMENTS OF SHAREHOLDERS EQUITY  in U.S. Dollars
 In thousands
 AccumulatedOtherCompre-
    
    Total Share-Ordinary Share
    
    Accumulated
    
    hensive
    
    holdersCapital
    
    Deficit
    
    Income (Loss)
    
    EquityNo.
    
    $
    
    $
    
    $
    
    $Balance at December 31,
2005 (unaudited)
    
    
    323,965
    
    
    
    192,389
    
    
    
    (96,797
    )
    
    
    (18
    )
    
    
    95,574Net income
    
    
    
    
    
    
    
    
    
    
    36,041
    
    
    
    
    
    
    
    36,041Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    17Return of capital
    
    
    
    
    
    
    (40,000
    )
    
    
    
    
    
    
    
    
    
    
    (40,000
    )Dividend paid
    
    
    
    
    
    
    
    
    
    
    (38,177
    )
    
    
    
    
    
    
    (38,177
    )Balance at December 31, 2006
    
    
    323,965
    
    
    
    152,389
    
    
    
    (98,933
    )
    
    
    (1
    )
    
    
    53,455Net income
    
    
    
    
    
    
    
    
    
    
    34,198
    
    
    
    
    
    
    
    34,198Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Dividend paid
    
    
    
    
    
    
    
    
    
    
    (33,602
    )
    
    
    
    
    
    
    (33,602
    )Balance at December 31, 2007
    
    
    323,965
    
    
    
    152,389
    
    
    
    (98,337
    )
    
    
    
    
    
    
    54,052Net income
    
    
    
    
    
    
    
    
    
    
    26,223
    
    
    
    
    
    
    
    26,223Dividend paid
    
    
    
    
    
    
    
    
    
    
    (34,157
    )
    
    
    
    
    
    
    (34,157
    )Balance at December 31, 2008
    
    
    323,965
    
    
    
    152,389
    
    
    
    (106,271
    )
    
    
    
    
    
    
    46,118
 See accompanying notes to financial statements
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SILICON MANUFACTURING PARTNERS PTE LTD
 
 STATEMENTS OF CASH FLOWS  in U.S. Dollars
 For the Twelve-Month Periods and Year Ended December 31
In thousands
 2006
    
    
    2007
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    $
    36,041
    
    
    $
    34,198
    
    
    $
    26,223Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    36,702
    
    
    
    13,961
    
    
    
    8,591Gain on disposal of property, plant and equipment
    
    
    (50
    )
    
    
    
    
    
    
    Others, net
    
    
    (4
    )
    
    
    (851
    )
    
    
    226Change in assets and liabilities:Receivables
    
    
    190
    
    
    
    (4,981
    )
    
    
    6,270Receivables with related parties
    
    
    3,035
    
    
    
    8,380
    
    
    
    7,368Inventories
    
    
    1,657
    
    
    
    1,305
    
    
    
    2,329Other assets
    
    
    105
    
    
    
    225
    
    
    
    972Payables and other current liabilities
    
    
    2,542
    
    
    
    (1,338
    )
    
    
    (4,880
    )Payables with related parties
    
    
    1,045
    
    
    
    4,196
    
    
    
    (810
    )Income tax payable
    
    
    (162
    )
    
    
    208
    
    
    
    (262
    )Net cash provided by operating activities
    
    
    81,101
    
    
    
    55,303
    
    
    
    46,027CASH FLOWS FROM INVESTING ACTIVITIESPayments for property, plant and equipment
    
    
    (3,536
    )
    
    
    (8,730
    )
    
    
    (12,322
    )Proceeds from sale of property, plant and equipment
    
    
    50
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (3,486
    )
    
    
    (8,730
    )
    
    
    (12,322
    )CASH FLOWS FROM FINANCING ACTIVITIESDividends paid
    
    
    (38,177
    )
    
    
    (33,602
    )
    
    
    (34,157
    )Return of capital
    
    
    (33,500
    )
    
    
    (15,000
    )
    
    
    Net cash used in financing activities
    
    
    (71,677
    )
    
    
    (48,602
    )
    
    
    (34,157
    )Net increase (decrease) in cash and cash equivalents
    
    
    5,938
    
    
    
    (2,029
    )
    
    
    (452
    )Cash and cash equivalents at the beginning of the
period
    
    
    20,788
    
    
    
    26,726
    
    
    
    24,697Cash and cash equivalents at the end of the period
    
    $
    26,726
    
    
    $
    24,697
    
    
    $
    24,245Supplemental Cash Flow InformationIncome tax paid (refunded)
    
    $
    183
    
    
    $
    (1,389
    )
    
    $
    341Non-cash investing and financing activitiesProperty, plant and equipment acquired on credit
    
    $
    347
    
    
    $
    2,042
    
    
    $
    244
 See accompanying notes to financial statements
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SILICON MANUFACTURING PARTNERS PTE LTD
 
 NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
 In thousands
 1.
    
