FORM 20-F
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 001-16125
[CHINESE TEXT OMITTED]
(Exact Name of Registrant as Specified in Its Charter)
Advanced Semiconductor Engineering, Inc.
(Translation of Registrant's Name into English)
REPUBLIC OF CHINA
(Jurisdiction of Incorporation or Organization)
26 Chin Third Road
Nantze Export Processing Zone
Nantze, Kaohsiung, Taiwan
Republic of China
(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on which Registered
------------------- -----------------------------------------
Common Shares, par value The New York Stock Exchange*
NT$10.00 each
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*Traded in the form of American Depositary Receipts evidencing American
Depositary Shares, each representing five Common Shares
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:
3,580,280,000 Common Shares, par value NT$10 each
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Table of Contents
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Page
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USE OF CERTAIN TERMS..........................................................1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.............................1
PART I........................................................................2
Item 1. Identity of Directors, Senior Management and Advisers..........2
Item 2. Offer Statistics and Expected Timetable........................2
Item 3. Key Information................................................2
SELECTED FINANCIAL DATA.......................................2
CAPITALIZATION AND INDEBTEDNESS...............................5
REASON FOR THE OFFER AND USE OF PROCEEDS......................5
RISK FACTORS..................................................5
Item 4. Information on the Company....................................19
HISTORY AND DEVELOPMENT OF THE COMPANY.......................19
BUSINESS OVERVIEW............................................21
ORGANIZATIONAL STRUCTURE.....................................40
PROPERTY, PLANTS AND EQUIPMENT...............................43
Item 5. Operating and Financial Review and Prospects..................45
OPERATING RESULTS AND TREND INFORMATION......................45
LIQUIDITY AND CAPITAL RESOURCES..............................59
RESEARCH AND DEVELOPMENT.....................................62
OFF-BALANCE SHEET ARRANGEMENTS...............................63
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS................63
Item 6. Directors, Senior Management and Employees....................64
DIRECTORS AND SENIOR MANAGEMENT AND BOARD PRACTICES..........64
COMPENSATION.................................................67
EMPLOYEES....................................................68
SHARE OWNERSHIP..............................................69
Item 7. Major Shareholders and Related Party Transactions.............70
MAJOR SHAREHOLDERS...........................................70
RELATED PARTY TRANSACTIONS...................................71
Item 8. Financial Information.........................................73
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION......73
LEGAL PROCEEDINGS............................................73
DIVIDENDS AND DIVIDEND POLICY................................74
SIGNIFICANT CHANGES..........................................75
Item 9. The Offer and Listing.........................................75
OFFER AND LISTING DETAILS....................................75
PLAN OF DISTRIBUTION.........................................77
MARKETS......................................................77
SELLING SHAREHOLDERS.........................................77
DILUTION.....................................................77
EXPENSES OF THE ISSUE........................................77
Item 10. Additional Information.......................................77
SHARE CAPITAL................................................77
ARTICLES OF INCORPORATION....................................78
MATERIAL CONTRACTS...........................................83
EXCHANGE CONTROLS............................................84
TAXATION.....................................................84
DIVIDENDS AND PAYING AGENTS..................................88
STATEMENT BY EXPERTS.........................................88
DOCUMENTS ON DISPLAY.........................................88
SUBSIDIARY INFORMATION.......................................88
Item 11. Quantitative and Qualitative Disclosures about Market Risk...88
Item 12. Description of Securities Other Than Equity Securities.......90
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PART II......................................................................91
Item 13. Defaults, Dividend Arrearages and Delinquencies..............91
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds..................................91
Item 15. Controls and Procedures......................................91
Item 16A. Audit Committee Financial Expert.............................91
Item 16B. Code of Ethics...............................................91
Item 16C. Principal Accountant Fees And Services.......................91
PART III.....................................................................92
Item 17. Financial Statements.........................................92
Item 18. Financial Statements.........................................92
Item 19. Exhibits.....................................................93
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USE OF CERTAIN TERMS
All references herein to (i) the "Company", "ASE group", "ASE Inc.", "we", "us", or "our" are to Advanced Semiconductor Engineering, Inc. and, unless the context requires otherwise, its subsidiaries, (ii) "ASE Test" are to ASE Test Limited and its subsidiaries, (iii) "ASE Test Taiwan" are to ASE Test, Inc., a company incorporated under the laws of the ROC, (iv) "ASE Test Malaysia" are to ASE Electronics (M) Sdn. Bhd., a company incorporated under the laws of Malaysia, (v) "ISE Labs" are to ISE Labs, Inc., a corporation incorporated under the laws of the State of California, (vi) "ASE Philippines" are to ASE Holdings Electronics (Philippines) Inc., a company incorporated under the laws of the Philippines, (vii) "Universal Scientific" are to Universal Scientific Industrial Co., Ltd., a company incorporated under the laws of the ROC, (viii) "ASE Material" are to ASE Material Inc., a company incorporated under the laws of the ROC, (ix) "ASE Korea" are to ASE (Korea) Inc., a company incorporated under the laws of the Republic of Korea, (x) "ASE Chung Li" are to ASE (Chung Li) Inc., a company incorporated under the laws of the ROC, (xi) "Hung Ching" are to Hung Ching Development & Construction Co. Ltd., a company incorporated under the laws of the ROC, (xi) the "Securities Act" are to the U.S. Securities Act of 1933, as amended, and (xii) the "Exchange Act" are to the U.S. Securities Exchange Act of 1934, as amended.
All references to the "Republic of China", the "ROC" and "Taiwan" are to the Republic of China, including Taiwan and certain other possessions. All references to "Korea" or "South Korea" are to the Republic of Korea.
We publish our financial statements in New Taiwan dollars, the lawful currency of the ROC. In this annual report, references to "United States dollars", "U.S. dollars" and "US$" are to United States dollars and references to "New Taiwan dollars", "NT dollars" and "NT$" are to New Taiwan dollars. Unless otherwise noted, all translations from NT dollars to U.S. dollars were made at the noon buying rate in The City of New York for cable transfers in NT dollars per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York as of December 31, 2003, which was NT$33.99=US$1.00. All amounts translated into U.S. dollars in this annual report are provided solely for your convenience and no representation is made that the NT dollar or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or NT dollars, as the case may be, at any particular rate or at all. On June 16, 2004, the noon buying rate was NT$33.58=US$1.00.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding our future results of operations and business prospects.
Although these forward-looking statements, which may include statements
regarding our future results of operations, financial condition or business
prospects, are based on our own information and information from other sources
we believe to be reliable, you should not place undue reliance on these
forward-looking statements, which apply only as of the date of this annual
report. Some of these forward-looking statements are derived from projections
made and published by Gartner Dataquest and Semiconductor Industry Association.
We were not involved in the preparation of these projections. The words
"anticipate", "believe", "estimate", "expect", "intend", "plan" and similar
expressions, as they relate to us, are intended to identify these
forward-looking statements in this annual report. Our actual results of
operations, financial condition or business prospects may differ materially from
those expressed or implied in these forward-looking statements for a variety of
reasons, including risks associated with cyclicality and market conditions in
the semiconductor industry; demand for the outsourced semiconductor packaging
and testing services we offer and for such outsourced services generally; the
highly competitive semiconductor industry; our ability to introduce new
packaging, interconnect materials and testing technologies in order to remain
competitive; our ability to successfully integrate pending and future mergers
and acquisitions; international business activities; our business strategy; our
future expansion plans and capital expenditures; the strained relationship
between the ROC and the People's Republic of China, or the PRC; general economic
and political conditions; possible disruptions in commercial activities caused
by natural or human-induced disasters, including terrorist activity and armed
conflict; fluctuations in foreign currency exchange rates; and other factors.
For a discussion of these risks and other factors, see "Item 3. Key
Information--Risk Factors".
PART I
Item 1. Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
SELECTED FINANCIAL DATA
The selected consolidated income statement data and cash flow data for the years ended December 31, 2001, 2002 and 2003, and the selected consolidated balance sheet data as of December 31, 2002 and 2003, set forth below are derived from our audited consolidated financial statements included in this annual report and should be read in conjunction with, and are qualified in their entirety by reference to, these consolidated financial statements. Our consolidated financial statements as of and for the years ended December 31, 2001 and 2002 have been audited by TN Soong & Co., independent public accountants, an associate member firm of Deloitte Touche Tohmatsu. TN Soong & Co. and Deloitte & Touche (Taiwan) combined to establish Deloitte & Touche effective June 1, 2003. Our consolidated financial statements as of and for the year ended December 31, 2003 have been audited by Deloitte & Touche. The selected consolidated income statement data and cash flow data for the years ended December 31, 1999 and 2000 and the selected consolidated balance sheet data as of December 31, 1999, 2000 and 2001 set forth below are derived from our audited consolidated financial statements not included in this annual report. These consolidated financial statements have been audited by TN Soong & Co., independent public accountants, an associate member firm of Deloitte Touche Tohmatsu. Our consolidated financial statements have been prepared and presented in accordance with generally accepted accounting principles in the ROC, or ROC GAAP, which differ in material respects from generally accepted accounting principles in the United States, or U.S. GAAP. See notes 25 and 26 to our consolidated financial statements for a description of the principal differences between ROC GAAP and U.S. GAAP for the periods covered by these consolidated financial statements.
As of and for the Year Ended December 31,
-------------------------------------------------------------------------------
1999 2000 2001 2002 2003
-------------------------------------------------------------------------------
NT$ NT$ NT$ NT$ NT$ US$
(in millions, except earnings per share and per ADS data)
ROC GAAP:
Income Statement Data:
Net revenues ........................ 32,609.6 50,893.4 38,367.8 45,586.8 57,311.8 1,686.1
Cost of revenues .................... (23,959.6) (35,567.3) (32,957.0) (38,492.2) (46,466.5) (1,367.0)
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Gross profit ........................ 8,650.0 15,326.1 5,410.8 7,094.6 10,845.3 319.1
Total operating expenses ............ (3,801.4) (5,449.0) (5,872.9) (7,779.8) (7,574.8) (222.9)
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Operating expenses:
Selling ........................... (924.3) (1,020.5) (877.9) (909.4) (1,204.9) (35.5)
General and administrative ........ (1,655.0) (2,606.2) (2,797.6) (4,005.8) (3,196.6) (94.0)
Goodwill amortization ............. (507.8) (559.8) (692.9) (815.6) (819.3) (24.1)
Research and development .......... (714.3) (1,262.5) (1,504.5) (2,049.0) (2,354.0) (69.3)
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Income (loss) from operations ....... 4,848.6 9,877.1 (462.1) (685.2) 3,270.5 96.2
Net non-operating income (expense):
Investment income (loss) on
long-term investments--net ..... 329.9 195.7 (868.8) (162.4) (20.1) (0.6)
Goodwill amortization ............. (279.3) (363.0) (378.0) (247.9) (220.6) (6.5)
Gain (loss) on sale of
investments-net ................ 5,544.2 91.7 50.7 101.3 618.9 18.2
Foreign exchange gain (loss)--net . (538.4) 302.7 247.5 (397.9) (386.8) (11.4)
Realized loss on long-term
investments .................... (354.8) (10.4)
Interest income (expense)--net .... (1,046.6) (1,538.0) (1,739.3) (1,578.6) (1,304.7) (38.4)
Others--net ....................... 204.0 (162.6) 164.5 261.0 (114.6) (3.3)
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Income (loss) before income tax ..... 9,062.4 8,403.6 (2,985.5) (2,709.7) 1,487.8 43.8
Income tax benefit (expense) ........ (459.5) (1,065.8) 199.2 1,140.3 1,278.1 37.6
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As of and for the Year Ended December 31,
-------------------------------------------------------------------------------
1999 2000 2001 2002 2003
-------------------------------------------------------------------------------
NT$ NT$ NT$ NT$ NT$ US$
(in millions, except earnings per share and per ADS data)
Income (loss) before minority interest 8,602.9 7,337.8 (2,786.3) (1,569.4) 2,765.9 81.4
Income before acquisition ........... (65.1) -- -- -- -- --
Extraordinary loss .................. -- -- (144.6) (34.6) (75.7) (2.2)
Minority interest in net loss
(income) of subsidiaries ......... (743.1) (1,500.6) 788.7 1,733.0 52.6 1.5
--------- --------- --------- --------- --------- ------
Net income (loss) ................... 7,794.7 5,837.2 (2,142.2) 129.0 2,742.8 80.7
========= ========= ========= ========= ========= ======
Earnings per common share:
Basic(1) .......................... 2.26 1.67 (0.60) 0.04 0.78 0.02
Diluted(1) ........................ 2.23 1.64 (0.60) 0.04 0.78 0.02
Dividends per common share(2) ....... 1.07 3.15 1.70 -- 1.00 0.03
Earnings per equivalent
ADS:
Basic(1) .......................... 11.30 8.38 (2.99) 0.19 3.91 0.12
Diluted(1) ........................ 11.17 8.19 (2.99) 0.19 3.88 0.11
Number of common shares(3)
Basic ............................. 3,448.7 3,483.5 3,580.3 3,399.7 3,504.7 3,504.7
Diluted ........................... 3,448.7 3,483.5 3,580.3 3,399.7 3,537.0 3,537.0
Number of equivalent ADSs
Basic ............................. 689.7 696.7 716.1 679.9 700.9 700.9
Diluted ........................... 689.7 696.7 716.1 679.9 707.4 707.4
Balance Sheet Data:
Current assets:
Cash and cash equivalents ......... 11,809.1 14,166.5 11,770.7 9,829.5 8,562.4 251.9
Short-term investments ............ 216.3 1,682.7 4,601.2 2,590.4 3,017.8 88.8
Notes and accounts receivable ..... 7,463.4 9,260.6 7,126.1 8,998.5 12,909.7 379.8
Inventories ....................... 2,449.7 3,246.3 2,768.4 3,131.7 4,691.8 138.0
Others ............................ 1,411.8 2,431.6 3,383.2 2,481.7 2,276.2 67.0
--------- --------- --------- --------- --------- ------
Total ............................. 23,350.3 30,787.7 29,649.6 27,031.8 31,457.9 925.5
Long-term investments ............... 9,674.4 10,712.2 9,530.4 6,566.7 6,342.8 186.6
Properties .......................... 38,107.5 60,566.2 60,555.1 63,088.9 67,339.9 1,981.2
Other assets ........................ 952.8 1,275.6 1,342.3 2,675.8 4,587.4 135.0
Consolidated debits ................ 5,245.8 4,999.5 5,248.9 5,541.8 4,596.2 135.2
--------- --------- --------- --------- --------- ------
Total assets ........................ 77,330.8 108,341.2 106,326.3 104,905.0 114,324.2 3,363.5
========= ========= ========= ========= ========= ======
Short-term borrowings (4) ........... 9,868.2 13,768.0 13,983.1 13,453.8 14,090.2 414.5
Long-term liabilities (5) ........... 24,551.5 25,976.9 30,674.3 30,553.7 30,840.1 907.3
Other liabilities and minority
interest ......................... 12,854.1 24,927.1 19,722.6 21,466.8 24,271.3 714.2
--------- --------- --------- --------- --------- ------
Total liabilities and minority
interest ......................... 47,273.8 64,672.0 64,380.0 65,474.3 69,201.6 2,036.0
========= ========= ========= ========= ========= ======
Capital Stock ....................... 19,800.0 27,520.0 32,548.0 32,548.0 35,802.8 1,053.3
Shareholders' equity ................ 30,057.0 43,669.2 41,946.3 39,430.7 45,122.6 1,327.5
Cash Flow Data:
Net cash outflow from acquisition of
fixed assets ..................... (9,869.2) (30,063.6) (13,816.5) (12,657.9) (17,534.1) (515.9)
Depreciation and amortization ....... 5,554.4 8,593.8 11,127.3 12,286.3 12,766.6 375.6
Net cash inflow from operations ..... 7,017.2 17,459.9 11,578.4 11,313.8 13,306.2 391.5
Net cash inflow from sale of ASE
Test shares ...................... 4,718.3 -- -- -- -- --
Net cash inflow from sale of ASE Inc.
common shares .................... 3,171.0 -- -- -- 2,850.5 83.9
Net cash outflow from investing
activities ....................... (11,782.7) (33,392.0) (17,302.0) (13,719.7) (18,572.6) (546.4)
Net cash inflow from financing
activities ....................... 8,569.0 17,607.3 2,854.5 530.5 4,210.9 123.9
Segment Data:
Net revenues
Packaging ......................... 24,523.0 38,028.8 28,898.2 35,515.4 45,026.9 1,324.7
Testing ........................... 7,793.2 12,768.4 9,459.2 10,060.6 12,142.4 357.2
Others ............................ 293.4 96.2 10.4 10.8 142.5 4.2
Gross profit
Packaging ......................... 5,753.0 10,016.9 4,625.8 6,255.4 7,984.3 234.9
Testing ........................... 3,105.2 5,294.4 782.8 841.2 2,855.3 84.0
Others ............................ (208.2) 14.8 2.2 (2.0) 5.7 0.2
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As of and for the Year Ended December 31,
-------------------------------------------------------------------------
2000 2001 2002 2003
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NT$ NT$ NT$ NT$ US$
(in millions, except earnings per share and per ADS data)
U.S. GAAP:
Income Statement Data:
Net revenues ....................... 50,893.4 38,367.8 45,586.8 57,311.8 1,686.1
Cost of revenues ................... 37,081.2 34,538.3 39,308.2 47,747.5 1,404.7
-------- -------- -------- -------- -------
Gross profit ....................... 13,812.2 3,829.5 6,278.6 9,564.3 281.4
Total operating expenses ........... 5,820.8 6,209.9 9,294.2 7,116.9 209.4
-------- -------- -------- -------- -------
Income (loss) from operations ...... 7,991.4 (2,380.4) (3,015.6) 2,447.4 72.0
Net non-operating income (expense) . (1,502.5) (2,704.6) (2,793.8) (1,314.0) (38.6)
Income tax benefit (expense) ....... (1,059.2) 254.4 1,162.6 1,289.1 37.9
Minority interest in net loss
(income) of subsidiaries ........ (1,499.7) 784.0 1,572.5 (70.5) (2.1)
-------- -------- -------- -------- -------
Net income (loss) .................. 3,930.0 (4,046.6) (3,074.3) 2,352.0 69.2
======== ======== ======== ======== =======
Earnings per common share:
Basic(1) ......................... 1.22 (1.20) (0.90) 0.67 0.02
Diluted(1) ....................... 1.18 (1.20) (0.90) 0.66 0.02
Earnings per equivalent ADS:
Basic(1) ......................... 6.08 (5.99) (4.52) 3.36 0.10
Diluted(1) ....................... 5.88 (5.99) (4.52) 3.32 0.10
Number of common shares(6)
Basic ............................ 3,231.8 3,378.4 3,399.7 3,504.0 3,504.0
Diluted .......................... 3,231.8 3,378.4 3,399.7 3,537.0 3,537.0
Number of equivalent ADSs
Basic ............................ 646.4 675.7 679.9 700.9 700.9
Diluted .......................... 646.4 675.7 679.9 707.4 707.4
Balance Sheet Data:
Current Assets
Cash and cash equivalents ........ 11,770.7 9,829.5 8,562.4 251.9
Short-term investments ........... 4,642.1 2,592.4 3,022.9 88.9
Notes and accounts receivable .... 7,126.1 8,998.5 12,909.8 379.8
Inventories ...................... 2,768.4 3,131.7 4,691.8 138.1
Others ........................... 3,383.2 2,481.7 2,276.2 67.0
--------- --------- --------- -------
Total ............................ 29,690.5 27,033.8 31,463.1 925.7
Long-term investments .............. 6,608.3 5,609.3 5,571.4 163.9
Properties ......................... 60,363.1 62,797.4 66,947.6 1,969.6
Other assets ....................... 1,371.0 2,715.3 4,637.8 136.5
Consolidated debits ................ 4,331.6 3,227.0 3,100.8 91.2
--------- --------- --------- -------
Total assets ....................... 102,364.5 101,382.8 111,720.7 3,286.9
========= ========= ========= =======
Short-term borrowings (4) .......... 13,983.1 13,453.8 14,090.2 414.6
Long-term liabilities (5) .......... 30,674.3 30,553.7 30,840.1 907.3
Other liabilities and minority
interest ........................ 19,746.8 21,658.5 24,707.4 726.9
--------- --------- --------- -------
Total liabilities and minority
interest ........................ 64,404.2 65,666.0 69,637.7 2,048.8
========= ========= ========= =======
Capital stock ...................... 32,548.0 32,548.0 35,802.0 1,053.3
Shareholders' equity ............... 37,960.3 35,716.8 42,083.0 1,238.1
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(1) The numerator of both basic and diluted earnings per share is calculated with consideration of the adjustment of ASE Test's basic and diluted earnings per share. See notes 18 and 26(i) to the consolidated financial statements.
(2) Dividends per common share issued as a stock dividend.
(3) Represents the weighted average number of shares after retroactive adjustments to give effect to stock dividends and employee stock bonuses. Beginning in 2002, common shares held by consolidated subsidiaries are classified for accounting purposes as "treasury stock", and are deducted from the number of common shares outstanding.
(4) Includes current portions of long-term debt and long-term payable for investments.
(5) Excludes current portions of long-term debt and long-term payable for investments.
(6) Represents the weighted average number of common shares after retroactive adjustments to give effect to stock dividends.
Exchange Rates
Fluctuations in the exchange rate between NT dollars and U.S. dollars will affect the U.S. dollar equivalent of the NT dollar price of the common shares on the Taiwan Stock Exchange and, as a result, will likely affect the market price of the ADSs. Fluctuations will also affect the U.S. dollar conversion by the depositary under our ADS deposit agreement referred to below of cash dividends paid in NT dollars on, and the NT dollar proceeds received by the depositary from any sale of, common shares represented by ADSs, in each case, according to the terms of the deposit agreement dated September 29, 2000 among us, Citibank N.A., as depositary, and the holders and beneficial owners from time to time of the ADSs, and supplemented by a letter agreement between us and the depositary dated September 25, 2003, which we collectively refer to as the deposit agreement.
The following table sets forth, for the periods indicated, information concerning the number of NT dollars for which one U.S. dollar could be exchanged based on the noon buying rate for cable transfers in NT dollars as certified for customs purposes by the Federal Reserve Bank of New York.
NT Dollars per U.S. Dollar Noon Buying Rate
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Average High Low Period-End
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1999........................... 32.28 33.40 31.39 31.39
2000........................... 31.37 33.25 30.35 33.17
2001........................... 33.91 35.13 32.23 35.00
2002........................... 34.53 34.79 34.70 34.70
2003........................... 34.40 34.98 33.72 33.99
December.................... 34.04 34.06 33.99 33.99
2004 (through June 16)......... 33.32 33.98 32.73 33.58
January..................... 33.67 33.98 33.33 33.39
February.................... 33.21 33.36 33.10 33.28
March....................... 33.25 33.42 33.00 33.00
April....................... 32.97 33.27 32.73 33.27
May......................... 33.44 33.70 33.14 33.36
June (through June 16)...... 33.49 33.70 33.35 33.58
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Source: Federal Reserve Statistical Release, Board of Governors of the Federal Reserve System.
On June 16, 2004, the noon buying rate was NT$33.58 to US$1.00.
CAPITALIZATION AND INDEBTEDNESS
Not applicable.
REASON FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
RISK FACTORS
Risks Relating to Our Business
Since we are dependent on the highly cyclical semiconductor industry and conditions in the markets for the end-use applications of our products, our revenues and net income may fluctuate significantly.
Our semiconductor packaging and testing business is affected by market conditions in the highly cyclical semiconductor industry. All of our customers operate in this industry, and variations in order levels from our customers and service fee rates may result in volatility in our revenues and net income. From time to time, the semiconductor industry has experienced significant, and sometimes prolonged, downturns. As our business is, and will continue to be, dependent on the requirements of semiconductor companies for independent packaging and testing services, any future downturn in the semiconductor industry would reduce demand for our services. For example, a worldwide slowdown in demand for semiconductors led to excess capacity and increased competition
beginning in early 1998. As a result, price declines in 1998 accelerated more rapidly and, together with a significant decrease in demand, adversely affected our operating results in 1998. Prices for packaging and testing services improved due to an upturn in the industry in the second half of 1999 that continued through the third quarter of 2000, but have fallen since an industry downturn that commenced in the fourth quarter of 2000. This most recent worldwide downturn resulted in an even more significant deterioration in the average selling prices, as well as demand, for our services in 2001, and significantly and adversely affected our operating results in 2001. Although there has been a modest recovery in the semiconductor industry during 2002, 2003 and the first half of 2004, we expect market conditions to continue to exert downward pressure on the average selling prices for our packaging and testing services. If we cannot reduce our costs to sufficiently offset any decline in average selling prices, our profitability will suffer and we may incur losses.
Market conditions in the semiconductor industry depend to a large degree on conditions in the markets for the end-use applications of semiconductor products, such as communications, personal computer and consumer electronics products. Any deterioration of conditions in the markets for the end-use applications of the semiconductors we package and test would reduce demand for our services, and would likely have a material adverse effect on our financial condition and results of operations. In 2003, approximately 34.9%, 35.7% and 28.3% of our net revenues were attributable to the packaging and testing of semiconductors used in communications, personal computer, and consumer electronics applications, respectively. In 2002, approximately 34.4%, 35.4% and 28.8% of our net revenues were attributable to the packaging and testing of semiconductors used in communications, personal computer, and consumer electronics applications, respectively. Each of the markets for end-use applications is subject to intense competition and significant shifts in demand, which could put pricing pressure on the packaging and testing services provided by us and adversely affect our revenues and net income.
A reversal or slowdown in the outsourcing trend for semiconductor packaging and testing services could adversely affect our growth prospects and profitability.
In recent years, semiconductor manufacturers that have their own in-house packaging and testing capabilities, known as integrated device manufacturers, have increasingly outsourced stages of the semiconductor production process, including packaging and testing, to independent companies in order to reduce costs and shorten production cycles. In addition, the availability of advanced independent semiconductor manufacturing services has also enabled the growth of so-called "fabless" semiconductor companies that focus exclusively on design and marketing, and that outsource their manufacturing, packaging and testing requirements to independent companies. We cannot assure you that these integrated device manufacturers and fabless semiconductor companies will continue to outsource their packaging and testing requirements to third parties like us. A reversal of, or a slowdown in, this outsourcing trend could result in reduced demand for our services and adversely affect our growth prospects and profitability.
If we are unable to compete favorably in the highly competitive semiconductor packaging and testing markets, our revenues and net income may decrease.
The semiconductor packaging and testing markets are very competitive. We face competition from a number of sources, including other independent semiconductor packaging and testing companies, especially those that offer turnkey packaging and testing services. We believe that the principal competitive factors in the markets for our products and services are:
o the ability to provide total solutions to our customers;
o technological expertise;
o range of package types and testing platforms available;
o the ability to design and produce advanced and cost-competitive interconnect materials;
o the ability to work closely with our customers at the product development stage;
o responsiveness and flexibility;
o capacity;
o production cycle time;
o production yield; and
o price.
We face increasing competition from other packaging and testing companies, as most of our customers obtain packaging or testing services from more than one source. In addition, some of our competitors may have access to more advanced technologies and greater financial and other resources than we do. Many of our competitors have shown a willingness to quickly and sharply reduce prices, as they did in 1998 and in 2001, in order to maintain capacity utilization in their facilities during periods of reduced demand. Although prices have stabilized, any renewed erosion in the prices for our packaging and testing services could cause our revenues and net income to decrease and have a material adverse effect on our financial condition and results of operations.
Our profitability depends on our ability to respond to rapid technological changes in the semiconductor industry.
The semiconductor industry is characterized by rapid increases in the diversity and complexity of semiconductors. As a result, we expect that we will need to constantly offer more sophisticated packaging and testing technologies and processes in order to respond to competitive industry conditions and customer requirements. If we fail to develop, or obtain access to, advances in packaging or testing technologies or processes, we may become less competitive and less profitable. In addition, advances in technology typically lead to declining average selling prices for semiconductors packaged or tested with older technologies or processes. As a result, if we cannot reduce the costs associated with our services, the profitability of a given service, and our overall profitability, may decrease over time.
Our operating results are subject to significant fluctuations, which could adversely affect the market value of your investment.
Our operating results have varied significantly from period to period and may continue to vary in the future. Downward fluctuations in our operating results may result in decreases in the market price of the common shares and the ADSs. Among the more important factors affecting our quarterly and annual operating results are the following:
o changes in general economic and business conditions, particularly given the cyclical nature of the semiconductor industry and the markets served by our customers;
o our ability to quickly adjust to unanticipated declines or shortfalls in demand and market prices for our packaging and testing services, due to our high percentage of fixed costs;
o timing of capital expenditures in anticipation of future orders;
o changes in prices of our packaging and testing services;
o volume of orders relative to our packaging and testing capacity;
o our ability to design and produce advanced and cost-competitive interconnect materials;
o our ability to obtain adequate packaging and testing equipment on a timely basis;
o changes in costs and availability of raw materials, equipment and labor; and
o earthquakes, drought and other natural disasters, as well as industrial accidents.
Due to the factors listed above, it is possible that our future operating results or growth rates may be below the expectations of research analysts and investors. If so, the market price of the common shares and the ADSs, and thus the market value of your investment, may fall.
If we are not successful in developing and enhancing our in-house interconnect materials capabilities, our margins and profitability may be adversely affected.
We expect that interconnect materials will become an increasingly important value-added component of the semiconductor packaging business as technology migrates from the traditional wirebonding process towards the flip-chip wafer bumping process and interconnect materials such as advanced substrates represent a higher percentage of the cost of the packaging process. As a result, we expect that we will need to offer more advanced interconnect materials designs and production processes in order to respond to competitive industry conditions and customer requirements. In particular, our competitive position will depend to a significant extent on our ability to design and produce interconnect materials that are comparable to or better than those produced by independent suppliers and others. Many of these independent suppliers have dedicated greater resources than we have for the research and development and design and production of interconnect materials. In addition, we may not be able to acquire the technology and personnel that would enable us to further develop our in-house expertise and enhance our design and production capabilities. We intend to enhance our interconnect materials capabilities through our merger with ASE Material and our joint venture with Compeq Manufacturing Co. Ltd., or Compeq. See "Item 4. Information on the Company--History and Development of the Company--Joint Venture with Compeq Manufacturing Co., Ltd.". If we are unable to maintain and enhance our in-house interconnect materials expertise to offer advanced interconnect materials that meet the requirements of our customers, we may become less competitive and our margins and profitability may suffer as a result.
If any of our acquisition of NEC's packaging and testing business or our proposed joint venture with Compeq or our pending merger with ASE Chung Li and ASE Material is not completed as planned or is not otherwise successful, we may not be able to realize the anticipated benefits of such transactions and our business prospects and profitability may be adversely affected.
On February 3, 2004, we and J&R Holding Limited, our wholly-owned subsidiary, entered into a share sale and purchase agreement with NEC Electronics Corporation, or NEC, and NEC Yamagata in connection with the acquisition of the semiconductor packaging and testing business of NEC Yamagata, a wholly-owned subsidiary of NEC. Pursuant to the terms and conditions of the agreement, the packaging and testing business of NEC Yamagata was transferred to a newly established company named ASE Japan Co., Ltd., or ASE Japan, and all of the issued and outstanding shares of ASE Japan were purchased by J&R Holding Limited. The acquisition was completed on May 31, 2004. The acquisition of the packaging and testing business of NEC Yamagata involves certain risks, including: integration and management of the acquired business; retention of select management personnel; unforeseen difficulties and liabilities of the acquired business; and diversion of our management's attention from other business concerns. These risks may adversely affect our short-term results of operations as we integrate and operate the acquired business.
On October 28, 2003, we entered into a joint venture agreement with Compeq to establish ASE-Compeq Technologies, Inc., which will focus on the design and production of interconnect materials for packaging semiconductors. The joint venture has been approved by the ROC Fair Trade Commission. Pursuant to the joint venture agreement, either party can terminate the joint venture at any time with 90 days' prior written notice. The success of our joint venture is dependent on a number of factors, including the ability of Compeq to meet the design and production requirements of the customers of the joint venture, the ability of the management of the two companies to work effectively together and the effectiveness of the sales and marketing strategy of ASE-Compeq Technologies, Inc. The joint venture with Compeq is intended to provide us with access to Compeq's production capacity and expertise, know-how and engineering capabilities in the design and production of advanced substrates. If the joint venture with Compeq is not successful, and we are not able to enter into a similar joint venture, or otherwise obtain access to similar capacity, expertise and capabilities, our interconnect materials design and production capability may be adversely affected and we may not be able to meet our customers' demand for advanced interconnect materials, which could have an adverse effect on our profitability.
On October 28, 2003, we also entered into a merger agreement with ASE Chung Li and ASE Material pursuant to which ASE Chung Li and ASE Material will be merged with and into ASE Inc., with ASE Inc. as the surviving corporation. Upon the completion of the merger, all of the assets and liabilities of ASE Chung Li and ASE Material will be owned and assumed by ASE Inc., and the operations of ASE Chung Li and ASE Material will be integrated with the operations of ASE Inc. The merger of ASE Chung Li and ASE Material is intended to enhance our ability
to provide to our customers turnkey packaging and testing services and turnkey services that incorporate interconnect materials, increase our economies of scale, improve our operating efficiency and simplify our corporate structure.
We cannot assure you that we will be able to complete the merger as planned or that we will be successful in achieving the anticipated benefits of the merger. We expect the merger to be completed on August 1, 2004, subject to receipt of all necessary approvals and consents. In addition, the success of the merger will depend on a number of factors, including our ability to integrate the operations of ASE Chung Li and ASE Material with those of ASE Inc. and retention of select management personnel. If the merger with ASE Chung Li and ASE Material is not completed for any reason, including the failure to obtain the required approvals and consents, or we are not otherwise successful in integrating the operations of the merged companies, we may not be able to realize the anticipated benefits of the merger and our business prospects and profitability may be adversely affected.
Due to our high percentage of fixed costs, we will be unable to maintain our gross margin at past levels if we are unable to achieve relatively high capacity utilization rates.
Our operations, in particular our testing operations, are characterized by relatively high fixed costs. We expect to continue to incur substantial depreciation and other expenses as a result of our previous acquisitions of packaging and testing machinery and equipment and facilities. Our profitability depends not only on the pricing levels for our services, but also on utilization rates for our packaging and testing machinery and equipment, commonly referred to as "capacity utilization rates". In particular, increases or decreases in our capacity utilization rates can have a significant effect on gross margins since the unit cost of packaging and testing services generally decreases as fixed costs are allocated over a larger number of units. In periods of low demand, we experience relatively low capacity utilization rates in our operations, which leads to reduced margins. During 2001, we experienced lower than anticipated utilization rates in our operations due to a significant decline in worldwide demand for our packaging and testing services, which resulted in reduced margins during that period. Although our capacity utilization rates have improved recently, we cannot assure you that we will be able to maintain or surpass our past gross margin levels if we cannot consistently achieve or maintain relatively high capacity utilization rates.
If we are unable to manage our expansion effectively, our growth prospects may be limited and our future profitability may be affected.
We have significantly expanded our packaging and testing operations in recent years, and expect to continue to expand our operations in the future, including the expansion of our interconnect materials operations. In particular, we intend to provide total solutions covering all stages of the semiconductor manufacturing process to attract new customers and broaden our product range to include products packaged and tested for a variety of end-use applications. In the past, we have expanded through both internal growth and the acquisition of new operations. Rapid expansion puts strain on our managerial, technical, financial, operational and other resources. As a result of our expansion, we have implemented and will continue to need to implement additional operational and financial controls and hire and train additional personnel. Any failure to manage our growth effectively could lead to inefficiencies and redundancies and result in reduced growth prospects and profitability.
Because of the highly cyclical nature of our industry, our capital requirements are difficult to plan. If we cannot obtain additional capital when we need it, our growth prospects and future profitability may be adversely affected.
Our capital requirements are difficult to plan in our highly cyclical and rapidly changing industry. We will need capital to fund the expansion of our facilities as well as research and development activities in order to remain competitive. We believe that our existing cash and cash equivalents, short-term investments, expected cash flow from operations and existing credit lines under our short-term loan facilities will be sufficient to meet our capital expenditures, working capital, cash obligations under our existing debt and lease arrangements, and other requirements for at least the next twelve months. However, future capacity expansions or market or other developments may cause us to require additional funds. Our ability to obtain external financing in the future is subject to a variety of uncertainties, including:
o our future financial condition, results of operations and cash flows;
o general market conditions for financing activities by semiconductor companies; and
o economic, political and other conditions in Taiwan and elsewhere.
If we are unable to obtain funding in a timely manner or on acceptable terms, our growth prospects and future profitability may decline.
Restrictive covenants and broad default provisions in our existing debt agreements may materially restrict our operations as well as adversely affect our liquidity, financial condition and results of operations.
We are a party to numerous loan and other agreements relating to the incurrence of debt, many of which include restrictive covenants and broad default provisions. In general, covenants in the agreements governing our existing debt, and debt we may incur in the future, may materially restrict our operations, including our ability to incur debt, pay dividends, make certain investments and payments and encumber or dispose of assets. In the event of a prolonged downturn in the demand for our services as a result of a downturn in the worldwide semiconductor industry or otherwise, we cannot assure you that we will be able to remain in compliance with our financial covenants which, as a result, may lead to a default. Furthermore, a default under one agreement by us or one of our subsidiaries may also trigger cross-defaults under other agreements. In the event of default, we may not be able to cure the default or obtain a waiver on a timely basis, and our operations would be significantly disrupted or harmed and our liquidity would be adversely affected. An event of default under any agreement governing our existing or future debt, if not cured or waived, would have a material adverse effect on our liquidity, financial condition and results of operations.
As a result of the reduced levels of operating cash flow due primarily to the recent downturn in the worldwide semiconductor industry, we have on occasion failed to comply with certain financial covenants in some of our loan agreements. Such non-compliance may also have, through broadly worded cross-default provisions, resulted in default under some of the agreements governing our other existing debt. We have obtained waivers from the relevant lenders relating specifically to such non-compliance. In addition, we have repaid or refinanced all amounts owed under agreements containing cross-default provisions that we have identified which may have been triggered by such non-compliance. Such non-compliance has not had any significant effect on our ability to repay or refinance amounts due in respect of our existing debt. For these and other reasons, including our financial condition and our relationship with our lenders, no lender has to date sought and we do not believe that any of our lenders would seek to declare a default or enforce remedies in respect of our existing debt, as a result of cross-default provisions or otherwise, although we cannot provide any assurance in this regard.
We depend on select personnel and could be affected by the loss of their services.
We depend on the continued service of our executive officers and skilled technical and other personnel. Our business could suffer if we lose the services of any of these personnel and cannot adequately replace them. Although some of these management personnel have entered into employment agreements with us, they may nevertheless leave before the expiration of these agreements. We are not insured against the loss of any of our personnel. In addition, we may be required to increase substantially the number of these employees in connection with our expansion plans, and there is intense competition for their services in the semiconductor industry. We may not be able to either retain our present personnel or attract additional qualified personnel as and when needed. In addition, we may need to increase employee compensation levels in order to attract and retain our existing officers and employees and the additional personnel that we expect to require. Furthermore, a portion of the workforce at our facilities in Taiwan are foreign workers employed by us under work permits which are subject to government regulations on renewal and other terms. Consequently, our business could also suffer if the Taiwan regulations relating to the import of foreign workers were to become significantly more restrictive or if we are otherwise unable to attract or retain these workers at a reasonable cost.
If we are unable to obtain additional packaging and testing equipment or facilities in a timely manner and at a reasonable cost, our competitiveness and future profitability may be adversely affected.
The semiconductor packaging and testing business is capital intensive and requires significant investment in expensive equipment manufactured by a limited number of suppliers. The market for semiconductor packaging and testing equipment is characterized, from time to time, by intense demand, limited supply and long delivery cycles. Our operations and expansion plans depend on our ability to obtain a significant amount of such equipment from a limited number of suppliers, including, in the case of wire bonders, Kulicke & Soffa Industries Inc., and in the case of testers, Advantest Corporation, Agilent Technologies, Inc., Credence Systems Corporation, LTX Corporation, NP Test Inc. and Teradyne, Inc. We have no binding supply agreements with any of our suppliers and acquire our packaging and testing equipment on a purchase order basis, which exposes us to changing market conditions and other substantial risks. For example, shortages of capital equipment could result in an increase in the price of equipment and longer delivery times. Semiconductor packaging and testing also requires us to operate sizeable facilities. If we are unable to obtain equipment or facilities in a timely manner, we may be unable to fulfill our customers' orders, which could adversely affect our growth prospects as well as financial condition and results of operations.
Fluctuations in exchange rates could result in foreign exchange losses.
Currently, the majority of our revenues from packaging and testing services are denominated in U.S. dollars and NT dollars. Our costs of revenues and operating expenses associated with packaging and testing services, on the other hand, are incurred in several currencies, primarily NT dollars and U.S. dollars, as well as, to a lesser extent, Malaysian ringgit, Korean won and Japanese yen. In addition, a substantial portion of our capital expenditures, primarily for the purchase of packaging and testing equipment, has been, and is expected to continue to be, denominated in U.S. dollars, with much of the remainder in Japanese yen. Fluctuations in exchange rates, primarily among the U.S. dollar, the NT dollar and the Japanese yen, will affect our costs and operating margins. In addition, these fluctuations could result in exchange losses and increased costs in NT dollar and other local currency terms. Despite hedging and mitigating techniques implemented by us, fluctuations in exchange rates have affected, and may continue to affect, our financial condition and results of operations. We incurred a foreign exchange loss of NT$397.9 million in 2002 and NT$386.8 million (US$11.4 million) in 2003.
The loss of a large customer or disruption of our strategic alliance or other commercial arrangements with semiconductor foundries and providers of other complementary semiconductor manufacturing services may result in a decline in our revenues and profitability.
Although we have over 200 customers, due in part to the concentration of market share in the semiconductor industry, we have derived and expect to continue to derive a large portion of our revenues from a small group of customers during any particular period. Our five largest customers together accounted for approximately 41.2%, 39.6% and 34.8% of our net revenues in 2001, 2002 and 2003, respectively. Other than Motorola, Inc. and VIA Technologies, Inc. in 2001, and Motorola, Inc. in 2002 and 2003, no other customer accounted for more than 10% of our net revenues in 2001, 2002 or 2003. The demand for our services from each customer is directly dependent upon that customer's level of business activity, which could vary significantly from year to year. The loss of a large customer may adversely affect our revenues and profitability. Our key customers typically operate in the cyclical semiconductor business and have varied in the past, and may vary in the future, order levels significantly from period to period. Some of these companies are relatively small, have limited operating histories and financial resources, and are highly exposed to the cyclicality of the industry. We cannot assure you that these customers or any other customers will continue to place orders with us in the future at the same levels as in prior periods. The loss of one or more of our significant customers, or reduced orders by any one of them, and our inability to replace these customers or make up for such orders could reduce our profitability. In addition, we have in the past reduced, and may in the future be requested to reduce, our prices to limit the level of order cancellations. Any price reduction would likely reduce our margins and profitability.
Our strategic alliance with TSMC, the world's largest dedicated semiconductor foundry, as well as our other commercial arrangements with providers of other complementary semiconductor manufacturing services, enable us to offer total semiconductor manufacturing solutions to our customers. This strategic alliance and any of our other commercial arrangements may be terminated at any time. A termination of this strategic alliance and other
commercial arrangements, and our failure to enter into substantially similar alliances and commercial arrangements, may adversely affect our competitiveness and our revenues and profitability.