    Background and Summary of Significant Accounting Policies(a) Business and OrganizationSilicon Manufacturing Partners Pte Ltd (the Company) was incorporated in the Republic of
Singapore in 1998. The immediate holding company is LSI Technology (Singapore) Pte Ltd (LSI),
previously known as Agere Systems Singapore Pte Ltd. The ultimate holding company is LSI
Corporation. LSI Corporation was formed in April 2007 upon the completion of the merger between
Agere Systems Inc. and LSI Logic Corporation. LSI and Chartered Semiconductor Manufacturing Ltd
(Chartered), incorporated in the Republic of Singapore, own a 51% and 49% equity interest in the
Company, respectively.The principal activities of the Company are those of an independent foundry that fabricates
semiconductor integrated circuits on silicon wafers using its production facilities and the
proprietary integrated circuit designs of its customers in the semiconductor industry. The Company
operates in the Republic of Singapore and its principal markets are the United States of America,
Taiwan and Europe.In 2007, due to the merger between Agere Systems Inc. and LSI Logic Corporation, LSI changed its
fiscal year end from September 30 to December 31 to coincide with the fiscal year end of the newly
merged ultimate holding company, LSI Corporation. In August 2007, the Companys board of directors
approved a change to the Companys fiscal year end from September 30 to December 31 so as to
coincide with the fiscal year end of LSI as required by Singapore law.(b) Basis of PresentationThe financial statements have been prepared in accordance with United States of America (U.S.)
generally accepted accounting principles (U.S. GAAP).These financial statements are prepared for each of the twelve-month periods ended December 31,
2006 and 2007 and, subsequent to the change in fiscal year end in 2007, the fiscal year of the
Company ended December 31, 2008, for filing together with the Annual Report of Chartered on Form
20-F with the U.S. Securities and Exchange Commission (SEC) as required by Rule 3-09 of
Regulation S-X (Rule 3-09).(c) Recent Accounting Pronouncements Not Yet AdoptedIn March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 161, Disclosures about Derivative Instruments and Hedging
Activities. SFAS No. 161 amends SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities and is intended to enhance the current disclosure framework in SFAS No.133 by requiring
that objectives for using derivative instruments be disclosed in terms of underlying risk and
accounting designation to better convey the purpose of the derivative use in terms of the risks
that the entity is intending to manage. This Statement is effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008. The adoption of SFAS No.
161 is not expected to have a material impact on the Companys financial statements.
 FS-7




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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 In July 2006, the FASB issued FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in
Income Taxes  An Interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109,
Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attributes
for the financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition. Under FIN 48, only the tax
benefits for tax positions that meet the more-likely-than-not recognition threshold at the
effective date may be recognized or continue to be recognized upon adoption of FIN 48. In December
2008, the FASB issued FASB Staff Position FASB Interpretation No. 48-3 (FSP No. FIN 48-3) to
defer the effective date of adopting FIN 48 for certain nonpublic entities to fiscal years
beginning after December 15, 2008. The Company will adopt FIN 48 in the financial year ending
December 31, 2009. The adoption of FIN 48 is not expected to have a material impact on the
Companys financial position or statements of operations.(d) Use of EstimatesThe preparation of the financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures about contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the respective reporting periods. Significant items subject to judgment and
estimate include the amount of income tax expense, the 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, the valuation of accounts receivable and inventories, the
determination of normal capacity of the Companys production facilities, the recognition of
revenue, the recognition and measurement of the sales credits and returns allowance, and the fair
value of share-based employee compensation awards and financial instruments. These estimates and
assumptions are based on managements best estimates and judgment. Management evaluates its
estimates and assumptions on an ongoing basis using historical experience and other factors,
including the current economic environment, which management believes to be reasonable under the
circumstances. Management adjusts such estimates and assumptions when facts and circumstances
dictate. Illiquid credit markets; volatile equity, foreign currency, and energy markets; and
declines in consumer spending have combined to increase the uncertainty inherent in such estimates
and assumptions. As future events and their effects cannot be determined with precision, actual
results could differ significantly from these estimates. Changes in those estimates resulting from
continuing changes in the economic environment will be reflected in the financial statements in
future periods.(e) Foreign CurrencyThe functional currency of the Company is the U.S. 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 of assets
and liabilities denominated in foreign currencies at financial year-end exchange rates, are
included in the line item Other operating expenses (income), net in the statements of operations.
 FS-8




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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 (f) Business and Credit ConcentrationsThe 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. The market for semiconductors is characterized
by rapid technological change, intense competition and fluctuations in end-user demand. The Company
depends, and will continue to depend, for a significant portion of its revenue on a relatively
limited number of customers who from time to time may be concentrated in particular end markets.
The three largest customers of the Company, other than related parties, accounted for 60%, 73% and
70% of the Companys net revenue in the twelve-month periods ended December 31, 2006 and 2007 and
the year ended December 31, 2008, respectively. Total accounts receivable from these customers was
$5,196 and $1,482 at December 31, 2007 and 2008, respectively. The Companys top customer profile
may change from period to period depending on the strength of various market sectors.In terms of geographical concentration, for the year ended December 31, 2008, approximately 56% and
33% of the Companys business are concentrated in the United States of America and Taiwan
respectively, while the Companys manufacturing activities are entirely located in the Republic of
Singapore.Financial instruments that potentially subject the Company to concentrations of credit risk consist
principally of cash and cash equivalents, derivative financial instruments and receivables. The
maximum exposure to credit risk is represented by the carrying amount of each financial instrument,
after deducting any impairment allowance, in the balance sheet.The Company mitigates the concentration of its credit risk in trade receivables through its credit
evaluation process, credit policies and credit control and collection procedures. The Companys
exposure to credit risk in trade receivables is influenced mainly by individual characteristics of
each customer. The default risk of the country in which the customer is located also has influence
on credit risk but to a lesser extent. The Company does not obtain collateral from customers.The Company mitigates the concentration of credit risk regarding cash and cash equivalents by
placing these amounts with major international banks and financial institutions. Cash and cash
equivalents are generally available upon demand. Cash and cash equivalents deposited with a single
counterparty bank accounted for 59% and 85% of total balances at December 31, 2007 and 2008,
respectively.The amounts related to derivative instruments which are subject to credit risk are generally
limited to the amounts, if any, by which a counterpartys obligations exceed the obligations of the
Company with that counterparty.The Company obtains most of its raw materials and supplies, including critical raw materials such
as raw semiconductor wafers, from a limited number of vendors. Some of these raw materials and
supplies are available from a limited number of vendors in limited quantities and their procurement
may require a long lead time. In certain instances, the Company only has one qualified supplier
for raw materials and supplies.The Company also depends on a limited number of original equipment manufacturers and vendors that
make and sell certain complex equipment and equipment spare parts that the Company uses in its
manufacturing processes. In the event of shortage of supply of equipment spare parts, the Company
would need to qualify alternative sources and/or equipment spare parts.Current adverse global economic conditions and further deterioration of those conditions could
cause our suppliers to experience credit or other financial difficulties that could result in
delays in their ability to supply the Company with necessary raw materials and supplies, as well as
equipment and equipment spare parts.
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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 (g) Cash EquivalentsCash equivalents consist of short-term deposits with banks that are readily convertible into cash
and have original maturities of three months or less.(h) Accounts ReceivableThe Company reviews its accounts receivable on a periodic basis and makes specific allowances when
there is doubt as to the collectibility of individual receivable balances. In evaluating the
collectibility of individual receivable balances, the Company considers the age of the balance, the
customers payment history, their current credit-worthiness and current economic conditions.(i) InventoriesInventories consist of work-in-progress, raw materials and consumable supplies and spares and are
stated at the lower of cost or market. 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, with costs arising from abnormal under-utilization of capacity expensed when
incurred. The Company routinely reviews its inventories for their saleability and for indications
of obsolescence to determine if inventory carrying values are higher than market value. Some of
the significant factors the Company considers in estimating the market value of its inventories
include the likelihood of changes in market and customer demand and changes in market prices for
its inventories.(j) Derivative Instruments and Hedging ActivitiesIn accordance with SFAS No. 133, Accounting for Derivative Instruments and Certain Hedging
Activities and related amendments and interpretations, the Company records derivatives on the
balance sheet as assets or liabilities measured at fair value. The fair values of forward foreign
exchange contracts are determined using quantitative models that require the use of multiple market
inputs including interest rates, prices and maturity dates to generate pricing curves, which are
used to value the positions. The market inputs are generally actively quoted and can be validated
through external sources, including brokers. For forward foreign exchange contracts asset and
liability positions which fall between the dates of quoted prices, extrapolation of rate or
maturity scenarios are used in determining fair values.On the date a derivative contract is entered into, the Company will consider if the derivative
instrument is part of a hedging relationship. Once a hedging relationship is established, 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.
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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 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.The Company discontinues hedge accounting prospectively when it determines 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 (loss) 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.(k) 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:
 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 related to purchases of property, plant and equipment. 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 sheets and any gain or loss is included in the line item Other
operating expenses (income), net in the statements of operations.(l) Impairment of Long-Lived AssetsThe 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 amounts 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. Depreciation ceases when such long-lived assets are classified as
held-for-sale. Long-lived assets to be abandoned are considered held and used until they are
disposed of, which is the point at which they cease to be used.
 FS-11