We depend on our agents for sales and customer service in North America and Europe. Any serious disruption in our relationship with these agents, or substantial loss in their effectiveness, could significantly reduce our revenues and profitability.
We depend on non-exclusive agents for sales and customer service in North America and Europe. Our sales agents help us identify customers, monitor delivery acceptance and payment by customers and, within parameters set by us, help us negotiate price, delivery and other terms with our customers. Purchase orders are placed directly with us by our customers. Our customer service agents provide customer service and after-sales support to our customers.
Currently, our sales and customer service agents perform services only for us and our subsidiaries but they are not owned or controlled by us. These agents are free to perform sales and support services for others, including our competitors. In particular, we may not be able to find an adequate replacement for these agents or to develop sufficient capabilities internally on a timely basis. Any serious disruption in our relationship with these agents or substantial loss in their effectiveness in performing their sales and customer service functions could significantly reduce our revenues and profitability.
Our revenues and profitability may decline if we are unable to obtain adequate supplies of raw materials in a timely manner and at a reasonable price.
Our packaging operations require that we obtain adequate supplies of raw materials on a timely basis. Shortages in the supply of raw materials experienced by the semiconductor industry have in the past resulted in occasional price increases and delivery delays. For example, in 1999 and the first half of 2000, the industry experienced a shortage in the supply of advanced substrates used in ball grid array, or BGA, packaging. Raw materials such as advanced substrates are prone to supply shortages since such materials are produced by a limited number of suppliers such as Kinsus Interconnect Technology Corporation, Ibiden Co., Ltd., Japan Circuit Industrial Co., Ltd. and Phoenix Precision Technology Corporation. Our merger with ASE Material and our joint venture with Compeq to establish ASE-Compeq Technologies, Inc. are expected to help improve our ability to obtain advanced substrates on a timely basis and at a reasonable cost. However, we do not expect that our internal substrates operations, even after the effectiveness of the ASE Material merger and the formation of ASE-Compeq Technologies, Inc., to be able to meet all of our raw materials requirements. Consequently, we will remain dependent on market supply and demand for our raw materials. We cannot assure you that we will be able to obtain adequate supplies of raw materials in a timely manner and at a reasonable price. Our revenues and net income could decline if we were unable to obtain adequate supplies of high quality raw materials in a timely manner or if there were significant increases in the costs of raw materials that we could not pass on to our customers.
Any environmental claims or failure to comply with any present or future environmental regulations may require us to spend additional funds and may materially and adversely affect our financial condition and results of operations.
We are subject to a variety of laws and regulations relating to the use, storage, discharge and disposal of chemical by-products of, and water used in, our packaging and interconnect materials production processes. Although we have not suffered material environmental claims in the past, the failure to comply with any present or future regulations could result in the assessment of damages or imposition of fines against us, suspension of production or a cessation of our operations. New regulations could require us to acquire costly equipment or to incur other significant expenses. Any failure on our part to control the use, or adequately restrict the discharge, of hazardous substances could subject us to future liabilities that may have a material adverse effect on our financial condition and results of operations.
Our controlling shareholders may take actions that are not in, or may conflict with, our public shareholders' best interest.
Members of the Chang family own, directly or indirectly, a controlling interest in our outstanding common shares. See "Item 7. Major Shareholders and Related Party Transactions--Major Shareholders". Accordingly, these shareholders will continue to have the ability to exercise a controlling influence over our business, including matters relating to:
o our management and policies;
o the timing and distribution of dividends; and
o the election of our directors and supervisors.
Members of the Chang family may take actions that you may not agree with or that are not in our or our public shareholders' best interests.
We are an ROC company and, because the rights of shareholders under ROC law differ from those under U.S. law and the laws of certain other countries, you may have difficulty protecting your shareholder rights.
Our corporate affairs are governed by our Articles of Incorporation and by the laws governing corporations incorporated in the ROC. The rights of shareholders and the responsibilities of management and the members of the board of directors under ROC law are different from those applicable to a corporation incorporated in the United States and certain other countries. As a result, public shareholders of ROC companies may have more difficulty in protecting their interest in connection with actions taken by management or members of the board of directors than they would as public shareholders of a corporation in the United States or certain other countries.
Any required impairment charges may have a material adverse effect on our financial condition and results of operations.
Under currently effective accounting principles, we are required to evaluate our equipment, goodwill and other indefinite-lived assets for possible impairment whenever there is an indication of impairment. If certain criteria are met, we are required to record an impairment charge. We can give no assurance that impairment charges will not be required in periods subsequent to December 31, 2003.
As a result of standards under U.S. GAAP that became effective on January 1, 2002, we are no longer permitted to amortize remaining goodwill. Total goodwill amortization expense amounted to NT$815.6 million and NT$819.3 million (US$24.1 million) under ROC GAAP in 2002 and 2003, respectively. Starting from January 2002, all goodwill must be tested at least annually for impairment under U.S. GAAP. As a result of our impairment test as of December 31, 2002, we wrote off the remaining goodwill associated with our purchase of shares of ASE Test of NT$2,213.0 million under U.S. GAAP. No impairment charges were required to be recognized for the year ended December 31, 2003. As of December 31, 2002 and December 31, 2003, goodwill under U.S. GAAP amounted to NT$3,227.0 million and NT$3,100.7 million (US$91.2 million), respectively. We currently are not able to estimate the extent and timing of any goodwill impairment charge for future periods. Any goodwill impairment charge required under U.S. GAAP may have a material adverse effect on our financial condition and results of operations on a U.S. GAAP reconciled basis.
The determination of an impairment charge at any given time is based significantly on our expected results of operations over a number of years subsequent to that time. As a result, an impairment charge is more likely to occur during a period when our operating results are otherwise already depressed.
Terrorist attacks, such as the attacks that occurred on September 11, 2001, the current military action in Iraq and general instability in the Middle East may adversely affect the markets in which we operate, our operations and our profitability.
The attacks of September 11, 2001 and subsequent events, including the current military action in Iraq, have caused volatility in the world financial markets and have led, and may continue to lead to, further armed hostilities,
prolonged military action in Iraq, or further acts of terrorism in the United States or abroad, which could cause further instability in financial markets. These developments could have an adverse impact on, among other things, our ability to expand the market for our services, obtain financing as needed and enter into strategic relationships, and, depending on their magnitude, could have a material adverse effect on our business, financial condition, results of operations or cash flows.
Risks Relating to Taiwan, ROC
Strained relations between the ROC and the PRC could negatively affect our business and the market value of your investment.
Our principal executive offices and our principal packaging and testing facilities are located in Taiwan and approximately 77.4% and 77.0% of our net revenues in 2002 and 2003, respectively, were derived from our operations in Taiwan. The ROC has a unique international political status. The government of the PRC asserts sovereignty over all of China, including Taiwan, and does not recognize the legitimacy of the ROC government. Although significant economic and cultural relations have been established in recent years between the ROC and the PRC, relations have often been strained and the government of the PRC has indicated that it may use military force to gain control over Taiwan in some circumstances, such as the declaration of independence by the ROC. Relations between the ROC and the PRC have been particularly strained in recent years. On March 20, 2004, Taiwan's incumbent president was re-elected by a narrow majority and the opposition is contesting the election results. The political uncertainty surrounding the election has affected the securities markets in Taiwan. The recent political uncertainty and related developments could adversely affect the prices of the common shares and ADSs. It is unclear what effects the recent presidential election may have on relations with the PRC. Relations between the ROC and the PRC and other factors affecting the political or economic conditions in Taiwan could have a material adverse effect on our financial condition and results of operations, as well as the market price and the liquidity of the common shares and the ADSs.
In July 2000, our shareholders approved a resolution which authorized our board of directors to make investments in the PRC. However, the ROC government currently restricts certain types of investments by ROC companies in the PRC, including investments in facilities for the packaging and testing of semiconductors. We do not know when or if such laws and policies governing investment in the PRC will be amended, and we cannot assure you that any such amendments to the ROC investment laws and policies will permit us to make an investment that we consider beneficial to us in the PRC in the future. As a result, our growth prospects and profitability may be adversely affected if we are restricted from making certain investments in the PRC and are not able to fully capitalize on the growth of the semiconductor industry in the PRC.
As a substantial portion of our business and operations is located in Taiwan, we are vulnerable to earthquakes, typhoons, drought and other natural disasters, which could severely disrupt the normal operation of our business and adversely affect our results of operations.
Taiwan is susceptible to earthquakes and has experienced severe earthquakes which caused significant property damage and loss of life, particularly in the central and eastern regions of Taiwan. These earthquakes damaged production facilities and adversely affected the operations of many companies involved in the semiconductor and other industries. We experienced no structural damage to our facilities and no damage to our machinery and equipment as a result of these earthquakes. There were, however, interruptions to our production schedule primarily as a result of power outages caused by the earthquakes.
Taiwan is also susceptible to typhoons, which may cause damage and business interruption to companies with facilities located in Taiwan. In 2001, Taiwan experienced severe damage from typhoons, including a typhoon on September 16 that caused over 100 deaths, severe flooding and extensive damage to property and businesses. We have not experienced any material damage or business interruption from the increased typhoon activity in Taiwan.
In May 2002, Taiwan experienced a severe drought. Although our manufacturing process does not rely on an adequate supply of water and we were not affected by the May 2002 drought directly, a drought may interrupt the manufacturing process of the foundries located in Taiwan, in turn disrupting some of our customers' production, which could result in a decline in the demand for our services. In addition, any temporary or sustained adverse impact
from any future droughts may adversely affect Taiwan's economic, social or political conditions and may lead to fluctuations in the market price of the common shares and the ADSs.
While we maintain several insurance policies relating to our business, we do not currently carry any insurance coverage for interruptions in public utility services or any other business interruption insurance except in connection with fire. Should these interruptions occur, we will be exposed to substantial risks and may be liable for the full amount of any losses.
Our production facilities as well as many of our suppliers and customers and providers of complementary semiconductor manufacturing services, including foundries, are located in Taiwan. If our customers are affected by an earthquake, a typhoon, a drought or other natural disasters, it could result in a decline in the demand for our packaging and testing services. If our suppliers and providers of complementary semiconductor manufacturing services are affected, our production schedule could be interrupted or delayed. As a result, a major earthquake, typhoon, drought, or other natural disasters in Taiwan could severely disrupt the normal operation of business and have a material adverse effect on our financial condition and results of operations.
Any future outbreak of SARS may have an adverse effect on the economies of certain Asian countries and may adversely affect our results of operations.
In the first half of 2003, the PRC, Hong Kong, Taiwan, Singapore, Vietnam and certain other countries encountered an outbreak of severe acute respiratory syndrome, or SARS, which is a highly contagious form of atypical pneumonia. The SARS outbreak had an adverse effect on our results of operations for the first half of 2003, primarily due to the lower than expected demand for our packaging and testing services that resulted from the adverse effect of such SARS outbreak on the level of economic activity in the affected regions. There is no guarantee that SARS or SARS-like outbreaks will not occur in the future and no guarantee that any future SARS or SARS-like outbreaks, or the measures taken by the governments of the ROC, Hong Kong, the PRC or other countries against SARS or SARS-like outbreaks, will not seriously interrupt our production operations or those of our suppliers and customers, which may have a material adverse effect on our results of operations.
Risks Relating to Ownership of the ADSs
The market for the common shares and the ADSs may not be liquid.
Active, liquid trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors, compared to less active and less liquid markets. Liquidity of a securities market is often a function of the volume of the underlying shares that are publicly held by unrelated parties.
There has been no trading market for the common shares outside the ROC and the only trading market for the common shares will be the Taiwan Stock Exchange. The outstanding ADSs are listed on the New York Stock Exchange. There is no assurance that the market for the common shares or the ADSs will be active or liquid.
Although ADS holders are entitled to withdraw the common shares underlying the ADSs from the depositary at any time, ROC law requires that the common shares be held in an account in the ROC or sold for the benefit of the holder on the Taiwan Stock Exchange. In connection with any withdrawal of common shares from our ADS facility, the ADSs evidencing these common shares will be cancelled. Unless additional ADSs are issued, the effect of withdrawals will be to reduce the number of outstanding ADSs. If a significant number of withdrawals are effected, the liquidity of our ADSs will be substantially reduced. We cannot assure you that the ADS depositary will be able to arrange for a sale of deposited shares in a timely manner or at a specified price, particularly during periods of illiquidity or volatility.
If a non-ROC holder of ADSs withdraws common shares, such holder of ADSs will be required to appoint a tax guarantor, local agent and custodian bank in the ROC and register with the Taiwan Stock Exchange in order to buy and sell securities on the Taiwan Stock Exchange.
When a non-ROC holder of ADSs elects to withdraw common shares represented by ADSs, such holder of the ADSs will be required to appoint an agent for filing tax returns and making tax payments, or a tax guarantor, in the ROC. The tax guarantor will be required to meet the qualifications set by the ROC Ministry of Finance and will
act as the guarantor of the withdrawing holder's tax payment obligations. Evidence of the appointment of a tax guarantor, the approval of such appointment by the ROC tax authorities and tax clearance certificates or evidentiary documents issued by such tax guarantor may be required as conditions to such holder repatriating the profits derived from the sale of common shares. We cannot assure you that a withdrawing holder will be able to appoint and obtain approval for a tax guarantor in a timely manner.
In addition, under current ROC law, such withdrawing holder is required to appoint a local agent in the ROC to, among other things, open a securities trading account with a local securities brokerage firm, pay taxes, remit funds and exercise such holder's rights as a shareholder. Furthermore, such withdrawing holder must appoint a local bank to act as custodian for confirmation and settlement of trades, safekeeping of securities and cash proceeds and reporting and declaration of information. Without satisfying these requirements, non-ROC holders of ADSs that withdraw and hold the common shares represented thereby would not be able to hold or otherwise transfer the common shares on the Taiwan Stock Exchange or otherwise.
In addition, non-ROC holders of common shares will be required to register with the Taiwan Stock Exchange in order to buy and sell securities on the Taiwan Stock Exchange prior to withdrawing common shares.
The market value of your investment may fluctuate due to the volatility of the ROC securities market.
The ROC securities market is smaller and more volatile than the securities markets in the United States and in many European countries. The Taiwan Stock Exchange has experienced substantial fluctuations in the prices and volumes of sales of listed securities and there are currently limits on the range of daily price movements on the Taiwan Stock Exchange. The Taiwan Stock Exchange Index peaked at 12,495.3 in February 1990, and subsequently fell to a low of 2,560.5 in October 1990. On June 16, 2004, the Taiwan Stock Exchange Index closed at 5,560.2. The Taiwan Stock Exchange has experienced problems such as market manipulation, insider trading and payment defaults. The recurrence of these or similar problems could have a material adverse effect on the market price and liquidity of the securities of ROC companies, including the common shares and the ADSs, in both the domestic and the international markets.
Holders of common shares and ADSs may incur dilution as a result of the practice among ROC technology companies of issuing stock bonuses and stock options to employees.
Similar to other ROC technology companies, we issue bonuses from time to
time in the form of common shares valued at par under our employee stock bonus
plan. In addition, under the revised ROC Company Law we may, upon approval from
our board of directors and the ROC Securities and Futures Commission, establish
employee stock option plans. We currently maintain two employee stock option
plans pursuant to which our full-time employees and the full-time employees of
our domestic and foreign subsidiaries are eligible to receive stock option
grants. As of December 31, 2003, 159,968,000 options have been issued. See "Item
6. Directors, Senior Management and Employees--Compensation--ASE Inc. Employee
Bonus and Stock Option Plans". The issuance of our common shares pursuant to
stock bonuses or stock options may have a dilutive effect on the holders of
outstanding common shares and ADSs.
Restrictions on the ability to deposit our common shares into our ADS facility may adversely affect the liquidity and price of our ADSs.
The ability to deposit common shares into our ADS facility is restricted by ROC law. A significant number of withdrawals of common shares underlying our ADSs would reduce the liquidity of the ADSs by reducing the number of ADSs outstanding. As a result, the prevailing market price of our ADSs may differ from the prevailing market price of our common shares on the Taiwan Stock Exchange. Under current ROC law, no person or entity, including you and us, may deposit our common shares in our ADS facility without specific approval of the ROC Securities and Futures Commission, unless:
(1) we pay stock dividends on our common shares;
(2) we make a free distribution of common shares;
(3) holders of ADSs exercise preemptive rights in the event of capital increases for cash; or
(4) to the extent permitted under the deposit agreement and the relevant custody agreement, investors purchase our common shares, directly or through the depositary, on the Taiwan Stock Exchange, and deliver our common shares to the custodian for deposit into our ADS facility, or our existing shareholders deliver our common shares to the custodian for deposit into our ADS facility.
With respect to item (4) above, the depositary may issue ADSs against the deposit of those common shares only if the total number of ADSs outstanding following the deposit will not exceed the number of ADSs previously approved by the ROC Securities and Futures Commission, plus any ADSs issued pursuant to the events described in subparagraphs (1), (2) and (3) above.
In addition, in the case of a deposit of our common shares requested under item (4) above, the depositary will refuse to accept deposit of our common shares if such deposit is not permitted under any legal, regulatory or other restrictions notified by us to the depositary from time to time, which restrictions may include blackout periods during which deposits may not be made, minimum and maximum amounts and frequency of deposits.
The depositary will not offer holders of ADSs preemptive rights unless the distribution of both the rights and the underlying common shares to our ADS holders are either registered under the Securities Act, or exempt from registration under the Securities Act.
Holders of ADSs will not have the same voting rights as our shareholders, which may affect the value of their ADSs.
The voting rights of a holder of ADSs as to the common shares represented by its ADSs are governed by the deposit agreement. Holders of ADSs will not be able to exercise voting rights on an individual basis. If holders representing at least 51% of the ADSs outstanding at the relevant record date instruct the depositary to vote in the same manner regarding a resolution, including the election of directors and supervisors, the depositary will cause all common shares represented by the ADSs to be voted in that manner. If the depositary does not receive timely instructions representing at least 51% of the ADSs outstanding at the relevant record date to vote in the same manner for any resolution, including the election of directors and supervisors, holders of ADSs will be deemed to have instructed the depositary or its nominee to authorize all the common shares represented by the ADSs to be voted at the discretion of our chairman or his designee, which may not be in the interest of holders of ADSs.
The right of holders of ADSs to participate in our rights offerings is limited, which could cause dilution to your holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement, the depositary will not offer holders of ADSs those rights unless both the distribution of the rights and the underlying securities to all our ADS holders are either registered under the Securities Act, or exempt from registration under the Securities Act. Although we may be eligible to take advantage of certain exemptions under the Securities Act available to certain foreign issuers for rights offerings, we can give no assurances that we will be able to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement for any of these rights. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings.
If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case holders of ADSs will receive no value for these rights.
Changes in exchange controls which restrict your ability to convert proceeds received from your ownership of ADSs may have an adverse effect on the value of your investment.
Under current ROC law, the depositary, without obtaining approvals from the Central Bank of China or any other governmental authority or agency of the ROC, may convert NT dollars into other currencies, including U.S. dollars, for:
o the proceeds of the sale of common shares represented by ADSs or received as stock dividends from the common shares and deposited into the depositary receipt facility; and
o any cash dividends or distributions received from the common shares.
In addition, the depositary may also convert into NT dollars incoming payments for purchases of common shares for deposit in the ADS facility against the creation of additional ADSs. The depositary may be required to obtain foreign exchange approval from the Central Bank of China on a payment-by-payment basis for conversion from NT dollars into foreign currencies of the proceeds from the sale of subscription rights for new common shares. Although it is expected that the Central Bank of China will grant this approval as a routine matter, we cannot assure you that in the future any approval will be obtained in a timely manner, or at all.
Under current ROC law, a holder of the ADSs, without obtaining further approval from the Central Bank of China, may convert from NT dollars into other currencies, including U.S. dollars, the following:
o the proceeds of the sale of any underlying common shares withdrawn from the depositary receipt facility or received as a stock dividend that has been deposited into the depositary receipt facility; and
o any cash dividends or distribution received from the common shares.
However, such holder may be required to obtain foreign exchange approval from the Central Bank of China on a payment-by-payment basis for conversion from NT dollars into foreign currencies of the proceeds from the sale of subscription rights for new common shares. Although the Central Bank of China is generally expected to grant this approval as a routine matter, we cannot assure you that you will actually obtain this approval in a timely manner, or at all.
Under the ROC Foreign Exchange Control Law, the Executive Yuan of the ROC government may, without prior notice but subject to subsequent legislative approval, impose foreign exchange controls in the event of, among other things, a material change in international economic conditions. We cannot assure you that foreign exchange controls or other restrictions will not be introduced in the future.
The value of your investment may be reduced by possible future sales of common shares or ADSs by us or our shareholders.
While we are not aware of any plans by any major shareholders to dispose of significant numbers of common shares, we cannot assure you that one or more existing shareholders or owners of securities convertible or exchangeable into or exercisable for our common shares or ADSs will not dispose of significant numbers of common shares or ADSs. In addition, several of our subsidiaries and affiliates hold common shares, depositary shares representing common shares and options to purchase common shares or ADSs. We or they may decide to sell those securities in the future. See "Item 7. Major Shareholders and Related Party Transactions--Major Shareholders" for a description of our significant shareholders and affiliates that hold our common shares.
On October 28, 2003, we entered into a merger agreement with ASE Chung Li and ASE Material, pursuant to which ASE Chung Li and ASE Material will be merged with and into ASE Inc., with ASE Inc. as the surviving corporation. The merger is to be consummated by means of a share exchange pursuant to which the respective shareholders (other than ASE Inc.) of ASE Chung Li and ASE Material will receive common shares of ASE Inc. in exchange for the common shares of each of ASE Chung Li and ASE Material. We expect to issue 282,315,437 common shares, or approximately 7.9% of our outstanding shares as of October 28, 2003, in connection with the merger. Of these shares, the 149,175,000 common shares to be issued to ASE Test, our consolidated subsidiary, will be subject to certain transfer restrictions and will become available for resale in accordance with the Taiwan Stock Exchange rules and regulations. See "Item 10. Additional Information--Articles of Incorporation--Transfer Restrictions--Common Shares Issued to Substantial Shareholders in Connection with a Merger". The 5,000,000 common shares to be issued to ASE Test Taiwan will not be subject to transfer restrictions under the rules and regulations of the Taiwan Stock Exchange. In order to comply with Singapore and ROC law, trusts have been set up to hold and dispose of the shares of ASE Inc. to be issued to ASE Test and ASE Test Taiwan in connection with our
merger with ASE Chung Li and ASE Material. See "Item 7. Major Shareholders and Related Party Transactions--Related Party Transactions".
We cannot predict the effect, if any, that future sales of common shares or ADSs, or the availability of common shares or ADSs for future sale, will have on the market price of the common shares or the ADSs prevailing from time to time. Sales of substantial numbers of common shares or ADSs in the public market, or the perception that such sales may occur, could depress the prevailing market prices of the common shares or the ADSs.
Item 4. Information on the Company
HISTORY AND DEVELOPMENT OF THE COMPANY
We were incorporated on March 23, 1984 as a company limited by shares under
the ROC Company Law, with facilities in the Nantze Export Processing Zone
located in Kaohsiung, Taiwan. We were listed on the Taiwan Stock Exchange in
1989. In 1990, we acquired ASE Test Taiwan, which provides our customers with
testing services. In 1991, we established ASE Test Malaysia, which provides our
customers with testing and packaging services. In 1997, we established ASE
Material, which designs and produces interconnect materials. In 1997, we
constructed a new facility in Kaohsiung, Taiwan for packaging services and
established a research and development laboratory. Our principal executive
offices are located at 26 Chin Third Road, Nantze Export Processing Zone,
Nantze, Kaohsiung, Taiwan, ROC and our telephone number at the above address is
(8867) 361-7131. Our agent for service in the United States is CT Corporation,
111 Eighth Avenue, New York, New York 10011, and our agent's telephone number is
(212) 894-8940.
ASE Chung Li and ASE Korea
In July 1999, we purchased Motorola's Semiconductor Products Sector operations in Chung Li, Taiwan and Paju, South Korea for the packaging and testing of semiconductors with principally communications, consumer and automotive applications. The businesses are now operated by ASE Chung Li and ASE Korea. We acquired substantially all of the assets of ASE Chung Li for a base price of US$150.0 million in cash, consisting of an initial payment of US$80.0 million at closing and an additional US$70.0 million in three annual installments ending in July 2002, contingent upon certain targets of revenue from packaging and testing services provided to Motorola being met. These targets were met for the first two years. In 2002, we and Motorola re-negotiated the agreement for the payment of the final installment to take place in three installments ending in July 2004, contingent upon certain targets of revenue for packaging and testing services provided to Motorola being met.
We acquired 100% of the outstanding shares of ASE Korea for a base price of US$140.0 million in cash, consisting of an initial payment of US$36.0 million and an additional US$104.0 million payable over five years. In addition to the combined base price of US$290.0 million, we also paid an aggregate of approximately US$60.1 million in cash to purchase capital assets at both facilities which were acquired after January 1, 1999 and specified inventories and cash positions at both facilities. Under the acquisition agreements, ASE Inc. acquired a 70.0% interest in each of the two businesses, and ASE Test acquired the remaining 30.0% interest. This division of the investment reflected in part our estimate of the relative packaging and testing values at the facilities. Both facilities provide semiconductor packaging and testing services to Motorola's Semiconductor Products Sector.
ISE Labs
In May 1999, we acquired 70.0% of the outstanding shares of ISE Labs, a semiconductor testing company with its principal facilities located in Fremont, California at a purchase price of US$100.1 million. We subsequently increased our holding to 100% through purchases made in April, July and November 2000 and in January 2002. The total price for our acquisition of 100% of the outstanding shares of ISE Labs amounted to US$221.2 million.
Universal Scientific
From February through July of 1999, we purchased 22.6% of the outstanding shares of Universal Scientific for approximately NT$3,532.5 million (US$102.1 million), principally through open market purchases on the Taiwan
Stock Exchange. We subsequently increased our holding to 23.3% following open market purchases of additional shares in July and August of 2000. As of May 31, 2004, we held 23.5% of Universal Scientific's outstanding equity shares. Six out of the nine directors on the Universal Scientific board of directors, including the chairman, are our representatives.
Acquisition of NEC's Packaging and Testing Operations in Yamagata, Japan
On February 3, 2004, we and J&R Holding Limited, our wholly-owned subsidiary, entered into a share sale and purchase agreement with NEC and NEC Yamagata, Ltd. in connection with the acquisition of the semiconductor packaging and testing business of NEC Yamagata, a wholly-owned subsidiary of NEC. The acquisition was completed on May 31, 2004 and the purchase price was approximately US$24 million, which is subject to certain purchase price adjustments. The acquisition was consummated by means of a company split under the Japanese Commercial Code through which the packaging and testing business of NEC Yamagata was transferred to a company formed by NEC Yamagata named ASE Japan Co., Ltd. Pursuant to the terms and conditions of the share sale and purchase agreement, all of the issued and outstanding shares of ASE Japan were purchased by J&R Holding Limited, and ASE Japan now owns and operates the semiconductor packaging and testing business acquired from NEC Yamagata. In connection with the acquisition, we and ASE Japan also entered into a packaging and testing services agreement with NEC to provide packaging and testing services to NEC for an initial period of four years after the completion of the acquisition.
Pending Merger with ASE Chung Li and ASE Material
On October 28, 2003, we entered into a merger agreement with ASE Chung Li and ASE Material, pursuant to which ASE Chung Li and ASE Material will be merged with and into ASE Inc., with ASE Inc. as the surviving corporation. Upon the completion of the merger, all of the assets and liabilities of ASE Chung Li and ASE Material will be owned and assumed by ASE Inc., and the operations of ASE Chung Li and ASE Material will be integrated with the operations of ASE Inc.
The merger is to be consummated by means of a share exchange pursuant to which the respective shareholders (other than ASE Inc.) of ASE Chung Li and ASE Material will receive common shares of ASE Inc. in exchange for the common shares of each of ASE Chung Li and ASE Material. We expect to issue 282,315,437 common shares, or approximately 7.9% of our outstanding shares as of October 28, 2003, in connection with the merger. The number of shares to be issued will not be adjusted on account of any stock dividend paid by us prior to the completion of the merger. The merger agreement has been approved by the board of directors and shareholders of each of ASE Inc., ASE Chung Li and ASE Material. We have also obtained the approval of the Taiwan Stock Exchange in connection with the issuance of ASE Inc. common shares pursuant to the share exchange. The completion of the merger is conditional upon the approval of the ROC Securities and Futures Commission and consent from lenders under certain loan agreements. We expect that the merger will be completed on August 1, 2004.
ASE Chung Li focuses on the packaging and testing of semiconductors used principally in communications applications. We believe that our merger with ASE Chung Li will increase our economies of scale, improve our operating efficiency, allow us to better manage our production capacity and resources in Taiwan and simplify our corporate structure. As a result, we believe that the merger will enhance our ability to provide turnkey packaging and testing services to our customers.
As of October 28, 2003, 57.6% of the outstanding common shares of ASE Chung Li was held by ASE Inc., 14.8% was held by J&R Holding Limited, our wholly-owned subsidiary, and 27.6% was held by ASE Test, our consolidated subsidiary. Pursuant to the merger agreement, all of the common shares of ASE Chung Li held by shareholders of ASE Chung Li (other than ASE Inc.) will be exchanged for ASE Inc. common shares at an exchange ratio of 0.85 ASE Inc. common share per ASE Chung Li common share. In connection with the merger, we will issue 79,914,225 common shares to J&R Holding Limited, 149,175,000 common shares to ASE Test and four common shares to certain individuals who were the original shareholders of ASE Chung Li. See "Item 7. Major Shareholders and Related Party Transactions--Related Party Transactions". The merger with ASE Chung Li has a transaction value of approximately NT$7,101.8 million (US$208.9 million), based on NT$31.00 per ASE Inc. common share, which is the average of the closing prices of ASE Inc.'s common shares on the Taiwan Stock Exchange for two days prior to and following October 28, 2003.
ASE Material was established in December 1997 to design and manufacture packaging materials. We expect that interconnect materials will become an increasingly important value-added component of the semiconductor packaging business, as packaging technology migrates from the traditional wirebonding process towards the flip-chip wafer bumping process. We believe that our merger with ASE Material will further strengthen our ability to provide turnkey services that incorporate interconnect materials to our customers, finance the growth of the interconnect materials business, and simplify our corporate structure.
As of October 28, 2003, 57.4% of the outstanding common shares of ASE Material was held by ASE Inc. and 4.0% was held by ASE Test, Inc., with the remaining 38.6% held by the management and employees of ASE Material and the management and employees of ASE Inc. and its affiliates, as well as a strategic investor. Pursuant to the merger agreement, all of the common shares of ASE Material held by these shareholders will be exchanged for ASE Inc. common shares at an exchange ratio of 0.5 ASE Inc. common share per ASE Material common share. In connection with the merger, we will issue 53,226,208 common shares to these shareholders of ASE Material. The merger with ASE Material has a transaction value of approximately NT$1,650.0 million (US$48.5 million), based on NT$31.00, which is the average of the closing prices of ASE Inc.'s common shares on the Taiwan Stock Exchange for two days prior and following October 28, 2003.
Joint Venture with Compeq Manufacturing Co. Ltd.
On October 28, 2003, we entered into a joint venture agreement with Compeq to establish ASE-Compeq Technologies, Inc., which will focus on the design and production of interconnect materials for packaging semiconductors. Pursuant to the joint venture agreement, we own 60% of the equity interest in ASE-Compeq Technologies, Inc. and Compeq owns the remaining 40% of the equity interest. As of May 31, 2004, we had invested NT$12 million (US$0.4 million) in ASE-Compeq Technologies, Inc. Our Chairman, Jason C.S. Chang, serves as the Chairman, and C.C. Tong, the Executive Vice President of Compeq, is the General Manager of ASE-Compeq Technologies, Inc. The joint venture has been approved by the ROC Fair Trade Commission and was incorporated in January 2004. We expect that our joint venture with Compeq will further strengthen our capabilities in interconnect materials by providing us access to Compeq's production capacity and expertise, know-how and engineering capabilities in the design and production of advanced substrates. We expect that ASE-Compeq Technologies, Inc. will initially focus on meeting our substrates requirements and gradually expand its customer base to include integrated device manufacturers and other backend subcontractors. ASE-Compeq Technologies, Inc. will initially utilize Compeq's existing facilities in Ta Yuan, Taiwan, and is expected to establish new facilities as the existing facilities reach full capacity.
Closure of ASE Philippines
In order to consolidate our operations and improve operating efficiency across our various locations, we closed our facilities and discontinued our operations in the Philippines in October 2003, which had been conducted through ASE Philippines. ASE Philippines was established in 1996 to provide packaging and testing services. We estimate that the charges associated with the closure of our operations in the Philippines will amount to approximately NT$271.9 million (US$8.0 million), approximately NT$102.0 million (US$3.0 million) of which was recognized in 2003.
BUSINESS OVERVIEW
Together with our subsidiary ASE Test, we are the world's largest independent provider of semiconductor packaging and testing services based on 2003 revenues. Our services include semiconductor packaging, design and production of interconnect materials, front-end engineering testing, wafer probing and final testing services. We believe that, as a result of the following, we are better positioned than our competitors to meet the requirements of semiconductor companies worldwide for outsourced packaging and testing services across a wide range of end-use applications:
o our ability to provide a broad range of advanced semiconductor packaging and testing services on a large-scale turnkey basis;
o our expertise in developing and providing advanced packaging, interconnect materials and testing technologies and solutions;
o our scale of operations and financial position, which enable us to make significant investments in capacity expansion and research and development as well as to make selective acquisitions;
o our geographic presence in key centers of outsourced semiconductor and electronics manufacturing; and
o our long-term relationships with providers of complementary semiconductor manufacturing services, including our strategic alliance with TSMC, the world's largest dedicated semiconductor foundry.
We believe that the trend for semiconductor companies to outsource their packaging and testing requirements is accelerating as semiconductor companies increasingly rely on independent providers of foundry and advanced packaging and testing services. In response to the increased pace of new product development and shortened product life and production cycles, semiconductor companies are increasingly seeking independent packaging and testing companies that can provide turnkey services in order to reduce time-to-market. We believe that our expertise and scale in advanced technology and our ability to integrate our broad range of solutions into turnkey services allow us to benefit from the accelerated outsourcing trend and better serve our existing and potential customers.
We believe that we have benefited, and will continue to benefit, from our geographic location in Taiwan. Taiwan is currently the largest center for outsourced semiconductor manufacturing in the world and, in addition, has a high concentration of electronics manufacturing service providers, which are the end users of our customers' products. Our close proximity to foundries and other providers of complementary semiconductor manufacturing services is attractive to our customers who wish to take advantage of the efficiencies of a total semiconductor manufacturing solution by outsourcing several stages of their manufacturing requirements. Our close proximity to end users of our customers' products is attractive to our customers who wish to take advantage of the logistical efficiencies of direct shipment services that we offer. We believe that, as a result, we are well positioned to meet the advanced semiconductor engineering and manufacturing requirements of our customers.
Our global base of over 200 customers includes leading semiconductor companies across a wide range of end-use applications:
o Agilent Technologies, Inc. o NVIDIA Corporation
o Altera Corporation o ON Semiconductor Corp.
o ATI Technologies, Inc. o Qualcomm Incorporated
o Conexant Systems, Inc. o RF Micro Devices, Inc.
o IBM Corporation o Silicon Integrated Systems Corp.
o Koninklijke Philips Electronics N.V. o STMicroelectronics N.V.
o LSI Logic Corporation o Sunplus Technology Co., Ltd.
o Motorola, Inc. o VIA Technologies, Inc.
Industry Background
General
Semiconductors are the basic building blocks used to create an increasing variety of electronic products and systems. Continuous improvements in semiconductor manufacturing processes and design technologies have enabled manufacturers to produce smaller, more complex and more reliable semiconductors at a lower cost per function. These improvements have resulted in significant performance and price benefits to manufacturers of electronic systems. As a result, semiconductor demand has grown substantially in our primary markets of communications, personal computers and consumer electronics, and has experienced increased growth in other markets such as automotive products, industrial automation and control systems.
The semiconductor industry is characterized by strong long-term growth, with periodic and sometimes severe cyclical downturns. The Semiconductor Industry Association estimates that worldwide sales of semiconductors increased from approximately US$50.5 billion in 1990 to US$166.4 billion in 2003. The semiconductor industry
experienced strong growth between 1992 and 1995 and between 1998 and 2000, with declines between 1996 and the first half of 1997 as well as in 1998. Starting from the fourth quarter of 2000, the semiconductor industry experienced a severe downturn due to a slowdown in the global economy, overcapacity in the semiconductor industry and worldwide inventory adjustment. The semiconductor industry started to show signs of a modest recovery in 2002, primarily as a result of inventory replenishment and the introduction of new products. This modest recovery has continued in 2003 and the first half of 2004. We believe that the pattern of long-term growth and cyclical fluctuations will continue in the semiconductor industry.
Outsourcing Trends in Semiconductor Manufacturing
Historically, semiconductor companies designed, manufactured, packaged and tested semiconductors primarily in their own facilities. Over the past several years, there has been a trend in the industry to outsource stages in the manufacturing process. Virtually every significant stage of the manufacturing process can be outsourced. Wafer foundry services and semiconductor packaging services are currently the largest segments of the independent semiconductor manufacturing services market. Most of the world's major integrated device manufacturers use some independent manufacturing services to maintain a strategic mix of internal and external manufacturing capacity.
The availability of technologically advanced independent manufacturing services has also enabled the growth of "fabless" semiconductor companies that focus on semiconductor design and marketing and outsource their fabrication, packaging and testing requirements to independent semiconductor manufacturing companies. The growth in the number and scale of fabless semiconductor companies that rely solely on independent companies to meet their manufacturing requirements will continue to be a driver of growth in the market for independent foundry, packaging and testing services. Similarly, the availability of technologically advanced independent manufacturing services has encouraged integrated device manufacturers, which had traditionally relied on in-house semiconductor manufacturing capacity, to increasingly outsource their manufacturing requirements to independent semiconductor manufacturing companies.
We believe the outsourcing of semiconductor manufacturing services will increase in the future from current levels for many reasons, including the following:
Technological Expertise and Significant Capital Expenditure. Semiconductor manufacturing processes have become highly complex, requiring substantial investment in specialized equipment and facilities and sophisticated engineering and manufacturing expertise. Technical expertise becomes increasingly important as the industry transitions from one generation of technology to another, as evidenced by the current migration of fabrication technology from 8-inch to 12-inch wafers. In addition, product life cycles have been shortening, magnifying the need to continuously upgrade or replace manufacturing equipment to accommodate new products. As a result, new investments in in-house packaging, testing and fabrication facilities are becoming less desirable to integrated device manufacturers because of the high investment costs as well as the inability to achieve sufficient economies of scale and utilization rates necessary to be competitive with the independent service providers. Independent packaging, testing and foundry companies, on the other hand, are able to realize the benefits of specialization and achieve economies of scale by providing services to a large base of customers across a wide range of products. This enables them to reduce costs and shorten production cycles through high capacity utilization and process expertise. In the process, they are also able to focus on discrete stages of semiconductor manufacturing and deliver services of superior quality.
Since the recent industry downturn in 2001, semiconductor companies have significantly reduced their investment in in-house packaging and testing technologies and capacity. As a result, some semiconductor companies may have limited in-house expertise and capacity to accommodate large orders following a recovery in demand, particularly in the area of advanced technology. We expect semiconductor companies to increasingly outsource their packaging and testing requirements to take advantage of the advanced technology and scale of operations of independent packaging and testing companies.
Focus on Core Competencies. As the semiconductor industry becomes more competitive, semiconductor companies are expected to further outsource their semiconductor manufacturing requirements in order to focus their resources on core competencies, such as semiconductor design and marketing.
Time-to-Market Pressure. The increasingly short product life cycle has accelerated time-to-market pressure for semiconductor companies, leading them to rely increasingly on outsourced suppliers as a key source for effective manufacturing solutions.
Gartner Dataquest forecasts that the total outsourced semiconductor packaging market will grow from US$8.1 billion in 2003 to US$19.2 billion in 2008. Gartner Dataquest also forecasts that the total outsourced semiconductor testing market will grow from US$2.2 billion in 2003 to US$5.6 billion in 2008.
The Semiconductor Industry in Taiwan
The semiconductor industry in Taiwan has been a leader in, and a major beneficiary of, the trend in outsourcing. The growth of the semiconductor industry in Taiwan has been the result of several factors. First, semiconductor manufacturing companies in Taiwan typically focus on one or two stages of the semiconductor manufacturing process. As a result, these companies tend to be more efficient and are better able to achieve economies of scale and maintain higher capacity utilization rates. Second, semiconductor manufacturing companies in Taiwan that provide the major stages of the manufacturing process are located close to each other and typically enjoy close working relationships. This close network is attractive to customers who wish to outsource several stages of the semiconductor manufacturing process. For instance, a customer could reduce production cycle time and unit cost and streamline logistics by outsourcing its foundry, packaging, testing and drop shipment services to semiconductor manufacturing companies in Taiwan. Third, Taiwan also has an educated labor pool and a large number of engineers suitable for sophisticated manufacturing industries such as semiconductors.
As a result of the growth of the global semiconductor market, the semiconductor industry in Taiwan has in recent years made significant capital expenditures to expand capacity and technological capabilities. The ROC government has also provided tax incentives, long-term loans at favorable rates and research and development support, both directly and indirectly through support of research institutes and universities. As a result of investments made in recent years, Taiwan has achieved substantial market share in the outsourced semiconductor manufacturing industry. Furthermore, the growth of Taiwan's electronics manufacturing industry, particularly in personal computer design and manufacturing, has created substantial local demand for semiconductors.
The Semiconductor Industry in Other Asian Regions
Many of the factors that contributed to the growth of the semiconductor industry in Taiwan have also contributed to the recent development of the semiconductor industry in Southeast Asia. Access to expanding semiconductor foundry services in Singapore, convenient proximity to major downstream electronics manufacturing operations in Malaysia, Singapore and Thailand, government-sponsored infrastructure support, tax incentives and pools of skilled engineers and labor at relatively low cost have all encouraged the development of back-end semiconductor service operations in Southeast Asia. The downstream electronics manufacturers in Southeast Asia have typically focused on products used in the communications, industrial and consumer electronics and personal computer peripheral sectors. The proximity to both semiconductor foundries and end users has influenced local and international semiconductor companies increasingly to obtain packaging, testing and drop shipment services from companies in Southeast Asia.
In addition, the world's leading electronics manufacturing service providers, many of them from Taiwan, are increasingly establishing manufacturing facilities in the PRC in order to take advantage of lower labor costs, government incentives for investment and the potential size of the domestic market for end users of electronics products. Many of the factors that contributed to the growth of the semiconductor industry in Taiwan are beginning to emerge in the PRC and may play an increasingly important role in the growth of its semiconductor industry over the long term.
Overview of Semiconductor Manufacturing Process
The manufacturing of semiconductors is a complex process that requires increasingly sophisticated engineering and manufacturing expertise. The manufacturing process may be divided into the following stages from circuit design to shipment:
[GRAPH OMITTED]
We are involved in all stages of the semiconductor manufacturing process except circuit design and wafer fabrication.
Process Description
------------------------------ ------------------------------------------------
Circuit Design............... The design of a semiconductor is developed by
laying out circuit components and
interconnections. A complex circuit may be
designed with as many as 20 layers of patterns
or more.
Front-End Engineering Test... Throughout and following the design process,
prototype semiconductors undergo front-end
engineering testing, which involves software
development, electrical design validation,
reliability and failure analysis.