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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 (m) Revenue RecognitionThe Company derives revenue primarily from fabricating semiconductor wafers and, to a lesser
extent, from providing associated subcontracted assembly and test services as well as
pre-fabricating services such as masks generation and engineering services. The Company enters into
arrangements with customers which typically include some or all of the above deliverables.When arrangements include multiple deliverables, the Company first determines whether each
deliverable meets the separation criteria in FASB Emerging Issues Task Force (EITF) Issue 00-21,
Accounting for Revenue Arrangements with Multiple Deliverables. In general, a deliverable (or a
group of deliverables) meets the separation criteria if the deliverable has standalone value to the
customer and if there is objective and reliable evidence of the fair value of the remaining
deliverables in the arrangement. Each deliverable that meets the separation criteria is considered
a separate unit of accounting. The total arrangement consideration is then allocated to each
separate unit of accounting based on their relative fair values. 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 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, collection of the revenue is reasonably assured and, where applicable,
delivery has occurred. 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.Goods and services taxes collected from customers and remitted to Governmental authorities are
accounted for on a net basis and therefore excluded from revenues in the statements of operations.(n) Share-Based CompensationThe minority shareholder of the Company extends its share-based incentive plans to the
employees of the Company and recharges the share-based compensation expense related to these awards
to the Company. The Company accounts for the awards in accordance with EITF Issue 00-12,
Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method
Investee, unless the share-based compensation expense is reimbursed. Share-based compensation
expense related to these awards is determined utilizing the measurement guidance of EITF 96-18
Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services.(o) 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 financial periods presented.
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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 (p) Operating LeasesThe Company leases its fabrication facility from its minority shareholder under a non-cancellable
operating lease, with an option to renew upon expiry of the lease term (the Operating Lease).
Rentals under the Operating Lease and other 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 leases. Contingent rentals are charged to expense when they are incurred.(q) 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 deferred tax assets when it
is more-likely-than-not that they will not be realized.The Company submits tax returns and claims with Government tax authorities which are subject to
agreement and audit by those tax authorities. Actual taxes to be paid could vary due to the outcome
of audits completed by the tax authorities. The Company records tax contingencies as tax payable
for certain positions which may be challenged by the tax authorities and which the Company may not
ultimately prevail in defending. The amounts recorded are determined based upon the Companys best
estimate of possible assessments by the tax authorities and are adjusted, from time to time, based
upon changing facts and circumstances.2.
    
    Related PartiesUnder the strategic alliance agreement of the Company with its two shareholders, the shareholders
do not share the Companys net results in the same ratio as their equity holdings. Instead, each
shareholder is entitled to the gross profits from sales to the customers that it directs to the
Company after deducting its share of the overhead costs of the Company.Under the assured supply and demand agreement that both shareholders signed with the Company, with
effect from January 1, 2001, each shareholder is billed for unutilized allocated wafer capacity if
the quantity of wafers started for production (wafer starts) based on their respective orders is
less than its allocated capacity. Such billed amounts represent the Companys unrecovered overhead
costs as a result of the allocated capacity not being taken up by one, or both, of the shareholders
and are determined on a quarterly basis. During the twelve-month periods ended December 31, 2006
and 2007 and the year ended December 31, 2008, the shareholders jointly agreed with the Company to
waive the requirement for such billings even though their wafer starts fell below their allocated
capacities.In 2004, the two shareholders entered into an agreement pursuant to which the shareholders agreed
to annually reimburse any losses suffered by the Company that are attributable to the respective
parties. The Company did not suffer any loss that was attributable to the respective shareholders
in the twelve-month periods ended December 31, 2006 and 2007 and the year ended December 31, 2008,
and accordingly no reimbursements were payable by the shareholders under this agreement for these
periods.In September 2004, the two shareholders of the Company entered into a supplementary agreement to
the strategic alliance agreement. Among other things, the supplementary agreement provides that the
Company will pay dividends out of the profits determined on a year-to-year basis rather than on a
cumulative basis, as previously was the case.
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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 Significant related party transactionsFor purposes 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.An affiliated company is defined as one that, directly or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with the Company.Other than those disclosed elsewhere in these financial statements, the following were significant
transactions with related parties and affiliated companies on terms agreed between the parties:
 2006
    
    2007
    
    2008Immediate Holding CompanyRecharge of employee-related
and other expenses to the
Company
    
    $
    1,065
    
    
    $
    980
    
    
    $
    881Sale of processed wafers
    
    
    64,477
    
    
    
    32,225
    
    
    
    60,174Affiliates of Immediate Holding CompanyRecharge of employee-related and other
expenses to the Company
    
    
    2,190
    
    
    
    466
    
    
    
    1,401Sale of processed wafers
    
    
    51,025
    
    
    
    59,012
    
    
    
    6,794Minority ShareholderPurchase of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    9,237Rental expense
    
    
    15,958
    
    
    
    16,810
    
    
    
    7,695Recharge of employee-related and other
expenses to the Company
    
    
    36,490
    
    
    
    36,432
    
    
    
    38,761Sale of processed wafers
    
    
    52
    
    
    
    47
    
    
    
    60Recharge of other expenses from the
Company
    
    
    1,071
    
    
    
    2,735
    
    
    
    3,561Affiliates of Minority ShareholderPurchase of processed wafers
    
    
    151
    
    
    
    59
    
    
    
    45Recharge of other expenses to the Company
    
    
    190
    
    
    
    327
    
    
    
    140Sale of processed wafers
    
    
    23
    
    
    
    
    
    
    
    Recharge of other expenses from the Company
    
    
    58
    
    
    
    28
    
    
    
    188
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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 Share-based compensation expense adjustments from/(to) the minority shareholder to the Company for
the twelve-month periods and year ended December 31, is as follow:
 2006
    
    2007
    
    2008Share-based compensation expense
    
    $
    117
    
    
    $
    25
    
    
    $
    (23
    )
 The amounts due from related parties are:
 December 312007
    
    
    2008Amount due from immediate holding company
    
    $
    
    
    
    $
    2,377Amount due from affiliates of immediate holding company
    
    
    9,877
    
    
    
    333Amount due from minority shareholder
    
    
    1,289
    
    
    
    1,086Amount due from affiliates of minority shareholder
    
    
    52
    
    
    
    54$
    11,218
    
    
    $
    3,850
 The amounts due to related parties are:
 December 312007
    
    
    2008Amount due to immediate holding company
    
    $
    2,989
    
    
    $
    232Amount due to affiliates of immediate holding company
    
    
    250
    
    
    
    215Amount due to minority shareholder
    
    
    9,987
    
    
    
    12,138Amount due to affiliates of minority shareholder
    
    
    206
    
    
    
    37$
    13,432
    
    
    $
    12,622
 The balances with related parties are unsecured, interest-free and repayable within 12 months.
 3.
    
    Cash and Cash Equivalents
 December 312007
    
    
    2008Cash at banks and cash on hand
    
    $
    12,259
    
    
    $
    6,319Short-term deposits with banks
    
    
    12,438
    
    
    
    17,926$
    24,697
    
    
    $
    24,245
 FS-15




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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 4.
    