Wafer Fabrication............ Process begins with the generation of a
photomask through the definition of the circuit
design pattern on a photographic negative, known
as a mask, by an electron beam or laser beam
writer. These circuit patterns are transferred
to the wafers using various advanced processes.
Wafer Probe.................. Each individual die is electrically tested, or
probed, for defects. Dies that fail this test
are marked to be discarded.
Packaging.................... Packaging, also called assembly, is the
processing of bare semiconductors into finished
semiconductors and serves to protect the die and
facilitate electrical connections and heat
dissipation. The patterned silicon wafers
received from our customers are diced by means
of diamond saws into separate dies, also called
chips. Each die is attached to a leadframe or a
laminate (plastic
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or tape) substrate by epoxy resin. A leadframe
is a miniature sheet of metal, generally made of
copper and silver alloys, on which the pattern
of input/output leads has been cut. On a
laminate substrate, typically used in BGA
packages, the leads take the shape of small
bumps or balls. Leads on the leadframe or the
substrate are connected by extremely fine gold
wires or bumps to the input/output terminals on
the chips, through the use of automated machines
known as "bonders". Each chip is then
encapsulated, generally in a plastic casing
molded from a molding compound, with only the
leads protruding from the finished casing,
either from the edges of the package as in the
case of the leadframe-based packages, or in the
form of small bumps on a surface of the package
as in the case of BGA or other substrate-based
packages.
Final Test................... Final testing is conducted to ensure that the
packaged semiconductor meets performance
specifications. Final testing involves using
sophisticated testing equipment known as testers
and customized software to electrically test a
number of attributes of packaged semiconductors,
including functionality, speed, predicted
endurance and power consumption. The final
testing of semiconductors is categorized by the
functions of the semiconductors tested into
logic/mixed-signal final testing and memory
final testing. Memory final testing typically
requires simpler test software but longer
testing time per device tested.
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Strategy
Our objective is to provide advanced semiconductor packaging and testing services and interconnect materials design and production capabilities which set industry standards and to lead and facilitate the industry trend towards outsourcing semiconductor manufacturing requirements. The principal elements of our strategy are to:
Maintain Our Focus on Providing a Complete Range of Semiconductor Packaging and Testing Services
We believe that an important factor in our ability to attract leading semiconductor companies as our customers has been our ability to provide turnkey services on a large scale. Turnkey services consist of the integrated packaging, testing and direct shipment of semiconductors to end users designated by our customers. As part of our integrated packaging solution, we also design and produce advanced and cost-competitive interconnect materials for both internal use in our packaging operations and for sale to third-party customers. As a result of our technical expertise and large production capacity in both packaging and testing, we are able to provide turnkey services on a large scale. As product lives and production cycles shorten and packaging and testing technologies advance more rapidly, our customers increasingly value our ability to work with them as an integral and strategic partner in the development of their products. The front-end engineering testing expertise of ISE Labs has greatly enhanced our ability to participate in the earlier stages of circuit design and the semiconductor manufacturing process. Our establishment of ASE Material in 1997 for the design and production of interconnect materials, such as substrates and leadframes, has provided us with expertise in interconnect materials technology, which has become increasingly critical for our customers both in terms of cost and production cycle time.
Continue to Focus on Advanced Technological, Processing and Interconnect Materials Capabilities
We intend to continue our focus on developing advanced process and product technologies in order to meet the advanced semiconductor engineering requirements of our customers. Our expertise in packaging technology has enabled us to develop advanced solutions such as fine-pitch wire bonding, stacked die packaging and bump chip carrier packaging. We are continuously investing in research and development in response to and in anticipation of migrations in technology and intend to continue to acquire access to new technologies through strategic alliances and licensing arrangements.
We intend to continue to focus on developing and enhancing our existing interconnect materials capabilities, both through the operations of ASE Material, which will be integrated with our packaging operations upon the completion of our merger with ASE Material, and through our joint venture with Compeq. We expect that interconnect materials will become an increasingly important value-added component of the semiconductor packaging business as packaging technology migrates from the traditional wire bonding process towards the flip-chip wafer bumping process and interconnect materials such as advanced substrates represent a higher percentage of the cost of the packaging process. By focusing on the design and production of interconnect materials, we plan to capture most of the value added components of the packaging business and lead the migration in packaging technology. In 2003, ASE Material supplied approximately one-half of our substrate requirements by value. We intend to capture more of the value-added components of the packaging business by increasing the percentage of our substrate requirements obtained from our own operations and through our joint venture with Compeq. We believe that our merger with ASE Material will further strengthen our ability to provide turnkey services that incorporate interconnect materials to our customers and finance the growth of the interconnect materials business. In addition, we expect that our joint venture with Compeq will further strengthen our capabilities in the interconnect materials business by providing us access to Compeq's production capacity and expertise, know-how and engineering capability in the design and production of advanced substrates.
We intend to continue to strengthen our capabilities in testing complex, high-performance semiconductors. In particular, we plan to focus on testing logic/mixed-signal semiconductors that are characterized by very high clock speeds, high pin count and high levels of integration.
The increasing miniaturization of semiconductors and the growing complexity of interconnect technology have also resulted in the blurring of the traditional distinctions among assembly at different levels of integration: chip, module, board and system. We currently provide module assembly services primarily at our facilities in Malaysia. Our controlling interest in Universal Scientific has provided us with access to process and product technologies at the levels of module, board and system assembly and test, which helps us to better anticipate industry trends and take advantage of potential growth opportunities.
Strategically Expand Production Capacity
We intend to strategically expand our production capacity, both through internal growth and through selective acquisitions and joint ventures, with a focus on providing more advanced packaging and testing services, which we believe present greater opportunities to achieve higher growth in our revenues and higher margins. We believe that the demand for advanced semiconductor packaging and testing services will grow at a faster pace than demand for traditional packaging and testing services. The gradual upturn in the demand for advanced packaging and testing services is partly due to the trend of integrated device manufacturers outsourcing their manufacturing requirements for advanced packaging and testing services rather than undertaking the high capital investment costs of maintaining in-house advanced packaging and testing capabilities. Packaging and testing services for more advanced semiconductors also generally have higher margins for two reasons. First, as the packaging and testing of advanced semiconductors become more complex, requiring greater expertise in process and technology, such services typically command higher average selling prices. Second, we have been able to achieve higher utilization rates for the equipment we use for more advanced packaging and testing, compared to other equipment that we maintain. We believe that our technical expertise, as well as our scale of operations and financial position, which had enabled us to continue to make investments in more advanced packaging and testing equipment even in times of market downturn, have enabled us to attract a greater proportion of the demand for more advanced packaging and testing services.
We evaluate acquisition opportunities on the basis of access to new markets and technology, the enhancement of our production capacity, economies of scale and management resources, and closer proximity to existing and potential customers. In 1999, we acquired ISE Labs, an independent testing company with operations in California, Texas, Hong Kong and Singapore. Through combining the front-end engineering testing capabilities of ISE Labs with our existing final testing capabilities, we are able to provide our customers with complete semiconductor testing solutions. We acquired ASE Chung Li and ASE Korea in 1999, formerly the semiconductor packaging and testing operations of Motorola, Inc. located in Chung Li, Taiwan and Paju, South Korea, which enabled us to expand our capacity and gain access to specialized packaging and testing technologies with a focus on wireless communications and automotive end-products. In February 2004, we acquired NEC's semiconductor packaging and testing operations located in Yamagata, Japan, which enabled us to expand our capacity and gain access to the Japanese market and advanced packaging and testing facilities and know-how.
In October 2003, we entered into a joint venture agreement with Compeq to establish ASE-Compeq Technologies, Inc. We expect that our joint venture with Compeq will further strengthen our capabilities in the interconnect materials business by providing us access to Compeq's production capacity and expertise, know-how and engineering capability in the design and production of advanced substrates.
Continue to Leverage Our Presence in Key Centers of Semiconductor and Electronics Manufacturing
We intend to continue leveraging our presence in key centers of semiconductor and electronics manufacturing to further grow our business. We have significant packaging and testing operations in Taiwan, currently the largest center for outsourced semiconductor manufacturing in the world. This presence enables our engineers to work closely with our customers as well as foundries and other providers of complementary semiconductor manufacturing services early in the semiconductor design process, enhances our responsiveness to the requirements of our customers and shortens production cycles. In addition, as a provider of turnkey services, we are able to offer in Taiwan packaging and testing services, including interconnect materials solutions, all within relatively close geographic proximity to our customers, other service providers and the end users of our customers' products. In addition to our expansion plans in Kaohsiung, Taiwan, we intend to expand our packaging, testing and interconnect materials operations in Chung Li, Taiwan to better serve our customers located in northern Taiwan and customers who request that we maintain the capability of packaging and testing their products at more than one location in Taiwan.
In addition to our locations in Taiwan, we have operations in the following locations:
o Korea -- an increasingly important center for the manufacturing of memory and communications devices with a concentration of integrated device manufacturers specializing in these products;
o Malaysia and Singapore -- an emerging center for outsourced semiconductor manufacturing in Southeast Asia with a concentration of integrated device manufacturers;
o Silicon Valley in California -- the preeminent center for semiconductor design with a concentration of fabless customers; and
o Japan -- an emerging market for semiconductor packaging and testing services as Japanese integrated device manufacturers increasingly outsource their semiconductor manufacturing requirements.
Strengthen and Develop Strategic Relationships with Providers of Complementary Semiconductor Manufacturing Services
We intend to strengthen existing and develop new strategic relationships with providers of other complementary semiconductor manufacturing services, such as foundries, as well as equipment vendors, raw material suppliers and technology research institutes, in order to offer our customers total semiconductor manufacturing solutions covering all stages of the manufacturing of their products from design to shipment.
Since 1997, we have maintained a strategic alliance with TSMC, the world's largest dedicated semiconductor foundry, which designates us as the non-exclusive preferred provider of packaging and testing services for semiconductors manufactured by TSMC. Through our strategic alliance with and close geographic proximity to
TSMC, we are able to offer our customers a total semiconductor manufacturing solution that includes access to foundry services in addition to our packaging, testing and direct shipment services.
Principal Products and Services
We offer a broad range of advanced semiconductor packaging and testing services. Our package types employ either leadframes or substrates as interconnect materials. The semiconductors we package are used in a wide range of end-use applications, including communications, personal computers, consumer electronics, industrial, automotive and other applications. Our testing services include front-end engineering testing, which is performed during and following the initial circuit design stage of the semiconductor manufacturing process, wafer probe, final testing and other related semiconductor testing services. We focus on packaging and testing logic semiconductors. We offer our customers turnkey services which consist of packaging, testing and direct shipment of semiconductors to end users designated by our customers. In 2001, 2002 and 2003, our packaging revenues accounted for 75.3%, 77.9% and 78.6% of our net revenues, respectively, and our testing revenues accounted for 24.7%, 22.1% and 21.2% of our net revenues, respectively.
Packaging Services
We offer a broad range of package types to meet the requirements of our customers, with a focus on advanced packaging solutions. Within our portfolio of package types, we focus on the packaging of semiconductors for which there is expected to be strong demand. These include advanced leadframe-based package types such as quad flat package, thin quad flat package, bump chip carrier and quad flat no-lead package, and package types based on substrates, such as BGA, including flip-chip BGA. We are among the leaders in such advanced packaging processes and technologies and are well positioned to lead the technology migration in the semiconductor packaging industry.
The semiconductor packaging industry has evolved to meet the advanced packaging requirements of high-performance semiconductors. The development of high-performance electronics products has spurred the innovation of semiconductor packages that have higher interconnect density and better electrical performance. As a part of this technology migration, semiconductor packages have evolved from leadframe-based packages to substrate-based packages. The key differences of these package types are:
o the size of the package;
o the density of electrical connections the package can support; and
o the thermal and electrical characteristics of the package.
Leadframe-Based Packages. Leadframe-based packages are packaged by connecting the die, using wire bonders, to the leadframe with gold wire. As packaging technology improves, the number of leads per package increases. Packages have evolved from the lower pin-count plastic dual in-line packages to higher pin-count quad flat packages. In addition, improvements in leadframe-based packages have reduced the footprint of the package on the circuit board and improved the electrical performance of the package. The following table sets forth our principal leadframe-based packages.
Number
Package Types of Leads Description End-Use Applications
---------------------------------- ---------- --------------------------------- ----------------------------------
Quad Flat Package (QFP)/ Thin Quad
Flat Package (TQFP)............. 44-256 Designed for advanced processors Multimedia applications, cellular
and controllers, application- phones, personal computers,
specific integrated circuits and automotive and industrial
digital signal processors. products, hard disk drives,
communication boards such as
ethernet, integrated services
digital network, and notebook
computers.
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Number
Package Types of Leads Description End-Use Applications
---------------------------------- ---------- --------------------------------- ----------------------------------
Quad Flat No-Lead Package
(QFN)/Microchip Carrier (MCC)...
12-84 QFN or MCC uses Cellular phones, wireless local
half-encapsulation technology to access network, or wireless LAN,
expose the rear side of the die personal digital assistant
pad and the tiny fingers, which devices and digital cameras.
are used to connect the chip and
bonding wire with printed
circuit boards.
Bump Chip Carrier (BCC)......... 16-156 BCC packages use plating metal Cellular phones, wireless LAN,
pads to connect with printed personal digital assistant
circuit boards, creating devices and digital cameras.
enhanced thermal and electrical
performance.
Small Outline Plastic Package
(SOP)/Thin Small Outline Plastic
Package (TSOP).................. 8-56 Designed for memory devices Consumer audio/video and
including static random access entertainment products, cordless
memory, or SRAM, dynamic random telephones, pagers, fax machines,
access memory, or DRAM, fast printers, copiers, personal
static RAM, also called FSRAM, computer peripherals, automotive
and flash memory devices. parts, telecommunications
products, recordable optical
disks and hard disk drives.
Small Outline Plastic J-Bend
Package (SOJ)................... 20-44 Designed for memory and low DRAM memory devices,
pin-count applications. microcontrollers, digital analog
conversions and audio/video
applications.
Plastic Leaded Chip Carrier (PLCC)
28-84 Designed for applications that Personal computers, scanners,
do not require low profile electronic games and monitors.
packages with high density of
interconnects.
Plastic Dual In-line Package (PDIP)
8-64 Designed for consumer electronic Telephones, televisions,
products. audio/video applications and
computer peripherals.
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Substrate-Based Packages. Substrate-based packages generally employ the BGA design, which utilizes a substrate rather than a leadframe. Whereas traditional leadframe technology places the electrical connection around the perimeter of the package, the BGA package type places the electrical connection at the bottom of the package surface in the form of small bumps or balls. These small bumps or balls are typically distributed evenly across the bottom surface of the package, allowing greater distance between individual leads and higher pin-counts.
The BGA package type was developed in response to the requirements of advanced semiconductors. The benefits of the BGA package type include:
o smaller package size;
o higher pin-count;
o greater reliability;
o superior electrical signal transmission; and
o better heat dissipation.
The industry demand for BGA packages has grown significantly in recent years. BGA packages are generally used in applications where size, density and performance are important considerations, such as cellular handsets and high pin-count graphic chipsets. Our expertise in BGA packages also includes capabilities in stacked-die BGA, which assembles multiple dies into a single package. As an extension to stacked-die BGA, we also assemble system-in-a-package products, which involve the integration of more than one chip into the same package. We believe that we are among the leaders in these packaging technologies.
We believe that there will continue to be growing demand for packaging solutions with increased input/output density, smaller size and better heat dissipation characteristics. In anticipation of this demand, we have focused on developing our capabilities in some advanced packaging solutions, such as flip-chip BGA. Flip-chip BGA technology replaces wire bonding with wafer bumping for interconnections within the package. Wafer bumping involves the placing of tiny solder balls, instead of wires, on top of dies for connection to substrates. As compared with more traditional packages which allow input/output connection only on the boundaries of the dies, flip-chip packages significantly enhance the input/output flow by allowing input/output connection over the entire surface of the dies. We commenced volume production of flip-chip packages in July 2000.
The following table sets forth our principal substrate-based packages.
Number
Package Types of Leads Description End-Use Applications
---------------------------------- ---------- --------------------------------- ----------------------------------
Plastic BGA..................... 5-1156 Designed for semiconductors Wireless products, cellular
which require the enhanced phones, global positioning
performance provided by plastic systems, notebook computers, disk
BGA, including personal computer drives and video cameras.
chipsets, graphic controllers
and microprocessors, application-
specific integrated circuits,
digital signal processors and
memory devices.
Film BGA........................ 100-280 Substrate-based package that has Cellular phones, pagers, wireless
higher performance and lower communications, digital signal
profile than plastic BGA. processors and micro-controller
applications and high performance
disk drives.
Cavity Down BGA................. 256-854 Designed for memory devices such Cellular and other
as flash memory devices, SRAM, telecommunications products,
DRAM and FSRAM, wireless and consumer systems,
microprocessors/controllers and personal digital assistants, or
high-value, application-specific PDAs, disk drives, notebook
integrated circuits requiring a computers and memory boards.
low profile, light and small
package.
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Number
Package Types of Leads Description End-Use Applications
---------------------------------- ---------- --------------------------------- ----------------------------------
Stacked-Die BGA................. 44-569 Combination of multiple dies in Cellular phones, local area
a single package enables package networks, graphic and processors,
to have multiple functions digital cameras and pagers.
within a small surface area.
Flip-Chip BGA................... 16-2401 Using advanced interconnect High-performance networking,
technology, the flip-chip BGA graphics and processor
package allows higher density of applications.
input/output connection over the
entire surface of the dies.
Designed for high-performance
semiconductors that require high
density of interconnects in a
small package.
System-in-Package............... 148-972 Integrated combination of Digital televisions, fax modems,
microprocessor, logic controller personal computer peripherals,
and memory chips assembled in compact disc players and copiers.
one package.
Land Grid Array................. 10-72 Leadless package which is High frequency integrated
essentially a BGA package circuits such as wireless
without the solder balls. Based communications products,
on laminate substrate, land grid computers servers and personal
array packages allow flexible computer peripherals.
routing and are capable of
multichip module functions.
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Module Assembly. We also offer module assembly services, which combine one or more semiconductor packages with other components in an integrated module to enable increased functionality, typically using automated surface mount technology, or SMT, machines and other machinery and equipment for system-level assembly. End-use applications for modules include PDAs, wireless LAN applications, Bluetooth applications, camera modules, automotive applications and toys. The substantial majority of our module assembly services are provided at our facilities in Malaysia to a customer for the assembly of camera modules used in handsets. We also provide module assembly services at our facilities in Korea for radio frequency and power amplifier modules used in wireless communications and automotive applications.
The following table sets forth, for the periods indicated, the percentage of our packaging revenues accounted for by each package type.
Year Ended December 31,
--------------------------------------------------------
2001 2002 2003
--------------------------------------------------------
(percentage of packaging revenues)
Package Types:
BGA and other substrate-based package types 52.0% 53.5% 53.8%
TQFP/LQFP.................................. 14.3 15.2 14.3
QFP........................................ 12.7 12.1 10.4
SOJ/SOP.................................... 6.7 5.8 4.1
PLCC....................................... 2.1 1.8 1.2
PDIP....................................... 3.0 3.4 2.1
Modules.................................... 0.8 2.7 8.7
Others..................................... 8.4 5.5 5.4
--------------------------------------------------------
Total.................................... 100.0% 100.0% 100%
========================================================
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Interconnect Materials. Interconnect materials connect the input/output on the semiconductor dies to the printed circuit board. Interconnect materials include leadframe, which is a miniature sheet of metal, generally made of copper and silver alloys, on which the pattern of input /output leads has been cut, and substrate, which is a multi-layer miniature printed circuit board. Interconnect materials are an important element of the electrical characteristics and overall performance of semiconductors. We produce both leadframes and substrates for our packaging operations through ASE Material. In 2003, ASE Material supplied approximately one-fourth, by value, of the leadframes and one-half, by value, of the substrates used in our operations.
We expect substrates will become an increasingly important value-added component of the semiconductor packaging business. The demand for higher performance semiconductors in smaller packages will continue to spur the development of advanced substrates that can support the advancement in circuit design and fabrication. As a result, we believe that the market for substrates will grow and the cost of substrates as a percentage of the total packaging process will increase, especially for advanced packages such as flip-chip BGA packages. In the past, substrates we designed for our customers were produced by independent substrate manufacturers. In anticipation of the migration in packaging technology, we established ASE Material in 1997 to develop our capabilities in the design and production of interconnect materials for use in our packaging operations. On October 28, 2003, we entered into a merger agreement to merge ASE Material with and into ASE Inc., with ASE Inc. as the surviving corporation. In addition, on October 28, 2003, we entered into a joint venture agreement with Compeq to establish ASE-Compeq Technologies Inc., which will focus on the design and production of interconnect materials for packaging semiconductors. Through our merger with ASE Material and our joint venture with Compeq, we believe we can capture the growth opportunities in the interconnect materials business as well as reduce the production cycle time for our customers by integrating substrate design and production into our packaging services. See "Item 3. Key Information--Risk Factors--Risk Relating to Our Business--If we are not successful in developing and enhancing our in-house interconnect materials capabilities, our margins and profitability may be adversely affected".
Testing Services
We provide a complete range of semiconductor testing services, including front-end engineering testing, wafer probing, final testing of logic/mixed-signal and memory semiconductors and other test-related services.
The testing of semiconductors requires technical expertise and knowledge of the specific applications and functions of the semiconductors tested as well as the testing equipment utilized. We believe that our testing services employ technology and expertise which are among the most advanced in the semiconductor industry. In addition to maintaining different types of testing equipment, which enables us to test a variety of semiconductor functions, we work closely with our customers to design effective testing and conversion programs on multiple equipment platforms for particular semiconductors.
In recent years, complex, high-performance logic/mixed-signal semiconductors have accounted for an increasing portion of our testing revenues. As the testing of complex, high-performance semiconductors requires a large number of functions to be tested using more advanced testing equipment, these products generate higher revenues per unit of testing time, as measured in central processing unit seconds.
Front-End Engineering Testing. We provide front-end engineering testing services, including customized software development, electrical design validation, and reliability and failure analysis.
o Customized Software Development. Test engineers develop customized software to test the semiconductor using advanced testing equipment. A customized software, developed on specific testing platforms, is required to test the conformity of each particular semiconductor type to its unique functionality and specification.
o Electrical Design Validation. A prototype of the designed semiconductor is subjected to electrical tests using advanced test equipment and customized software. These tests assess whether the prototype semiconductor complies with a variety of different operating specifications, including functionality, frequency, voltage, current, timing and temperature range.
o Reliability Analysis. Reliability analysis is designed to assess the long-term reliability of the semiconductor and its suitability of use for intended applications. Reliability testing can include "burn-in" services, which electrically stress a device, usually at high temperature and voltage, for a period of time long enough to cause the failure of marginal devices.
o Failure Analysis. In the event that the prototype semiconductor does not function to specifications during either the electrical design validation or reliability testing processes, it is typically subjected to failure analysis to determine the cause of the failure to perform as anticipated. As part of this analysis, the prototype semiconductor may be subjected to a variety of analyses, including electron beam probing and electrical testing.
Wafer Probing. Wafer probing is the step immediately before the packaging of semiconductors and involves visual inspection and electrical testing of the processed wafer for defects to ensure that it meets our customers' specifications. Wafer probing services require expertise and testing equipment similar to that used in final testing, and most of our testers can also be used for wafer probing.
Logic/Mixed-Signal Final Testing. We conduct final tests of a wide variety of logic/mixed signal semiconductors, with the number of leads ranging from the single digits to over one thousand and operating frequencies of over 2.5 Gbps for digital semiconductors and 6 GHz for radio frequency semiconductors, which are at the high end of the range for the industry. The products we test include semiconductors used for networking and wireless communications, graphics and disk controllers for home entertainment and personal computer applications, as well as a variety of application-specific integrated circuits for various specialized applications.
Memory Final Testing. We provide final testing services for a variety of memory products, such as SRAM, DRAM, single-bit erasable programmable read-only memory semiconductors and flash memory semiconductors.
Other Test-Related Services. We provide a broad range of additional test-related services, including:
o Burn-in Testing. Burn-in testing is the process of electrically stressing a device, usually at high temperature and voltage, for a period of time to simulate the continuous use of the device to determine whether this use would cause the failure of marginal devices.
o Dry Pack. Process which involves heating semiconductors in order to remove moisture before packaging and shipping to customers.
o Tape and Reel. Process which involves transferring semiconductors from a tray or tube into a tape-like carrier for shipment to customers.
Drop Shipment Services. We offer drop shipment services for shipment of semiconductors directly to end users designated by our customers. Drop shipment services are provided mostly in conjunction with logic/mixed-signal testing. We provide drop shipment services to a significant percentage of our testing customers. A substantial portion of our customers at each of our facilities have qualified these facilities for drop shipment services. Since drop shipment eliminates the additional step of inspection by the customer before shipment to the end user, quality of service is a key consideration. We believe that our ability to successfully execute our full range of services, including drop shipment services, is an important factor in maintaining existing customers as well as attracting new customers.
The following table sets forth, for the periods indicated, the percentage of our testing revenues accounted for by each type of testing service.
Year Ended December 31,
------------------------------------
2001 2002 2003
------------------------------------
(percentage of packaging revenues)
Testing Services:
Front-end engineering test.......... 8.7% 7.4% 4.3%
Wafer probe......................... 9.0 8.9 14.9
Final test.......................... 82.3 83.7 80.8
------------------------------------
Total............................. 100.0% 100.0% 100%
====================================
Sales and Marketing
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Sales and Marketing Offices
We maintain sales and marketing offices in Taiwan, the United States, Europe, Malaysia and Japan. Our Hsinchu and Kaohsiung offices in Taiwan are staffed with employees from both ASE Inc. and ASE Test Taiwan. In addition, the sales agent for our packaging and testing services maintains sales and marketing offices in Austria, Belgium, Germany, Japan, Korea, Malaysia and the United States. We conduct marketing research through our customer service personnel and those of our sales agent and through our relationships with our customers and suppliers to keep abreast of market trends and developments. We also provide advice in the area of production process technology to our major customers planning the introduction of new products. In placing orders with us, our customers specify which of our facilities these orders will go to. Our customers conduct separate qualification and correlation processes for each of our facilities that they use. See "Item 4. Business Overview--Sales and Marketing-- Qualification and Correlation by Customers".
Sales and Customer Service Agents
Under commission agreements, each of ASE Inc., ASE Test Taiwan, ASE Korea, ASE Chung Li and ASE Test Malaysia has appointed Gardex International Limited, or Gardex, as the non-exclusive sales agent for its services and products worldwide, excluding Asia. Gardex helps us identify customers, monitor delivery acceptance and payment by customers and, within parameters set by us, negotiate price, delivery and other terms with our customers. Purchase orders are placed directly with us by our customers. We pay Gardex a commission of between 0.4% and 0.7% of our sales outside of Asia, payable monthly, depending on the amount of these sales. In 2001, 2002 and 2003, we paid US$5.9 million, US$5.6 million and US$6.7 million, respectively, in commissions to Gardex.
Under service agreements, each of ASE Inc., ASE Test Taiwan, ASE Korea, ASE Chung Li, ISE Labs and ASE Test Malaysia has appointed ASE (U.S.) Inc. as its non-exclusive agent to provide customer service and after-sales support to its customers in Europe and North America. We pay ASE (U.S.) Inc. a monthly fee based on its monthly associated costs and expenses plus a commission set by reference to the lower of a percentage of sales or a fixed fee. In 2001, 2002 and 2003, we paid US$15.8 million, US$15.6 million and US$21.8 million, respectively, in fees and service charges to ASE (U.S.) Inc.
Both Gardex and ASE (U.S.) Inc. are wholly-owned by Y.C. Hsu, who has had a long personal relationship with Jason C.S. Chang, our Chairman and Chief Executive Officer, that pre-dates the founding of our company. We have maintained business relationships with Gardex, ASE (U.S.) Inc. and their predecessors since 1985. Gardex and ASE (U.S.) Inc. currently perform services only for us.
See "Item 3. Key Information -- Risk Factors -- Risks Relating to Our Business -- We depend on our agents for sales and customer service in North America and Europe. Any serious disruption in our relationship with these agents, or substantial loss in their effectiveness, could significantly reduce our revenues and profitability".
Customers
Our global base of over 200 customers includes leading semiconductor companies across a wide range of end-use applications:
o Agilent Technologies, Inc. o NVIDIA Corporation
o Altera Corporation o ON Semiconductor Corp.
o ATI Technologies, Inc. o Qualcomm Incorporated
o Conexant Systems, Inc. o RF Micro Devices, Inc.
o IBM Corporation o Silicon Integrated Systems Corp.
o Koninklijke Philips Electronics N.V. o STMicroelectronics N.V.
o LSI Logic Corporation o Sunplus Technology Co., Ltd.
o Motorola, Inc. o VIA Technologies, Inc.
Our five largest customers together accounted for approximately 41.2%, 39.6% and 34.8% of our net revenues in 2001, 2002 and 2003, respectively. Other than Motorola, Inc. and VIA Technologies, Inc. in 2001 and Motorola, Inc. in 2002 and 2003, no customer accounted for more than 10% of our net revenues in 2001, 2002 or 2003.
We package and test for our customers a wide range of products with end-use applications in the communications, personal computers, consumer electronics, industrial and automotive sectors. The following table sets forth a breakdown of the percentage of our net revenues, for the periods indicated, by the principal end-use applications of the products which we packaged and tested.
Year Ended December 31,
-------------------------------------------------
2001 2002 2003
End-Use Applications:
Communications.................................... 36.0% 34.4% 34.9%
Personal computers................................ 35.5 35.4 35.7
Consumer electronics/ industrial/ automotive...... 27.7 28.8 28.3
Others............................................ 0.8 1.4 1.1
-------------------------------------------------
Total........................................... 100.0% 100.0% 100%
=================================================
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Many of our customers are leaders in their respective end-use markets. For example, we provide Motorola, an industry leader in automotive and wireless communications semiconductor products, with most of its outsourced packaging and testing requirements. The following table sets forth some of our largest customers, in alphabetical order, categorized by the principal end-use applications of the products which we package and test for them.
Communications Personal Computers Consumer Electronics/Industrial/Automotive
-------------------------------------- ------------------------------------ ---------------------------------------------
Agilent Technologies, Inc. ATI Technologies, Inc. Altera Corporation
Conexant Systems, Inc. IBM Corporation LSI Logic Corporation
Koninklijke Philips Electronics N.V. NVIDIA Corporation Motorola, Inc.
Motorola, Inc. Silicon Integrated Systems Corp. ON Semiconductor Corp.
Qualcomm Incorporated VIA Technologies, Inc. STMicroelectronics N.V.
RF Micro Devices, Inc. Winbond Electronics Corporation Sunplus Technology Co., Ltd.
STMicroelectronics N.V. Marvell Technology Group Ltd. Micronas Semiconductor Holding AG
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We categorize our packaging and testing revenues geographically based on the country in which the customer is headquartered. The following table sets forth, for the periods indicated, the percentage breakdown by geographic regions of our packaging and testing revenues.
Year Ended December 31,
-------------------------------------------
2001 2002 2003
-------------------------------------------
North America..................... 65.0% 59.1% 60.2%
Taiwan............................ 26.7 24.9 27.0
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Year Ended December 31,
-------------------------------------------
2001 2002 2003
-------------------------------------------
Europe............................ 3.9 6.1 8.3
Others............................ 4.4 9.9 4.5
-------------------------------------------
Total........................ 100.0% 100.0% 100%
===========================================
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In 2003, approximately 84% of the testing revenues of ASE Taiwan and 90% of the testing revenues of ASE Test Malaysia were accounted for by the testing of semiconductors packaged at our packaging facilities in Kaohsiung, Taiwan and Malaysia, respectively. The balance represented testing revenues from customers who delivered packaged semiconductors directly to ASE Test Taiwan or ASE Test Malaysia for testing. In 2003, approximately 36% of our packaging revenues in Kaohsiung, Taiwan and 64% of our packaging revenues in Malaysia were accounted for by the packaging of semiconductors which were subsequently tested at ASE Test Taiwan and ASE Test Malaysia, respectively. We expect that more customers of our packaging facilities in Kaohsiung, Taiwan and Malaysia will begin to contract for our packaging and testing services on a turnkey basis.
Qualification and Correlation by Customers
Customers generally require that our facilities undergo a stringent qualification process during which the customer evaluates our operations and production processes, including engineering, delivery control and testing capabilities. The qualification process typically takes up to eight weeks, but can take longer depending on the requirements of the customer. In the case of our testing operations, after we have been qualified by a customer and before the customer delivers semiconductors to us for testing in volume, a process known as correlation is undertaken. During the correlation process, the customer provides us with sample semiconductors to be tested and either provides us with the test program or requests that we develop a conversion program. In some cases, the customer also provides us with a data log of results of any testing of the semiconductors which the customer may have conducted previously. The correlation process typically takes up to two weeks, but can take longer depending on the requirements of the customer. We believe our ability to provide turnkey services reduces the amount of time spent by our customers in the qualification and correlation process. As a result, customers utilizing our turnkey services are able to achieve shorter production cycles.
Pricing
We price our packaging services primarily on a cost-plus basis with reference to prevailing market prices. We price our testing services primarily on the basis of the amount of time, measured in central processing unit seconds, taken by the automated testing equipment to execute the test programs specific to the products being tested, as well as the cost of the equipment, with reference to prevailing market prices. Prices for our packaging and testing services are confirmed at the time firm orders are received from customers, which is typically four to eight weeks before delivery.
Raw Materials and Suppliers
Packaging
The principal raw materials used in our packaging processes are interconnect materials such as leadframes and substrates, gold wire and molding compound. Interconnect materials, such as leadframes and substrates, gold wire and molding compound represented approximately 56.2%, 23.0% and 8.1%, respectively, of our total cost of packaging materials in 2003.
The silicon die, which is the functional unit of the semiconductor to be packaged, is supplied in the form of silicon wafers. Each silicon wafer contains a number of identical dies. We receive the wafers from the customers or the foundries on a consignment basis. Consequently, we generally do not incur inventory costs relating to the silicon wafers used in our packaging process.
We do not maintain large inventories of leadframes, substrates, gold wire or molding compound, but generally maintain sufficient stock of each principal raw material for approximately one month's production based on blanket orders and rolling forecasts of near-term requirements received from customers. In addition, several of our principal
suppliers dedicate portions of their inventories, typically in amounts equal to the average monthly amounts supplied to us, as reserves to meet our production requirements. However, shortages in the supply of materials experienced by the semiconductor industry have in the past resulted in occasional price adjustments and delivery delays. For example, in 1999 and the first half of 2000, the industry experienced a shortage in the supply of advanced substrates used in BGA packages, which, at the time, were only available from a limited number of suppliers located primarily in Japan. In these instances, we generally negotiate an extension of the delivery date from our customers. See "Item 4. Information on the Company--Business Overview--Strategy--Continue to Focus on Advanced Technological, Processing and Interconnect Materials Capabilities".
Testing
Apart from packaged semiconductors, no other raw materials are needed for the functional and burn-in testing of semiconductors. For the majority of our testing equipment, we often base our purchases on prior discussions with our customers about their forecast requirements. The balance consists of testing equipment on consignment from customers and which are dedicated exclusively to the testing of these customers' specific products.
Equipment
Packaging
The most important equipment used in the semiconductor packaging process is the wire bonder. Wire bonders connect the input/output terminals on the silicon die using extremely fine gold wire to leads on leadframes or substrates. Typically, a wire bonder may be used, with minor modifications, for the packaging of different products. We purchase our wire bonders principally from Kulicke & Soffa Industries Inc. As of May 31, 2004, we operated an aggregate of 5,918 wire bonders, of which 4,832 were fine-pitch wire bonders. As of the same date, 29 of the wire bonders operated by us were consigned by customers. For the packaging of certain types of substrate-based packages, such as flip-chip BGA, die bonders are used in place of wire bonders. The number of bonders at a given facility is commonly used as a measure of the packaging capacity of the facility. In addition to bonders, we maintain a variety of other types of packaging equipment, such as wafer grind, wafer mount, wafer saw, automated molding machines, laser markers, solder plate, pad printers, dejunkers, trimmers, formers, substrate saws and scanners.
Testing
Testing equipment is the most capital intensive component of the testing process. We generally seek to purchase testers from different suppliers with similar functionality and the ability to test a variety of different semiconductors. We purchase testers from major international manufacturers, including Advantest Corporation, Agilent Technologies, Inc., Credence Systems Corporation, LTX Corporation, NP Test Inc. and Teradyne, Inc. Upon acquisition of new testers, we install, configure, calibrate, perform burn-in diagnostic tests on and establish parameters for the testers based on the anticipated requirements of existing and potential customers and considerations relating to market trends. As of May 31, 2004, we operated an aggregate of 1,348 testers, 266 of which were consigned by customers and 53 of which were leased under operating leases. In addition to testers, we maintain a variety of other types of testing equipment, such as automated handlers and probers (special handlers for wafer probing), scanners, reformers and computer workstations for use in software development. Each tester may be attached to a handler or prober. Handlers attach to testers and transport individual packaged semiconductor to the tester interface. Probers similarly attach to the tester and align each individual die on a wafer with the interface to the tester.
Test programs, which are the software that drive the testing of specific semiconductors, are written for a specific testing platform. We often perform test program conversions that enable us to test semiconductors on multiple test platforms. This portability between testers enables us to allocate semiconductors tested across our available test capabilities and thereby improve capacity utilization rates. In cases where a customer requires the testing of a semiconductor product that is not yet fully developed, the customer may provide personal computer workstations to us to test specific functions. In cases where a customer has specified testing equipment that was not widely applicable to other products which we test, we have required the customer to furnish the equipment on a consignment basis.
Intellectual Property
As of May 31, 2004, we held 388 Taiwan patents and 134 U.S. patents related to various semiconductor packaging technologies. In addition, we registered "ASE" as a trademark and as a servicemark in Taiwan.
We have also entered into various non-exclusive technology license agreements with other companies involved in the semiconductor manufacturing process, including Motorola, Inc., Tessera Inc., Fujitsu Limited, Flip Chip Technologies, L.L.C. and LSI Logic Corporation. We paid royalties under our license agreements in the amount of NT$151.2 million, NT$176.7 million, and NT$200.1 million (US$5.9 million) in 2001, 2002 and 2003, respectively. The technology we license from these companies includes solder bumping, redistribution, ultraCSP assembly and other technologies used in the production of package types, such as BCC, flip-chip BGA and film BGA. The license agreement with Tessera Inc. will not expire until the expiration of the Tessera Inc. patents licensed by the agreement. The license agreements with Motorola, Inc., Flip Chip Technologies, L.L.C. and LSI Logic Corporation will expire on December 31, 2010, March 1, 2009 and January 1, 2010, respectively. We are in the process of negotiating the renewal of our license agreement with Fujitsu Limited.
Our success depends in part on our ability to obtain, maintain and protect our patents, licenses and other intellectual property rights, including rights under our license agreement with Motorola, Inc.
Quality Control
We believe that our advanced process technology and reputation for high quality and reliable services have been important factors in attracting and retaining leading international semiconductor companies as customers for our packaging and testing services. We have maintained an average packaging yield rate of 99.8% or greater in each of the last three years. We maintain a quality control staff at each of our facilities. Our quality control staff typically includes engineers, technicians and other employees who monitor packaging and testing processes in order to ensure high quality. Our quality assurance systems impose strict process controls, statistical in-line monitors, supplier control, data review and management, quality controls and corrective action systems. Our quality control employees operate quality control stations along production lines, monitor clean room environments and follow up on quality through outgoing product inspection and interaction with customer service staff. We have established quality control systems which are designed to ensure high quality service to customers, high product and testing reliability and high production yields at our facilities. In addition, our packaging and testing facilities have been qualified by all of our major customers after satisfying stringent quality standards prescribed by these customers.
Our packaging and testing operations are undertaken in clean rooms where air purity, temperature and humidity are controlled. To ensure stability and integrity of our operations, we maintain clean rooms at our facilities that meet U.S. Federal 209E class 1,000, 10,000 and 100,000 standards.
ISE Labs' testing facility in Fremont, California has been approved by the U.S. military's Defense Supply Center, Columbus, Sourcing and Qualifications Unit as a laboratory possessing the requisite level of performance, quality and reliability required of suppliers for the U.S. Department of Defense.
Our packaging and testing facilities in Kaohsiung, Taiwan, and the United States have been certified as meeting the ISO 9001 quality standards set by the International Standards Organization, or ISO. In addition, our packaging and testing facilities in Kaohsiung, Taiwan, Korea and Malaysia and our interconnect materials facilities have also been certified as meeting the ISO 14001 quality standards. ISO certifications are required by many countries in connection with sales of industrial products in these countries.
Our packaging and testing facilities in Taiwan and Korea have also been certified as meeting TS 16949 standards. These standards provide for continuous improvement with an emphasis on the prevention of defects and reduction of variation and waste in the supply chain. Like ISO certifications, TS 16949 certification is required by some semiconductor manufacturers as a threshold indicating a company's quality control standards.
Furthermore, our packaging and testing facilities in Kaohsiung, Taiwan have received the SAC Level-1 certification for quality assurance from the Semiconductor Assembly Council. The Semiconductor Assembly
Council is an organization of semiconductor manufacturers, subcontractors, end-users and materials and service providers established to certify subcontract quality systems and process control practices.
In addition, we have received various vendor awards from our customers for the quality of our products and services.
Competition
We compete in the highly competitive independent semiconductor packaging and testing markets. We face competition from a number of sources, including other independent semiconductor packaging and testing companies, especially those that also offer turnkey packaging and testing services. More importantly, we compete for the business of integrated device manufacturers with in-house packaging and testing capabilities and fabless semiconductor design companies with their own in-house testing capabilities. Some of these integrated device manufacturers have commenced, or may commence, in-house packaging and testing operations in Asia. Furthermore, several independent packaging and testing companies have established their packaging operations in Taiwan.
Integrated device manufacturers that use our services continuously evaluate our performance against their own in-house packaging and testing capabilities. These integrated device manufacturers may have access to more advanced technologies and greater financial and other resources than we do. We believe, however, that we can offer greater efficiency and lower costs while maintaining equivalent or higher quality for several reasons. First, as we benefit from specialization and economies of scale by providing services to a large base of customers across a wide range of products, we are better able to reduce costs and shorten production cycles through high capacity utilization and process expertise. Second, as a result of our customer base and product offerings, our equipment generally has a longer useful life. Third, as a result of the continuing reduction of investments in in-house packaging and testing capacity and technology at integrated device manufacturers, we are better positioned to meet the advanced packaging and testing requirements on a large scale.
Environmental Matters
Our packaging and interconnect materials operations generate environmental wastes, including gaseous chemical, liquid and solid industrial wastes. We have installed various types of anti-pollution equipment for the treatment of liquid and gaseous chemical waste generated at all of our semiconductor packaging facilities. We believe that we have adopted adequate anti-pollution measures for the effective maintenance of environmental protection standards that are consistent with the industry practice in the countries in which our facilities are located. In addition, we believe we are in compliance in all material respects with present environmental laws and regulations applicable to our operations and facilities.
Insurance
We have insurance policies covering property damage and damage to our production facilities, buildings and machinery. In addition, we have insurance policies covering our liabilities in connection with certain accidents. Significant damage to any of our production facilities would have a material adverse effect on our results of operations. We are not insured against the loss of key personnel.
ORGANIZATIONAL STRUCTURE
The following chart illustrates our corporate structure and our effective equity interest in each of our principal operating subsidiaries and affiliates as of May 31, 2004. The following chart does not include wholly-owned intermediate holding companies.