    Receivables, net
 December 312007
    
    
    2008Trade receivables
    
    $
    11,529
    
    
    $
    5,015Allowance for sales credits and returns
    
    
    (323
    )
    
    
    (114
    )Trade receivables, net of allowances
    
    
    11,206
    
    
    
    4,901Other receivables
    
    
    32
    
    
    
    73$
    11,238
    
    
    $
    4,974
 Movement in the allowance for sales credits and returns is as follows:
 December 312007
    
    
    2008Beginning
    
    $
    568
    
    
    $
    323Charge for the period
    
    
    421
    
    
    
    225Utilized during the period
    
    
    (666
    )
    
    
    (434
    )Ending
    
    $
    323
    
    
    $
    114
 5.
    
    Inventories
 December 312007
    
    
    2008Raw materials
    
    $
    3,128
    
    
    $
    2,521Work-in-progress
    
    
    12,871
    
    
    
    11,165Consumable supplies and spares
    
    
    42
    
    
    
    26$
    16,041
    
    
    $
    13,712
 6.
    
    Property, Plant and Equipment, net
 December 312007
    
    
    2008CostMechanical and electrical installations
    
    $
    5,062
    
    
    $
    5,062Equipment and machinery
    
    
    810,411
    
    
    
    825,259Office and computer equipment
    
    
    9,830
    
    
    
    10,193Assets under installation and construction
    
    
    5,462
    
    
    
    775Total cost
    
    $
    830,765
    
    
    $
    841,289Accumulated depreciation
    
    $
    812,329
    
    
    $
    820,920Property, plant and equipment, net
    
    $
    18,436
    
    
    $
    20,369
 Depreciation expense amounted to $36,702, $13,961 and $8,591 for the twelve-month periods ended
December 31, 2006 and 2007 and the year ended December 31, 2008, respectively.
 FS-16




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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 7.
    
    Other Current Liabilities
 December 312007
    
    
    2008Accrued employee-related expenses and bonuses
    
    $
    3,203
    
    
    $
    1,924Other accrued expenses
    
    
    1,169
    
    
    
    177Other current liabilities
    
    
    354
    
    
    
    428Income tax payable
    
    
    318
    
    
    
    56$
    5,044
    
    
    $
    2,585
 8.
    
    Income Taxes
 Substantially all of the Companys pre-tax income and income tax expense are derived from
Singapore. The Company has been granted pioneer status under the Economic Expansion Incentives
(Relief from Income Tax) Act (Chapter 86) of Singapore for the wafer fabrication of integrated
circuits for a ten-year period beginning May 1, 2000. During the period in which pioneer status is
effective, subject to compliance with certain conditions, income arising from the pioneer trade is
exempt from Singapore income tax. Income arising from activities not covered under the pioneer
incentive (hereinafter referred to as non-qualifying income) is taxed at the prevailing Singapore
corporate tax rate, which was 20% for the year of assessment 2007 and 18% for the years of
assessment 2008 and 2009.The current tax expense (benefit) for the twelve-month periods ended December 31, 2006 and 2007 and
the year ended December 31, 2008 is primarily related to non-qualifying income, such as interest
income.Under Singapore tax law, loss carryforwards and wear and tear allowances are deductible to the
extent of income before loss carryforwards and wear and tear allowances. Unabsorbed tax losses and
wear and tear allowances can be carried forward indefinitely to set off against income in future
tax years, subject to compliance with certain conditions. The Company does not have any wear and
tear allowance carryforwards and tax loss carryforwards as of December 31, 2008.Income tax expense (benefit) consists of the following:
 2006
    
    
    2007
    
    
    2008Current tax expense (benefit)
    
    $
    237
    
    
    $
    (1,411
    )
    
    $
    65Deferred tax expense (benefit)
    
    
    (21
    )
    
    
    (221
    )
    
    
    206$
    216
    
    
    $
    (1,632
    )
    
    $
    271
 FS-17




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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 A reconciliation of the expected tax expense (benefit) computed by applying the Singapore statutory
tax rate of 20% for 2006 and 18% for 2007 and 2008 to income before income tax to income tax
expense (benefit) is as follows:
 2006
    
    
    2007
    
    
    2008Income tax expense computed at the
Singapore statutory tax rate
    
    $
    7,251
    
    
    $
    5,862
    
    
    $
    4,769Non-deductible expenses (non-taxable income)
    
    
    25
    
    
    
    19
    
    
    
    (32
    )Effect of pioneer status, including wear
and tear allowances not recognized as
deferred tax benefit
    
    
    (7,054
    )
    
    
    (5,831
    )
    
    
    (4,456
    )Impact of change in enacted tax rates
    
    
    
    
    
    
    31
    
    
    
    Tax refunds
    
    
    
    
    
    
    (1,660
    )
    
    
    Other, net
    
    
    (6
    )
    
    
    (53
    )
    
    
    (10
    )Income tax expense (benefit)
    
    $
    216
    
    
    $
    (1,632
    )
    
    $
    271
 In March and May 2007, the Singapore tax authorities completed the examination of the Companys
prior years income tax returns and allowed certain deduction claims. As a result, the Company
received total tax refunds of $1,660 pertaining to tax contingencies which had already been paid to
the tax authorities prior to December 31, 2006. The Company has not recorded any income tax
contingencies as of December 31, 2007 and 2008.Deferred tax assets and deferred tax liabilities are non-current and relate to Singapore. Net
deferred tax assets are classified as Other non-current assets and consist of the following:
 December 312007
    
    
    2008Property, plant and equipment
    
    $
    176
    
    
    $
    (34
    )Other accrued expenses
    
    
    100
    
    
    
    104$
    276
    
    
    $
    70
 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 on the availability of future taxable
income during the periods in which those assets will be reversed. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income, taxable income in
prior years and tax planning strategies in making this assessment. A valuation allowance is
established if it is more likely than not that some portion or all of the deferred tax assets will
not be realized by the Company.Based on the historical level of taxable income, management believes that it is more likely than
not that the Company will generate sufficient future taxable income from the wafer fabrication
activities subsequent to the pioneer status period to realize the benefits of these deductible
differences.
 FS-18




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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 9.
    
    Ordinary Share Capital
 December 312007
    
    
    2008No of shares
    
    
    $
    
    
    No of shares
    
    
    $Issued and fully-paid:A ordinary shares
    
    
    172,158
    
    
    
    82,637
    
    
    
    172,158
    
    
    
    82,637B ordinary shares
    
    
    151,807
    
    
    
    69,752
    
    
    
    151,807
    
    
    
    69,752323,965
    
    
    
    152,389
    
    
    
    323,965
    
    
    
    152,389
 The A and B ordinary shares rank pari passu in all respects, except that the rates of dividend
may differ.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 return of capital sanctioned by the High
Court of Singapore. During the twelve-month period ended December 31, 2005, the Company paid cash
of $51,500 to its shareholders and the balance of $8,500 was paid in January 2006. The return of
capital through the extinguishment of accumulated losses does not qualify as a quasi-reorganization
under U.S. GAAP and accordingly no adjustments for this reorganization to the carrying values of
the assets and liabilities of the Company and its accumulated losses have been reflected in these
financial statements.Until January 30, 2006, ordinary shares of the Company had a par value of S$1.00. The Singapore
Companies (Amendment) Act 2005, which came into effect on January 30, 2006, abolished the concept
of par value and authorized capital.In October 2006, the Companys board of directors approved a second return of capital which was
subsequently approved by the High Court of Singapore and filed with the Accounting and Corporate
Regulatory Authority of Singapore in November 2006. Upon approval of the return of capital by the
board of directors of the Company, the equity has been reduced and an accrual was made for $40,000.
The Company subsequently paid cash of $25,000 in 2006 and the remaining $15,000 was paid in cash in
2007.
 10.
    
    Accumulated Deficit
 Singapore law allows dividends to be paid only out of the Companys net profits for the year or
retained earnings. With effect from January 1, 2008, all such dividends are exempt from income tax
in the hands of the shareholders of ordinary shares. 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. As the Company is under the one-tier corporate tax system, 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.
 FS-19




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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 11.
    
    Commitments and Contingencies
 The Company has the following commitments:
 December 312007
    
    
    2008Contracts for capital expenditures
    
    $
    1,139
    
    
    $
    209
 Operating lease commitments
 The Company leases its fabrication facility from its minority shareholder under a lease agreement
which expires in 2018. Minimum future rental payments on non-cancellable operating leases from the
minority shareholder and lessors as of December 31, 2008 are as follows:
 Payable in the year ending December 31,2009
    
    $
    4,8662010
    
    
    4,8832011
    
    
    4,9042012
    
    
    4,9362013
    
    
    4,983Thereafter
    
    
    21,695$
    46,267
 Rental expense on operating leases, excluding amounts payable to related parties disclosed in Note
2, for the twelve-month periods ended December 31, 2006 and 2007 and the year ended December 31,
2008 was $97, $109 and $92 respectively. There was no contingent rental included in the above
rental expense for any of the periods presented.
 Contingencies
 The 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. The Company accrues costs associated with these matters when they
become probable and reasonably estimable. The Company does not have any outstanding litigation or
claims as of December 31, 2008.
 FS-20




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##### Table of Contents



SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 12.
    