[GRAPH OMITTED]
Our Consolidated Subsidiaries
ASE Test
ASE Test is the largest independent testing company in the world, providing a complete range of semiconductor testing services to leading international semiconductor companies. ASE Test also provides semiconductor packaging services. ASE Test has testing operations in Taiwan, the United States, Hong Kong and Singapore, and also maintains testing and packaging operations in Malaysia.
ASE Test was incorporated in 1995 and its ordinary shares have been quoted for trading on the Nasdaq National Market since June 1996 under the symbol "ASTSF". ASE Test's Taiwan depositary shares representing its ordinary shares have been listed for trading on the Taiwan Stock Exchange under the symbol "9101" since January 1998. As of May 31, 2004, we held 51.0% of the outstanding shares of ASE Test.
ASE Test is a holding company incorporated in Singapore whose significant assets are its ownership interests in the following operating companies as of May 31, 2004:
o 100% of ASE Test, Inc., also called ASE Test Taiwan;
o 100% of ASE Test Malaysia;
o 100% of ISE Labs;
o 27.6% of ASE Chung Li (the remaining 72.4% of which is owned by ASE Inc.); and
o 30% of ASE Korea (the remaining 70% of which is owned by ASE Inc.).
In 2003, ASE Test recorded net revenues of US$391.9 million, operating income of US$1.2 million and a net loss of US$3.5 million. In 2002, ASE Test recorded net revenues of US$302.0 million, an operating loss of US$76.0 million and a net loss of US$81.3 million. In 2001, ASE Test recorded net revenues of US$298.5 million, an operating loss of US$24.1 million and a net loss of US$45.8 million.
ASE Material
ASE Material, which is an ROC company, was established in 1997 for the design and production of interconnect materials, such as leadframes and substrates, used in the packaging of semiconductors. ASE Material currently supplies our packaging facilities in Kaohsiung, Taiwan with a substantial portion of our leadframe and substrate requirements. See "Item 4. Information on the Company--Business Overview--Raw Materials and Suppliers--Packaging". As of May 31, 2004, we held 61.4% of the outstanding shares of ASE Material, comprising 57.4% held by ASE Inc. and 4.0% held by ASE Test Taiwan. The remaining shares of ASE Material are owned by the management and employees of ASE Material, the management and employees of ASE Inc. and its affiliates, as well as a strategic investor. As of May 31, 2004, the supervisors and two of the four directors of ASE Material are representatives of ASE Inc. and one director of ASE Material is a representative of ASE Test Taiwan. The remaining director of ASE Material is Richard H.P. Chang, our Vice Chairman and President, who serves in his individual capacity.
ASE Material's facilities are located in the Nantze Export Processing Zone near our packaging and testing facilities in Kaohsiung, and in Chung Li, Taiwan. In 2003, ASE Material recorded net revenues of NT$5,225.1 million (US$153.7 million), an operating gain of NT$102.9 million (US$3.0 million) and a net income of NT$168.3 million (US$5.0 million). In 2002, ASE Material recorded net revenues of NT$3,136.4 million, an operating loss of NT$583.6 million and a net loss of NT$854.3 million. In 2001, ASE Material recorded net revenues of NT$2,458.4 million, operating income of NT$273.5 million and net income of NT$181.6 million. Substantially all of ASE Material's sales are to us and our affiliates. Accordingly, substantially all of its sales and net income are eliminated in the preparation of our consolidated financial statements.
On October 28, 2003, we entered into a merger agreement to merge ASE Material with and into ASE Inc., with ASE Inc. as the surviving corporation. Assuming receipt of all necessary approvals and consents, we expect the merger will be completed on August 1, 2004. See "Item 4. Information on the Company--History and Development of the Company -- Pending Merger with ASE Chung Li and ASE Material".
Our Unconsolidated Affiliates
As of May 31, 2004, we held approximately 23.5% of the outstanding shares of Universal Scientific and 26.4% of the outstanding shares of Hung Ching.
Universal Scientific
Universal Scientific, which is an ROC company, manufactures electronics products in varying degrees of system integration principally on a contract basis for original equipment manufacturers, including:
o electronic components such as thick film mixed-signal devices, thick film resistors, high frequency devices and automotive and power electronic devices;
o board and sub-system assemblies such as customized surface mount technology board assemblies, mother boards for personal computers, wireless local area network cards and fax control boards; and
o system assemblies such as portable computers, desktop personal computers, network computers and servers.
We are the largest shareholder in Universal Scientific and six out of the nine directors on its board of directors, including the chairman, are representatives of ASE Inc.
Universal Scientific's principal manufacturing facilities are located in Nantou, Taiwan. In 2003, Universal Scientific recorded net revenues of NT$40,928.1 million (US$1,204.1 million), an operating income of NT$967.7 million (US$28.5 million) and net income of NT$776.3 million (US$22.8 million). In 2002, Universal Scientific recorded net revenues of NT$31,775.9 million, operating income of NT$803.4 million and net income of NT$276.0 million. In 2001, Universal Scientific recorded net revenues of NT$34,214.8 million, operating income of NT$556.5 million and a net loss of NT$163.1 million. The shares of Universal Scientific are listed on the Taiwan Stock Exchange under the symbol "2350". As of May 31, 2004, Universal Scientific had a market capitalization of NT$9,880.0 million (US$290.7 million).
Hung Ching
Hung Ching is an ROC company engaged in the development and management of commercial, residential and industrial real estate properties in Taiwan. Hung Ching's completed development projects include the ASE Design Center commercial project and the Earl Village residential project, both located in Hsichih, Taiwan. Hung Ching was founded in 1986 by Chang Yao Hung-ying. Chang Yao Hung-ying is the mother of both Jason C.S. Chang, our Chairman and Chief Executive Officer, and Richard H.P. Chang, our Vice Chairman and President, and was a director of ASE Inc. from 1984 to June 2003. Jason C.S. Chang, Richard H.P. Chang, Chang Yao Hung-ying and other members of the Chang family are controlling shareholders of Hung Ching.
In 2003, Hung Ching recorded net revenues of NT$1,014.9 million (US$29.9 million), an operating loss of NT$491.5 million (US$14.5 million) and a net loss of NT$483.8 million (US$14.2 million). In 2002, Hung Ching recorded net revenues of NT$546.7 million, an operating loss of NT$253.8 million and a net loss of NT$521.5 million. In 2001, Hung Ching recorded net revenues of NT$2,600.1 million, an operating loss of NT$101.3 million and a net loss of NT$811.3 million. The shares of Hung Ching are listed on the Taiwan Stock Exchange under the symbol "2527". As of May 31, 2004, Hung Ching had a market capitalization of NT$2,939.4 million (US$86.5 million).
PROPERTY, PLANTS AND EQUIPMENT
We operate a number of packaging and testing facilities in Asia and the United States. Our facilities provide varying types or levels of services with respect to different end-product focus, customers, technologies and geographic locations. Our facilities range from our large-scale turnkey facilities in Taiwan and Malaysia to our specialized Korea facility dedicated to wireless communications and automotive end-products. With our diverse facilities we are able to tailor our packaging and testing solutions closely to our customers' needs. The following table sets forth the location, commencement of operation, primary use, approximate floor space and ownership of our facilities as of May 31, 2004.
Approximate
Commencement of Floor Space (in
Facility Location Operation Primary Use sq. ft.) Owned or Leased
--------------------- ---------------- ---------------- --------------------------------- --------------- -------------------
ASE Inc. Kaohsiung, March 1984 Our primary packaging facility. 2,160,000 Land: leased
Taiwan Offers complete semiconductor Buildings: owned
manufacturing solutions in
conjunction with ASE Test Taiwan
and foundries located in Taiwan.
Focuses primarily on advanced
packaging services, including
flip-chip, wafer bumping and
fine-pitch wire bonding.
ASE Test, Taiwan Kaohsiung, December 1987 Our primary testing facilities. 986,000 Land: leased
Taiwan Offers complete semiconductor Buildings: owned
Chung Li, Taiwan solutions in conjunction with
ASE Inc.'s facility in Kaohsiung
and foundries located in Taiwan.
Focuses primarily on advanced
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Approximate
Commencement of Floor Space (in
Facility Location Operation Primary Use sq. ft.) Owned or Leased
--------------------- ---------------- ---------------- --------------------------------- --------------- -------------------
logic/mixed-signal testing for
integrated device manufacturers,
fabless design companies and
system companies.
ASE Material(1) Kaohsiung, December 1997 Design and production of 690,000 Land: leased
Taiwan interconnect materials such as Buildings: owned
Chung Li, Taiwan leadframes and substrates used
in packaging of semiconductors.
ASE Test Malaysia Penang, Malaysia February 1991 An integrated packaging and 711,000 Land: leased
testing facility which focuses Buildings:
primarily on the requirements of owned and leased
integrated device manufacturers
and system companies, including
those for module assembly.
ASE Chung Li(1)(2) Chung Li, Taiwan April 1985 An integrated packaging and 900,000 Land: owned
testing facility which Buildings: owned
specializes in semiconductors
for communications and consumer
applications.
ASE Korea(3) Paju, Korea March 1967 An integrated packaging and 470,000 Land: owned,
testing facility which subject to
specializes in semiconductors mortgage
for radio frequency, sensor and Buildings: owned,
subject to mortgage
automotive applications.
ISE Labs(4) Fremont, November 1983 Front-end engineering and final 385,000 Land: leased
California testing facilities located in Buildings:
Austin, Texas northern California in close owned and leased
Hong Kong proximity to several of the
Singapore world's largest fabless design
companies. Testing facilities
located in close proximity to
integrated device manufacturers
and fabless companies in Texas,
Hong Kong and Southeast Asia.
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For information on the aggregate capacity of our facilities in terms of the number of testers and bonders we operate, see "Item 4. Information on the Company -- Business Overview -- Equipment". The capacity utilization rates of the machinery and equipment installed at our production facilities typically depend on factors such as the volume and variety of different products packaged or tested using such machinery and equipment, the efficiency of our operations in terms of the loading and adjustment of machinery and equipment for the packaging or testing of different products, the complexity of the different products to be packaged or tested, the amount of time set aside for the maintenance and repair of the machinery and equipment, the experience and schedule of work shifts of operators, and others.
Expansion
We are in the process of constructing two new buildings in Chung Li, Taiwan. The new buildings are expected to have an estimated floor space of approximately 1,023,000 square feet, and are intended to house a part of our testing operations and a part of our interconnect materials operations. Construction commenced in September 2003 and we expect it to be completed by the second half of 2004. The total cost of the construction project, including the land and the completed buildings, is estimated to be approximately NT$1,200.0 million (US$35.3 million). We are currently in discussions with Hung Ching, our affiliate engaged in the development and management of commercial, residential and industrial real estate in Taiwan, on the terms of the construction agreement.
We are in the process of constructing a new building in Kaohsiung, Taiwan. The new building is expected to have approximately 1,163,000 square feet of floor space. Upon completion of the development, which is currently expected to be in the second half of 2004, we will own the first two floors of the building with floor space of approximately 235,000 square feet, and Hung Ching will own remaining floors of the building with floor space of approximately 928,000 square feet. We plan to use our floor space to house part of our operations in Kaohsiung. We and our affiliates will have priority in purchasing the remaining floor space from Hung Ching. The total cost of the construction project, including land and the completed building, is estimated at NT$1,400.0 million (US$41.2 million). See "Item 7. Major Shareholders and Related Party Transactions--Related Party Transactions".
We plan to finance both of these construction projects with internally generated cash. We have not yet paid any portion of the construction costs for either of these projects.
We have not finalized the portion of our productive capacity, either existing capacity or new capacity budgeted to be added in 2004, which will be allocated to these new buildings upon their completion.
Item 5. Operating and Financial Review and Prospects
OPERATING RESULTS AND TREND INFORMATION
The following discussion of our business, financial condition and results of operations should be read in conjunction with our consolidated financial statements, which are included elsewhere in this annual report. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of any number of factors, such as those set forth under "Item 3. Key Information--Risk Factors" and elsewhere in this annual report. See "Forward-Looking Statements".
Overview
We offer a broad range of semiconductor packaging and testing services. In addition to offering each service separately, we also offer turnkey services, which consist of the integrated packaging, testing and direct shipment of semiconductors to end users designated by our customers. Our net revenues increased from NT$38,367.8 million in 2001 to NT$45,586.8 million in 2002 and NT$57,311.8 million (US$1,686.1 million) in 2003. The increase in our net revenues in 2002 and 2003 reflected a modest recovery in the semiconductor industry and increased outsourcing of the packaging of advanced package types such as BGA. In 2002 and 2003, we experienced a gradual improvement in our net revenues compared to 2001 across each of the end-use applications of the semiconductors that we packaged and tested. This improvement was generally concentrated in the packaging of more advanced package types, the testing of more complex, high-performance semiconductors and the assembly of modules.
Pricing and Revenue Mix
We price our services on a cost-plus basis, taking into account the actual costs involved in providing these services, with reference to prevailing market prices. The majority of our prices and revenues are denominated in U.S. dollars. However, as more than half of our costs, including most of our labor and overhead costs, are denominated in NT dollars, we consider the NT dollar to be our functional currency. Furthermore, the majority of our financing costs are denominated in NT dollars.
The semiconductor industry is characterized by a general trend towards declining prices for products and services of a given technology over time. In addition, during periods of intense competition and adverse conditions in the semiconductor industry, the pace of this decline may be more rapid than that experienced in other years. The average selling prices of our packaging and testing services have experienced sharp declines during such periods as a result of intense price competition from other independent packaging and testing companies that attempt to maintain high capacity utilization levels in the face of reduced demand. During the industry downturn commencing in the fourth quarter of 2000, we experienced a significant deterioration in average selling prices which resulted in our company incurring a net loss in 2001 and a significant decrease in net income in 2002, as compared with the years prior to 2001. As a result of the modest recovery in the semiconductor industry and a gradual upturn in the outsourcing trend in 2002 and 2003, our average selling prices for packaging and testing services stabilized in 2002 and 2003 as compared to the average selling price in 2001.
In 2001, 2002 and 2003, packaging revenues accounted for 75.3%, 77.9% and 78.6% while testing revenues accounted for 24.7%, 22.1% and 21.2%, respectively, of our net revenues. Testing revenues as a percentage of our net revenues decreased in 2002 and 2003 as the average selling prices of our testing services are more severely affected by a downturn in the semiconductor industry than the average selling prices of our packaging services. In periods of an industry downturn, the decline in the average selling prices of our testing services is often exacerbated by the decrease in demand from our integrated device manufacturer customers, who typically maintain larger in-house testing capacity than in-house packaging capacity. These price declines are also exacerbated by the intense price competition from other independent testing service providers, who typically offer large price discounts during periods of depressed demand, such as in 2001, in order to maintain higher capacity utilization rates to defray the high fixed costs associated with testing operations.
Although the growth rate for outsourced semiconductor testing services slowed down as a result of the industry downturn in 2000 and 2001, we expect this growth rate to improve due to the modest recovery in the semiconductor industry in 2002, 2003 and the first half of 2004. We believe that the market for outsourced semiconductor testing services has more potential for growth than the market for outsourced semiconductor packaging services over the long term for two reasons. First, the portion of the semiconductor testing market that is currently accounted for by independent testing service providers is smaller than that for packaging. Second, the large capital expenditures needed for increasingly sophisticated testing equipment, as compared to less expensive packaging equipment, are also a driver for further outsourcing of testing services by integrated device manufacturers.
Declines in average selling prices have been partially offset over the last three years by a change in our revenue mix. In particular, revenues derived from packaging more advanced package types, such as BGA, higher density packages with finer lead-to-lead spacing, or pitch, and testing of more complex, high-performance semiconductors, as well as module assembly, have increased as a percentage of total revenues. We intend to continue to focus on packaging more advanced package types, such as BGA and flip-chip BGA, developing and offering new technologies in packaging and testing services and expanding our capacity to achieve economies of scale, as well as improving production efficiencies for older technology, in order to mitigate the effects of declining average selling prices on our profitability.
High Fixed Costs
Our operations, in particular our testing operations, are characterized by relatively high fixed costs. We expect to continue to incur substantial depreciation and other expenses as a result of our previous acquisitions of packaging and testing equipment and facilities. Our profitability depends in part not only on absolute pricing levels for our services, but also on utilization rates for our packaging and testing equipment, commonly referred to as "capacity utilization rates". In particular, increases or decreases in our capacity utilization rates could have a significant effect on gross margins since the unit cost of packaging and testing services generally decreases as fixed costs are allocated over a larger number of units.
The current generation of advanced testers typically cost between US$2.0 million and US$5.0 million each, while wire bonders used in packaging typically cost approximately US$100,000 each. In 2001, 2002 and 2003, our depreciation expense as a percentage of net revenues was 27.0%, 24.9% and 20.1%, respectively. The significant decrease in depreciation expense as a percentage of net revenues in 2003 compared to 2001 and 2002 was primarily a result of higher equipment utilization and an increase in revenues from advanced processes that translated into
higher average selling prices in 2003. We begin depreciating our equipment when it is placed into service. There may sometimes be a time lag between when our equipment is placed into service and when it achieves high levels of utilization. In periods of depressed industry conditions such as 2000 and 2001, we may experience lower than expected demand from customers and a sharp decline in the average selling price of our testing services, resulting in an increase in depreciation expense relative to net revenues. In particular, the capacity utilization rates for our testing equipment are more severely affected during an industry downturn as a result of the decrease in outsourcing demand from integrated device manufacturers, which typically maintain larger in-house testing capacity than in-house packaging capacity. We expect that our capacity utilization rate will improve in 2004 as a result of the modest recovery in the semiconductor industry and a gradual upturn in the outsourcing trend.
In 2003, we entered into operating leases with leasing companies to lease advanced testers, generally for a term of three years. We believe that these operating leases will allow us to better manage our capacity utilization rates and cash flow. Since testers operated under operating leases could be replaced with more advanced testers upon the expiration of the lease, we expect that these operating leases would improve our capacity utilization rate by reducing the number of testers with lower utilization. As of May 31, 2004, we leased 53 testers.
Raw Material Costs
Substantially all of our raw material costs are accounted for by packaging and the production of interconnect materials, as testing requires minimal raw materials. In 2001, 2002 and 2003, raw material cost as a percentage of our net revenues was 30.7%, 30.2% and 28.8%, respectively. We expect interconnect materials to become an increasingly important component of the cost of our packaging revenues and we plan to continue to develop and enhance our in-house interconnect materials capabilities in order to maintain and enhance our profitability, ensure an adequate supply of interconnect materials at competitive prices and reduce production time. On October 28, 2003, we entered into a merger agreement to merge ASE Material with and into ASE Inc., with ASE Inc. as the surviving corporation. In addition, on October 28, 2003, we entered into a joint venture agreement with Compeq to establish ASE-Compeq Technologies, Inc., which will focus on the design and production of interconnect materials for packaging semiconductors. We believe that our merger with ASE Material and our joint venture with Compeq will enhance our interconnect materials capabilities. For more information on the pending merger, see "Item 4. Information on the Company - History and Development of the Company - Pending Merger with ASE Chung Li and ASE Material".
Goodwill Amortization
Our operating income and non-operating income in recent years have been affected by goodwill amortization charges in connection with the restructuring of our investment holdings and other share repurchases. Under ROC GAAP, additional purchases of shares of consolidated subsidiaries (majority owned) or of companies accounted for using the equity method (less than majority but at least 20% owned) will generate goodwill in an amount equal to the difference between the purchase price and the book value per share of those shares. The goodwill generated is amortized over ten years. Goodwill amortization from the purchases of shares of consolidated subsidiaries are recognized under general and administrative expense. Goodwill amortization from the purchases of shares of companies accounted for using the equity method are recognized as a debit under investment income. Transactions which created significant goodwill charges were (1) the purchase of additional ordinary shares of ASE Test in the open market in 2002, (2) the purchase of additional ordinary shares of ASE Test in 2001 from two of our directors at the prevailing market price, (3) the purchase of a total of 26,250,000 shares of ISE Labs in 1999, 2000 and 2002 and (4) the open market purchase of shares of Universal Scientific between 1999 and 2000. See "Item 7. Major Shareholders and Related Party Transactions -- Related Party Transactions" and note 8 to the consolidated financial statements.
Pending Merger of ASE Chung Li and ASE Material
On October 28, 2003, we entered into a merger agreement with ASE Chung Li and ASE Material pursuant to which ASE Chung Li and ASE Material will be merged with and into ASE Inc., with ASE Inc. as the surviving corporation. The merger is to be consummated by means of a share exchange pursuant to which the respective shareholders (other than ASE Inc.) of ASE Chung Li and ASE Material will receive common shares of ASE Inc. in exchange for the common shares of each of ASE Chung Li and ASE Material. The planned share exchange pursuant to the merger agreement between ASE Inc. and entities under the control of ASE Inc. will be treated as a transaction between entities under common control, and all assets and liabilities exchanged will be transferred at their carrying
amounts. With respect to the share exchange between ASE Inc. and the outstanding minority interests, the purchase method of accounting will be applied as the exchange represents the acquisition of non-controlling equity interests in a subsidiary. To the extent that the fair value of the ASE Inc. common shares (based on NT$31.00 per ASE Inc. common share, which is the average of the closing prices of ASE Inc.'s common shares on the Taiwan Stock Exchange for two days prior to and following October 28, 2003) exchanged for the non-controlling equity interests exceeds the fair value of the acquired net assets (as determined on the effective date of the merger), the merger will generate goodwill. For more information on the pending merger, see "Item 4. Information on the Company--History and Development of the Company--Pending Merger with ASE Chung Li and ASE Material".
Critical Accounting Policies and Estimates
Preparation of our consolidated financial statements requires us to make estimates and judgments in applying our critical accounting policies which have a significant impact on the results we report in our consolidated financial statements. We continually evaluate these estimates, including those related to revenue recognition, allowances for doubtful accounts, inventories, allowances for deferred income tax assets, useful lives of properties, realizability of long-term assets, goodwill and the valuation of marketable securities and long-term investments. We base our estimates on historical experience and other assumptions which we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions. We have identified below the accounting policies that are the most critical to our consolidated financial statements.
Revenue Recognition. Revenues from semiconductor packaging services that we provide are recognized upon shipment. Revenues from testing services that we provide are recognized upon completion of the services. We do not take ownership of: (1) bare semiconductor wafers received from customers that we package into finished semiconductors, and (2) packaged semiconductors received from customers that we test. The title and risk of loss remains with the customer for those bare semiconductors and/or packaged semiconductors. Accordingly, the cost of customer-supplied semiconductor materials is not included in our consolidated financial statements. Other criteria that we use to determine when to recognize revenue are: (1) existence of persuasive evidence of the services provided, (2) the selling price is fixed or determinable and (3) collectibility is reasonably assured. These policies are consistent with provisions in the Staff Accounting Bulletin No. 101 issued by the United States Securities and Exchange Commission, or SEC. We do not provide warranties to our customers except in cases of defects in the packaging services provided and deficiencies in testing services provided. An appropriate sales allowance is recognized in the period during which the sale is recognized, and is estimated based on historical experience.
Allowance for Doubtful Accounts. We periodically record a provision for doubtful accounts based on our evaluation of the collectibility of our accounts receivable. The total amount of this provision is determined by us as follows. We first identify the receivables of customers that are considered to be a higher credit risk based on their current overdue accounts with us, difficulties collecting from these customers in the past or their overall financial condition. For each of these customers, we estimate the extent to which the customer will be able to meet its financial obligations to us, and we record an allowance that reduces our accounts receivable for that customer to the amount that we reasonably believe will be collected. For all other customers, we maintain an allowance for doubtful accounts equal to a percentage of their aggregate accounts receivable. Based on our experience, we currently maintain an allowance for the accounts receivables of these other customers which average between 3% and 4%, on a consolidated basis, of our net revenues. Additional allowances may be required in the future if the financial condition of our customers or general economic conditions deteriorate, and this additional allowance would reduce our net income.
Inventories. Inventories are recorded at cost when acquired and stated at the lower of weighted average cost or market value. Unbilled processing charges incurred are included in finished goods and work in progress and are stated at actual cost. Market value for finished goods and work in process is estimated to be the net realizable value. Market value for raw materials, supplies and spare parts is the replacement cost. Materials received from customers for processing, mainly of semiconductor wafers, are excluded from inventories, as title and risk of loss remains with the customers. An allowance for loss on decline in market value and obsolescence is provided based on the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. An additional inventory provision may be required if actual market conditions are less favorable than those projected.
Allowances for Deferred Income Tax Assets. Tax benefits arising from deductible temporary differences, unused tax credits and net operating loss carryforwards are recognized as deferred tax assets. We record a valuation allowance to reduce our deferred income tax assets to an amount that we believe will more likely than not be realized. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need and amount for the valuation allowance. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of our net recorded amount, an adjustment to our deferred income tax assets would increase income in the period such determination was made. Alternatively, should we determine that we would not be able to realize all or part of our net deferred income tax assets in the future, an adjustment to our deferred income tax assets would decrease income in the period such determination was made.
Useful Lives of Properties. Our properties primarily consist of machinery and equipment, buildings and improvements and land improvements. As our operations are capital intensive, we have significant investments in expensive packaging and testing equipment. Properties represented 57.0%, 60.1% and 58.9% of our total assets as of December 31, 2001, 2002 and 2003, respectively. We depreciate our properties based on our estimate of their economic useful lives to us, which is in turn based on our judgment, historical experience and the potential obsolescence of our existing equipment brought about by the introduction of more sophisticated packaging and testing technologies and processes. If we subsequently determine that the actual useful life of properties is shorter than what we had estimated, we will depreciate the remaining undepreciated value of that asset over its remaining economic useful life. This would result in increased depreciation expense and decreased net income during those periods. Similarly, if the actual lives of properties are longer than what we had estimated, we would have a smaller depreciation expense and higher net income in subsequent periods. As a result, if our estimations of the useful lives of our properties are not accurate or are required to be changed in the future, our net income in future periods would be affected.
Realizability of Long-Term Assets. We are required to evaluate our equipment, goodwill and other long-lived assets for impairment whenever there is an indication of impairment. If certain criteria are met, we are required to record an impairment charge. We have adopted U.S. Statement of Financial Accounting Standards, or U.S. SFAS, No. 144, "Accounting for the Impairment for Disposal of Long-Lived Assets" to account for the impairment of our long-lived assets under both ROC GAAP and U.S. GAAP. In accordance with U.S. SFAS No. 144, long-lived assets held and used by us are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed by comparing undiscounted net cash flows of the assets against the net book value of the assets. If the recoverability test indicates that an impairment has occurred, the impairment loss is the amount of the asset's net book value in excess of the related fair value. For example, we took a NT$1,225.6 million (US$36.1 million) impairment charge in 2002 against some of our testing equipment to reflect the decline in economic value of this equipment. In 2003, we did not take any impairment charges against long-lived assets.
Goodwill. The U.S. Financial Accounting Standards Board, or FASB, recently issued U.S. SFAS No. 142, "Goodwill and Other Intangible Assets". U.S. SFAS No. 142 requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. Under U.S. SFAS No. 142, goodwill and intangibles are evaluated at least annually to determine if an impairment write-down is required. Under U.S. GAAP, we realized an impairment charge as of December 31, 2002 related to the goodwill from the acquisition of ASE Test. See "Item 5. Operating and Financial Review and Prospects--Operating Results and Trend Information--U.S. GAAP Reconciliation". We continue to carry goodwill resulting from the acquisition of ASE Korea and the purchase of shares of ISE Labs and Universal Scientific, and will have to assess such goodwill for impairment on at least an annual basis in the future. If events and circumstances deteriorate in the future, the value of the goodwill could be further impaired under U.S. GAAP. The merger of ASE Chung Li and ASE Material may generate goodwill to the extent that the fair value of the ASE Inc. common shares exchanged for the non-controlling equity interests exceeds the fair value of the acquired net assets. See "Item 5. Operating and Financial Review and Prospects--Operating Results and Trend Information--Pending Merger of ASE Chung Li and ASE Material".
Valuation of Marketable Securities and Long-term Investments. Under ROC GAAP, marketable equity securities are carried at the lower of aggregate cost or market value and are classified as trading or long-term investments depending on management's intent to hold the security for long-term investment purposes. Trading securities are primarily mutual funds with readily determinable market values. We hold significant long-term
investments in public and non-public entities. We periodically evaluate these long-term investments based on market prices, if available, the financial condition of the investee company, economic conditions in the industry, and our intent and ability to hold the investment for a long period of time. These assessments usually require a significant amount of judgment as a significant decline in the market price may not be the best indicator of impairment. Under U.S. GAAP, we evaluate long-term investments using the above mentioned criteria and to the extent any decline in the value of a long-term investment is determined to be other than temporary, an impairment charge is recorded in the current period. The methods to measure the amount of impairment under ROC GAAP and U.S. GAAP may be based on different estimates of fair value depending on the circumstances. Under U.S. GAAP, market price is to be used, if available, to determine the fair value. Under ROC GAAP, however, if the market price is deemed to be a result of an inactive market, other measures of fair value may be used. Several of the long-term investments held by us are accounted for under the equity method. Any significant decline in the operations of an equity method investee could affect the value of the long-term investment and an impairment charge may occur.
In determining whether an other-than-temporary impairment occurred in our long-term investments as of December 31, 2003, no amount was recorded under ROC GAAP based on the difference between the carrying value and the net-asset value of the investee with adjustments made to significant assets of the investee using appraised values and other appropriate information. In 2003, no impairment charge was incurred under U.S. GAAP. See "Item 5. Operating and Financial Review and Prospects--Operating Results and Trend Information--U.S. GAAP Reconciliation".
Results of Operations
The following table sets forth, for the periods indicated, financial data from our consolidated statements of income, expressed as a percentage of net revenues.
Year Ended December 31,
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2001 2002 2003
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(percentage of net revenues)
ROC GAAP:
Net revenues.............................................. 100.0% 100.0% 100.0%
Packaging.............................................. 75.3 77.9 78.6
Testing................................................ 24.7 22.1 21.2
Others................................................. 0.0 0.0 0.2
Cost of revenues.......................................... (85.9) (84.4) (81.1)
Gross profit.............................................. 14.1 15.6 18.9
Operating expenses........................................ (15.3) (17.1) (13.2)
Income (loss) from operations............................. (1.2) (1.5) 5.7
Non-operating income (expenses)........................... (6.6) (4.4) (3.2)
Income (loss) before income tax and minority interest..... (7.8) (5.9) 2.5
Income tax benefit (expense).............................. 0.5 2.5 2.3
Income (loss) before minority interest.................... (7.3) (3.4) 4.8
Extraordinary loss........................................ (0.4) (0.1) (0.1)
Minority interest in net (income) loss of subsidiary...... 2.1 3.8 0.1
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Net income (loss)......................................... (5.6)% 0.3% 4.8%
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The following table sets forth, for the periods indicated, the gross margins for our packaging and testing services and our total gross margin. Gross margin is calculated by dividing gross profits by net sales.
Year Ended December 31,
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2001 2002 2003
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(percentage of net revenues)
ROC GAAP:
Gross margin
Packaging............................................. 16.0% 17.6% 17.7%
Testing............................................... 8.3 8.4 23.5
Overall.................................................. 14.1% 15.6% 18.9%
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The following table sets forth, for the periods indicated, a breakdown of our total cost of revenues and operating expenses, expressed as a percentage of net revenues.
Year Ended December 31,
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2001 2002 2003
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(percentage of net revenues)
ROC GAAP:
Cost of revenues
Raw materials....................................... 30.7% 30.2% 28.8%
Labor............................................... 14.6 14.8 15.1
Depreciation........................................ 27.0 24.9 20.1
Others.............................................. 13.6 14.5 17.1
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Total cost of revenues.......................... 85.9% 84.4% 81.1%
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Operating expenses
Selling............................................. 2.3% 2.0% 2.1%
General and administrative(1)....................... 7.3 8.8 5.6
Goodwill amortization(2)............................ 1.8 1.8 1.4
Research and development............................ 3.9 4.5 4.1
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Total operating expenses........................ 15.3% 17.1% 13.2%
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(2) Included in general and administrative expense in the consolidated financial statements.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
Net Revenues. Net revenues increased 25.7% to NT$57,311.8 million (US$1,686.1 million) in 2003 from NT$45,586.8 million in 2002. Packaging revenues increased 26.8% to NT$45,026.9 million (US$1,324.7 million) in 2003 from NT$35,515.4 million in 2002. Testing revenues increased 20.7% to NT$12,142.4 million (US$357.2 million) in 2003 from NT$10,060.6 million in 2002. The increase in packaging revenues was primarily due to an increase in packaging volume. The increase in testing revenues was primarily due to an increase in testing volume, which was partially offset by a decrease in the averaging selling prices for testing services. The increase in packaging and testing volume resulted primarily from the recovery in the semiconductor industry and the increase in outsourcing of the packaging and testing of semiconductor devices. This increase was tempered in part by adverse global political and economic conditions as well as the impact of the outbreak of SARS in the first half of 2003. The decrease in the average selling prices for testing services reflected the general trend in the semiconductor industry of declining prices for testing services.
Gross Profit. Gross profit increased 52.9% to NT$10,845.3 million (US$319.1 million) in 2003 from NT$7,094.6 million in 2002. Our gross margin increased to 18.9% in 2003 compared to 15.6% in the comparable period in 2002. This increase was primarily a result of a decrease in depreciation expense and raw materials, which was partially offset by an increase in factory supplies, all as a percentage of net revenues. Our gross margin for packaging increased slightly to 17.7% in 2003 from 17.6% in 2002. This increase was primarily due to a decrease in raw materials costs and depreciation expense, which was partially offset by an increase in factory supplies and components for use in modules, all as a percentage of packaging revenues. Our gross margin for testing increased to 23.5% in 2003 from 8.4% in 2002. This increase was primarily due to higher utilization rates for our testers, which resulted in a decrease in depreciation expense as a percentage of testing revenues. Depreciation expense in 2003 was NT$11,517.0 million (US$338.8 million), compared to NT$11,366.9 million in 2002. As a percentage of net
revenues, however, depreciation expense decreased to 20.1% in 2003 from 24.9% in 2002, reflecting higher capacity utilization rates.
Operating Income (Loss). We had an operating profit of NT$3,270.5 million (US$96.2 million) in 2003, compared to an operating loss of NT$685.2 million in 2002. Operating margin was 5.7% in 2003, compared to negative 1.5% in 2002. Operating margin is calculated by dividing net income (loss) by net sales. Operating expenses decreased 2.6% to NT$7,574.8 million (US$222.9 million) in 2003, compared to NT$7,779.8 million in 2002. The decrease in operating expenses was primarily due to lower general and administrative expense, which was partially offset by higher selling and research and development expenses. Selling expense increased 32.5% to NT$1,204.9 million (US$35.5 million) in 2003 from NT$909.4 million in 2002. This increase was primarily due to increased commission and fee payments to our sales and customer service agents, reflecting increased sales. Selling expense represented 2.1% of our net revenues in 2003, compared to 2.0% in 2002. General and administrative expense, excluding goodwill amortization, decreased 20.2% to NT$3,196.6 million (US$94.0 million) in 2003 from NT$4,005.8 million in 2002. The decrease was attributable to the asset impairment charge of NT$1,225.6 million which was recorded in 2002, but for which there was no similar charge in 2003. The decrease was offset by higher general and administrative expense, which absent the impairment charge in 2002, would have increased by approximately 15% in 2003. General and administrative expense, excluding goodwill amortization, represented 5.6% of our net revenues in 2003, compared to 8.8% in 2002. Goodwill amortization expense was NT$819.3 million (US$24.1 million) in 2003 compared to NT$815.6 million in 2002. Goodwill amortization expense represented 1.4% of our net revenues in 2003, compared to 1.8% in 2002. Research and development expense increased 14.9% to NT$2,354.0 million (US$69.3 million) in 2003 from NT$2,049.0 million in the comparable period in 2002. This increase was primarily a result of an increase in the number of our research and development employees. Research and development expense accounted for 4.1% of our net revenues in 2003, compared to 4.5% of our net revenues in 2002.
Net Non-Operating Income (Expense). We incurred a net non-operating expense of NT$1,782.9 million (US$52.5 million) in 2003, compared to a net non-operating expense of NT$2,024.5 million in 2002. This overall decrease was primarily a result of a decrease in net interest expense and an increase in gain on disposal of investments, which was partially offset by an increase in realized loss on long-term investments. Net interest expense decreased 17.4% to NT$1,304.7 million (US$38.4 million) in 2003 from NT$1,578.6 million in 2002, primarily due to lower interest rates on our bank loans and NT$511.5 million in interest income recognized in connection with the redemption of the US$160 million 1% guaranteed convertible notes due 2004 issued by ASE Test through its finance subsidiary. We recorded net other non-operating income of NT$114.6 million (US$3.4 million) in 2003, compared to net other non-operating income of NT$261.0 million in 2002. We recorded a realized loss on long-term investments of NT$354.8 million (US$10.4 million) in 2003 due to the recognition of a loss on the sale of our common shares by our wholly-owned subsidiary ASE Capital Inc. in connection with our ADS offering in June 2003.
Net Income (Loss). We had a net income of NT$2,742.8 million (US$80.7 million) in 2003, compared to net income of NT$129.0 million in 2002. Our net income per ADS was NT$3.88 (US$0.11) in 2003 compared to a net income of NT$0.19 per ADS in 2002. We had an income tax benefit of NT$1,278.1 million (US$37.6 million) in 2003, compared to an income tax benefit of NT$1,140.3 million in 2002, primarily as a result of the additional tax credits generated from qualifying equipment purchases made for our facilities in Kaohsiung, Taiwan.
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Net Revenues. Net revenues increased 18.8% to NT$45,586.8 million in 2002 from NT$38,367.8 million in 2001. Packaging revenues increased 22.9% to NT$35,515.4 million in 2002 from NT$28,898.2 million in 2001. Testing revenues increased 6.4% to NT$10,060.6 million in 2002 from NT$9,459.2 million in 2001. The increase in packaging and testing revenues was primarily due to an increase in packaging and testing volume, which was partially offset by a decrease in the average selling prices for packaging and testing services. The increase in volume resulted primarily from the modest recovery in the semiconductor industry and the increase in outsourcing of packaging and testing of semiconductor devices. The decrease in the average selling prices reflected the general trend in the semiconductor industry of declining prices for each input/output lead on a semiconductor device. This decrease was partially offset by a change in the revenue mix as our BGA packages and fine-pitch packages,
which typically command higher average selling prices, accounted for a greater portion of the packaging volume, and as we tested more complicated semiconductor devices, which generally command higher prices.
Gross Profit. Gross profit increased 31.1% to NT$7,094.6 million in 2002 from NT$5,410.8 million in 2001. Our gross margin increased to 15.6% in 2002 compared to 14.1% in 2001, primarily as a result of decreased depreciation expense as a percentage of net revenues. Our gross margin for packaging increased to 17.6% in 2002 from 16.0% in 2001. This increase was primarily due to a decrease in depreciation expense as a percentage of packaging revenues as a result of improved capacity utilization rates, as well as a decrease in raw material costs as a result of an increase in our sourcing of packaging materials from ASE Material. Our gross margin for testing increased to 8.4% in 2002 from 8.3% in 2001. This slight increase was primarily due to higher capacity utilization rates, which was partially offset by a decrease in average selling prices. Depreciation expense in 2002 was NT$11,366.9 million, compared to NT$10,375.0 million in 2001. This increase was due to increased capital expenditures in 2002. As a percentage of net revenues, depreciation expense decreased to 24.9% in 2002 from 27.0% in 2001, reflecting higher capacity utilization rates in 2002.
Operating Income (Loss). We had an operating loss of NT$685.2 million in 2002 compared to operating loss of NT$462.1 million in 2001. Operating margin decreased to negative 1.5% in 2002 compared to negative 1.2% in 2001. This decrease was primarily due to an asset impairment charge of NT$1,225.6 million booked under general and administrative expense. Operating expenses increased 32.5% to NT$7,779.8 million in 2002 compared to NT$5,872.9 million in 2001. The increase in operating expenses was primarily due to higher general and administrative, goodwill amortization and research and development expenses. Selling expense increased 3.6% to NT$909.4 million in 2002 from NT$877.9 million in 2001. Selling expense amounted to 2.0% of our net revenues in 2002 compared to 2.3% in 2001. General and administrative expense, excluding goodwill amortization, increased 43.2% to NT$4,005.8 million in 2002 from NT$2,797.6 million in 2001. This increase was primarily due to the asset impairment charge of NT$1,225.6 million booked under general and administrative expense. General and administrative expense, excluding goodwill amortization, amounted to 8.8% of our net revenues in 2002 compared to 7.3% in 2001. Goodwill amortization expense increased 17.7% to NT$815.6 million in 2002 from NT$692.9 million in 2001. This increase was primarily due to additional goodwill amortization expense resulting from our purchase of shares of ASE Test and ISE Labs in 2001 and 2002. Goodwill amortization expense amounted to 1.8% of our net revenues in 2002 compared to 1.8% in 2001. Research and development expense increased 36.2% to NT$2,049.0 million in 2002 from NT$1,504.5 million in 2001. This increase was largely a result of an increase in the number of research and development employees, an increase in factory supplies expense as well as an increase in depreciation charges associated with testers and other equipment dedicated to research and development uses. Research and development expense amounted to 4.5% of our net revenues in 2002 compared to 3.9% in 2001.
Net Non-Operating Income (Expense). We recorded a net non-operating loss of NT$2,024.5 million in 2002 compared to a net non-operating loss of NT$2,523.4 million in 2001. This decrease was primarily a result of a decrease in net long-term investment loss and a decrease in net interest expense, which were partially offset by our incurrence of a net foreign exchange loss. Net investment loss decreased 67.1% to NT$410.3 million in 2002 from NT$1,246.8 million in 2001. The significantly larger net investment loss in 2001 was primarily due to a one-time write-down of goodwill arising from our investment in Hung Ching as a result of the prolonged weakness of Hung Ching's stock price, as well as the improvement in the financial performance of Hung Ching and Universal Scientific in 2002 compared to 2001. Net interest expense decreased 9.2% to NT$1,578.6 million in 2002 from NT$1,739.3 million in 2001, primarily due to lower market interest rates in 2002 as well as the refinancing of certain of our long-term debt. We recorded a net foreign exchange loss of NT$397.9 million in 2002 compared to net foreign exchange gain of NT$247.5 million in 2001. The net foreign exchange loss in 2002 was primarily due to the depreciation of the NT dollar, which had a negative impact on our U.S. dollar-denominated and Japanese yen-denominated liabilities.
Net Income (Loss). After taking into account an extraordinary loss of NT$34.6 million due to our repurchase of US$68 million in aggregate principal amount of our US$200 million zero coupon convertible bonds due 2002, we had net income of NT$129.0 million in 2002. In 2001, we recorded a net loss, after taking into account an extraordinary loss of NT$144.6 million due to our repurchase of US$131 million in aggregate principal amount of our US$200 million zero coupon convertible bonds due 2002, of NT$2,142.2 million. Our net income per ADS was NT$0.19 in 2002 compared to a net loss per ADS of NT$2.99 in 2001. We had an income tax benefit of NT$1,140.3
million in 2002, compared to an income tax benefit of NT$199.2 million in 2001, primarily as a result of the additional tax credits generated by ASE Inc. in 2002 from qualifying equipment purchases. See "Item 5. Operating and Financial Review and Prospects--Operating Results and Trend Information--Taxation".
Quarterly Net Revenues, Gross Profit and Gross Margin
The following table sets forth our unaudited consolidated net revenues, gross profit and gross margin for the quarterly periods indicated. You should read the following table in conjunction with the consolidated financial statements and related notes included in this annual report. Our net revenues, gross profit and gross margin for any quarter are not necessarily indicative of the results for any future period. Our quarterly net revenues, gross profit and gross margin may fluctuate significantly.