    Derivative Instruments
 At December 31, 2008
 Derivative Instrument
    
    Notional Amount
    
    Average Rate/Price
    
    MaturityForward Contracts SGD Forward Contracts
    
    
    1,445
    
    
    1.45/USD
    
    
    2009
 To protect against volatility of future cash flows caused by changes in exchange rates, the Company
may use forward exchange contracts, currency options and currency swap instruments for forecasted
transactions such as operating expenses and capital purchases. To manage interest rate risk, the
Company may utilize interest rate derivative instruments to modify the interest characteristics of
its outstanding debts.The Companys derivatives relate to foreign currency forward contracts. These foreign currency
forward contracts relate to groups of forecasted foreign currency denominated payments. While the
Company expects the forward contracts which have not been formally designated as hedges 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 foreign currency
forward contracts are included in Other operating expenses (income), net in the statements of
operations.
 13.
    
    Fair Value of Financial Instruments
 In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which provides guidance
for measuring the fair value of assets and liabilities, and requires expanded disclosures about
fair value measurements. SFAS No. 157 indicates that fair value should be determined based on the
assumptions that marketplace participants would use in pricing the asset or liability, and provides
additional guidelines to consider in determining the market-based measurement.In February 2008, the FASB issued FSP SFAS No. 157-1, Application of FASB SFAS No. 157 to SFAS No.
13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions, and
FSP SFAS No. 157-2, Effective Date of SFAS No. 157. FSP SFAS No. 157-1 excludes from the scope of
SFAS No. 157 certain leasing transactions accounted for under SFAS No. 13, Accounting for Leases.
FSP SFAS No. 157-2 delays the effective date of SFAS No. 157 from 2008 to 2009 for all
non-financial assets and non-financial liabilities, except those that are recognized or disclosed
at fair value in the financial statements on a recurring basis (at least annually).In October 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a Financial
Asset When the Market for That Asset is Not Active. FSP SFAS No. 157-3 clarifies the application
of SFAS No. 157 in a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the market for that
financial asset is not active. This FSP became effective upon issuance, including prior periods for
which financial statements have not been issued.In 2008, the Company adopted SFAS No. 157, except for non-financial assets and non-financial
liabilities as described in FSP SFAS No. 157-2. As of December 31, 2008, the Company has forward
foreign exchange contracts. The fair values of derivative assets and liabilities are determined
using quantitative models that require the use of multiple market inputs including interest rates,
prices and maturity dates to generate pricing curves, which are used to value the positions. The
market inputs are generally actively quoted and can be validated through external sources,
including brokers and market transactions. For derivative asset and liability positions which fall
between the dates of quoted prices, extrapolation of rate or maturity scenarios are used in
determining fair values. The adoption of SFAS No. 157 and its related FSPs did not have a material
impact on the Companys financial statements.
 FS-21




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SILICON MANUFACTURING PARTNERS PTE LTD
NOTES TO THE FINANCIAL STATEMENTS  in U.S. Dollars
In thousands
 Cash and cash equivalents, related party receivables and payables, accounts receivable and accounts
payable. The carrying amounts approximate fair value in view of the short-term nature of these
balances.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.
 14.
    
    Defined Contribution Plan
 Under Singapore law, the Company makes monthly contributions based on the statutory funding
requirement into a Central Provident Fund (CPF) for substantially all of our Singapore employees
who are Singapore citizens and Singapore permanent residents. The aggregate expenses under this
plan were $1,328, $1,506 and $1,479 for the twelve-month periods ended December 31, 2006 and 2007
and the year ended December 31, 2008, respectively.
 15.
    
    Subsequent Event
 Workforce Re-sizingIn 2009, as a result of further decline in utilization rate into the first quarter of 2009 and lack
of visibility in the end markets, the Company would be reducing its workforce by approximately 100
people, or about 16% percent of its total employment. The Company expects a charge of approximately
$1,000 associated with this workforce reduction which will be recorded in its Statement of
Operations for the first quarter of 2009.
 FS-22