Quarter Ended
-----------------------------------------------------------------------------------------------
Jun. 30, Sept. 30, Dec. 31, Mar. 31, Jun. 30, Sept. 30, Dec. 31, Mar. 31,
2002 2002 2002 2003 2003 2003 2003 2004
-----------------------------------------------------------------------------------------------
NT$ NT$ NT$ NT$ NT$ NT$ NT$ NT$
(in millions)
Consolidated Net Revenues
Packaging ............... 8,437.5 9,205.8 10,057.5 9,021.5 9,986.6 11,420.1 14,598.6 13,745.0
Testing ................. 2,390.4 2,654.8 2,788.0 2,534.7 2,752.3 3,065.7 3,789.7 3,418.5
Others .................. 0.6 0.3 8.2 28.2 33.9 38.8 41.7 57.4
-----------------------------------------------------------------------------------------------
Total .............. 10,828.5 11,860.9 12,853.7 11,584.4 12,772.8 14,524.6 18,430.0 17,220.9
===============================================================================================
Consolidated Gross Profit
Packaging ............... 1,507.5 1,598.2 1,867.8 1,159.9 1,437.5 2,018.0 3,368.9 2,885.4
Testing ................. 132.4 287.1 455.9 355.3 531.6 758.8 1,209.6 853.6
Others .................. -- (0.1) (2.1) (4.1) 1.1 6.0 2.7 29.7
-----------------------------------------------------------------------------------------------
Total .............. 1,639.9 1,885.2 2,321.6 1,511.1 1,970.2 2,782.8 4,581.2 3,768.7
===============================================================================================
Consolidated Gross Margin
Packaging ............... 17.9% 17.4% 18.6% 12.9% 14.4% 17.7% 23.1% 21.0%
Testing ................. 5.5% 10.8% 16.4% 14.0% 19.3% 24.8% 31.9% 25.0%
Overall ................. 15.1% 15.9% 18.1% 13.0% 15.4% 19.2% 24.9% 21.9%
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Our results of operations have been adversely affected by the global semiconductor industry downturn which commenced in the fourth quarter of 2000 and continued through the fourth quarter of 2001. Beginning the second quarter of 2002, we experienced an improvement in our net revenues as a result of a modest recovery in the semiconductor industry. However, in the first quarter of 2003, our net revenues were adversely affected by global political and economic conditions. To a lesser extent, our results of operations have also been affected by seasonality. Our first quarter net revenues have historically decreased over the preceding fourth quarter, primarily due to the combined effects of holidays in the United States, Taiwan and Malaysia. Moreover, the increase or decrease in net revenues of a particular quarter as compared with the immediately preceding quarter varies significantly. See "Item 3. Key Information--Risk Factors--Risks Relating to Our Business--Our operating results are subject to significant fluctuations, which could adversely affect the market value of your investment".
Our testing operations historically have higher gross margins than our packaging operations. However, during periods of lower-than-normal capacity utilization, such as the last three quarters of 2001 and the full year of 2002, our testing operations have experienced lower gross margins than our packaging operations.
Exchange Rate Fluctuations
Currently, the majority of our revenues from packaging and testing services are denominated in U.S. dollars, with a portion denominated in NT dollars. Our cost of revenues and operating expenses associated with packaging and testing services are incurred in several currencies, primarily NT dollars and U.S. dollars, as well as, to a lesser extent, Malaysian ringgit, Korean won and Japanese yen. In addition, a substantial portion of our capital expenditures, primarily for the purchase of packaging and testing equipment, has been, and is expected to continue to be, denominated in U.S. dollars, with much of the remainder in Japanese yen. Fluctuations in exchange rates, primarily among the U.S. dollar, the NT dollar and the Japanese yen, will affect our costs and operating margins. In addition, these fluctuations could result in exchange losses and increased costs in NT dollar and other local currency
terms. Despite hedging and mitigating techniques implemented by us, fluctuations in exchange rates have affected, and may continue to affect, our financial condition and results of operations. We recorded a net foreign exchange gain of NT$247.5 million in 2001 and we incurred a net foreign exchange loss of NT$397.9 million in 2002 and NT$386.8 million (US$11.4 million) in 2003. For a quantitative and qualitative disclosure of our exposure to foreign currency exchange rate risk, see "Item 11. Quantitative and Qualitative Disclosures about Market Risk--Market Risk--Foreign Currency Exchange Rate Risk".
Taxation
The regular corporate income tax rate in the ROC applicable to us is 25%. We have obtained preferential tax treatment under the tax laws of the ROC and Malaysia. Under the ROC Statute of Upgrading Industries, which gives certain preferential tax treatment to companies that qualify as operating in an "important technology industry", we have a tax exemption on income derived from the packaging of BGA products which expires at the end of 2005. In addition, ASE Test Malaysia qualified as a "pioneer" company in Malaysia and enjoyed a tax exemption which expired on June 30, 1999. ASE Test Malaysia subsequently obtained the status of "high-tech pioneer" and was granted a five-year tax exemption which expires on June 30, 2004. These tax exemptions resulted in tax savings for us of approximately NT$26.4 million, NT$52.1 million and NT$0 million (US$0 million) in 2001, 2002 and 2003, respectively. In order to qualify for a more beneficial reinvestment allowance, ASE Test Malaysia applied for and was granted cancellation of its pioneer status. The effective date of the cancellation has not been established.
We also have tax credits under the ROC Statute of Upgrading Industries. Under the previous tax credit rules, we obtained a tax credit of 20% for the purchase of equipment manufactured in Taiwan and 10% for the purchase of equipment manufactured outside Taiwan. In April 2002, the ROC Executive Yuan amended the tax credit rules and adopted a 13% rate of tax credit to be applied to the purchase of equipment regardless of where it was manufactured.
Under ROC tax laws, we may apply for additional tax holidays upon receipt of a cash infusion from our shareholders, including through rights offerings, if the proceeds of which are used to purchase eligible machinery and equipment. We may also apply for this tax holiday after the capitalization of retained earnings through the issuance of stock dividends. See note 17 to the consolidated financial statements.
In addition, since we have facilities located in special export zones such as the Nantze Export Processing Zone in Taiwan and the Bayan Lepas Free Industrial Zone in Malaysia, we enjoy exemptions from various import duties and commodity taxes on imported machinery, equipment, raw materials and components. Goods produced by companies located in these zones and exported or sold to others within the zones are exempt from otherwise applicable commodity or business taxes.
Our effective income tax rate was 0% in 2003 because of tax credits generated from qualifying equipment purchases made at our facilities in Kaohsiung, Taiwan. Our effective tax rate was 0% in 2001 and 2002 because we incurred a net loss before income tax, minority interests and extraordinary loss in those periods, which resulted in income tax benefits of NT$199.2 million and NT$1,140.3 million in 2001 and 2002, respectively.
The net deferred tax assets in 2001 consisted primarily of tax credits that we utilized in 2002 and expect to utilize thereafter. These tax credits were generated primarily as a result of our purchase of packaging equipment for our facilities in Kaohsiung, Taiwan. In 2002, we generated sufficient taxable income to utilize these tax credits, and thus realized the current portion of the net deferred tax assets recorded at December 31, 2001. We generated additional tax credits in 2002 and 2003 and believe that the future estimated taxable income will be sufficient to realize the current and long-term portion of our net deferred tax assets recorded as of December 31, 2002 and 2003.
Under the ROC Income Tax Law, all retained earnings generated in a year which are not distributed to shareholders as dividends in the following year will be assessed a 10% retained earnings tax. As a result, if we do not distribute all of our annual retained earnings as either cash or stock dividends in the following year, these earnings will be subject to the 10% retained earnings tax.
Inflation
We do not believe that inflation in the ROC has had a material impact on our results of operations.
U.S. GAAP Reconciliation
Our financial statements are prepared in accordance with ROC GAAP, which differ in significant respects from U.S. GAAP. The following table sets forth a comparison of our net income and shareholders' equity in accordance with ROC GAAP and U.S. GAAP as of and for the periods indicated.
As of and for the Year Ended December 31,
-----------------------------------------------------------
2001 2002 2003 2003
NT$ NT$ NT$ US$
-----------------------------------------------------------
(in millions)
Net income (loss) in accordance
with:
ROC GAAP ......................... (2,142.2) 129.0 2,742.8 80.7
U.S. GAAP ........................ (4,046.6) (3,074.3) 2,352.0 69.2
Shareholders' equity in accordance
with:
ROC GAAP ......................... 41,946.3 39,430.7 45,122.6 1,327.5
U.S. GAAP ........................ 37,960.3 35,716.8 42,083.0 1,238.1
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Note 25 to the consolidated financial statements provides a description of
the principal differences between ROC GAAP and U.S. GAAP as they relate to us,
and a reconciliation to U.S. GAAP of select items, including net income and
shareholders' equity. Differences between ROC GAAP and U.S. GAAP, which
primarily affect our net income as reported under ROC GAAP, relate to
impairment of goodwill and long-term investments and compensation expense
pertaining to bonuses to employees, directors and supervisors.
Effective January 1, 2002, we adopted U.S. SFAS No. 142, "Goodwill and Other Intangible Assets", which requires that goodwill no longer be amortized, and instead, be tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. In conjunction with the implementation of U.S. SFAS No. 142, we completed a goodwill impairment review as of January 1, 2002 in accordance with the provisions of the standard and found no impairment. SFAS No. 142 also required that companies discontinue amortizing goodwill and other indefinite lived assets beginning January 1, 2002. This resulted in a decrease in amortization expense of approximately NT$815.6 million and NT$819.3 million (US$24.1 million) in 2002 and 2003, respectively, which continues to be recorded for ROC GAAP purposes. We completed our annual goodwill impairment tests as of December 31, 2002 and determined that NT$2,213.0 million of the goodwill attributable to shares of ASE Test was impaired and accordingly wrote-off the full amount of the goodwill. No impairment charges were recorded for goodwill, attributable to other reporting units, for the year ended December 31, 2003.
ROC GAAP and U.S. GAAP require an assessment of impairment of long-term investments whenever events or circumstances indicate a decline in value may be other-than-temporary. The criteria for determination are similar under ROC GAAP and U.S. GAAP. However, the methods to measure the amount of impairment may be based on different estimates of fair values depending on the circumstances. When impairment is determined to have occurred, U.S. GAAP requires the market price to be used, if available, to determine the fair value of the long-term investment and measure the amount of impairment at the reporting date. Under ROC GAAP, if the market price is deemed to be a result of an inactive market, another measure of fair value may be used. As such, when determining whether an other-than-temporary impairment occurred in our long-term investment in Hung Ching as of December 31, 2002, the fair value, under ROC GAAP, was based on the difference between the carrying value and the net-asset value of Hung Ching with adjustments made to significant assets of Hung Ching using appraised values and other appropriate information. Using this method under ROC GAAP, we determined that no impairment occurred in our long-term investment in Hung Ching in 2002. Under U.S. GAAP, we determined an other-than-temporary impairment occurred in our long-term investment in Hung Ching as of December 31, 2002 in the amount of NT$883.6 million. We did not record any impairment charge for long-term investments in 2003.
In 2001, we purchased 2,480,000 shares of ASE Test from two of our directors following their exercise of employee stock options in ASE Test shares. We entered into the transaction in order to maintain our investment in ASE Test at a level above 50% of the outstanding shares of ASE Test. We purchased these shares directly from these two directors based on a 10-day average of the market price of the shares. Although we entered into the transaction in order to maintain our majority ownership of ASE Test and not for compensation purposes, under U.S.
GAAP, all shares issued upon the exercise of employee incentive stock options which are repurchased by the ASE Test or ASE Test's affiliates within six months of exercise results in compensation expense, which in our case equals the excess of the purchase price over the exercise price. The transaction resulted in a US$26.7 million increase in ASE Test's compensation expense and a corresponding increase in ASE Test's capital surplus, which in turn led to a NT$908.7 million increase in ASE Inc.'s compensation expense. See "Item 7. Major Shareholders and Related Party Transactions -- Related Party Transactions".
In 1999, three of our consolidated subsidiaries sold an aggregate of 32.5 million of ASE Inc's. common shares in open market sales. Under U.S. GAAP, when a subsidiary holds its parent's common shares as investments, the common shares are treated as treasury stock and are presented in the consolidated balance sheet as a deduction to shareholders' equity. The capital gain or loss from the sale of treasury stock is added to or deducted from the balance of treasury stock. Under ROC GAAP, this treatment is not required and, as a result, the investment in ASE Inc. common shares by its subsidiaries is presented as long-term investment in the consolidated balance sheet and the capital gain or loss from the sale of treasury stock is recognized as income or loss. As a result of these transactions, we recognized under ROC GAAP capital gains on sale of investments of NT$1,388.5 million in 1999. Under U.S. GAAP, these investments in ASE Inc.'s common shares should be classified as treasury stock and the capital gain is not recognized as income but is deducted from treasury stock under capital surplus. Effective January 1, 2002, we adopted the ROC Statement of Financial Accounting Standards No. 30, "Accounting for Treasury Stock", which is similar to the accounting and financial statement presentation under U.S. GAAP except the minority ownership portion is deducted from the gross amount of treasury stock for ROC GAAP reporting purposes.
We typically pay all or a portion of employee bonuses in the form of common shares. We paid employee bonuses in 2000 and 2001 in the form of common shares with respect to the results of the preceding fiscal years. We did not pay any employee bonuses in the form of common shares in 2002 or 2003 because we incurred a net loss in 2001 and had minimal net income in 2002. The number of common shares distributed as part of employee bonuses is obtained by dividing the total nominal NT dollar amount of the bonus to be paid in the form of common shares by the par value of the common shares, or NT$10 per share, rather than their market value, which has generally been substantially higher than par value. Under ROC GAAP, the distribution of employee bonus shares is treated as an allocation from retained earnings, and we are not required to, and do not, charge the value of the employee bonus shares to employee compensation expense. Under U.S. GAAP, however, we are required to charge the market value of the employee bonus shares to employee compensation expense in the period to which they relate, and correspondingly reduce our net income and income per common share. See "Item 6. Directors, Senior Management and Employees -- Compensation -- ASE Inc. Employee Bonus and Stock Option Plans".
The amount and the form of the payment of this compensation is subject to approval at our annual general shareholders' meeting. Under U.S. GAAP, the compensation expense is initially accrued at the nominal NT dollar amount of the aggregate bonus in the period to which it relates. For U.S. GAAP purposes, the difference between the amount initially accrued and the market value of the common shares issued as payment of all or any part of the bonus is recorded as employee compensation expense in the period in which shareholders' approval is obtained, which normally occurs during the second quarter of each year. The amount of the adjustment for market price for the purpose of U.S. GAAP reconciliation for the special stock bonus paid in 2000 was allocated over a period of three years commencing in the second quarter of the year following the year in which the bonus was paid, reflecting the additional length of service required from employees who received the special stock bonus.
Recent U.S. GAAP Accounting Pronouncements
In June 2001, the FASB issued U.S. SFAS No. 143, "Accounting for Asset Retirement Obligations". The statement requires, among other provisions, retirement obligations to be recognized when they are incurred and displayed as liabilities, with a corresponding amount capitalized as part of the related long-lived asset. The capitalized element is required to be expensed using a systematic and rational method over its useful life. We adopted U.S. SFAS No. 143 on January 1, 2003, which did not have a material impact on our U.S. GAAP financial information.
In June 2002, the FASB issued U.S. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", which requires that costs associated with exit or disposal activities be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan. Costs covered by the statement include lease
termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plant closing, or other exit or disposal activity. SFAS No. 146 replaces the previous accounting guidance provided by the Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002 and adoption of this statement did not have a material impact on our financial position, results of operations or cash flows.
In November 2002, the FASB issued Interpretation Number ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Other". This interpretation requires certain disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN No. 45 are effective for interim and annual periods ending after December 15, 2002 and have been adopted in the financial statements. The initial recognition and initial measurement requirements of FIN No. 45 are effective prospectively for guarantees issued or modified after December 31, 2002. The adoption of the recognition and initial measurement requirements of FIN No. 45 did not have a material impact on our financial position, cash flows or results of operations.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements" and provides guidance on the identification of entities for which control is achieved through means other than voting rights ("variable interest entities" or "VIEs") and how to determine when and which business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (1) the equity investors (if any) lack one or more characteristics deemed essential to a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. FIN 46 was applicable for periods ending December 15, 2003. In December 2003 the FASB issued FIN 46R, which defers the implementation date to the end of the first reporting period after March 15, 2004 unless the company has a special purpose entity, in which case the provisions must be applied for fiscal years ending December 31, 2003. We do not have a special purpose entity therefore will adopt the provisions in December 2004.
In November 2002, the FASB Emerging Issues Task Force ("EITF") reached a consensus on EITF 00-21, "Revenue Arrangements with Multiple Deliverables," related to the timing of revenue recognition for arrangements in which goods or services or both are delivered separately in a bundled sales arrangement. The EITF requires that when the deliverables included in this type of arrangement meet certain criteria, they should be accounted for separately as separate units of accounting. This may result in a difference in the timing of revenue recognition but will not result in a change in the total amount of revenue recognized in a bundled sales arrangement. The allocation of revenue to the separate deliverables is based on the relative fair value of each item. If the fair value is not available for the delivered items then the residual method must be used. This method requires that the amount allocated to the undelivered items in the arrangement is their full fair value. This would result in the discount, if any, being allocated to the delivered items. This consensus is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of this consensus did not have a material impact on the our financial position, cash flows or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." The statement establishes standards for how an issuer classifies and measures certain financial instruments. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity be classified as liabilities (or assets in some circumstances) in statement of positions or consolidated balance sheets, as appropriate. The financial instruments within the scope of this statement are: (i) mandatorily redeemable shares those that an issuer is obligated to buy back in exchange for cash or other assets; (ii) financial instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and (iii) financial instruments that embodies obligation that can be settled with shares, the monetary value of which is
fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer's shares (excluding certain financial instruments indexed partly to the issuer's equity shares and partly, but not predominantly, to something else). This statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The statement also requires disclosures about alternative ways of settling the instruments and the capital structure of entities, all of whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on our financial position, cash flows or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
We have historically been able to satisfy our working capital needs from cash flow from operations. We have historically funded our capacity expansion from internally generated cash and, to the extent necessary, the issuance of equity securities and long-term borrowings. If adequate funds are not available on satisfactory terms, we may be forced to curtail our expansion plans. Moreover, our ability to meet our working capital needs from cash flow from operations will be affected by the demand for our packaging and testing services, which in turn may be affected by several factors. Many of these factors are outside of our control, such as economic downturns and declines in the prices of our services caused by a downturn in the semiconductor industry. See "Item 3. Key Information--Risk Factors--Risks Relating to Our Business--Our operating results are subject to significant fluctuations, which could adversely affect the market value of your investment". The average selling prices of our packaging and testing services are likely to be subject to further downward pressure in the future. To the extent we do not generate sufficient cash flow from our operations to meet our cash requirements, we will have to rely on external financing. We have not historically relied, and we do not plan to rely in the foreseeable future, on off-balance sheet financing arrangements to finance our working capital or capacity expansion.
Net cash provided by operating activities amounted to NT$13,306.2 million (US$391.5 million) in 2003, partly as a result of adjusting for non-cash depreciation and amortization, including amortization of consolidated debits, of NT$13,585.8 million (US$399.7 million). Net cash provided by operating activities amounted to NT$11,313.8 million in 2002, partly as a result of adjusting for non-cash depreciation and amortization, including amortization of consolidated debits, of NT$13,101.9 million. Net cash provided by operating activities amounted to NT$11,578.4 million in 2001, partly as a result of adjusting for non-cash depreciation and amortization, including amortization of consolidated debits, of NT$11,820.2 million. The increase in net cash generated by operating activities in 2003 compared to 2002 was primarily due to a significant increase in net income from NT$129.0 million in 2002 to NT$2,742.8 million (US$80.7 million) in 2003, and adjustments for loss on long-term investments of NT$354.8 million (US$10.4 million) in 2003 due to the recognition of a loss for the sale of our common shares by our wholly-owned subsidiary ASE Capital Inc. in connection with our ADS offering in June 2003. Depreciation and amortization increased in 2002 and 2003 compared to the prior year primarily due to an increase in capital expenditure in 2002 and the first half of 2003.
Net cash used in investing activities amounted to NT$18,572.6 million (US$546.4 million) in 2003, primarily as a result of the acquisition of properties, such as machinery and equipment for our packaging, testing and interconnect materials operations, of NT$17,534.1 million (US$515.9 million), and for short-term investments of NT$371.6 million (US$10.9 million). Net cash used in investing activities amounted to NT$13,719.7 million in 2002, primarily due to the increase in pledged time deposits and other assets of NT$1,119.1 million, the acquisition of properties of NT$12,657.9 million and the purchases of ASE Test shares and ISE Labs shares of NT$2,072.1 million. Net cash used in investing activities decreased to NT$13,719.7 million in 2002 from NT$17,302.0 million in 2001. This decrease reflected a decline in short-term investments of NT$2,112.1 million in 2002, as compared to an increase of NT$2,913.6 million in 2001, and a decline in the acquisition of ASE Test shares to NT$317.0 million in 2002 from NT$1,202.2 million in 2001, partially offset by the purchase of NT$1,755.1 million of ISE Labs shares in 2002.
Net cash provided by financing activities in 2003 was NT$4,210.9 million (US$123.9 million). This amount reflected proceeds from the sale of ASE Inc. common shares of NT$2,850.5 million (US$83.9 million) and proceeds from our issuance of foreign convertible bonds of NT$6,684.9 million (US$196.7 million), which was partially offset by the early redemption of foreign convertible bonds totaling NT$4,908.4 million (US$144.4 million). Net cash provided by financing activities in 2002 amounted to NT$530.5 million. This amount reflected proceeds from short-term and
long-term debt of NT$3,536.8 million, which was partially offset by the reduction in commercial papers and bank acceptances payable of NT$1,739.3 million, and payment of NT$1,674.1 million for the repurchase of the remaining outstanding portion of our US$200 million zero coupon convertible bonds due 2002. Net cash provided by financing activities in 2001 was NT$2,854.5 million. This amount primarily reflected proceeds from long-term debt of NT$9,746.6 million, which was partially offset by the payment of NT$6,066.0 million for the repurchase of a portion of our US$200 million zero coupon convertible bonds due 2002 and the contribution to a sinking fund in connection with our US$200 million zero coupon convertible bonds due 2002 of NT$1,568.1 million.
As of December 31, 2003, our primary source of liquidity was NT$8,562.4 million (US$251.9 million) of cash and cash equivalents and NT$3,017.8 million (US$88.8 million) of short-term investments. Our short-term investments primarily consisted of investments in fixed income mutual funds. As of December 31, 2003, we had total unused short-term credit lines of NT$7,654.0 million (US$225.2 million), and total unused long-term credit lines of NT$3,622.1 million (US$106.6 million). We believe that our existing credit lines under our short-term loan facilities, together with cash generated from our operations, are sufficient to finance our working capital needs for the next 12 months. As of December 31, 2003, we had working capital of NT$3,795.9 million (US$111.7 million).
As of December 31, 2003, we had total borrowings of NT$42,620.3 million (US$1,253.9 million), NT$6,124.2 million (US$180.2 million) of which were short-term borrowings and NT$36,496.1 million (US$1,073.7 million) of which were long-term borrowings. The interest rate for borrowings under our short-term borrowings ranged from 0.86% to 6.00% per year as of December 31, 2003. All of our short-term loans are revolving facilities with a term of one year, each of which may be extended on an annual basis with lender consent. Our long-term borrowings consist primarily of bank loans and bonds payable. As of December 31, 2003, we had outstanding long-term borrowings, less current portion, of NT$30,840.1 million (US$907.3 million). As of December 31, 2003, the current portion of our long-term borrowings was NT$5,656.0 million (US$166.4 million). Our long-term borrowings carried variable interest rates which ranged between 0.83% and 7.92% per year as of December 31, 2003.
We have pledged a portion of our assets, with a carrying value of NT$12,216.0 million (US$359.4 million) as of December 31, 2003, to secure our obligations under our short-term and long-term facilities.
In January 2004, we issued eleven series of secured non-convertible bonds in the aggregate principal amount of NT$2.75 billion. These bonds bear semi-annual interest at floating LIBOR-based rates We are required to repay half of the aggregate principal amount of the bonds in January 2008 with the remaining due in January 2009. Our payment obligations under the bonds are secured by guarantees provided by syndicate banks pursuant to a guarantee agreement entered into in December 2003, for which Chinatrust Commercial Bank, Ltd. and The Hongkong and Shanghai Banking Corporation Limited, Taipei Branch acted as arrangers.
In September 2003, we issued US$200 million in aggregate principal amount of unsecured zero coupon convertible bonds due 2008. The convertible bonds are convertible into our common shares and ADSs. As of May 31, 2004, these convertible bonds are convertible into our common shares at a conversion price of NT$37.716 per common share. As of May 31, 2004, none of the convertible bonds had been converted.
In September 2003, we entered into a NT$7.0 billion (US$205.9 million) five-year syndicated credit facility, for which Citibank, N.A., Taipei Branch acted as the lead manager. We used NT$3.0 billion (US$88.3 million) of the amount available to refinance our NT$6.0 billion syndicated loan facility, for which Citibank, N.A., Taipei Branch acted as the lead manager, entered into on December 11, 2001. The remaining NT$4.0 billion (US$117.7 million) was used to fund our capital expenditure requirements.
In August 2003, ASE Test redeemed US$159.9 million aggregate principal amount of the US$160 million 1% guaranteed convertible notes due 2004 issued through its finance subsidiary. The early redemption of the US$160 million 1% guaranteed convertible notes due 2004 was financed in part through a five-year syndicated credit facility entered into in June 2003 by ASE Test Finance Limited, a wholly-owned finance subsidiary of ASE Test. The total commitments under the facility totaled US$150 million. ASE Inc., ASE Test and ASE Test's wholly-owned subsidiary, ASE Test, Inc., provided guarantees for ASE Test Finance Limited's payment obligations under the facility.
In June 2003, our wholly-owned subsidiaries, ASE Investment Inc. and ASE Capital Inc., sold an aggregate of 32,757,600 of our ADSs. The net proceeds from the offering were approximately NT$2,850.5 million (US$83.9 million). We used the net proceeds to repay borrowings of ASE Inc. in an aggregate principal amount of NT$6.0 billion (US$176.5 million), borrowings of ASE Investment Inc. in an aggregate principal amount of NT$1.2 billion (US$35.3 million) and borrowings of ASE Capital Inc. in an aggregate principal amount of NT$150 million (US$4.4 million). In addition, pursuant to a merger agreement dated July 17, 2002, ASE Investment Inc. and ASE Capital Inc. merged with and into ASE Inc. in July 2003, and ASE Inc. assumed all of the assets and liabilities of both ASE Investment Inc. and ASE Capital Inc.
In December 2002, we entered into a NT$7.0 billion (US$205.9 million) three-year syndicated credit facility, for which Citibank, N.A., Taipei Branch acted as the lead arranger. We used NT$5.2 billion (US$153.0 million) of the amount available under the facility to refinance a NT$5.2 billion (US$153.0 million) syndicated credit facility, for which Citibank, N.A., Taipei Branch acted as the lead arranger, entered into on June 22, 2001. The remaining NT$1.8 billion (US$53.0 million) was used to repay a portion of our existing revolving credit lines.
In November 1997, we issued US$200 million in aggregate principal amount of zero coupon convertible bonds due 2002. These bonds had an implied interest rate of 6.37%, and were convertible into our common shares. These bonds, which matured in November 2002, were convertible at the option of the holders from December 1997 through October 2002. As of November 2002, we had repurchased in the open market all of the outstanding bonds.
Our long-term loans and facilities contain various financial and other covenants that could trigger a requirement for early payment. Among other things, these covenants require the maintenance of certain financial ratios, such as liquidity ratio, indebtedness ratio, interest coverage ratio and other technical requirements. In general, covenants in the agreements governing our existing debt, and debt we may incur in the future, may materially restrict our operations, including our ability to incur debt, pay dividends, make certain investments and payments and encumber or dispose of assets. A default under one debt instrument may also trigger cross-defaults under our other debt instruments. An event of default under any debt instrument, if not cured or waived, could have a material adverse effect on our liquidity, as well as our financial condition and operations.
As a result of the reduced levels of operating cash flow due primarily to the recent downturn in the worldwide semiconductor industry, we have on occasion failed to comply with certain financial covenants in some of our loan agreements. Such non-compliance may also have, through broadly worded cross-default provisions, resulted in default under some of the agreements governing our other existing debt. We have obtained waivers from the relevant lenders relating specifically to such non-compliance. We cannot assure you that we will be able to remain in compliance with our financial covenants under our loan agreements. In the event of default, we may not be able to cure the default or obtain a waiver, and our operations could be significantly disrupted and harmed. See "Item 3. Key Information--Risk Factors--Risks Relating to Our Business--Restrictive covenants and broad default provisions in the agreements governing our existing debt may materially restrict our operations as well as adversely affect our liquidity, financial condition and results of operations".
Our contingent obligations consist of guarantees provided by us to our subsidiaries. As of December 31, 2003, we endorsed and guaranteed the promissory notes of our subsidiaries in the amount of NT$12,114.2 million (US$356.4 million). Other than such guarantees, we have no other contingent obligations. See note 20 to the consolidated financial statements.
We have made, and expect to continue to make, substantial capital expenditures in connection with the expansion of our production capacity. The table below sets forth our principal capital expenditures incurred for the periods indicated.
Year Ended December 31,
-----------------------------------------
2001 2002 2003
-----------------------------------------
NT$ NT$ NT$ US$
(in millions)
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Machinery and equipment ........... 8,024.9 13,786.8 14,833.9 436.4 Building and improvements ......... 3,540.8 1,963.0 2,400.4 70.6
We have budgeted capital expenditures of approximately NT$23.8 billion (US$700 million) for 2004, primarily to purchase machinery and equipment in connection with the expansion of our packaging, testing, and interconnect materials operations. We may adjust the amount of our capital expenditures upward or downward based on market conditions, the progress of our expansion plans and cash flow from operations. Due to the rapid changes in technology in the semiconductor industry, we frequently need to invest in new machinery and equipment, which may require us to raise additional capital. We cannot assure you that we will be able to raise additional capital should it become necessary on terms acceptable to us or at all. See "Item 3. Key Information--Risk Factors--Risks Relating to Our Business--Because of the highly cyclical nature of our industry, our capital requirements are difficult to plan. If we cannot obtain additional capital when we need it, our growth prospects and future profitability may be adversely affected".
We believe that our existing cash and cash equivalents, short-term investments, expected cash flow from operations and existing credit lines under our short-term loan facilities will be sufficient to meet our capital expenditures, working capital, cash obligations under our existing debt and lease arrangements, and other requirements for at least the next twelve months. As of December 31, 2003, we had contractual obligations of NT$25,187.2 million (US$741.0 million) due in the next three years. We intend to meet our payment obligations through the expected cash flow from operations, long-term borrowings and the issuance of additional equity or equity-linked securities. We will continue to evaluate our capital structure and may decide from time to time to increase or decrease our financial leverage through equity offerings or borrowings. The issuance of additional equity or equity-linked securities may result in additional dilution to our shareholders.
From time to time, we evaluate possible investments, acquisitions or divestments and may, if a suitable opportunity arises, make an investment, acquisition or divestment. We currently have no commitments to make any material investment, acquisition or divestment. In July 2000, our shareholders approved a resolution which authorizes our board of directors to make investments in the PRC. However, the ROC government currently restricts certain types of investments by ROC companies in the PRC. We intend to consider establishing semiconductor packaging, testing and interconnect materials operations in the PRC if ROC investment law and policy is amended to permit such investments, and if suitable opportunities are available at that time.
Our treasury team, under the supervision of our chief financial officer, is responsible for setting our funding and treasury policies and objectives. Our exposure to financial market risks relate primarily to changes in interest rates and foreign currency exchange rates. To mitigate these risks, we utilize derivative financial instruments, the application of which is primarily to manage these exposures, and not for speculative purposes.
We have, from time to time, entered into interest rate swap transactions to hedge our interest rate exposure. As of December 31, 2003, there were no outstanding interest rate swap transactions. We have entered into foreign currency option contracts and forward exchange contracts to hedge our existing assets and liabilities denominated in foreign currencies and identifiable foreign currency purchase commitments. As of December 31, 2003, we had US$510.0 million outstanding in foreign currency option contracts and no forward exchange contracts outstanding. In October 2003, we entered into cross-currency swap contracts to hedge against reductions in value caused by changes in foreign currency exchange rates in connection with the proceeds received from our offering of US$200 million unsecured zero coupon convertible bonds due 2008. See "Item 11. Quantitative and Qualitative Disclosures about Market Risk" and note 22 to the consolidated financial statements included elsewhere in this annual report.
RESEARCH AND DEVELOPMENT
For 2001, 2002 and 2003, our research and development expenditures totaled approximately NT$1,504.5 million, NT$2,049.0 million and NT$2,354.0 million (US$69.3 million), respectively. These expenditures represented approximately 3.9%, 4.5% and 4.1% of net revenues in 2001, 2002 and 2003, respectively. We have historically expensed all research and development costs as incurred and none is currently capitalized. As of May 31, 2004, we employed 1,680 employees in research and development.
Packaging
We centralize our research and development efforts in packaging technology in our Kaohsiung, Taiwan facilities. After initial phases of development, we conduct pilot runs in one of our facilities before the new
technologies or processes are implemented commercially at other sites. Facilities with special product expertise, such as ASE Korea, also conduct research and development of these specialized products and technologies at their sites. One of the areas of emphasis for our research and development efforts is improving the efficiency and technology of our packaging processes. We expect these efforts to continue. We are now also putting significant research and development efforts into the development and adoption of new technology. We work closely with the manufacturers of our packaging equipment, including Kulicke & Soffa Industries Inc., in designing and modifying the equipment used in our production process. We also work closely with our customers to develop new product and process technology.
A significant portion of our research and development efforts is also focused on the development of advanced substrate production technology for BGA packaging through ASE Material. Substrate is the principal raw material for BGA packages. Development and production of advanced substrates involve complex technology and, as a result, high quality substrates are currently available only from a limited number of suppliers, located primarily in Japan. We believe that the successful development of substrate production capability by ASE Material will, among other things, enable us to capture an increasingly important value-added component of the packaging process, help ensure a stable and cost-effective supply of substrates for our BGA packaging operations and shorten production time. In 2002, ASE Material supplied approximately one-half of our substrate requirements by value. On October 28, 2003, we entered into a merger agreement to merge ASE Material with and into ASE Inc., with ASE Inc. as the surviving corporation. In addition, on October 28, 2003, we entered into a joint venture agreement with Compeq to establish ASE-Compeq Technologies, Inc., which will focus on the design and production of interconnect materials for packaging semiconductors. See "Item 4. Information on the Company - History and Development of the Company".
Testing
Our research and development efforts in the area of testing have focused primarily on improving the efficiency and technology of our testing processes. The efforts include developing software for parallel testing of logic semiconductors, rapid automatic generation and cross-platform conversion of test programs to test logic/mixed-signal semiconductors, automatic code generation for converting and writing testing programs, testing new products using existing machines and providing customers remote access to monitor test results. We are also continuing the development of interface designs to provide for high-frequency testing by minimizing electrical noise. We work closely with our customers in designing and modifying testing software and with equipment vendors to increase the efficiency and reliability of testing equipment. Our research and development operations also include a mechanical engineering group, which currently designs handler kits for semiconductor testing and wafer probing, as well as software to optimize capacity utilization.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table sets forth the maturity of our contractual obligations as of December 31, 2003.
Payments Due by Period
-----------------------------------------------------------------------------
Total Under 1 Year 1 to 3 Years 3 to 5 Years After 5 Years
-----------------------------------------------------------------------------
NT$ NT$ NT$ NT$ NT$
(in millions)
Contractual Obligations:
Long-term debt (1) .......... 36,226.0 5,491.4 14,169.0 13,755.7 2,809.9
Capital lease obligations (2) 270.1 164.6 104.0 1.5 --
Operating leases (3) ........ 3,318.8 998.4 1,725.6 359.9 234.9
Payable for investment (4) .. 2,310.0 2,310.0 -- -- --
Purchase obligations (5) .... 224.2 224.2 -- -- --
-----------------------------------------------------------------------------
Total (6) (7) (8) ....... 42,349.1 9,188.6 15,998.6 14,117.1 3,044.8
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(2) Represents our commitments under property leases. These obligations are recorded on our consolidated balance sheets. See note 20 to our consolidated financial statements.
(3) See note 20 to our consolidated financial statements.
(4) Relates to our earn-out arrangement with Motorola in connection with our acquisition of ASE Chung Li and ASE Korea in 1999. Under this arrangement, a portion of the purchase price is paid in installments ending in July 2004, contingent upon certain targets of revenues from packaging and testing services provided to Motorola being met. See "Item 4. Information on the Company -- History and Development of the Company -- ASE Chung Li and ASE Korea".
(5) Represents unpaid commitments for construction. These commitments are not recorded on our consolidated balance sheets as of December 31, 2003. See note 20 to our consolidated financial statements. Total commitments for construction of buildings were approximately NT$625.0 million (US$18.4 million), NT$400.8 million (US$11.8 million) of which had been paid as of December 31, 2003.
(6) Excludes payments that vary based upon our net sales or sales volume, such as commissions, service fees and royalty payments for technology license agreements. Commission and service fee expenses in 2003 were approximately NT$973.0 million (US$28.6 million). Royalty expenses in 2003 were approximately NT$200.1 million (US$5.9 million). See note 20 to our consolidated financial statements.
(7) Excludes non-binding commitments to purchase machinery and equipment of approximately NT$8,231.0 million (US$242.2 million) as of December 31, 2003.
(8) Excludes our minimum pension funding requirements since such amounts have not been determined. We made pension contributions of approximately NT$113.1 million (US$3.3 million) in 2003 and we estimate that we will contribute approximately NT$133.0 million (US$3.9 million) in 2004. See note 13 to our consolidated financial statements.
Item 6. Directors, Senior Management and Employees
DIRECTORS AND SENIOR MANAGEMENT AND BOARD PRACTICES
Directors
Our board of directors is elected by our shareholders in a general meeting at which a quorum, consisting of a majority of all issued and outstanding common shares, is present. The chairman is elected by the board from among the directors. Our seven-member board of directors is responsible for the management of our business.
The term of office for our directors is three years from the date of election. The current board of directors began serving on June 19, 2003. The terms of the current directors will expire on June 18, 2006. Directors may serve any number of consecutive terms and may be removed from office at any time for a valid reason by a resolution adopted at a general meeting of shareholders. Normally, all board members are elected at the same time, except where the posts of one-third or more of the directors are vacant, at which time a special meeting of shareholders shall be convened to elect directors to fill the vacancies.
Under Rule 10A-3 of the Exchange Act and the rules of the New York Stock Exchange, we are required to have an audit committee that meets certain requirements by July 31, 2005. We are currently in the process of reviewing examples of audit committee charters and considering candidates for appointment as audit committee members with a view to fully complying with these new requirements in the specified time period, including the appointment of an audit committee financial expert, as defined under Item 16A of Form 20-F.
The following table sets forth information regarding all of our directors as of June 15, 2004.
Director Other Significant
Name Position Since Age Positions Held
----------------------------- --------------------------- -------- --- ------------------------------------
Jason C.S. Chang(1).......... Director, Chairman and 1984 60 Chairman of ASE Test; Chairman of
Chief Executive Officer ASE Test Taiwan
Richard H.P. Chang(1)...... Director, Vice Chairman and 1984 57 Vice Chairman of ASE Test; Chairman
President of Universal Scientific
Joseph Tung(2)............. Director and Chief Financial 1997 45 Supervisor of Universal Scientific;
Officer Director of ASE Test
Chin Ko-Chien(2)........... Director and Executive Vice 1997 58 Director of ASE Test
President
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Director Other Significant
Name Position Since Age Positions Held
----------------------------- --------------------------- -------- --- ------------------------------------
David Pan(2)............... Director 1997 59 Director of ASE Test
Jeffrey Chen(2)............ Director and Vice President 2003 40 Director of ASE Test
Tien Wu(2)................. Director 2003 46 Chief Executive Officer of ISE Labs
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(2) Representative of ASE Enterprises, a company organized under the laws of Hong Kong, which held 19.3% of our outstanding common shares as of May 31, 2004. All of the outstanding shares of ASE Enterprises are held by a company organized under the laws of the British Virgin Islands in trust for the benefit of the family of our Chairman and Chief Executive Officer, Jason C.S. Chang, who is the sole shareholder and director of that company.
Supervisors
We currently have five supervisors, each serving a three-year term. The current supervisors began serving on June 15, 2004, and their terms will expire on June 14, 2007. The supervisors' duties and powers include investigation of our business condition, inspection of our corporate records, verification and review of financial statements presented by our board of directors at shareholders' meetings, convening of shareholders' meetings, representing us in negotiations with our directors and notification, when appropriate, to the board of directors to cease acting in contravention of any applicable law or regulation or in contravention of our Articles of Incorporation. Each supervisor is elected by our shareholders and cannot concurrently serve as a director, managerial officer or other staff member. The ROC Company Law requires at least one supervisor be appointed at all times, or two supervisors for a company with publicly issued equity shares, and that a supervisor's term of office be no more than three years.
The following table sets forth information regarding all of our directors as of June 15, 2004.
Supervisor Other Significant
Name Position Since Age Positions Held
----------------------------- --------------------------- ---------- --- ------------------------------------
Feng Mei-Jean(1)........... Supervisor 1984 49 Supervisor of ASE Chung Li
Yen-Yi Tseng(2)............ Supervisor 2000 63 Chairman of Hung Ching
Alan Cheng(2).............. Supervisor 1997 59 Director of ASE Test
John Ho(2)................. Supervisor 1998 49 Director of Universal Scientific
Raymond Lo(2).............. Supervisor 2000 50 President of ASE Test
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(2) Representative of ASE Enterprises.
In accordance with ROC law, each of our directors and supervisors is elected either in the capacity as an individual or as an individual representative of a corporation or government. Persons designated to represent corporate or government shareholders as directors are typically nominated by such shareholders at the annual general meeting. Of the current directors and supervisors, nine represent ASE Enterprises. The remaining directors and supervisors serve in their capacity as individuals.
Executive Officers
The following table sets forth information regarding all of our executive officers as of June 15, 2004.
Years
with the
Name Position Company Age
----------------------------- ------------------------------------------------- --------- -----
Jason C.S. Chang............. Chairman and Chief Executive Officer 20 60
Richard H.P. Chang........... Vice Chairman and President 20 57
Chin Ko-Chien................ Executive Vice President and General Manager, 20 58
Kaohsiung packaging facility
Raymond Lo................... President, ASE Test; President of ASE Test Taiwan 18 50
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Years
with the
Name Position Company Age
----------------------------- ------------------------------------------------- --------- -----
Tien-Sgu (T.S.) Chen......... President, ASE Chung Li 12 42
Joseph Tung.................. Chief Financial Officer 9 45
Kanapathi A/L Kuppusamy...... President, ASE Test Malaysia 5 53
Sang Jin Maeng............... President, ASE Korea 5 52
Tien Wu...................... Chief Executive Officer, ISE Labs 4 46
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Biographies of Directors, Supervisors and Executive Officers
Jason C.S. Chang has served as Chairman of ASE Inc. since its founding in March 1984 and as its Chief Executive Officer since May 2003. Mr. Chang is also the Chairman of ASE Test. He holds a degree in electrical engineering from National Taiwan University and a master's degree from the Illinois Institute of Technology. He is the brother of Richard H.P. Chang, our Vice Chairman and President.
Richard H.P. Chang has served as Vice Chairman of ASE Inc. since November 1999 after having served as President of ASE Inc. since its founding in March 1984, and served as Chief Executive Officer of ASE Inc. from July 2000 to April 2003. In February 2003, he was again appointed President of ASE Inc. upon the retirement of Mr. Leonard Y. Liu. Mr. Chang is also the Vice Chairman of ASE Test. He holds a degree in industrial engineering from Chung Yuan Christian University of Taiwan. He is the brother of Jason C.S. Chang, our Chairman and Chief Executive Officer.
Joseph Tung has served as a director of ASE Inc. since April 1997 and Chief Financial Officer since December 1994. He is also a director of ASE Test. Before joining ASE Inc., Mr. Tung was a Vice President at Citibank, N.A. He received a degree in economics from the National Chengchi University of Taiwan and a master's degree in business administration from the University of Southern California.
Chin Ko-Chien has served as a director of ASE Inc. since March 1984 and Executive Vice President and General Manager of our packaging facility in Kaohsiung, Taiwan since March 1990. Mr. Chin is also a director of ASE Test. Before joining ASE Inc., he held managerial positions at Fu Hua Construction Co. Ltd. and De Ji Trading Company. He holds a degree in bearings technology from Taiwan Ocean University.
David Pan has served as a director of ASE Inc. since April 1997 and as a director of ASE Test since November 1995. Before joining ASE Test, Mr. Pan was the Vice President responsible for research and development at Ultratech Stepper Inc. He holds a degree in physics from the University of Illinois and master's and doctorate degrees in physics from the University of California at Berkeley.
Jeffrey Chen has served as a director of ASE Inc. since June 2003 and a director of ASE Test since 1998. He is also a Vice President of ASE Inc. and a Special Assistant to the Chairman of ASE Inc. He was the Chief Financial Officer of ASE Test from July 1998 to August 2002. Prior to joining the ASE group, he worked in the corporate banking department of Citibank, N.A., in Taipei and as the Vice President of corporate finance at Bankers Trust in Taipei. He holds a degree in finance and economics from Simon Fraser University in Canada and a master's degree in business administration from the University of British Columbia in Canada.
Tien Wu has served as a director of ASE Inc. since June 2003 and the Chief Executive Officer of ISE Labs since March 2003. He also serves as the Vice President of Worldwide Marketing and Strategy of the ASE group. Prior to joining ASE Inc. in March 2000, Mr. Wu held various managerial positions with IBM. He holds a B.S.C.E. degree from the National Taiwan University and a M.S. degree in mechanical engineering and a Ph.D. in applied mechanics from the University of Pennsylvania.
Feng Mei-Jean has served as a supervisor of ASE Inc. since March 1984. She holds a degree in economics from National Taiwan University. She is the wife of Richard H.P. Chang, our Vice Chairman and President.
Yen-Yi Tseng has served as a supervisor of ASE Inc. since July 2000 and Chairman of Hung Ching since July 2002. Mr. Tseng served as President of Ret-Ser Engineering Agency from 1991 to 1998. He holds a degree in civil engineering from National Taiwan University and a master's degree in system engineering from Asian Institute
of Technology in Thailand. He was also a participant in the Program for Management Development at Harvard Business School.
Alan Cheng has served as a supervisor of ASE Inc. since April 1997. Mr. Cheng served as the Chairman of Hung Ching from April 1997 to July 2002. He holds a degree in industrial engineering from Chung-Yuan University.
John Ho has served as a supervisor of ASE Inc. since April 1998. He is also a director of Universal Scientific. He served as Chief Financial Officer of ASE Inc. from 1988 until 1995. He holds a degree in business administration from National Taiwan University and a master's degree in business administration from the University of Iowa.
Raymond Lo has served as a supervisor of ASE Inc. since July 2000 and President of ASE Test since April 2004, after serving as President of ASE Test Taiwan since 1999 and Vice President of Operations of ASE Inc. since July 1993. Before joining ASE Inc., Mr. Lo was the Director of Quality Assurance at Zeny Electronics Co. He holds a degree in electronic physics from the National Chiao Tung University of Taiwan.
Kanapathi A/L Kuppusamy has served as President of ASE Test Malaysia since July 1999. Before joining ASE Test Malaysia, Mr. Kanapathi was President of Motorola Asia Final Manufacturing. He holds a master's degree in business administration from the University of East Asia in Kuala Lumpur, Malaysia.
Sang Jin Maeng has served as President of ASE Korea since January 2004, after serving as Senior Vice President of ASE Korea since July 1999. Mr. Maeng was Vice President of Motorola Korea, Limited before joining ASE Korea when we acquired Motorola Korea, Limited. He holds a degree in communication and electronic engineering from the Civil Aviation College of Korea.
Tien-Sgu (T.S.) Chen has served as President of ASE Chung Li since July 2003. He served as manufacturing director of ASE Inc.'s packaging facility in Kaohsiung, Taiwan from 1992, plant manager from May 1998 and Vice President of Operations of ASE Inc. from January 2000 to June 2003. He holds a degree in industrial engineering from Chung-Yuan Christian University of Taiwan.
The business address of our directors, supervisors and executive officers is our registered office.
COMPENSATION
In 2003, we paid to our directors, supervisors and executive officers approximately NT$128.4 million (US$3.8 million) in cash remuneration. In August 2003, we granted an aggregate of 900,000 options to our directors, supervisors and executive officers under our employee stock option plan at an initial exercise price of NT$24.60 per share. We did not grant any common shares of ASE Inc. in 2003 to our directors, supervisors and executive officers. In 2003, we also set aside an aggregate of NT$1.58 million (US$0.05 million) to provide pension, retirement and similar benefits for our executive officers pursuant to existing plans provided by or contributed to by our company or its subsidiaries. We did not pay any remuneration in kind to our directors, supervisors or executive officers in 2003. We have not granted any loans or guarantees to any of our directors, supervisors or executive officers.
ASE Inc. Employee Bonus and Stock Option Plans
We award bonuses to employees of ASE Inc. and its affiliates who are located in Taiwan based on overall income and individual performance targets. These employees are eligible to receive bonuses in the form of common shares of ASE Inc. valued at par. Actual amounts of bonuses to individual employees are determined based upon the employee meeting specified individual performance objectives. We granted an aggregate of 34,960,000 common shares in 2001 as stock bonuses to employees of ASE Inc. and its affiliates with a fair market value at the date of grant of NT$830.6 million. We did not grant any stock bonuses to employees of ASE Inc. or its affiliates in 2002 or 2003. At our annual shareholders' meeting held on June 15, 2004, our shareholders approved the grant of 15,427,203 common shares as stock bonuses and NT$18.4 million (US$0.5 million) as cash bonuses to employees.
We currently maintain two option plans, which include plans adopted in 2002 and 2004. Pursuant to these plans, full-time employees of ASE Inc. as well as the full-time employees of our domestic and foreign subsidiaries are
eligible to receive stock option grants. Under the 2002 plan, for a period of one year from August 28, 2002, we could issue up to 160,000,000 options on one or more occasions. Under the 2004 plan, for a period of one year from May 27, 2004, we can issue up to 140,000,000 options on one or more occasions. Each option entitles the holder to purchase one common share of ASE Inc. at a price equal to the closing market price on the date of the option issuance. Each option is exercisable upon vesting for five years. 40% of the options originally granted vest upon the second anniversary of the grant date, and an additional 10% of the options originally granted vest every six months thereafter. Each option expires at the end of the 10th year following its issue date. The options are generally not transferable. As of December 31, 2003, a total of 159,968,000 options had been issued under the 2002 plan, 145,989,000 of which have an exercise price of NT$18.90 per share and 13,979,000 of which have an exercise price of NT$24.60 per share. No options have been granted under the 2004 plan.
ASE Test Share Option Plans
ASE Test currently maintains five option plans, which include plans adopted in each year from 1996 to 2000. The board of directors has also approved a sixth option plan, which became effective on June 25, 2004. Under ASE Test's share option plans, its directors and the employees, advisors and consultants of ASE Test and its affiliates may, at the discretion of a committee of its directors administering the plan, be granted options to purchase its shares at an exercise price of no less than their market value on the date of grant. The committee has complete discretion to determine which eligible individuals are to receive option grants, the number of shares subject to each grant, the vesting schedule for each option grant and the maximum term for which each granted option is to remain outstanding, up to a maximum term of five years, or in the case of the 1999, 2000 and 2004 option plans, ten years. ASE Test's board of directors may amend or modify the plans at any time. As of December 31, 2003, an aggregate of 28,800,000 of ASE Test's shares had been reserved for issuance and 13,301,418 options to purchase its shares remained outstanding under its various option plans. An aggregate of 7,695,000 options (of which 2,920,000 had expired as of December 12, 2003) had been granted to the directors and executive officers of ASE Test. Options granted under the various plans are exercisable at exercise prices ranging from US$3.00 to US$25.00 per share. Options granted under the 1996, 1997 and 1998 option plans will expire five years from the date of grant, and in the case of the 1999, 2000 plans and the 2004 plans, ten years from the date of grant.
For information regarding the pension and other retirement plans of ASE Inc. and our subsidiaries, see note 13 to the consolidated financial statements included elsewhere in this annual report.
Interests of Management in Related Party Transactions
Several of our directors, supervisors and executive officers also serve as directors, supervisors or executive officers of companies with which we do business. These companies include our affiliates. See "Item. 7--Major Shareholders and Related Party Transactions--Related Party Transactions". We conduct these transactions on an arms' length commercial basis.
EMPLOYEES
The following table sets forth, for the periods indicated, certain information concerning our employees for the dates indicated.
As of December 31,
---------------------------------
2000 2001 2002 2003
---------------------------------
Total .................................. 18,121 15,681 20,401 24,443
Function
Direct labor ........................ 12,011 9,690 13,059 15,808
Indirect labor (manufacturing) ...... 3,577 3,366 4,264 5,389
Indirect labor (administration) ..... 1,370 1,350 1,517 1,704
Research and development ............ 1,163 1,275 1,561 1,542
Location
Taiwan .............................. 12,430 10,811 15,061 18,202
Malaysia ............................ 3,407 2,854 3,140 4,207
Korea ............................... 965 885 1,305 1,617
United States ....................... 523 438 361 273
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As of December 31,
---------------------------------
2000 2001 2002 2003
---------------------------------
Philippines(1) ...................... 568 571 461 20
Singapore ........................... 104 68 65 116
Hong Kong ........................... 124 54 8 8
---------
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(1) In October 2003, we closed our facilities and discontinued our operations in the Philippines.
Eligible employees may participate in the ASE Inc. Employee Share Bonus Plan and Stock Option Plans and the ASE Test Share Option Plans. See "Item 6. Directors, Senior Management and Employees--Compensation of Directors, Supervisors and Executive Officers--ASE Inc. Employee Bonus and Stock Option Plans" and "Item 6. Directors, Senior Management and Employees--Compensation of Directors, Supervisors and Executive Officers--ASE Test Share Option Plans".
With the exception of ASE Korea's employees, our employees are not covered by any collective bargaining arrangements. We believe that our relationship with our employees is good.
SHARE OWNERSHIP
The following table sets forth certain information with respect to our common shares and options exercisable for our common shares held by our directors, supervisors and executive officers as of May 31, 2004.
Percentage of Total
ASE Inc. Common
Shares
Number of ASE Inc. Issued and Number of
Executive Officer or Director Common Shares Held Outstanding Options Held
------------------------------------------------------------------------------------------------------------
Jason C.S. Chang................................ 22,280,327(1) 0.62% 4,800,000(2)
Richard H.P. Chang.............................. 40,899,973 1.14 3,200,000(2)
Joseph Tung..................................... 858,433 0.02 *
Chin Ko-Chien................................... 587,983 0.02 *
David Pan....................................... 261,948 0.01 *
Feng Mei-Jean................................... 63,383,829 1.77 --
Yen-Yi Tseng.................................... 21,210 0.00 *
Alan Cheng...................................... 316,466 0.01 --
John Ho......................................... 313,181 0.01 *
Raymond Lo...................................... 528,192 0.01 *
Kanapathi A/L Kuppusamy......................... -- -- *
Sang Jin Maeng.................................. -- -- *
Jeffrey Chen.................................... 526 0.00 *
Tien Wu......................................... 71,258 0.00 *
Tien-Sgu (T.S.) Chen............................ 900 0.00 *
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(2) Each option covers one common share of ASE Inc., has an exercise price of NT$18.90 and an expiration date of December 24, 2012.
* The sum of the number of common shares held and the number of common shares issuable upon exercise of all options held is less than 1% of our total outstanding common shares.
Item 7. Major Shareholders and Related Party Transactions
MAJOR SHAREHOLDERS
The following table sets forth information known to us with respect to the beneficial ownership of our common shares, as of May 31, 2004, by (1) each shareholder known by us to beneficially own more than 5% of our total outstanding common shares and (2) all directors, supervisors and executive officers as a group.
Common Shares Beneficially Owned
----------------------------------------
Name of Shareholder or Group Number Percentage
-----------------------------------------------------------------------------------------------------------------------
ASE Enterprises(1)........................................................... 691,235,417 19.3%
Capital Group International, Inc.(2)......................................... 321,990,420 9.0%
Directors, supervisors and executive officers as a group(3).................. 819,846,312 22.9%
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(1) ASE Enterprises is a company organized under the laws of Hong Kong. All of the outstanding shares of ASE Enterprises are held by a company organized under the laws of the British Virgin Islands in trust for the benefit of the family of our Chairman and Chief Executive Officer, Jason C.S. Chang, who is the sole shareholder and director of that company.
(2) Beneficial ownership information as of December 31, 2003 as reported by Capital Group International, Inc.'s Schedule 13G filed with the SEC on February 13, 2004. Capital Group International, Inc. is a company organized under the laws of the state of California. We do not have any information with respect to Capital Group International Inc.'s ownership of our common shares subsequent to its Schedule 13G filed on February 13, 2004.
(3) Includes shareholding of ASE Enterprises.
The following table sets forth information relating to our common shares held by our consolidated subsidiaries and unconsolidated affiliates as of May 31, 2004.
Common Shares Beneficially Owned
----------------------------------------
Name of Shareholder Number Percentage
-----------------------------------------------------------------------------------------------------------------------
ASE Test Taiwan(1)........................................................... 717,984 0.02%
Hung Ching(2)................................................................ 43,489,404 1.21%
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(1) ASE Test Taiwan is a subsidiary of ASE Test, our subsidiary.
(2) As of May 31, 2004, we held 26.4% of the outstanding shares of Hung Ching. Chang Yao Hung-ying, who was our director from 1984 to June 2003, our Chairman and Chief Executive Officer, Jason C.S. Chang, our Vice Chairman and President, Richard H.P. Chang, and other members of the Chang family are controlling shareholders of Hung Ching. See "Item 4. Information on the Company--Organizational Structure--Our Unconsolidated Affiliates".
In connection with the proposed merger of ASE Chung Li with and into ASE Inc., we and ASE Test have established a trust to hold and dispose of the 149,175,000 common shares of ASE Inc. to be issued to ASE Test upon completion of the merger. As a result, the trustee appointed under the trust agreement will become one of our shareholders until such common shares are sold as permitted under the rules and regulations of the Taiwan Stock Exchange and the terms and conditions of the trust agreement. See "Item 7.--Major Shareholders and Related Party Transactions--Related Party Transactions".
In June 2003, we completed an offering of ADSs in which our wholly-owned subsidiaries ASE Investment Inc. and ASE Capital Inc. together sold 163,788,000 of our common shares. ASE Investment Inc. and ASE Capital Inc. also sold an additional 1,144 of our common shares on the Taiwan Stock Exchange following the ADS offering.
None of our major shareholders has voting rights different from those of our other shareholders. Other than Capital Group International, Inc. becoming the beneficial owner of more than 5% of our outstanding common shares in 2003, there were no changes in our major shareholders or significant changes in the percentage ownership of any of our major shareholders in 2001, 2002 or 2003.
As of May 31, 2004, a total of 3,580,280,000 common shares were outstanding. With certain limited exceptions, holders of common shares that are not ROC persons are required to hold their common shares through a brokerage account in the ROC. As of May 31, 2004, 85,519,110 common shares were registered in the name of a
nominee of Citibank, N.A., the depositary under our ADS deposit agreement. Citibank, N.A., has advised us that, as of May 31, 2004, 17,102,755 ADSs, representing 85,513,775 common shares, were held of record by Cede & Co., and 1,067 ADSs, representing 5,335 common shares, were held by 6 other U.S. persons. We have no further information as to common shares held, or beneficially owned, by U.S. persons.
RELATED PARTY TRANSACTIONS
In recent years, ASE Inc. has made awards of ASE Inc.'s common shares to the employees of affiliates of ASE Inc. as part of their compensation, based in part on the consolidated net income of ASE Inc. and the affiliates' contribution to the consolidated income. ASE Inc. granted an aggregate of 9,872,725 common shares in 2001 as stock awards to employees of affiliates of ASE Inc. with a fair market value at the time of grant of NT$234.6 million At our annual shareholders' meeting held on June 15, 2004, our shareholders approved the grant of 15,427,203 common shares as stock bonuses to employees. ASE Inc. expects this practice to continue in future periods.
ASE Material sold interconnect materials in the aggregate amount of NT$2,346.9 million, NT$2,885.6 million and NT$4,416.3 million (US$129.9 million) to ASE Inc. in 2001, 2002 and 2003, respectively. In 2003, we purchased approximately 54% of our substrate requirements by value for our packaging facilities from ASE Material. We purchase materials from ASE Material at prevailing market prices.
On October 28, 2003, we entered into a merger agreement with ASE Chung Li and ASE Material pursuant to which ASE Chung Li and ASE Material will be merged with and into ASE Inc., with ASE Inc. as the surviving corporation. The merger is to be consummated by means of a share exchange pursuant to which the respective shareholders (other than ASE Inc.) of ASE Chung Li and ASE Material will receive shares of ASE Inc. in exchange for the common shares of each of ASE Chung Li and ASE Material. We expect to issue 282,315,437 common shares, or approximately 7.9% of our outstanding shares as of October 28, 2003, in connection with the merger. In connection with our merger with ASE Chung Li, we will issue 149,175,000 of our common shares to ASE Test, our consolidated subsidiary, 79,914,225 of our common shares to J&R Holding, our wholly-owned subsidiary, and four common shares to certain individuals who were the original shareholders of ASE Chung Li. The merger with ASE Chung Li has a transaction value of approximately NT$7,101.8 million (US$208.9 million), based on NT$31.00 per ASE Inc. common share, which is the average of the closing prices of ASE Inc.'s common shares on the Taiwan Stock Exchange for two days prior to and following October 28, 2003. In connection with our merger with ASE Material, we will issue 5,000,000 of our common shares to ASE Test Taiwan, a consolidated subsidiary of ASE Test, 1,086,800 of our common shares to Hung Ching, our affiliate, and 47,139,409 of our common shares to employees and other shareholders (other than ASE Inc.) of ASE Material and a strategic investor. The merger with ASE Material has a transaction value of approximately NT$1,650.0 million (US$48.5 million), based on NT$31.00 per ASE Inc. common share, which is the average of the closing prices of ASE Inc.'s common shares on the Taiwan Stock Exchange for two days prior to and following October 28, 2003. In connection with our merger with ASE Material, Richard H.P. Chang, our Vice Chairman and President, in his individual capacity as a shareholder and director of ASE Material, will also receive common shares of ASE Inc. in exchange for common shares of ASE Material held by him.
Upon the completion of the merger, all of the assets and liabilities of ASE Chung Li and ASE Material will be owned and assumed by ASE Inc. and the operations of ASE Chung Li and ASE Material will be integrated with the operations of ASE Inc. The merger agreement has been approved by the board of directors and shareholders of each of ASE Inc., ASE Chung Li and ASE Material. The merger is expected to be completed on August 1, 2004, subject to receipt of all necessary approvals and consents.
In order to comply with Singapore and ROC law, trusts have been
established to hold and dispose of the 149,175,000 common shares of ASE Inc. to
be issued to ASE Test and the 5,000,000 common shares of ASE Inc. to be issued
to ASE Test Taiwan in connection with the merger. Under Section 76(1)(b)(ii) of
the Companies Act, Chapter 50, of Singapore, ASE Test, a Singapore company, may
not purport to acquire, directly or indirectly, shares or units of shares in
ASE Inc., its parent company. Pursuant to the applicable trust agreements, the
trustee under each trust will (1) be the registered owner of the common shares,
(2) exercise all of the rights as a shareholder of the common shares, (3) sell
the common shares pursuant to the terms and conditions of the trust agreement,
and (4) transfer and deliver the proceeds from the sale of the common shares
and cash dividends distributed by ASE Inc. to ASE Test or ASE Test Taiwan, as
the case may be. Neither ASE Test nor ASE Test Taiwan will have any rights
with respect to the common shares held in trust pursuant to the applicable trust agreements other than the right to receive the proceeds from the sale of such common shares and cash dividends.
ASE Test Taiwan has historically collected payments through ASE Inc. for the testing of semiconductors packaged for a small number of customers that prefer to be billed through ASE Inc. for testing services performed by ASE Test Taiwan. These turnkey sales amounted to NT$178.3 million, NT$397.7 million and NT$466.3 million (US$13.7 million) in 2001, 2002 and 2003, respectively.
ASE Test Malaysia has historically purchased a portion of the raw materials used in its packaging operations, principally leadframes, from ASE Inc. when it faces a shortage in the supply of these types of raw materials. These types of raw materials are typically resold by ASE Inc. to ASE Test Malaysia. Purchases of raw materials by ASE Test Malaysia amounted to NT$17.2 million, NT$11.7 million and NT$11.8 million (US$0.3 million) in 2001, 2002 and 2003, respectively. ASE Inc. purchased raw materials, principally leadframes, from ASE Test Malaysia in an amount of NT$12.8 million, NT$0.1 million and NT$0 million (US$0 million) in 2001, 2002 and 2003, respectively.
In 2002 and 2003, ASE Test Malaysia purchased raw materials, primarily leadframes and substrates, from ASE Material in the aggregate amount of NT$181.6 million and NT$283.1 million (US$8.3 million), respectively. These types of raw materials are typically sold by ASE Material to ASE Test Malaysia at the prevailing market price.
ASE Inc. has historically guaranteed the promissory notes of many of its subsidiaries. As of December 31, 2003, ASE Inc. had endorsed and guaranteed an aggregate amount of NT$12,114.2 million (US$356.4 million) of the outstanding promissory notes of its subsidiaries.
In 2001, 2002 and 2003, ASE Inc. sold to ASE Philippines at book value machinery and equipment for the packaging of plastic dual in-line packages at an aggregate price of NT$30.5 million, NT$0.1 million and NT$0 million (US$0 million), respectively.
In connection with the discontinuation of our operations in the Philippines, in 2003, ASE Philippines sold to ASE Inc. and its subsidiaries at book value machinery and equipment at an aggregate price of NT$445.9 million (US$13.1 million), including NT$196.2 million (US$5.8 million) to ASE Inc. and NT$158.9 million (US$4.7 million) to ASE Chung Li.
In January 2000, ASE Chung Li and Hung Ching entered into an agreement for the development of buildings on land currently owned by ASE Chung Li. Under the agreement, Hung Ching will bear all costs relating to the development. Upon completion of the development, floor space in the buildings will be sold by Hung Ching at prices to be negotiated between Hung Ching and the buyers. ASE Chung Li and its affiliates will have priority in the purchase of the floor space. In the event that floor space is sold to persons other than ASE Chung Li, ASE Chung Li will receive 25% of the selling price. The first phase of the development project is the construction of a building with aggregate floor space of approximately 800,000 square feet, which was completed in September 2000. The total value of the first phase of the project, including land and the completed buildings, is estimated at NT$2.0 billion. The new building houses ASE Chung Li's testing operations as well as part of the operations of other subsidiaries of ASE Inc.
In April 2003, ASE Inc. and Hung Ching entered into an agreement for the development of a building in the Nantze Export Processing Zone on land currently leased by ASE Inc. Under the agreement, Hung Ching will bear all costs relating to the development. Upon completion of the development, which is currently expected to be in the second half of 2004, ASE Inc. will own the first two floors of the building with floor space of approximately 235,000 square feet, and Hung Ching will own remaining floors of the building with floor space of approximately 928,000 square feet. ASE Inc. plans to use its floor space to house part of its operations in Kaohsiung, Taiwan. ASE Inc. and its affiliates will have priority in purchasing the remaining floor space from Hung Ching. The total cost of the construction project, including land and the completed building, is estimated at NT$1,400.0 million (US$41.2 million).
We are currently in discussions with Hung Ching, our affiliate, on the terms of a construction agreement in connection with the construction of two new buildings in Chung Li, Taiwan. The new buildings are expected to have
an estimated floor space of approximately 1,023,000 square feet, and are intended to house a part of our testing operations and a part of our interconnect materials operations. Construction commenced in September 2003 and we expect it to be completed by the second half of 2004. The total cost of the construction project, including the land and the completed buildings, is estimated to be approximately NT$1,200.0 million (US$35.3 million).
ASE Chung Li entered into leases with ASE Material and ASE Test Taiwan to lease floor space in a building located at 550-5, Section 1, Chung-hwa Road, Chung Li, Taiwan. An area of approximately 266,000 square feet was leased to ASE Material and approximately 55,000 square feet was leased to ASE Test Taiwan. The leased area is used primarily for production facilities.
In October 1997, J&R Holding entered into agreements with Swiss Bank Corporation to purchase call options on a portion of our US$200 million zero coupon convertible bonds due 2002. The call options were offered by Swiss Bank Corporation as a part of the repackaging of our convertible bonds by SBC Warburg, an affiliate of Swiss Bank Corporation, into two separate instruments consisting of: (1) US$200 million callable floating rate notes secured by the convertible bonds and (2) call options on the convertible bonds. SBC Warburg decided to repackage the convertible bonds because the adverse market conditions resulting from the Asian financial crisis during the second half of 1997 made it difficult to market the convertible bonds. SBC Warburg was able to obtain commitments for the entire issue of the floating rate notes but, as a result of the adverse market conditions described above, was able to obtain commitments for only a portion of the call options. As a result, Swiss Bank Corporation approached a number of large institutional investors, including J&R Holding, with a proposal to sell a portion of the call options.
J&R Holding decided to purchase the call options because its management considered the call options to be a good investment. Under the first agreement with Swiss Bank Corporation, J&R Holding was required to make four cash payments to Swiss Bank Corporation in November 1998, 1999, 2000 and 2001. In return, J&R Holding had the right to call the convertible bonds back at any time during the period from November 1998 through November 2002. Under the second agreement, Swiss Bank Corporation paid US$200,000 to J&R Holding. In return, Swiss Bank Corporation had the right to sell a portion of the call options to J&R Holding at any time between November 4, 1997 and November 1, 1998. These options were terminated by agreement on December 11, 2001. As of November 2002, we had repurchased in the open market all of the remaining bonds.
ASE Holding Limited, one of our subsidiaries through which we hold ASE Test shares, entered into a share purchase agreement dated as of May 19, 2001 with two of our directors under which ASE Holding Limited agreed to purchase 2,480,000 shares of ASE Test from these directors upon the exercise of certain options granted to them under ASE Test's 1996 option plan for an aggregate purchase price of US$35,389,600. The closing date of this acquisition of shares was May 22, 2001. We engaged in this acquisition principally to maintain our investment in ASE Test at a level above 50% of the outstanding shares of ASE Test. For more information relating to the transaction, see "Item 7. Major Shareholders and Related Party Transactions--Related Party Transactions" of our annual report on Form 20-F for the fiscal year ended December 31, 2001 publicly filed with the SEC.
In August 2003, ASE Test Finance Limited obtained a loan of US$60.0 million from J&R Holding Limited in connection with the redemption of its convertible notes issued in 1999. The loan is due in full in February 2005 and bears interest of 2.27% per annum.
Item 8. Financial Information
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Consolidated financial statements are set forth under "Item 18. Financial Statements".
LEGAL PROCEEDINGS
We are not involved in material legal proceedings the outcome of which we believe would have a material adverse effect on us.
Criminal charges were brought in December 1998 by the district attorney for Taipei against Jason C.S. Chang, our Chairman and Chief Executive Officer, Richard H.P. Chang, our Vice Chairman and President and the Vice Chairman of ASE Test, and Chang Yao Hung-ying, our former director and a former director of ASE Test, and four
others for alleged breach of fiduciary duties owed to Hung Ching, an affiliate of ASE Inc., in their capacity as directors and officers of Hung Ching in connection with a land sale transaction in 1992 valued at approximately NT$1.7 billion. ASE Inc. was not a party to these proceedings. It was alleged that the transaction in which Jason C.S. Chang sold the land to Hung Ching unfairly benefited him to the detriment of Hung Ching. Hung Ching at that time was a privately-owned company whose principal shareholders were members of the Chang family. Ancillary charges were brought against Jason C.S. Chang, Chang Yao Hung-ying and another person for alleged forgery of Hung Ching board resolutions relating to that transaction. Following proceedings before the District Court of Taipei, the High Court of the ROC and the Supreme Court of the ROC, the case was finally concluded in January 2004, and Jason C.S. Chang, Richard H.P. Chang and Chang Yao Hung-ying were found not guilty on all charges.
DIVIDENDS AND DIVIDEND POLICY
To date we have not paid cash dividends on our common shares, and we expect that we will continue to pay a substantial portion, if not all, of our dividends in the form of stock. We have paid annual stock dividends on our common shares since 1989 except in 2002, in which we did not pay any dividend due to the losses we incurred in the 2001 fiscal year.
The following table sets forth the aggregate number of outstanding common shares entitled to dividends, as well as the stock dividends paid during each of the years indicated. The stock dividends per common share represent dividends paid in the fiscal year for common shares outstanding on the record date applicable to the payment of these dividends.
Percentage of
Total Common Shares Outstanding Common Outstanding Common Shares
Stock Dividends Per Issued as Stock Shares Represented by Stock
Common Shares(1) Dividends on Record Date(2) Dividends
---------------------------------------------------------------------------------------------------
NT$
1995.................. 3.60 93,600,000 260,000,000 36.0%
1996.................. 8.00 319,840,000 399,800,000(3) 80.0%
1997.................. 3.80 277,020,000 729,000,000 38.0%
1998.................. 7.20 732,240,000 1,017,000,000 72.0%
1999.................. 1.07 190,460,000 1,780,000,000 10.7%
2000.................. 3.15 623,811,852 1,980,355,086 31.5%
2001.................. 1.70 467,840,000 2,752,000,000 17.0%
2002.................. -- -- 3,254,800,000 --
2003.................. 1.00 325,480,000 3,254,800,000 10.0%
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(1) Holders of common shares receive as a stock dividend the number of common shares equal to the NT dollar value per common share of the dividend declared multiplied by the number of common shares owned and divided by the par value of NT$10 per share. Fractional shares are not issued but are paid in cash.
(2) Aggregate number of common shares outstanding on the record date applicable to the dividend payment. Includes common shares issued in the previous year under our employee bonus plan.
(3) Includes 43,000,000 common shares issued in connection with an offering of global depositary shares in July 1995.
We have historically paid stock dividends on our common shares with respect to the results of the preceding year after approval by our shareholders at the annual general meeting of shareholders. At our annual shareholders' meeting held on June 15, 2004, our shareholders approved a stock dividend of 221,977,360 common shares, or NT$0.62 (US$0.02) per common share. Such dividend will be reduced to NT$0.574 (US$0.02) per common share upon the completion of our merger with ASE Chung Li and ASE Material, which we expect to occur on August 1, 2004, subject to receipt of all necessary approvals and consents. See "Item 4. Information on the Company-- History and Development of the Company--Pending Merger with ASE Chung Li and ASE Material". The form, frequency and amount of future cash or stock dividends on our common shares and ADSs will depend upon our net income, cash flow, financial condition and other factors. See "Item 10. Additional information--Articles of Incorporation--Dividends and Distributions".
In general, we are not permitted to distribute dividends or make other distributions to shareholders for any year where we did not record net income or retained earnings (excluding reserves). The ROC Company Law also
requires that 10% of annual net income (less prior years' losses, if any) be set aside as a legal reserve until the accumulated legal reserve equals our paid-in capital. In addition, our Articles of Incorporation require that before a dividend is paid out of our annual net income:
o up to 2% of our annual net income (less prior years' losses and legal and special reserves, if any) should be paid to our directors and supervisors as compensation; and
o between 5% and 7% of the annual net income (less prior years' losses and legal and special reserves, if any) should be paid to our employees as bonuses; the 5% portion is to be distributed to all employees in accordance with our employee bonus distribution rules, while any portion exceeding 5% is to be distributed in accordance with rules established by our board of directors to individual employees who have been recognized as having made special contributions to our company.
In order to meet the needs of our present and future capital expenditures, our dividend distribution will be primarily in the form of common shares. Cash dividends may also be distributed in certain circumstances. However, the percentage of cash dividends generally will not exceed 20% in any dividend distribution, provided that cash dividends will not be paid if the dividend per share is less than NT$0.10.
Holders of ADSs will be entitled to receive dividends, subject to the terms of the deposit agreement, to the same extent as the holders of the common shares. Cash dividends will be paid to the depositary in NT dollars and, except as otherwise provided in the deposit agreement, will be converted by the depositary into U.S. dollars and paid to holders of ADSs according to the terms of the deposit agreement. Stock dividends will be distributed to the depositary and, except as otherwise provided in the deposit agreement, will be distributed by the depositary, in the form of additional ADSs, to holders of ADSs according to the terms of the deposit agreement.
Holders of outstanding common shares on a dividend record date will be entitled to the full dividend declared without regard to any prior or subsequent transfer of common shares. Accordingly, holders of outstanding ADSs on the relevant dividend record date will, subject to the terms of the deposit agreement, be entitled to the full amount of any dividend declared at our next general meeting of the shareholders.
For information relating to ROC withholding taxes payable on dividends, see "Item 10. Additional Information--Taxation--ROC Taxation--Dividends".
SIGNIFICANT CHANGES
Other than as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of the annual financial statements.
Item 9. The Offer and Listing
OFFER AND LISTING DETAILS
Our common shares were first issued in March 1984 and have been listed on the Taiwan Stock Exchange since July 1989. The Taiwan Stock Exchange is an auction market where the securities traded are priced according to supply and demand through announced bid and ask prices. As of June 16, 2004, there were an aggregate of 3,580,280,000 of our common shares outstanding. The following table sets forth, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the Taiwan Stock Exchange for the common shares and the high and low of the daily closing values of the Taiwan Stock Exchange Index. The closing price for our common shares on the Taiwan Stock Exchange on June 16, 2004 was NT$22.90 per share.
Average
Daily
Closing Price per Adjusted Closing Trading Taiwan Stock
Share Price per Share(1) Volume Exchange Index
---------------------------------------------------------------------------------
(in
thousands
High Low High Low of shares) High Low
---------------------------------------------------------------------------------
1999................................ 117.00 51.00 66.18 27.22 47,782 8,608.9 5,474.8
2000................................ 123.00 22.60 72.68 17.56 24,507 10,202.2 4,614.6
2001................................ 38.80 14.00 31.09 12.73 25,079 6,104.2 3,446.3
2002................................ 38.50 15.90 35.00 14.45 24,798 6,462.3 3,850.0
First Quarter..................... 35.80 26.00 32.55 23.64 35,735 6,242.6 5,488.3
Second Quarter.................... 38.50 20.80 35.00 18.91 19,479 6,462.3 5,071.8
Third Quarter..................... 24.50 17.10 22.27 15.55 17,232 5,416.5 4,185.9
Fourth Quarter.................... 24.30 15.90 22.09 14.45 28,264 4,823.7 3,850.0
2003................................ 35.50 16.90 35.50 15.36 24,852 6,142.3 4,139.5
First Quarter..................... 22.50 16.90 20.45 15.36 16,422 5,078.8 4,260.4
Second Quarter.................... 22.50 17.80 20.45 16.18 27,240 5,048.9 4,139.5
Third Quarter..................... 27.80 21.50 27.80 19.55 33,764 5,757.9 5,017.8
Fourth Quarter.................... 35.50 26.30 35.50 26.30 20,889 6,142.3 5,581.7
December......................... 34.90 31.20 34.90 31.20 16,361 5,924.2 5,752.0
2004 (through June 16).............. 39.30 21.10 39.30 21.10 26,011 7,034.1 5,483.0
First Quarter.................... 39.30 33.20 39.30 33.20 26,838 7,034.1 5,890.7
January.......................... 39.30 34.90 39.30 34.90 31,255 6,386.3 5,890.7
February......................... 39.30 35.00 39.30 35.00 27,855 6,750.5 6,241.4
March............................ 38.80 33.20 38.80 33.20 23,942 7,034.1 6,132.6
Second Quarter (through June 16).. 36.20 21.10 36.20 21.10 25,140 6,880.2 5,483.0
April............................ 36.20 27.60 36.20 27.60 26,040 6,880.2 6,117.8
May.............................. 28.00 21.10 28.00 21.10 29,090 6,188.2 5,483.0
June (through June 16)........... 24.60 22.30 24.60 22.30 17,060 5,986.8 5,560.2
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(1) As adjusted retroactively by the Taiwan Stock Exchange to give effect to stock dividends paid in the periods indicated. See "Item 8. Dividends and Dividend Policy".
The performance of the Taiwan Stock Exchange has in recent years been characterized by extreme price volatility. There are currently limits on the range of daily price movements on the Taiwan Stock Exchange.
Our ADSs have been listed on the New York Stock Exchange under the symbol
"ASX" since September 26, 2000. The outstanding ADSs are identified by the
CUSIP number 00756M404. As of June 16, 2004, a total of 16,990,822 ADSs were
outstanding. The following table sets forth, for the periods indicated, the
high and low closing prices and the average daily volume of trading activity on
the New York Stock Exchange for our ADSs and the highest and lowest of the
daily closing values of the New York Stock Exchange Index. The closing price
for our ADSs on the New York Stock Exchange on June 16, 2004 was US$3.35 per
ADS.
Average
Daily
Adjusted Closing Trading New York Stock
Closing Price per ADS Price per ADS(1) Volume Exchange Index
-----------------------------------------------------------------------------------
(In
thousands
High Low High Low of ADSs) High Low
-----------------------------------------------------------------------------------
US$ US$ US$ US$
2000............................ 6.75 3.06 5.24 2.38 31 7,164.55 6,094.91
2001............................ 6.05 1.75 4.70 1.59 106 7,048.13 5,331.38
2002............................ 5.54 2.21 5.04 2.01 111 6,445.01 4,452.49
First Quarter................. 5.35 3.75 4.86 3.41 135 6,445.01 5,894.75
Second Quarter................ 5.54 3.05 5.04 2.77 130 6,327.11 5,543.28
Third Quarter................. 3.70 2.39 3.36 2.17 110 5,598.68 4,549.66
Fourth Quarter................ 3.50 2.21 3.18 2.01 72 5,247.64 4,452.49
2003............................ 5.27 2.45 5.27 2.23 195 6,440.30 4,486.70
First Quarter................. 3.23 2.45 2.94 2.23 41 5,255.39 4,486.70
Second Quarter................ 3.22 2.50 2.93 2.27 229 5,722.85 4,793.56
Third Quarter................. 4.11 3.17 4.11 2.88 257 5,855.97 5,451.02
Fourth Quarter................ 5.27 3.88 5.27 3.88 244 6,440.30 5,768.32
December..................... 5.05 4.38 5.05 4.38 151 6,440.30 6,108.65
2004 (through June 16).......... 5.95 3.22 5.95 3.22 313 6,780.03 6,231.19
First Quarter................ 5.95 5.05 5.95 5.05 328 6,780.03 6,375.67
January...................... 5.87 5.05 5.87 5.05 374 6,672.04 6,440.30
February..................... 5.95 5.22 5.95 5.22 402 6,770.27 6,526.10
March........................ 5.85 5.12 5.85 5.12 237 6,780.03 6,375.67
Second Quarter (through June
16)......................... 5.46 3.22 5.46 3.22 294 6,715.09 6,231.19
April........................ 5.46 4.05 5.46 4.05 304 6,715.09 6,439.42
May.......................... 4.23 3.22 4.23 3.22 358 6,554.02 6,231.19
June (through June 16)....... 3.70 3.35 3.70 3.35 175 6,610.89 6,456.71
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PLAN OF DISTRIBUTION
Not Applicable.
MARKETS
The principal trading market for our common shares is the Taiwan Stock Exchange and the principal trading market for ADSs representing our common shares is the New York Stock Exchange.
SELLING SHAREHOLDERS
Not Applicable.
DILUTION
Not Applicable.
EXPENSES OF THE ISSUE
Not Applicable.
Item 10. Additional Information
SHARE CAPITAL
Not Applicable.
ARTICLES OF INCORPORATION
General
We are a company limited by shares organized under the laws of the ROC. Our organizational document is our Articles of Incorporation. We have no by-laws.
Our Articles of Incorporation provide, in Article 2, that we are to engage in the following types of business:
o The manufacture, assembly, processing, testing and export of various types of integrated circuitry;
o The research, development, design and manufacture, assembly, processing, testing and export of various computers, electronics, communications, information products and their peripheral products;
o General import and export trading (excluding businesses that require trading permits);
o The manufacture of electronic parts and components;
o The manufacture of mechanical and electronic devices and materials (including integrated circuit leadframes, BGA substrates and flip-chip substrates);
o Wholesale and retail sales of electronic materials;
o Technical support and consulting service for integrated circuit leadframes, BGA substrates and flip-chip substrates;
o Leasings; and
o Except any business requiring a special permit, any business not prohibited or restricted by law or regulation.
We were incorporated on March 23, 1984 as a company limited by shares under the ROC Company Law. Our authorized capital was NT$51,500,000,000, divided into 51,500,000,000 common shares, 3,580,280,000 were issued in registered form and outstanding as of June 16, 2004. We do not have any equity in the form of preference shares or otherwise outstanding as of the date of this annual report.
With the approval of our board of directors and the ROC Securities and Futures Commission, we may issue stock options to our employees, provided that the shares to be issued under any option plan shall not exceed 10% of our outstanding common shares and the total number of shares to be issued under all option plans shall not exceed 15% of our outstanding common shares. The exercise price of an option shall not be less than the closing price of our common shares on the Taiwan Stock Exchange on the issue date of the option. As of December 31, 2003, we had issued 159,968,000 options to our full-time employees as well as full-time employees of our domestic and foreign subsidiaries pursuant to an employee stock option plan established on August 13, 2002. See "Item 6. Directors, Senior Management and Employees--Compensation--ASE Inc. Employee Bonus Plan and Stock Option Plans". We have 300,000,000 common shares reserved for issuance under our employee stock option plans.
Directors
Our Articles of Incorporation provide that we are to have from five to seven directors with tenures of three years who are elected at a shareholders' meeting. There is no minimum amount of shares necessary to stand for election to a directorship. Many of our directors are corporate shareholders, who appoint representatives. Re-elections are allowed. The directors have certain powers and duties, including devising operations strategy, proposing to distribute dividends or make up losses, proposing to increase or decrease capital, reviewing material internal rules and contracts, hiring and discharging the general manager, establishing and dissolving branch offices, reviewing budgets and audited financial statements and other duties and powers granted by or in accordance with the ROC Company Law or shareholders resolutions.
The board of directors is constituted by the directors, who elect a chairman and a vice-chairman from among the directors to preside over the meeting of the board. Meetings of the board may be held in the ROC or any place abroad. A director may appoint another director to attend a meeting and vote by proxy, but a director may accept only one proxy.
Our Articles of Incorporation contain no provisions relating to a director's power to vote on a proposal in which that director is interested, the directors' power to vote compensation to themselves, borrowing powers, retirement or age-limit requirements.
Dividends and Distributions
In general, we are not permitted to distribute dividends or make other distributions to shareholders in any year in which we did not record net income or retained earnings (excluding reserves). The ROC Company Law also requires that 10% of annual net income (less prior years' losses, if any) be set aside as a legal reserve until the accumulated legal reserve equals our paid-in capital. In addition, our Articles of Incorporation require that before a dividend is paid out of our annual net income:
o up to 2% of our annual net income (less prior years' losses and legal and special reserves, if any) should be paid to our directors and supervisors as compensation; and
o between 5% and 7% of the annual net income (less prior years' losses and legal and special reserves, if any) should be paid to our employees as bonuses. The 5% portion is to be distributed to all employees in accordance with our employee bonus distribution rules, while any portion exceeding 5% is to be distributed in accordance with rules established by our board of directors to individual employees who have been recognized as having made special contributions to our company. Such employees include those of our affiliated companies who meet the criteria set by our board of directors.
At the annual general shareholders' meeting, our board of directors submits to the shareholders for their approval any proposal for the distribution of a dividend or the making of any other distribution to shareholders from our net income for the preceding fiscal year. All common shares outstanding and fully paid as of the relevant record date are entitled to share equally in any dividend or other distribution so approved. Dividends may be distributed in cash, in the form of common shares or a combination of the two, as determined by the shareholders at the meeting. Cash dividends should not exceed 20% of the distribution for any given year; provided that cash dividends will not be paid if the dividend per share is less than NT$0.10.
We are also permitted to make distributions to our shareholders of additional common shares by capitalizing reserves. However, the capitalized portion payable out of our legal reserve is limited to 50% of the total accumulated legal reserve and the capitalization can only be effected when the accumulated legal reserve exceeds 50% of our paid-in capital.
For information on the dividends we paid in recent years, see "Item 8. Financial Information--Dividends and Dividend Policy". For information as to ROC taxes on dividends and distributions, see "Item 10. Additional Information--Taxation--ROC Taxation-- Common Shares and ADSs--Dividends on Common Shares and ADSs".
Changes in Share Capital
Under ROC Company Law, any change in the authorized share capital of a company limited by shares requires an amendment to its Articles of Incorporation. In the case of a public company such as ASE Inc., the approval of the ROC Securities and Futures Commission and the ROC Ministry of Economic Affairs is also required. Authorized but unissued common shares may be issued, subject to applicable ROC law, upon terms as our board of directors may determine.
Preemptive Rights
Under the ROC Company Law, when an ROC company issues new shares for cash, existing shareholders who are listed on the shareholders' register as of the record date have preemptive rights to subscribe for the new issue in proportion to their existing shareholdings, while a company's employees, whether or not they are shareholders of the company, have rights to subscribe for 10% to 15% of the new issue. Any new shares that remain unsubscribed at the expiration of the subscription period may be offered by us to the public or privately placed.
In addition, in accordance with the ROC Securities and Exchange Law, a public company that intends to offer new shares for cash must offer to the public at least 10% of the shares to be sold. This percentage can be increased by a resolution passed at a shareholders' meeting, which would diminish the number of new shares subject to the preemptive rights of existing shareholders.
These preemptive rights provisions do not apply to offerings of new shares through a private placement approved at a shareholders' meeting.
Meetings of Shareholders
We are required to hold an ordinary meeting of our shareholders within six months following the end of each fiscal year. These meetings are generally held in Kaohsiung, Taiwan. Extraordinary shareholders' meetings may be convened by resolution of the board of directors or by the board of directors upon the written request of any shareholder or shareholders who have held 3% or more of the outstanding common shares for more than one year. Extraordinary shareholders' meetings may also be convened by a supervisor. Notice in writing of general meetings of shareholders, stating the place, time and purpose, must be dispatched to each shareholder at least 30 days, in the case of ordinary meetings, and 15 days, in the case of extraordinary meetings, before the date set for each meeting. A majority of the holders of all issued and outstanding common shares present at a shareholders' meeting constitutes a quorum for meetings of shareholders.
Voting Rights
Under the ROC Company Law, shareholders have one vote for each common share held. Under the ROC Company Law, our directors and supervisors are elected at a shareholders' meeting through cumulative voting, unless the articles of incorporation of a company provide otherwise.
In general, a resolution can be adopted by the holders of at least a majority of the common shares represented at a shareholders' meeting at which the holders of a majority of all issued and outstanding common shares are present. Under ROC Company Law, the approval by at least a majority of the common shares represented at a shareholders' meeting in which a quorum of at least two-thirds of all issued and outstanding common shares are represented is required for major corporate actions, including:
o amendment to the Articles of Incorporation, including increase of authorized share capital and any changes of the rights of different classes of shares;
o transfer of the company's entire business or assets or substantial part of its business or assets;
o execution, amendment or termination of any contract through which the company leases its entire business to others, or the company appoints others to operate its business or the company operates its business with others on a continuous basis;
o acquisition of the entire business or assets of any other company, which would have a significant impact on the company's operations;
o distribution of any stock dividend;
o dissolution, merger or spin-off of the company; and
o removal of the directors or supervisors.
A shareholder may be represented at an ordinary or extraordinary meeting by proxy if a valid proxy form is delivered to us five days before the commencement of the ordinary or extraordinary shareholders' meeting.
Holders of ADSs do not have the right to exercise voting rights with respect to the underlying common shares, except as described in the deposit agreement.
Voting of Deposited Securities
Except as described below, holders of ADSs generally have no right under the deposit agreement to instruct the depositary to exercise the voting rights for the common shares represented by the ADSs. Instead, by accepting ADSs or any beneficial interest in ADSs, holders of ADSs are deemed to have authorized and directed the depositary to
appoint our chairman or his designee to represent them at our shareholders' meetings and to vote the common shares deposited with the custodian according to the terms of the deposit agreement.
The depositary will mail to holders of ADSs any notice of shareholders' meeting received from us together with information explaining how to instruct the depositary to exercise the voting rights of the securities represented by ADSs.
If we fail to timely provide the depositary with an English language translation of our notice of meeting or other materials related to any meeting of owners of common shares, the depositary will endeavor to cause all the deposited securities represented by ADSs to be present at the applicable meeting, insofar as practicable and permitted under applicable law, but will not cause those securities to be voted.
If the depositary timely receives voting instructions from owners of at least 51.0% of the outstanding ADSs to vote in the same direction regarding one or more resolutions to be proposed at the meeting, including election of directors and supervisors, the depositary will notify the instructions to our chairman or his designee to attend the meeting and vote all the securities represented by the holders' ADSs in accordance with the direction received from owners of at least 51.0% of the outstanding ADSs.
If we have timely provided the depositary with the materials described in the deposit agreement and the depositary has not timely received instructions from holders of at least 51.0% of the outstanding ADSs to vote in the same direction regarding any resolution to be considered at the meeting, then, holders of ADSs will be deemed to have authorized and directed the depositary bank to give a discretionary proxy to our chairman or his designee to attend and vote at the meeting the common shares represented by the ADSs in any manner he or his designee may wish, which may not be in the interests of holders.
The ability of the depositary to carry out voting instructions may be limited by practical and legal limitations and the terms of the securities on deposit. We cannot assure ADS holders that they will receive voting materials in time to enable them to return voting instructions to the depositary in a timely manner.
Register of Shareholders and Record Dates
Our share registrar, President Securities Corp., maintains our register of shareholders at its offices in Taipei, Taiwan, enters transfers of common shares in our register upon presentation of, among other documents, certificates representing the common shares transferred and acts as paying agent for any dividends or distributions with respect to our common shares. Under the ROC Company Law and our Articles of Incorporation, we may, by giving advance public notice, set a record date and close the register of shareholders for a specified period in order for us to determine the shareholders or pledgees that are entitled to rights pertaining to the common shares. The specified period required is as follows:
o ordinary shareholders' meeting--60 days;
o extraordinary shareholders' meeting--30 days; and
o relevant record date--five days.
Annual Financial Statements
At least 10 days before the annual ordinary shareholders' meeting, our annual financial statements must be available at our principal executive office in Kaohsiung, Taiwan for inspection by the shareholders.
Transfer of Common Shares
The transfer of common shares in registered form is effected by endorsement and delivery of the related share certificates but, in order to assert shareholders' rights against us, the transferee must have his name and address registered on our register of shareholders. Shareholders are required to file their respective specimen seals, also known as chops, with us. Chops are official stamps widely used in Taiwan by individuals and other entities to authenticate the execution of official and commercial documents.
Acquisition of Common Shares by ASE Inc.
Under the ROC Securities and Exchange Law, we may purchase our own common shares for treasury stock in limited circumstances, including:
o to transfer common shares to our employees;
o to deliver shares upon the conversion or exercise of bonds with warrants, preferred shares with warrants, convertible notes, convertible preferred shares or warrants issued by us; and
o to maintain our credit and our shareholders' equity, provided that the shares so purchased shall be canceled.
We may purchase our common shares on the Taiwan Stock Exchange or by means of a public tender offer. These transactions require the approval of a majority of our board of directors at a meeting in which at least two-thirds of the directors are in attendance. The total amount of common shares purchased for treasury stock may not exceed 10% of the total outstanding shares. In addition, the total cost of the purchased shares shall not exceed the aggregate amount of our retained earnings, any premium from share issuances and the realized portion of our capital reserve.
Pursuant to the amended ROC Company Law, effective from November 14, 2001, our subsidiaries are not permitted to acquire our common shares. This restriction does not affect any acquisition of our common shares made by our subsidiaries prior to November 14, 2001.
Liquidation Rights
In the event of our liquidation, the assets remaining after payment of all debts, liquidation expenses and taxes will be distributed pro rata to the shareholders in accordance with the relevant provisions of the ROC Company Law and our Articles of Incorporation.
Transfer Restrictions
Substantial Shareholders
The ROC Securities and Exchange Law currently requires (1) each director, supervisor, manager or substantial shareholder (that is, a shareholder who together with his or her spouse, minor children or nominees, holds more than 10% of the shares of a public company) to report any change in that person's shareholding to the issuer of the shares and the ROC Securities and Futures Commission and (2) each director, supervisor, manager or substantial shareholder, after acquiring its status of director, supervisor, manager or substantial shareholder for a period of six months, to report his or her intent to transfer any shares on the Taiwan Stock Exchange to the ROC Securities and Futures Commission at least three days before the intended transfer, unless the number of shares to be transferred is less than 10,000 shares.
In addition, the number of shares that can be sold or transferred on the Taiwan Stock Exchange by any person subject to the restrictions described above on any given day may not exceed:
o 0.2% of the outstanding shares of the company in the case of a company with no more than 30 million outstanding shares; or
o 0.2% of 30 million shares plus 0.1% of the outstanding shares exceeding 30 million shares in the case of a company with more than 30 million outstanding shares; or
o in any case, 5% of the average trading volume (number of shares) on the Taiwan Stock Exchange for the ten consecutive trading days preceding the reporting day on which the director, supervisor, manager or substantial shareholder reports the intended share transfer to the ROC Securities and Futures Commission.
These restrictions do not apply to sales or transfers of our ADSs.
Common Shares Issued to Substantial Shareholders in Connection with a Merger
The rules and regulations of the Taiwan Stock Exchange impose certain transfer restrictions on common shares of a Taiwan Stock Exchange listed company issued to a substantial shareholder (as defined under the ROC Securities and Exchange Law) of an unlisted company to be merged with and into the acquiror. A substantial shareholder of an unlisted company to be merged with and into a Taiwan Stock Exchange listed company is restricted from selling or transfering common shares received in connection with such merger for a period of six months after such shares are listed on the Taiwan Stock Exchange. After the initial six-month lock-up period, such holder is permitted to sell or transfer 50% of its holdings of the common shares received in the merger. After two years from the date of the listing of the common shares, the holder is permitted to sell or transfer an additional 10% of its holdings of the common shares and an additional 10% of the common shares every six months thereafter.
MATERIAL CONTRACTS
Manufacturing Services Agreement dated as of July 3, 1999 among Motorola, Inc., ASE Inc. and ASE Chung Li
This contract was entered into to provide a strategic supplier relationship in which we use our ASE Chung Li subsidiary to provide testing and packaging services to Motorola on a priority basis. This contract has a duration of five years. The contract governs capacity reservation by Motorola at the Chung Li facility as well as our facilities in Kaohsiung, Taiwan or the facilities of ASE Test Taiwan and specifications of the work to be performed. Remuneration to us is confidential and the contract, as filed as an exhibit to our Form F-1 Registration Statement in 2000, was granted confidential treatment by the SEC.
Manufacturing Services Agreement dated as of July 3, 1999 among Motorola, Inc., ASE Inc. and ASE Korea
This contract was entered into to provide a strategic supplier relationship in which we use our ASE Korea subsidiary to provide testing and packaging services to Motorola on a priority basis. This contract has a duration of five years. The contract governs capacity reservation by Motorola at the Korea facility and specifications of the work to be performed. Remuneration to us is confidential and the contract, as filed as an exhibit to our Form F-1 Registration Statement in 2000, was granted confidential treatment by the SEC.
Joint Venture Agreement dated October 28, 2003 by and between ASE Inc. and Compeq
This contract was entered into with Compeq to establish the joint venture ASE-Compeq Technologies, Inc., which will focus on the design and production of interconnect materials for packaging semiconductors. We own a 60% equity interest in ASE-Compeq Technologies, Inc. and Compeq owns the remaining 40% equity interest. See "Item 4. Information on the Company - History and Development of the Company - Joint Venture with Compeq Manufacturing Co., Ltd."
Merger Agreement dated October 28, 2003 by and among ASE Inc., ASE Chung Li and ASE Material
Under this contract, ASE Chung Li and ASE Material are to be merged with and into ASE Inc., with ASE Inc. as the surviving corporation. Upon the completion of the merger, all of the assets and liabilities of ASE Chung Li and ASE Material will be owned and assumed by ASE Inc. The merger is to be consummated by means of a share exchange pursuant to which each common share of ASE Chung Li not directly owned by ASE Inc. will be exchanged for 0.85 ASE Inc. common share and each common share of ASE Material not directly owed by ASE Inc. will be exchanged for 0.5 ASE Inc. common share. We expect the merger to be completed on August 1, 2004, subject to receipt of all necessary approvals and consents. See "Item 4. Information on the Company - History and Development of the Company - Pending Merger with ASE Chung Li and ASE Material".
Share Sale and Purchase Agreement dated as of February 3, 2004 among NEC Electronics Corporation, NEC Yamagata Ltd., J&R Holding Ltd., and ASE Inc.
On February 3, 2004, we and J&R Holding Limited, our wholly-owned subsidiary, entered into a share sale and purchase agreement with NEC and NEC Yamagata, Ltd. in connection with the acquisition of the semiconductor
packaging and testing business of NEC Yamagata, a wholly-owned subsidiary of NEC. The acquisition was completed on May 31, 2004 and the purchase price was approximately US$24 million, which is subject to certain purchase price adjustments. The acquisition was consummated by means of a company split under the Japanese Commercial Code through which the packaging and testing business of NEC Yamagata was transferred to a company formed by NEC Yamagata named ASE Japan Co., Ltd. Pursuant to the terms and conditions of the share sale and purchase agreement, all of the issued and outstanding shares of ASE Japan were purchased by J&R Holding Limited, and ASE Japan now owns and operates the semiconductor packaging and testing business acquired from NEC Yamagata.
See "Item 4. Information on the Company -- Business Overview -- Sales and Marketing -- Sales and Customer Service Agents" for a summary of contracts we have entered into with agents for sales and customer service.
EXCHANGE CONTROLS
ROC Exchange Controls
The Foreign Exchange Control Statute and regulations provide that all foreign exchange transactions must be executed by banks designated to handle the business, by the ROC Ministry of Finance and by the Central Bank of China. Current regulations favor trade-related foreign exchange transactions. Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters, and all foreign currency needed for the importation of merchandise and services may be purchased freely from the designated foreign exchange banks.
Trade aside, ROC companies and resident individuals may, without foreign exchange approval, remit into and outside the ROC foreign currency of up to US$50 million (or its equivalent) and US$5 million (or its equivalent) respectively in each calendar year. The above limits apply to remittances involving a conversion of NT dollars to a foreign currency and vice versa. A requirement is also imposed on all enterprises to register medium-and long-term foreign debt with the Central Bank of China.
In addition, foreign persons may, subject to specified requirements, but without foreign exchange approval of the Central Bank of China, remit outside and into the ROC foreign currencies of up to US$100,000 (or its equivalent) for each remittance. The above limit applies to remittances involving a conversion of NT dollars to a foreign currency and vice versa. The above limit does not, however, apply to the conversion of NT dollars into other currencies, including U.S. dollars, from the proceeds of sale of any underlying shares withdrawn from a depositary receipt facility.
TAXATION
ROC Taxation
The following discussion describes the material ROC tax consequences of the ownership and disposition of the common shares or ADSs to a non-resident individual or non-resident entity that holds the common shares or ADSs, or a non-ROC holder. As used in the preceding sentence, a "non-resident individual" is a foreign national who owns the common shares or ADSs and is not physically present in the ROC for 183 days or more during any calendar year and a "non-resident entity" is a corporation or a non-corporate body that owns the common shares or ADSs is
organized under the laws of a jurisdiction other than the ROC and has no fixed place of business or other permanent establishment in the ROC.
Dividends
Dividends (whether in cash, common shares or ADSs) declared by us out of retained earnings and distributed to a non-ROC holder in respect of common shares or ADSs are subject to ROC withholding tax, currently at the rate of 20% on the amount of the distribution (in the case of cash dividends) or on the par value of the distributed common shares (in the case of stock dividends). A 10% retained earnings tax is imposed on an ROC company for its after-tax earnings generated after January 1, 1998 which are not distributed in the following year. The retained earnings tax so paid will further reduce the retained earnings available for future distribution. When we declare a dividend out of those retained earnings, up to a maximum amount of 10% of the net dividend received will be credited against the 20% withholding tax imposed on the non-ROC holders of its common shares or ADSs.
It is currently unclear whether dividends paid by us out of our capital reserves are subject to ROC withholding tax because there are two possible interpretations of the relevant tax laws and regulations that lead to different conclusions on whether such dividends will be taxable, and there is currently no authoritative guidance on this issue.
Capital Gains
Under current ROC law, capital gain realized upon the sale or other disposition of securities is exempt from ROC income tax. This exemption currently applies to capital gains derived from the sale of common shares.
Sales of ADSs by non-ROC holders are not regarded as sales of ROC securities and thus any gains derived from transfers of ADSs are not currently subject to ROC income tax.
Sale
Securities transaction tax will be imposed on the seller at the rate of 0.3% of the transaction price upon a sale of common shares. Transfers of ADRs are not subject to ROC securities transaction tax.
Subscription Rights
Distributions of statutory subscription rights for the common shares in compliance with the ROC Company Law are currently not subject to ROC tax. Proceeds derived from sales of statutory subscription rights evidenced by securities are currently exempted from income tax but are subject to securities transaction tax, currently at the rate of 0.3% of the gross amount received. Proceeds derived from sales of statutory subscription rights which are not evidenced by securities are subject to capital gains tax at the rate of (i) 25% of the gross amount realized for non-resident entities and (ii) 35% of the gross amount realized for non-resident individuals. Subject to compliance with ROC law, we, in our sole discretion, may determine whether statutory subscription rights are securitized.
Inheritance and Gift Tax
ROC inheritance tax is payable on any property within the ROC of a deceased non-resident individual, and ROC gift tax is payable on any property within the ROC donated by a non-resident individual. Inheritance tax is currently imposed at rates ranging from 2% of the first NT$600,000 to 50% of amounts in excess of NT$100 million. Gift tax is imposed at rates ranging from 4% of the first NT$600,000 donated to 50% of amounts donated in excess of NT$45 million. Under ROC Inheritance and Gift Tax Law, shares and bonds issued by ROC companies are deemed located in the ROC without regard to the location of the owner. It is unclear whether a holder of ADSs, will be considered to own common shares for this purpose.
Tax Treaty
At present, the ROC has income tax treaties with Indonesia, Singapore, New Zealand, Australia, the United Kingdom, South Africa, Gambia, Swaziland, Malaysia, Macedonia, the Netherlands and Vietnam. It is unclear whether a non-ROC holder of ADSs will be considered to own common shares for the purposes of such treaties. Accordingly, a holder of ADSs who is otherwise entitled to the benefit of a treaty should consult its own tax advisers
concerning eligibility for benefit under the treaty with respect to the ADSs, as the case may be. The United States does not have an income tax treaty with the ROC.
United States Federal Income Taxation
The following discussion describes the material U.S. federal income tax consequences of the ownership and disposition of ADSs to those U.S. holders described below. For these purposes, you are a U.S. holder if you are a beneficial owner of ADSs that, for U.S. federal income tax purposes, is:
o a citizen or resident of the United States;
o a corporation or other entity taxable as a corporation organized under the laws of the United States or of any political subdivision of the United States; or
o an estate or trust the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source.
This discussion assumes that ASE Inc. will not be considered a passive foreign investment company. Please see our discussion of passive foreign investment company rules below.
Please note that this discussion does not address all of the tax consequences that may be relevant in light of your particular circumstances. In particular, it does not address all of the tax consequences that may be relevant to purchasers subject to special rules, including:
o persons subject to the alternative minimum tax;
o insurance companies;
o tax-exempt entities;
o dealers or traders in securities;
o financial institutions;
o partnerships or other entities classified as partnerships for U.S. federal income tax purposes;
o persons carrying on a trade or business in the ROC;
o persons who hold or will hold common shares or ADSs as part of an integrated investment, including a straddle, hedging or conversion transaction, comprised of common shares or ADSs and one or more other positions for tax purposes;
o persons whose functional currency is not the U.S. dollar; or
o persons who own 10% or more of our voting stock.
This discussion is based on the Internal Revenue Code of 1986, as amended, Treasury Regulations, administrative announcements and judicial decisions currently in effect. These laws and regulations may change, possibly with retroactive effect. This discussion is also based in part on representations by the depositary and assumes that each obligation under the deposit agreement and any related agreement will be performed in accordance with its terms.
In general, for U.S. federal income tax purposes, a U.S. holder of ADSs should be treated as the holder of the common shares represented by the ADSs. However, the U.S. Treasury has expressed concerns that parties to whom depositary shares are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits by the holders of ADSs. Such actions would also be inconsistent with the claiming of the reduced rate of tax applicable to dividends received by certain noncorporate U.S. holders, as described below. Accordingly, the analysis of the creditability of ROC taxes described below, and the availability of the reduced tax rate for dividends
received by certain noncorporate U.S. holders, could be affected by future actions that may be taken by parties to whom the ADSs are released.
Please consult your tax advisors with regard to the application of the U.S. federal income tax laws to ADSs as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdictions.
Dividends
Any dividends you receive on ADSs (other than pro rata distributions of common shares to all shareholders including holders of ADSs), including the amount of any ROC taxes withheld thereon, reduced by any credit against the withholding tax on account of the 10% retained earnings tax imposed on ASE Inc., will constitute foreign source dividend income to the extent paid out of current or accumulated earnings and profits as determined in accordance with U.S. federal income tax principles. The amount you will be required to include in income for any dividend paid in NT dollars will be equal to the U.S. dollar value of the NT dollars paid, calculated by reference to the exchange rate in effect on the date the depositary receives the dividend. If you realize gain or loss on a sale or other disposition of NT dollars, it will generally be U.S. source ordinary income or loss. The amount of any distribution of property other than cash will be the fair market value of such property on the date of distribution. You will not be entitled to a dividends-received deduction for dividends you receive.
Subject to applicable limitations, dividends paid to noncorporate U.S. holders in taxable years beginning before January 1, 2009 will be taxable at a maximum tax rate of 15%. Noncorporate U.S. holders should consult their own tax advisers to determine the implications of the rules regarding this favourable rate in their particular circumstances.
Subject to applicable limitations and restrictions, the ROC taxes withheld from dividend distributions, reduced by any credit against the withholding tax on account of the 10% retained earnings tax, will be eligible for credit against your U.S. federal income tax liabilities. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends paid with respect to the common shares will constitute "passive income" or, in the case of certain U.S. holders, "financial services income".
Pro rata distributions of common shares by a company to its shareholders, including holders of ADSs, will not be subject to U.S. federal income tax. Accordingly, these distributions will not give rise to U.S. federal income against which the ROC tax imposed on these distributions may be credited. Any ROC tax of this nature will only be creditable against a U.S. holder's U.S. federal income tax liability with respect to income in the "general limitation income" class and not "passive income" or "financial services income", subject to applicable limitations and restrictions.
Capital Gains
You will recognize capital gain or loss for U.S. federal income tax purposes on the sale or exchange of ADSs in the same manner as you would on the sale or exchange of any other common shares held as capital assets. The gain or loss will be U.S. source income or loss. You should consult your own tax advisor about the treatment of capital gains, which may be taxed at lower rates than ordinary income for non-corporate taxpayers, and capital losses, the deductibility of which may be limited.
Deposits and withdrawals of common shares by a U.S. holder in exchange for ADSs will not result in realization of gain or loss for U.S. federal income tax purposes.
Passive Foreign Investment Company Rules
Based on management estimates, ASE Inc. does not expect to be a passive foreign investment company. In general, a foreign corporation is a passive foreign investment company for any taxable year in which (1) 75% or more of its gross income consists of passive income (such as dividends, interest, rents and royalties) or (2) 50% or more of the average quarterly value of its assets consists of assets that produce, or are held for the production of, passive income. The determination of whether ASE Inc. may be a passive foreign investment company will be based on the composition of its income and assets, as well as those of its subsidiaries and certain affiliates, from time to time. Since the composition of ASE Inc.'s income and assets will vary over time, there can be no assurance that
it will not be considered a passive foreign investment company for any fiscal year. If ASE Inc. is a passive foreign investment company at any time that you own ADSs:
o You may be subject to additional taxes and interest charges on any gain realized on the disposition of the ADSs and on certain "excess distributions" on the ADSs. The additional taxes are assessed at the highest tax rate applicable for corporate or individual taxpayers for the relevant tax periods; and
o You will be subject to additional U.S. tax filing requirements for each year that you hold ADSs.
Please consult your tax advisors about the possibility that ASE Inc. may be a passive foreign investment company and the rules that would apply to you if it were.
Estate and Gift Tax
As discussed in "-- ROC Taxation", you might be required to pay ROC estate and gift tax. You should consult your tax advisor regarding the effect of these taxes.
DIVIDENDS AND PAYING AGENTS
Not Applicable.
STATEMENT BY EXPERTS
Not Applicable.
DOCUMENTS ON DISPLAY
We file annual reports on Form 20-F and periodic reports on Form 6-K with the SEC. You can read and copy these reports and other information at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can also request copies of the documents, upon payment of a duplicating fee, by writing to the Public Reference Section of the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. The reports and other information we file electronically with the SEC are also available to the public from the SEC's website at http://www.sec.gov.
SUBSIDIARY INFORMATION
Not Applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
Our exposure to financial market risks relates primarily to changes in interest rates and foreign currency exchange rates. To mitigate these risks, we utilize derivative financial instruments, the application of which is primarily to manage these exposures, and not for speculative purposes.
Interest Rate Risk. Our exposure to interest rate risks relates primarily to our long-term floating rate debt, which is normally incurred to support our corporate activities and capital expenditures. We currently do not enter into derivative transactions with regard to interest rates, but would consider engaging in currency interest rate swaps to lock in favorable currency and interest rate levels from time to time, if available, on terms considered attractive by us. No interest rate derivative contracts were outstanding as of December 31, 2003.
The following table provides information about our significant obligations that are sensitive to interest rate fluctuations as of December 31, 2003.
Expected Maturity Date
-----------------------------------------------------------------------------------------------
2004 2005 2006 2007 2008 Thereafter Total Fair Value
-----------------------------------------------------------------------------------------------
(in millions, except percentages)
Short-term debt:
Variable rate (NT$) ....... 1,655.8 -- -- -- -- -- 1,655.8 1,655.8
Average interest rate ... 1.72% -- -- -- -- -- 1.72%
Variable rate (US$) ....... 57.5 -- -- -- -- -- 57.5 57.5
Average interest rate ... 3.75% -- -- -- -- -- 3.75%
Variable rate (JP) ........ 4,962.9 -- -- -- -- 4,962.9 4,962.9
Average interest rate ... 1.15% -- -- -- -- -- 1.15%
Variable rate (EUR) ....... 2.4 -- -- -- -- -- 2.4 2.4
Average interest rate ... 3.45% -- -- -- -- -- 3.45%
Variable rate (KRW) ....... 13,000.0 -- -- -- -- -- 13,000.0 13,000.0
Average interest rate ... 5.02% -- -- -- -- -- 5.02%
Variable rate (GBP) ....... 0.1 -- -- -- -- -- 0.1 0.1
Average interest rate ... 7.19% -- -- -- -- -- 7.19%
Variable rate (RMB) ....... 112.5 -- -- -- -- -- 112.5 112.5
Average interest rate ... 4.78% -- -- -- -- -- 4.78%
Long-term debt:
Variable rate (NT$) ....... 4,584.6 6,492.6 2,711.1 1,661.0 1,779.1 1,087.8 18,316.2 18,316.2
Average interest rate ... 3.22% 3.30% 4.21% 3.79% 3.47% 3.37% 3.48%
Fixed rate (NT$) .......... 2.7 1.2 0.8 0.9 0.7 -- 6.3 6.3
Average interest rate ... 5.07% 8.10% 11.00% 11.00% 11.00% -- 7.87%
Variable rate (US$) ....... 26.2 42.3 102.7 68.9 31.8 35.5 307.4 307.4
Average interest rate ... 4.61% 5.38% 6.06% 6.62% 6.84% 6.52% 6.10%
Fixed rate (US$) .......... 5.3 3.6 0.5 0.5 202.5 -- 212.4 212.4
Average interest rate ... 9.34% 9.26% 7.92% 7.92% 3.76% -- 4.01%
Variable rate (JP) ........ -- -- -- -- -- 1,623.0 1,623.0 1,623.0
Average interest rate ... -- -- -- -- -- 2.92% 2.92%
|
Foreign Currency Exchange Rate Risk. Our foreign currency exposure gives rise to market risk associated with exchange rate movements against the NT dollar, our functional currency. Currently, the majority of our revenues from packaging and testing services are denominated in U.S. dollars, with a portion denominated in NT dollars. Our costs of revenues and operating expenses associated with packaging and testing services are incurred in several currencies, primarily in NT dollars and U.S. dollars, as well as, to a lesser extent, Malaysian ringgit, Korean won and Japanese yen. In addition, a substantial portion of our capital expenditures, primarily for the purchase of packaging and testing equipment, has been, and is expected to continue to be, denominated primarily in U.S. dollars with the remainder in Japanese yen. Fluctuations in exchange rates, primarily among the U.S. dollar, the NT dollar and the Japanese yen, will affect our costs and operating margins and could result in exchange losses and increased costs in NT dollar and other local currency terms. In 2001, 2002 and 2003, the average exchange rate of the NT dollar to the U.S. dollar was 33.91, 34.53 and 34.40, respectively.
Foreign currency denominated liabilities as of December 31, 2003 include U.S. dollar debt and Japanese yen debt. As of December 31, 2003, approximately 68.2% of our cash and accounts receivable were denominated in U.S. dollars, with a substantial portion of the remainder denominated in NT dollars. As of December 31, 2003, approximately 63.1% of our accounts payable and payable for fixed assets were denominated in currencies other than the NT dollar. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign currency exchange rates, we may utilize currency forward contracts from time to time to reduce the impact of foreign currency fluctuations on our results of operations. Our policy is to account for these contracts on a mark-to-market rate basis, and the premiums are amortized on a straight-line basis over the life of the contract.
In October 2003, we entered into cross-currency swap contracts to hedge against reductions in value caused by changes in foreign currency exchange rates in connection with the proceeds received from our offering of US$200 million unsecured zero coupon convertible bonds due 2008. The table below sets forth our outstanding cross currency swap contracts as of December 31, 2003.
Cross-Currency Swap Contracts
Pay NT$ Fixed/Receive US$ Fixed
Notional Amount US$157.0 million
NT$5,330.2 million
Fair Value NT$5,294.0 million
Contract Rate 33.95
Receive Rate 2.7%
Pay Rate 1.7%
Maturity October 2007
Pay NT$ Floating/Receive US$ Floating
Notional Amount US$43.0 million
NT$1,459.8 million
Fair Value NT$1,427.8 million
Contract Rate 33.95
Percentage by which LIBOR
Receive Rate is less than 2%
Percentage by which LIBOR
Pay Rate is greater than 2%
Maturity September 2008
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The table below sets forth our outstanding foreign currency option contracts in aggregate terms by type of contract as of December 31, 2003. These contracts all mature in 2004.
Foreign Currency Options Contracts
Buy US$ Put/Japanese Yen Call
Notional Amount US$60 million
Weighted Average Strike Price US$111.24
Fair Value US$1.2 million
Buy US$ Put/NT$ Call
Notional Amount US$159 million
Weighted Average Strike Price US$33.96
Fair Value US$2.1 million
Sell US$ Call/ Japanese Yen Put
Notional Amount US$120 million
Weighted Average Strike Price US$111.87
Fair Value US$(0.3) million
Sell US$ Call/NT$ Put
Notional Amount US$14 million
Weighted Average Strike Price US$34.23
Fair Value US$(0.02) million
Sell US$ Put/NT$ Call
Notional Amount US$157 million
Weighted Average Strike Price US$33.46
Fair Value US$(3.2) million
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Item 12. Description of Securities Other Than Equity Securities
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Not applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
Not applicable.
Item 15. Controls and Procedures
As of December 31, 2003, we, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in the reports we file under the Exchange Act, within the time periods specified in the SEC's rules and forms. Our management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature can provide only reasonable assurance regarding management's control objectives.
There has been no change in our internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. Audit Committee Financial Expert
Under Rule 10A-3 of the Exchange Act and the rules of the New York Stock Exchange, we are required to have an audit committee that meets certain requirements by July 31, 2005. We are currently in the process of reviewing examples of audit committee charters and considering candidates for appointment as audit committee members with a view to fully complying with these new requirements in the specified time period, including the appointment of an audit committee financial expert, as defined under Item 16A of Form 20-F.
Item 16B. Code of Ethics
We have not adopted a written code of ethics for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Ethical oversight and actual or apparent conflicts of interest have historically been handled informally by senior management and the board of directors. We are currently reviewing examples of written codes of ethics and will address the adoption of such a code with the board of directors in the near future.
Item 16C. Principal Accountant Fees And Services
Policy on Pre-Approval of Audit and Non-Audit Services of Independent Auditors
Until the establishment of our audit committee, the full board of directors is responsible for the oversight of our independent auditor's work. Our board of directors pre-approves all audit and non-audit services provided by our independent auditors, including audit services, audit-related services, tax services and other services, on a case-by-case basis. Accordingly, we have not established any pre-approval policies and procedures. All audit and non-audit services performed by Deloitte & Touche, our independent auditors, after May 6, 2003, the effective date of revised Rule 2-01(c)(7) of Regulation S-X entitled "Audit Committee Administration of the Engagement", were pre-approved by the board of directors.
Independent Auditor Fees
TN Soong & Co., independent public accountants, an associate member firm of Deloitte Touche Tohmatsu, combined with Deloitte & Touche (Taiwan) to establish Deloitte & Touche effective June 1, 2003, at which time
Deloitte & Touche became our principal independent auditor. Prior to June 1, 2003, TN Soong & Co. had served as our principal independent auditor for the periods indicated in the table below.
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Deloitte & Touche or TN Soong & Co., as applicable. We did not pay any other fees to our auditors during the periods indicated below.
For the Year Ended December 31,
----------------------------------------------
2001 2002 2003
----------------------------------------------
NT$ NT$ NT$ US$
(in thousands)
Audit fees (1)................. 14,710.0 23,421.0 26,582.3 782.1
Audit-related fees (2)......... 310.0 10,430.0 14,898.3 438.3
Tax fees (3)................... 829.1 105.0 813.5 23.9
Other fees (4)................. 2,460.0 1,900.0 5,454.1 160.5
---------
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(1) Consists of fees for professional services in connection with the audit of our annual financial statements, reviews of interim financial statements and statutory and regulatory filings or engagements.
(2) Principally comprises fees associated with the issuance of agreed-upon procedure letters.
(3) Consists of fees for tax advice.
(4) Consists of risk management consulting fees.
PART III
Item 17. Financial Statements
The Company has elected to provide financial statements for fiscal year 2003 and the related information pursuant to Item 18.
Item 18. Financial Statements
Reference is made to pages F-1 to F-63 of this annual report.
The consolidated financial statements of the Company and the report thereon by its independent auditors listed below are attached hereto as follows:
(a) Report of Independent Auditors of the Company dated February 16, 2004 (page F-2).
(b) Consolidated Balance Sheets of the Company and subsidiaries as of December 31, 2002 and 2003 (page F-4).
(c) Consolidated Statements of Income of the Company and subsidiaries for the years ended December 31, 2001, 2002 and 2003 (page F-5).
(d) Consolidated Statements of Changes in Shareholders' Equity of the Company and subsidiaries for the years ended December 31, 2001, 2002 and 2003 (page F-8).
(e) Consolidated Statements of Cash Flows of the Company and subsidiaries for the years ended December 31, 2001, 2002 and 2003 (pages F-9 to F-10).
(f) Notes to Consolidated Financial Statements of the Company and subsidiaries (pages F-11 to F-63).
Item 19. Exhibits
1. Articles of Association of the Registrant (in Chinese with English translation) (incorporating all amendments as of June 15, 2004).
2. Amended and Restated Deposit Agreement dated as of September 29, 2000 among ASE Inc., Citibank N.A., as depositary, and Holders and Beneficial Holders of American Depositary Shares evidenced by American Depositary Receipts issued thereunder, including the form of American Depositary Receipt (incorporated by reference to Exhibit 4.1 to our registration statement on Form F-3 (File No. 333-87428) filed on March 31, 2003).
4. (a) Asset Purchase Agreement dated as of July 3, 1999 among ASE (Chung Li) Inc., ASE Inc., Motorola Electronics Taiwan, Ltd. and Motorola, Inc. (incorporated by reference to Exhibit 10.2 to ASE Test's registration statement on Form F-3 (File No. 333-10892) filed on September 27, 1999 (the "ASE Test 1999 Form-3")).
(b) Agreement dated as of June 5, 2002 among ASE (Chung Li) Inc., ASE Inc., Motorola Electronics Taiwan, Ltd. and Motorola, Inc. amending certain earn-out arrangements provided for in Section 2.09(b)(ii)(D) of the Asset Purchase Agreement dated as of July 3, 1999 among the same parties (incorporated by reference to Exhibit 4(b) to our annual report on Form 20-F (File No. 001-16125) for the year ended December 31, 2002 filed on June 30, 2003).
(c) Stock Purchase Agreement dated as of July 3, 1999 among ASE Investment (Labuan) Inc., ASE Inc., Motorola Asia Ltd. and Motorola, Inc. relating to the purchase and sale of 100% of the common stock of Motorola Korea Ltd. (incorporated by reference to Exhibit 10.3 to the ASE Test 1999 Form F-3).
(d)+ Manufacturing Services Agreement dated as of July 3, 1999 among Motorola, Inc., ASE Inc. and ASE (Chung Li) Inc. (incorporated by reference to Exhibit 10.4 to our registration statement on Form F-1 (File No. 333-44622) filed on September 21, 2000 (the "Form F-1")).
(e)+ Manufacturing Services Agreement dated as of July 3, 1999 among Motorola, Inc., ASE Inc. and ASE (Korea) Inc. (incorporated by reference to Exhibit 10.5 to the Form F-1).
(f)+ BGA Immunity Agreement dated as of January 25, 1994 between ASE Inc. and Motorola, Inc. (incorporated by reference to Exhibit 10.6 to the Form F-1).
(g)++ Amendment dated March 18, 2003 renewing the BGA Immunity Agreement dated as of January 25, 1994 between ASE Inc. and Motorola, Inc.
(h) Consent dated June 10, 2004 to the Assignment of the BGA Immunity Agreement between ASE Inc. and Motorola, Inc. dated January 25, 1994.
(i) Service Agreement dated as of August 1, 2003 between ASE Electronics (M) Sdn. Bhd. and ASE (U.S.) Inc.
(j) Service Agreement dated as of August 1, 2003 between ASE Test, Inc. and ASE (U.S.) Inc.
(k) Service Agreement dated as of August 1, 2003 between ASE (Korea) Inc. and ASE (U.S.) Inc.
(l) Service Agreement dated as of August 1, 2003 between ASE (Chung-Li) Inc. and ASE (U.S.) Inc.
(m) Service Agreement dated as of August 1, 2003 between ISE Labs, Inc. and ASE (U.S.) Inc.
(n) Service Agreement dated as of August 1, 2003 between Advanced Semiconductor Engineering, Inc. and ASE (U.S.) Inc.
(o) Commission Agreement dated as of August 1, 2003 between ASE Electronics (M) Sdn. Bhd. and Gardex International Limited.
(p) Commission Agreement dated as of August 1, 2003 between ASE Test, Inc. and Gardex International Limited.
(q) Commission Agreement dated as of August 1, 2003 between ASE (Korea) Inc. and Gardex International Limited.
(r) Commission Agreement dated as of August 1, 2003 between ASE (Chung Li) Inc. and Gardex International Limited.
(s) Commission Agreement dated as of August 1, 2003 between Advanced Semiconductor Engineering, Inc. and Gardex International Limited.
(t) Joint Venture Agreement dated as of October 28, 2003 by and between ASE Inc. and Compeq Manufacturing Co., Ltd. (in Chinese with English translation) (incorporated by reference to Exhibit 10.51 to our registration statement on Form F-3 (File No. 333-111172) filed on December 15, 2003 (the "December 2003 Form F-3")).
(u) Merger Agreement dated as of October 28, 2003 by and among ASE Inc., ASE Chung Li and ASE Material (in Chinese with English translation) (incorporated by reference to Exhibit 10.52 to the December 2003 Form F-3).
(v) Share Sale and Purchase Agreement dated as of February 3, 2004 among NEC Electronics Corporation, NEC Yamagata Ltd., J&R Holding Ltd., and ASE Inc.
8. List of Subsidiaries.
12. (a) Certification of Jason C.S. Chang, Chief Executive Officer of
Advanced Semiconductor Engineering, Inc. required by Rule
13a-14(a) of the Exchange Act.
(b) Certification of Joseph Tung, Chief Financial Officer of
Advanced Semiconductor Engineering, Inc. required by Rule
13a-14(a) of the Exchange Act.
13. Certification of the Chief Executive Officer and the Chief
Financial Officer of Advanced Semiconductor Engineering, Inc.
required by Rule 13a-14(b) of the Exchange Act and Section 1350
of Chapter 63 of Title 18 of the United States Code.
14. Land Leases with the Nantze Export Processing Zone (in Chinese
with English translation summary).
---------
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+ Does not contain portions for which confidential treatment has been granted.
++ Does not contain portions for which confidential treatment has been requested.
The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of any instrument which defines the rights of holders of long-term debt of the Company and its consolidated subsidiaries.
INDEX TO FINANCIAL STATEMENTS
Page
Consolidated Financial Statements of Advanced Semiconductor
Engineering, Inc. and Subsidiaries
Independent Auditors' Report...................................... F-2
Consolidated Balance Sheets....................................... F-4
Consolidated Statements of Income................................. F-5
Consolidated Statements of Changes in Shareholders' Equity........ F-8
Consolidated Statements of Cash Flows............................. F-9
Notes to Consolidated Financial Statement......................... F-11
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INDEPENDENT AUDITORS' REPORT
February 6, 2004
The Board of Directors and Shareholders
Advanced Semiconductor Engineering, Inc.
We have audited the accompanying consolidated balance sheets of Advanced Semiconductor Engineering, Inc., a corporation incorporated under the laws of the Republic of China, and its consolidated subsidiaries (the "Company") as of December 31, 2002 and 2003, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the three year period ended December 31, 2003, which are required to be prepared in accordance with accounting principles generally accepted in the Republic of China and expressed in New Taiwan dollars. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Regulations for Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China and the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2003, and the results of their operations and their cash flows for each of the years in the three year period ended December 31, 2003, in conformity with accounting principles generally accepted in the Republic of China.
Accounting principles generally accepted in the Republic of China vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 25 to the consolidated financial statements.
As discussed in Note 26 to the consolidated financial statements, the Company changed its method in accounting for goodwill and other intangible assets to conform to U.S. Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" effective January 1, 2002.
Our audits also comprehended the translation of New Taiwan dollar amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2. Such U.S. dollar amounts are presented solely for the convenience of the readers.
Deloitte & Touche
(TN Soong & Co and Deloitte & Touche (Taiwan)
Established Deloitte & Touche Effective June 1,2003)
Kaohsiung,Taiwan
The Republic of China
ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Par Value)
----------------------------------------------------------------------------------------------------------------------------
December 31
-----------------------------------------
2002 2003
----------- --------------------------
ASSETS NT$ NT$ US$
----------- ----------- -----------
CURRENT ASSETS
Cash and cash equivalents (Note 2) 9,829,508 8,562,425 251,910
Short-term investments (Notes 2, 3 and 19) 2,590,436 3,017,779 88,784
Notes receivable 112,667 111,596 3,283
Accounts receivable (Note 4) 8,885,879 12,798,135 376,527
Other receivables 130,310 206,475 6,075
Inventories (Notes 2 and 5) 3,131,652 4,691,771 138,034
Deferred income tax assets (Notes 2 and 17) 1,084,441 1,224,501 36,025
Pledged time deposit (Note 19) 428,743 167,426 4,926
Prepayments and other 838,123 677,794 19,941
----------- ----------- -----------
Total current assets 27,031,759 31,457,902 925,505
----------- ----------- -----------
LONG-TERM INVESTMENTS (Notes 2, 6 and 8)
Long-term stock investments-equity method 4,752,847 4,521,113 133,013
Long-term stock investment--cost method 1,813,887 1,756,542 51,678
Prepaid for long-tern investments -- 12,000 353
Other long-term investments -- 50,000 1,471
Other financial assets--non-current -- 3,140 93
----------- ----------- -----------
Total long-term investments 6,566,734 6,342,795 186,608
----------- ----------- -----------
PROPERTIES (Notes 2, 7, 19 and 20)
Cost
Land 3,870,967 3,794,571 111,638
Buildings and improvements 16,656,394 18,391,271 541,079
Machinery and equipment 72,203,572 81,840,769 2,407,790
Transportation equipment 104,225 107,400 3,160
Furniture and fixtures 1,579,785 1,781,292 52,406
Leased assets and leasehold improvements 855,487 1,026,848 30,210
Long-term land leasehold rights 62,206 60,808 1,789
----------- ----------- -----------
Total cost 95,332,636 107,002,959 3,148,072
Accumulated depreciation (39,709,319) (48,281,935) (1,420,475)
----------- ----------- -----------
55,623,317 58,721,024 1,727,597
Construction in progress 1,683,387 2,425,310 71,354
Machinery in transit and prepayments 5,782,166 6,193,613 182,218
----------- ----------- -----------
Net properties 63,088,870 67,339,947 1,981,169
----------- ----------- -----------
OTHER ASSETS
Guarantee deposits (Note 19) 170,064 359,908 10,589
Deferred charge (Notes 2 and 20) 1,055,339 1,519,268 44,697
Deferred income tax assets (Notes 2 and 17) 1,180,773 2,230,229 65,614
Other 269,669 477,960 14,062
----------- ----------- -----------
Total other assets 2,675,845 4,587,365 134,962
----------- ----------- -----------
CONSOLIDATED DEBITS (Notes 2 and 8) 5,541,808 4,596,234 135,223
----------- ----------- -----------
TOTAL ASSETS 104,905,016 114,324,243 3,363,467
=========== =========== ===========
December 31
-----------------------------------------
2002 2003
----------- --------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY NT$ NT$ US$
----------- ----------- -----------
CURRENT LIABILITIES
Short-term borrowings (Notes 9 and 19) 3,903,994 $5,048,230 148,521
Commercial papers and bank acceptances payable (Notes 9 and 10) 2,384,577 1,075,965 31,655
Notes and accounts payable 4,047,171 6,488,989 190,909
Payable for properties 4,494,828 4,392,340 129,225
Income tax payable (Note 17) 172,453 217,846 6,409
Current portion of long-term bank loans (Notes 12 and 19) 6,008,709 5,491,389 161,559
Current portion of obligation under capital leases (Note 20) 193,714 164,612 4,843
Current portion of long-term payable for investments 962,758 2,309,960 67,960
Accrued expenses (Note 13) 1,839,423 1,839,276 54,112
Other 382,349 633,438 18,636
----------- ----------- -----------
Total current liabilities 24,389,976 27,662,045 813,829
----------- ----------- -----------
LONG-TERM LIABILITIES
Long-term bonds payable (Notes 2 and 11) 5,179,793 6,861,232 201,860
Long-term bank loans (Notes 12 and 19) 22,735,903 23,873,312 702,363
Obligation under capital leases (Note 20) 273,660 105,517 3,104
Long-term payable for investments 2,364,360 -- --
----------- ----------- -----------
Total long-term liabilities 30,553,716 30,840,061 907,327
----------- ----------- -----------
ACCRUED PENSION COST (Notes 2 and 13) 416,671 587,286 17,278
----------- ----------- -----------
DEFERRED INCOME TAX LIABILITIES (Notes 2 and 17) 35,658 34,674 1,020
----------- ----------- -----------
Total liabilities 55,396,021 59,124,066 1,739,454
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 19)
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 10,078,329 10,077,575 296,487
----------- ----------- -----------
SHAREHOLDERS' EQUITY (Notes 2 and 14)
Capital stock--NT$10 par value
Authorized--4,550,000,000 shares in 2002 and 5,150,000,000 shares in 2003
Issued--3,254,800,000 shares in 2002 and 3,580,280,000 shares in 2003 32,548,000 35,802,800 1,053,333
----------- ----------- -----------
Capital surplus
Capital in excess of par value 3,171,933 14,777 435
Treasury stock transaction -- 220,735 6,494
Long-term investment 3,753,594 3,811,262 112,129
----------- ----------- -----------
Total capital surplus 6,925,527 4,046,774 119,058
----------- ----------- -----------
Retained earnings 1,173,564 3,808,436 112,046
----------- ----------- -----------
Other equity adjustments
Unrealized loss on long-term investments in shares of stock (423,620) (68,833) (2,025)
Cumulative translation adjustments 1,847,021 1,559,599 45,884
Unrecognized pension cost -- (16,137) (475)
----------- ----------- -----------
Total other equity adjustments 1,423,401 1,474,629 43,384
----------- ----------- -----------
Treasury stock--164,441,857 shares in 2002 and 717,984 shares in 2003 (2,639,826) (10,037) (295)
----------- ----------- -----------
Total shareholders' equity 39,430,666 45,122,602 1,327,526
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 104,905,016 114,324,243 3,363,467
=========== =========== ===========
|
The accompanying notes are an integral part of the financial statements.
ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
-----------------------------------------------------------------------------------------------------------------
Year Ended December 31
--------------------------------------------------------
2001 2002 2003
----------- ----------- --------------------------
NT$ NT$ NT$ US$
----------- ----------- ----------- -----------
NET REVENUES (Notes 2 and 24)
Packaging 28,898,185 35,515,397 45,026,868 1,324,709
Testing 9,459,275 10,060,635 12,142,396 357,234
Other 10,366 10,806 142,506 4,193
----------- ----------- ----------- -----------
Total revenues 38,367,826 45,586,838 57,311,770 1,686,136
----------- ----------- ----------- -----------
COST OF REVENUES (Note 16)
Packaging 24,272,336 29,260,015 37,042,539 1,089,807
Testing 8,676,475 9,219,424 9,287,142 273,231
Other 8,203 12,831 136,772 4,024
----------- ----------- ----------- -----------
Total cost of revenues 32,957,014 38,492,270 46,466,453 1,367,062
----------- ----------- ----------- -----------
GROSS PROFIT 5,410,812 7,094,568 10,845,317 319,074
----------- ----------- ----------- -----------
OPERATING EXPENSES (Notes 2, 7, 8, 16 and 20)
Selling 877,858 909,440 1,204,912 35,449
General and administrative 3,490,507 4,821,384 4,015,850 118,148
Research and development 1,504,536 2,048,973 2,354,034 69,257
----------- ----------- ----------- -----------
Total operating expenses 5,872,901 7,779,797 7,574,796 222,854
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (462,089) (685,229) 3,270,521 96,220
----------- ----------- ----------- -----------
NON-OPERATING INCOME
Interest (Note 22) 503,603 392,593 114,627 3,372
Foreign exchange gain--net (Notes 2 and 22) 247,498 -- -- --
Gain on sale of investment 50,666 101,314 618,857 18,207
Other (Note 23) 466,787 481,526 336,546 9,901
----------- ----------- ----------- -----------
Total non-operating income 1,268,554 975,433 1,070,030 31,480
----------- ----------- ----------- -----------
NON-OPERATING EXPENSES
Interest (Notes 2 and 7) 2,242,879 1,971,227 1,419,352 41,758
Investment loss under equity method (Notes 2 and 6) 1,246,836 410,348 240,656 7,080
Foreign exchange loss--net (Notes 2 and 22) -- 397,874 386,844 11,381
Realized loss on long-term investments (Note 14) -- -- 354,787 10,438
Other 302,249 220,460 451,182 13,274
----------- ----------- ----------- -----------
Total non-operating expenses 3,791,964 2,999,909 2,852,821 83,931
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX AND MINORITY
INTEREST AND EXTRAORDINARY LOSS (2,985,499) (2,709,705) 1,487,730 43,769
INCOME TAX BENEFIT (Notes 2 and 17) 199,160 1,140,324 1,278,148 37,604
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE MINORITY INTEREST AND
EXTRAORDINARY LOSS (2,786,339) (1,569,381) 2,765,878 81,373
EXTRAORDINARY LOSS (NET OF TAX BENEFIT
NT$48,188 in 2001 and NT$11,538 (US$339) in 2002)
(Note 11) (144,565) (34,613) (75,668) (2,226)
MINORITY INTEREST IN NET LOSS OF SUBSIDIARIES 788,685 1,733,029 52,586 1,547
----------- ----------- ----------- -----------
NET INCOME (LOSS) (2,142,219) 129,035 2,742,796 80,694
=========== =========== =========== ===========
(Continued)
|
Year Ended December 31
----------------------------------------
2001 2002 2003
------- ------- ------------------
NT$ NT$ NT$ US$
------- ------- ------- -------
EARNINGS (LOSS) PER SHARE (Note 18)
Basic
Based on weighted average number of outstanding shares
of 3,254,800,000 in 2001, 3,090,678,225 in 2002 and
3,504,700,089 in 2003
Before income tax
Income (loss) before extraordinary loss (0.71) (0.26) 0.51 0.01
Extraordinary loss (0.06) (0.01) (0.02) --
------- ------- ------- -------
Net income (loss) (0.77) (0.27) 0.49 0.01
======= ======= ======= =======
After income tax
Income (loss) before extraordinary loss (0.61) 0.05 0.80 0.02
Extraordinary loss (0.05) (0.01) (0.02) --
------- ------- ------- -------
Net income (loss) (0.66) 0.04 0.78 0.02
======= ======= ======= =======
Diluted
Based on weighted average number of outstanding shares
of 3,254,800,000 in 2001, 3,090,678,225 in 2002 and
3,537,048,918 in 2003
Before income tax
Income (loss) before extraordinary loss (0.71) (0.26) 0.50 0.01
Extraordinary loss (0.06) (0.01) (0.02) --
------- ------- ------- -------
Net income (loss) (0.77) (0.27) 0.48 0.01
======= ======= ======= =======
After income tax
Income (loss) before extraordinary loss (0.61) 0.05 0.80 0.02
Extraordinary loss (0.05) (0.01) (0.02) --
------- ------- ------- -------
Net income (loss) (0.66) 0.04 0.78 0.02
======= ======= ======= =======
Based on weighted average number of outstanding shares
After giving retroactive adjustment to 2003 stock dividends
Basic
Before income tax
Loss before extraordinary loss (0.64) (0.24)
Extraordinary loss (0.05) (0.01)
------- -------
Net loss (0.69) (0.25)
======= =======
After income tax
Income (loss) before extraordinary loss (0.56) 0.05
Extraordinary loss (0.04) (0.01)
------- -------
Net income (loss) (0.60) 0.04
======= =======
Diluted
Before income tax
Loss before extraordinary loss (0.64) (0.24)
Extraordinary loss (0.05) (0.01)
------- -------
Net loss (0.69) (0.25)
======= =======
After income tax
Income (loss) before extraordinary loss (0.56) 0.05
Extraordinary loss (0.04) (0.01)
------- -------
Net income (loss) (0.60) 0.04
======= =======
EARNINGS (LOSS) PER EQUIVALENT ADS (Note 18)
Basic
Based on weighted average number of outstanding shares
of 650,960,000 in 2001, 618,135,645 in 2002 and
700,940,018 in 2003
Before income tax
Income (loss) before extraordinary loss (3.54) (1.29) 2.53 0.07
Extraordinary loss (0.30) (0.07) (0.11) --
------- ------- ------- -------
Net income (loss) (3.84) (1.36) 2.42 0.07
======= ======= ======= =======
After income tax
Income (loss) before extraordinary loss (3.07) 0.26 4.02 0.12
Extraordinary loss (0.22) (0.05) (0.11) --
------- ------- ------- -------
Net income (loss) (3.29) 0.21 3.91 0.12
======= ======= ======= =======
(Continued)
|
Year Ended December 31
----------------------------------------
2001 2002 2003
------- ------- ------------------
NT$ NT$ NT$ US$
------- ------- ------- -------
Diluted
Based on weighted average number of outstanding shares
of 650,960,000 in 2001, 618,135,645 in 2002 and
707,409,784 shares in 2003
Before income tax
Income (loss) before extraordinary loss (3.54) (1.29) 2.51 0.07
Extraordinary loss (0.30) (0.07) (0.11) --
------- ------- ------- -------
Net income (loss) (3.84) (1.36) 2.40 0.07
======= ======= ======= =======
After income tax
Income (loss) before extraordinary loss (3.07) 0.26 3.99 0.12
Extraordinary loss (0.22) (0.05) (0.11) --
------- ------- ------- -------
Net income (loss) (3.29) 0.21 3.88 0.12
======= ======= ======= =======
Based on weighted average number of outstanding shares
After giving retroactive adjustment to 2003 stock dividends
Basic
Before income tax
Loss before extraordinary loss (3.22) (1.17)
Extraordinary loss (0.27) (0.07)
------- -------
Net loss (3.49) (1.24)
======= =======
After income tax
Income (loss ) before extraordinary loss (2.79) 0.24
Extraordinary loss (0.20) (0.05)
------- -------
Net income (loss) (2.99) 0.19
======= =======
Diluted
Before income tax
Loss before extraordinary loss (3.22) (1.17)
Extraordinary loss (0.27) (0.07)
------- -------
Net loss (3.49) (1.24)
======= =======
After income tax
Income (loss ) before extraordinary loss (2.79) 0.24
Extraordinary loss (0.20) (0.05)
------- -------
Net income (loss) (2.99) 0.19
======= =======
The accompanying notes are an integral part of the financial statements. (Concluded)
|
ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands)
---------------------------------------------------------------------------------------------------------------------------------
Capital Surplus
-------------------------------------------------------------------
Capital in Treasury Gain on
Capital excess of stock disposal of Long-term
Stock par value transaction properties investment Total
---------- ---------- ----------- ----------- ---------- ----------
New Taiwan Dollars
BALANCE, JANUARY 1, 2001 27,520,000 3,171,933 -- 23,109 4,075,783 7,270,825
Appropriations of 2000 earnings
Legal reserve -- -- -- -- -- --
Compensation to directors and supervisors -- -- -- -- -- --
Bonus to employees--cash -- -- -- -- -- --
Bonus to employees--stock 349,600 -- -- -- -- --
Stock dividends--17% 4,678,400 -- -- -- -- --
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- (419,311) (419,311)
Reversal of unrealized loss on long-term
investment in shares of stock -- -- -- -- -- --
Consolidated net loss in 2001 -- -- -- -- -- --
Cumulative translation adjustments -- -- -- -- -- --
---------- ---------- ----------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 2001 32,548,000 3,171,933 -- 23,109 3,656,472 6,851,514
Transfer of ASE Inc. shares held by
subsidiaries as treasury stock -- -- -- -- -- --
Reversal of prior years' gain on disposal of
properties -- -- -- (23,109) -- (23,109)
Legal reserve offsets against deficit -- -- -- -- -- --
Reversal of unrealized loss on long-term
investments in share of stock -- -- -- -- -- --
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- -- 104,474 104,474
Adjustment of equity in subsidiary due to
reversal of prior years' gain on disposal
of properties -- -- -- -- (7,352) (7,352)
Consolidated net income in 2002 -- -- -- -- -- --
Cumulative translation adjustments -- -- -- -- -- --
---------- ---------- ----------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 2002 32,548,000 3,171,933 -- -- 3,753,594 6,925,527
Appropriations of 2002 earnings
Legal reserve -- -- -- -- -- --
Compensation to directors and supervisors -- -- -- -- -- --
Bonus to employees--cash -- -- -- -- -- --
Stock dividends--0.3% 97,644 -- -- -- -- --
Capital surplus transfer to common stock--9.7% 3,157,156 (3,157,156) -- -- -- (3,157,156)
Sales of ASE Inc. shares held by subsidiaries -- -- 220,735 -- -- 220,735
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- -- 57,668 57,668
Adjustment of equity in subsidiary due to
unrecognized pension cost -- -- -- -- -- --
Consolidated net income in 2003 -- -- -- -- -- --
Cumulative translation adjustments -- -- -- -- -- --
---------- ---------- ----------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 2003 35,802,800 14,777 220,735 -- 3,811,262 4,046,774
========== ========== =========== =========== ========== ==========
U.S. Dollars
BALANCE, JANUARY 1, 2003 957,575 93,320 -- -- 110,432 203,752
Appropriations of 2002 earnings
Legal reserve -- -- -- -- -- --
Compensation to directors and supervisors -- -- -- -- -- --
Bonus to employees--cash -- -- -- -- -- --
Stock dividends--0.3% 2,873 -- -- -- -- --
Capital surplus transfer to common stock--9.7% 92,885 (92,885) -- -- -- (92,885)
Sales of ASE Inc. shares held by subsidiaries -- -- 6,494 -- -- 6,494
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- -- 1,697 1,697
Adjustment of equity in subsidiary due to
unrecognized loss on pension cost -- -- -- -- -- --
Consolidated net income in 2003 -- -- -- -- -- --
Cumulative translation adjustments -- -- -- -- -- --
---------- ---------- ----------- ----------- ---------- ----------
BALANCE, DECEMBER 31, 2003 1,053,333 435 6,494 -- 112,129 119,058
========== ========== =========== =========== ========== ==========
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(continued)
Retained Earnings Unrealized
----------------------------------------- Loss on
Unappropriated Long-term
earnings Investments
Legal (accumulated in Shares
reserve losses) Total of Stock
---------- -------------- ---------- -----------
BALANCE, JANUARY 1, 2001 2,329,177 5,871,770 8,200,947 (546,829)
Appropriations of 2000 earnings
Legal reserve 583,539 (583,539) -- --
Compensation to directors and supervisors -- (103,200) (103,200) --
Bonus to employees--cash -- (10,400) (10,400) --
Bonus to employees--stock -- (349,600) (349,600) --
Stock dividends--17% -- (4,678,400) (4,678,400) --
Adjustment of equity in subsidiary due to
change in percentage of ownership -- 98,526 98,526 --
Reversal of unrealized loss on long-term
investment in shares of stock -- -- -- 104,583
Consolidated net loss in 2001 -- (2,142,219) (2,142,219) --
Cumulative translation adjustments -- -- -- --
---------- -------------- ---------- -----------
BALANCE, DECEMBER 31, 2001 2,912,716 (1,897,062) 1,015,654 (442,246)
Transfer of ASE Inc. shares held by
subsidiaries as treasury stock -- -- -- --
Reversal of prior years' gain on disposal of
properties 2,310 20,799 23,109 --
Legal reserve offsets against deficit (1,876,264) 1,876,264 -- --
Reversal of unrealized loss on long-term
investments in share of stock -- -- -- 18,626
Adjustment of equity in subsidiary due to
change in percentage of ownership -- (1,586) (1,586) --
Adjustment of equity in subsidiary due to
reversal of prior years' gain on disposal
of properties -- 7,352 7,352 --
Consolidated net income in 2002 -- 129,035 129,035 --
Cumulative translation adjustments -- -- -- --
---------- -------------- ---------- -----------
BALANCE, DECEMBER 31, 2002 1,038,762 134,802 1,173,564 (423,620)
Appropriations of 2002 earnings
Legal reserve 12,903 (12,903) -- --
Compensation to directors and supervisors -- (2,280) (2,280) --
Bonus to employees--cash -- (8,000) (8,000) --
Stock dividends--0.3% -- (97,644) (97,644) --
Capital surplus transfer to common stock--9.7% -- -- -- --
Sales of ASE Inc. shares held by subsidiaries -- -- -- 354,787
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- --
Adjustment of equity in subsidiary due to
unrecognized pension cost -- -- -- --
Consolidated net income in 2003 -- 2,742,796 2,742,796 --
Cumulative translation adjustments -- -- -- --
---------- -------------- ---------- -----------
BALANCE, DECEMBER 31, 2003 1,051,665 2,756,771 3,808,436 (68,833)
========== ============== ========== ===========
U.S. Dollars
BALANCE, JANUARY 1, 2003 30,561 3,966 34,527 (12,463)
Appropriations of 2002 earnings
Legal reserve 380 (380) -- --
Compensation to directors and supervisors -- (67) (67) --
Bonus to employees--cash -- (235) (235) --
Stock dividends--0.3% -- (2,873) (2,873) --
Capital surplus transfer to common stock--9.7% -- -- -- --
Sales of ASE Inc. shares held by subsidiaries -- -- -- 10,438
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- --
Adjustment of equity in subsidiary due to
unrecognized loss on pension cost -- -- -- --
Consolidated net income in 2003 -- 80,694 80,694 --
Cumulative translation adjustments -- -- -- --
---------- -------------- ---------- -----------
BALANCE, DECEMBER 31, 2003 30,941 81,105 112,046 (2,025)
========== ============== ========== ===========
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(continued)
Cumulative Unrecognized Total
Translation Pension Treasury Shareholders'
Adjustments Cost Stock Equity
----------- ------------ ---------- -------------
BALANCE, JANUARY 1, 2001 1,224,271 -- -- 43,669,214
Appropriations of 2000 earnings
Legal reserve -- -- -- --
Compensation to directors and supervisors -- -- -- (103,200)
Bonus to employees--cash -- -- -- (10,400)
Bonus to employees--stock -- -- -- --
Stock dividends--17% -- -- -- --
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- (320,785)
Reversal of unrealized loss on long-term
investment in shares of stock -- -- -- 104,583
Consolidated net loss in 2001 -- -- -- (2,142,219)
Cumulative translation adjustments 749,128 -- -- 749,128
----------- ------------ ---------- -------------
BALANCE, DECEMBER 31, 2001 1,973,399 -- -- 41,946,321
Transfer of ASE Inc. shares held by
subsidiaries as treasury stock -- -- (2,639,826) (2,639,826)
Reversal of prior years' gain on disposal of
properties -- -- -- --
Legal reserve offsets against deficit -- -- -- --
Reversal of unrealized loss on long-term
investments in share of stock -- -- -- 18,626
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- 102,888
Adjustment of equity in subsidiary due to
reversal of prior years' gain on disposal
of properties -- -- -- --
Consolidated net income in 2002 -- -- -- 129,035
Cumulative translation adjustments (126,378) -- -- (126,378)
----------- ------------ ---------- -------------
BALANCE, DECEMBER 31, 2002 1,847,021 -- (2,639,826) 39,430,666
Appropriations of 2002 earnings
Legal reserve -- -- -- --
Compensation to directors and supervisors -- -- -- (2,280)
Bonus to employees--cash -- -- -- (8,000)
Stock dividends--0.3% -- -- -- --
Capital surplus transfer to common stock--9.7% -- -- -- --
Sales of ASE Inc. shares held by subsidiaries -- -- 2,629,789 3,205,311
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- 57,668
Adjustment of equity in subsidiary due to
unrecognized pension cost -- (16,137) -- (16,137)
Consolidated net income in 2003 -- -- -- 2,742,796
Cumulative translation adjustments (287,422) -- -- (287,422)
----------- ------------ ---------- -------------
BALANCE, DECEMBER 31, 2003 1,559,599 (16,137) (10,037) 45,122,602
=========== ============ ========== =============
U.S. Dollars
BALANCE, JANUARY 1, 2003 54,340 -- (77,664) 1,160,067
Appropriations of 2002 earnings
Legal reserve -- -- -- --
Compensation to directors and supervisors -- -- -- (67)
Bonus to employees--cash -- -- -- (235)
Stock dividends--0.3% -- -- -- --
Capital surplus transfer to common stock--9.7% -- -- -- --
Sales of ASE Inc. shares held by subsidiaries -- -- 77,369 94,301
Adjustment of equity in subsidiary due to
change in percentage of ownership -- -- -- 1,697
Adjustment of equity in subsidiary due to
unrecognized loss on pension cost -- (475) -- (475)
Consolidated net income in 2003 -- -- -- 80,694
Cumulative translation adjustments (8,456) -- -- (8,456)
----------- ------------ ---------- -------------
BALANCE, DECEMBER 31, 2003 45,884 (475) (295) 1,327,526
=========== ============ ========== =============
The accompanying notes are an integral part of the financial statements. (Concluded)
|
ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
-----------------------------------------------------------------------------------------------------------------------
Year Ended December 31
--------------------------------------------------------
2001 2002 2003
----------- ----------- --------------------------
NT$ NT$ NT$ US$
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (2,142,219) 129,035 2,742,796 80,694
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Minority interest in net loss of subsidiaries (788,685) (1,733,029) (52,586) (1,547)
Depreciation 10,633,197 11,841,331 12,210,910 359,250
Amortization 494,088 444,995 555,658 16,348
Exchange (gain) loss on:
Long-term foreign bonds payable 640,171 (69,321) (110,655) (3,256)
Long-term foreign investment payable 223,599 (34,926) (62,747) (1,846)
Accrued interest on convertible bonds 872,575 576,437 358,286 10,541
Provision for doubtful accounts and sales allowance 80,629 85,823 207,018 6,091
Gain on sale of investments (50,666) (101,314) (618,857) (18,207)
Loss on early redemption of foreign convertible bonds 144,565 46,151 75,668 2,226
Loss from sale of treasury stock -- -- 354,787 10,438
Investment loss under equity method 1,246,836 410,348 240,656 7,080
Cash dividends received from long-term investment 33,196 -- -- --
Reversal of accrued interest from long-term investment
payable -- (145,238) -- --
Impairment loss on fixed assets -- 1,225,555 -- --
Loss on disposal of properties 26,884 15,668 62,792 1,847
Provision for loss on long-term bonds investments 29,822 -- -- --
Loss from idle assets 111,109 78,120 176,841 5,203
Amortization of consolidated debits 692,919 815,573 819,253 24,103
Deferred income taxes (401,745) (1,130,358) (1,190,500) (35,025)
Accrued pension cost 46,013 122,233 170,615 5,019
Other (3,251) -- (3,140) (92)
Changes in operating assets and liabilities
Notes receivable 114,456 (7,482) 1,071 32
Accounts receivable 1,939,341 (1,950,738) (4,119,274) (121,191)
Inventories 477,891 (363,216) (1,560,119) (45,899)
Prepayments and other 199,912 (231,154) 84,164 2,476
Notes and accounts payable (891,130) 1,078,392 2,441,818 71,839
Income tax payable (856,346) (72,165) 45,393 1,335
Accrued expenses and other (821,272) 217,222 264,745 7,789
Effect of exchange rate changes (473,515) 65,858 211,640 6,227
----------- ----------- ----------- -----------
Net cash provided by operating activities 11,578,374 11,313,800 13,306,233 391,475
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of properties (13,816,544) (12,657,920) (17,534,057) (515,859)
(Increase) decrease in short-term investments (2,913,644) 2,112,050 (371,561) (10,931)
Decrease (increase) in pledged time deposits 128,837 (287,794) 261,317 7,688
Payments for long-term stock investments (216,444) (49,716) (138,019) (4,061)
Increase in other assets (214,772) (831,279) (1,125,361) (33,109)
Proceeds from sales of:
Properties 685,776 77,142 250,535 7,371
Bonds 195,320 -- -- --
Others 51,639 -- 105,536 3,105
Purchase of ASE Material Inc. shares -- (10,000) (20,976) (617)
Purchase of ASE Test Ltd. shares (1,202,185) (317,004) -- --
Purchase of ISE Labs, Inc. shares -- (1,755,133) -- --
----------- ----------- ----------- -----------
Net cash provided by (used in) investing activities (17,302,017) (13,719,654) (18,572,586) (546,413)
----------- ----------- ----------- -----------
(Continued)
|
-----------------------------------------------------------------------------------------------------------------------
Year Ended December 31
--------------------------------------------------------
2001 2002 2003
----------- ----------- --------------------------
NT$ NT$ NT$ US$
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayments of):
The issuance of foreign convertible bonds payable -- -- 6,684,882 196,672
Long-term debts 9,746,636 1,161,489 (102,881) (3,027)
Investment payable (803,833) (249,250) (954,411) (28,079)
Commercial papers and bank acceptances payable (837,491) (1,739,263) (629,086) (18,508)
Proceeds from sales ASE Inc. shares -- -- 2,850,524 83,864
Proceeds from short-term borrowings 944,148 2,375,322 1,161,183 34,162
Contribution to a sinking fund for convertible bonds (1,568,057) -- -- --
Early redemption of foreign convertible bonds (6,066,042) (1,674,053) (4,908,389) (144,407)
Increase in minority interest 1,552,601 656,246 119,368 3,512
Compensation to directors and supervisors and bonus
to employees (113,600) -- (10,280) (302)
----------- ----------- ----------- -----------
Net cash provided by financing activities 2,854,362 530,491 4,210,910 123,887
----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES 473,515 (65,858) (211,640) (6,227)
----------- ----------- ----------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (2,395,766) (1,941,221) (1,267,083) (37,278)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 14,166,495 11,770,729 9,829,508 289,188
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR 11,770,729 9,829,508 8,562,425 251,910
=========== =========== =========== ===========
SUPPLEMENTAL INFORMATION
Interest paid (excluding capitalized interest) 1,557,887 1,248,726 1,120,215 32,957
Income tax paid 1,024,286 88,884 57,633 1,696
Cash paid for acquisition of properties
Acquisition of properties 11,565,689 15,749,807 17,234,324 507,041
(Increase) decrease in payable 2,250,855 (2,566,359) 102,488 3,015
(Increase) decrease in obligation under capital leases -- (525,528) 197,245 5,803
----------- ----------- ----------- -----------
13,816,544 12,657,920 17,534,057 515,859
=========== =========== =========== ===========
Cash received from capital increase through the issuance of
American Depositary Shares
Net proceeds -- -- 6,818,000 200,588
Issuance expense -- -- (119,315) (3,510)
Increase in payable -- -- (13,803) (406)
----------- ----------- ----------- -----------
Net cash inflow -- -- 6,684,882 196,672
=========== =========== =========== ===========
Cash paid for redemption of foreign convertible bonds
Redemption price for foreign convertible bonds 6,066,042 3,242,110 4,908,389 144,407
Cash paid from sinking fund -- (1,568,057) -- --
----------- ----------- ----------- -----------
6,066,042 1,674,053 4,908,389 144,407
=========== =========== =========== ===========
NON-CASH FLOWS FROM INVESTING AND FINANCING
ACTIVITIES
Reclassification of the ASE Inc. shares which are held by
consolidated subsidiaries from long-term investment to
treasury stock -- 2,639,826 -- --
Reversal of treasury stock due to sale of ASE Inc.'s
shares which are held by consolidated subsidiaries -- -- 1,405,632 41,354
The accompanying notes are an integral part of the financial statements. (Concluded)
|
ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND ITS SUBSIDIARIES
1. HISTORY AND ORGANIZATION
Overview
Advanced Semiconductor Engineering, Inc. (the "Company"), a corporation incorporated under the laws of Republic of China (the "ROC") is an independent provider of semiconductor packaging and testing services. The Company's common shares are traded on the Taiwan Stock Exchange under the symbol "2311". Since September 2000, the Company's common shares in the form of American depositary shares ("ADS") have been traded on the New York Stock Exchange under the symbol "ASX". The Company and its consolidated subsidiaries and affiliates are together referred to as the "ASE Group".
On July 17, 2002, the Board of Directors of the Company passed a resolution whereby ASE Investment Inc. and ASE Capital Inc.(a wholly-owned subsidiary of the Company), would be merged into the Company. Upon the completion of the merger, all of the assets and liabilities of ASE Investment Inc. and ASE Capital Inc. were assumed by the Company. The merger was effective on July 1, 2003.
As of December 31, 2002 and 2003, the Company and subsidiaries had approximately 24,443 and 20,401 employees, respectively.
Set forth is a brief overview of the Company's organization structure and its equity stakes in its consolidated subsidiaries.
The Company has four wholly-owned subsidiaries:
a. ASE Holding Limited (incorporated in Bermuda in April 1990), which holds shares in ASE Group companies;
b. ASE Marketing Services Ltd. (incorporated in Hong Kong in February 1991), which engages in trading;
c. J&R Holding Limited (incorporated in Bermuda in May 1996), which holds shares in ASE Group companies;
d. ASE Japan Co. (incorporated in Japan in Yokohama, December 2003), which engages in marketing and provides sales services relating to packaging and testing.
As of December 31, 2003, the Company also held:
a. 98.8% equity stake in ASE Technologies, Inc. (incorporated in the ROC in June 1991), which is engaged in the research and development, manufacture and sales of computers and related accessories;
b. 90.0% equity stake in ASE Network Inc. (incorporated in the ROC in January 2000), which is engaged in investing in Taiwan Fixed Network Co., Ltd.;
c. 72.4% equity stake in ASE (Chung Li) Inc. ("ASE Chung Li") (incorporated in the ROC in April 1999), which is engaged in the packaging and testing of semiconductors. In addition, ASE Test Limited has a 27.6% equity stake in ASE Chung Li; and
d. 57.4% equity stake in ASE Material Inc. ("ASE Material") (incorporated in the ROC in December 1997), which is engaged in the design and production of leadframes and substrates used in the packaging of semiconductors. In addition, ASE Test, Inc. has a 4.0% equity stake in ASE Material.
ASE Holding Limited has the following wholly-owned or majority-owned subsidiaries:
a. ASEP Realty Corporation (incorporated in the Philippines in December 1995), which holds real estate of ASE Holding Electronics (Philippines);
b. ASE Holding Electronics (Philippines) (incorporated in the Philippines in December 1995), which manufactures electronic products, components and semiconductors. However, the board of ASE Holding Electronics (Philippines) had decided to close the facilities and discontinued operation in December 2003; and
c. 70.0% equity stake in ASE Investment (Labuan) Inc. (incorporated in Malaysia in June 1999), which holds shares of ASE Korea Inc. In addition, ASE Test Limited has a 30.0% equity stake in ASE Investment (Labuan) Inc.
A portion of the share capital of the Company's subsidiaries incorporated in Philippines is held by certain Filipino individuals due to local requirements.
J&R Holding Limited has three subsidiaries:
a. 100.0% equity stake of J&R Industrial Inc. (incorporated in the ROC in April 1999), which is mainly engaged in the leasing of substrate, packaging and testing equipment; and
b. 100.0% equity stake of Grand Innovation Co., Ltd. (incorporated in the British virgin Islands in March 2001), which holds 6.9% convertible preferred stock of Integrated Programmable Communication, Inc.
c. 39.1% equity stake of ASE Test Limited ("ASE Test") (incorporated in Singapore in May 1996), which holds shares in ASE Group companies.
In addition, as of December 31, 2003, ASE Holding Limited held an 11.2% equity stake in ASE Test. The shares of ASE Test have been listed on the NASDAQ National Market in the United States since June 1996.
ASE Test has four wholly-owned subsidiaries:
a. ASE Test, Inc. (incorporated in the ROC in December 1987), which is engaged in the testing of semiconductors;
b. ASE Holding (Singapore) Pte. Ltd. (incorporated in Singapore in December 1994), which holds shares in ASE Group companies;
c. ASE Test Holdings, Limited ("ASE Test Holdings") (incorporated in Cayman Islands in April 1999), which mainly holds shares in ASE Group companies; and
d. ASE Test Finance Limited ("ASE Test Finance") (incorporation in Mauritius in June 1999), which is engaged in financing activities.
ASE Test, Inc. has a wholly-owned subsidiary, ASE Test (USA) Inc. (incorporated in the United States in October 1995), which is currently being liquidated.
ASE Holding (Singapore) Pte. Ltd. has a wholly-owned subsidiary, ASE Electronics (M) Sdn., Bhd. ("ASE Test Malaysia") (incorporated in Malaysia in February 1991), which is engaged in the packaging and testing of semiconductors.
ASE Test Holdings has a wholly-owned subsidiary, ISE Labs, Inc. ("ISE Labs") (incorporated in California, U.S.A. in November 1983), which is engaged in the front-end engineering testing and final testing of semiconductors.
ASE Chung Li has a wholly-owned subsidiary, Omniquest Industrial Limited ("Omniquest") (incorporated in the British Virgin Islands in June 2001), which holds shares in ASE (Shanghai) Inc.
Omniquest has a wholly-owned subsidiary, ASE (Shanghai) Inc. (incorporated in the People's Republic of China in 2002), which is currently in the pre-operating phase.
ASE Investment (Labuan) Inc. has a wholly-owned subsidiary, ASE Korea Inc. ("ASE Korea") (incorporated in the Republic of Korea in 1999), which is engaged in the packaging and testing of semiconductors.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the ROC ("ROC GAAP"). Significant accounting policies are summarized as follows:
Presentation of Consolidated Financial Statements
The Company prepares its consolidated financial statements in accordance with ROC GAAP and prepares a reconciliation to generally accepted accounting principles of the United States ("U.S. GAAP") (see Note 26). The accompanying consolidated balance sheets are presented for the two years ended as of December 31, 2002 and 2003, and the accompanying consolidated statements of income, changes in shareholders' equity and cash flows are presented for the three years ended December 31, 2001, 2002 and 2003.
Unless otherwise stated, amounts presented are in thousands of New Taiwan dollars (NT$).
Consolidation
The consolidated financial statements include the accounts of the Company and all of the aforementioned subsidiaries.
All intercompany accounts and transactions have been eliminated and minority shareholders' interests in the equity and earnings of the subsidiaries are presented separately in the consolidated financial statements. The differences between the costs of investments and the proportionate equity in each subsidiary when the stocks were acquired are recorded as consolidated credits or debits and are amortized on the straight-line method over ten years.
Use of Estimates
The preparation of consolidated financial statements in conformity with ROC GAAP requires management to make estimates and judgments that affect the recorded amounts of assets, liabilities, revenues and expenses of the Company. The Company continually evaluates these estimates, including those related to allowances for doubtful accounts, inventories, useful lives of properties, consolidated debits, income tax valuation allowances, pension plans and the fair value of financial instruments. The Company bases its estimates on historical experience and other assumptions, which it believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions and conditions.
Assets and Liabilities Classified as Current and Non-current
Current assets include cash or cash equivalent and other assets that are reasonably expected to be realized in cash, or to be consumed within one year from the balance sheet date; otherwise are classified as non-current assets.
Current liabilities are liabilities which are reasonably expected to be liquidated within one year. All other liabilities are classified as non-current.
Cash and Cash Equivalents
The Company considers all highly liquid investments within an original maturity from date of purchase of three months or less to be cash equivalents.
Short-term Investments
Short-term investments are carried at cost less allowance for decline in market value.
Allowance for Doubtful Accounts
Allowance for doubtful accounts is provided based on evaluation of the collectibility of receivables.
The total amount of the provision is determined based on the identification of customers that the Company determines to have a higher credit risk based on overdue accounts, past collection difficulties or their overall financial condition. An estimation is made based on the extent to which the customer will be able to meet its financial obligations to the Company and a provision is recorded to reduce the accounts receivable balance to the amount the Company reasonably believes will be collected. For all other customers, an allowance is equal to a percentage of the aggregate accounts receivable based on history of collection. An allowance for these other customers ranges between 3% and 4%, on a consolidated basis, of the Company's accounts receivable.
Inventories
Inventories are stated at the lower of the first-in, first-out or weighted average cost or market value. Unbilled processing charges incurred are included in finished goods and work in process and are stated at actual cost. Market value represents net realizable value for finished goods and work in process, and replacement costs for raw materials, supplies and spare parts.
Materials received from customers for processing, mainly semiconductor wafers, are excluded from inventories as title and risk of loss remains with the customers.
Long-term Investments in Shares of Stock
Long-term investments of which the Company owns at least 20% of the outstanding voting shares and where the Company exercises significant influence over the investee company's operations are accounted for by the equity method. Under the equity method, the investments are initially carried at cost and subsequently adjusted for the Company's proportionate share in the net earnings or losses of the investee companies. Such proportionate share in the earnings or losses are recognized as investment income or losses while any cash dividends declared are reflected as a reduction in the carrying value of the investments. The goodwill representing the excess of the investment cost over the Company's proportionate equity in the fair value of the net assets of the investees at the time of investments or at the time the equity method of accounting is first applied to a particular investment, is amortized on the straight-line method over ten years. Changes in the Company's ownership percentage of investees under the equity method are accounted for as adjustments to long-term investments and capital surplus.
Other long-term investments in shares of stock are carried at cost or lower of cost or market value. Allowances for decline in market value and unrealized loss on long-term investments in shares of stock (a deduction account in shareholders' equity) are made when the market value of an investment is lower than its carrying value. If decline in value of the stock investment is determined to be other than temporary, such decline in value is charged against current income. Cash dividends are recognized as income on the declaration date.
Unrealized profits or losses arising from transactions with equity investees or between equity investees are offset against investment income or loss from long-term investments, based on the percentage of ownership.
Properties
Properties, except for leased equipment, are stated at cost. Equipment
held under capital leases are recorded as an asset and an obligation at an
amount equal to the lower of: (i) the present value at the beginning of
the lease term of the minimum lease payments during the lease term
(including the payment called for under any bargain purchase option); or
(ii) fair value of the leased equipment at the inception of the lease.
Machinery in transit, construction in progress and prepayments under
construction are stated at cost. These include the cost of machinery,
construction, down payments and other direct costs plus interest charges
attributable to the borrowings used to finance the acquisitions of these
assets. Major renewals and improvements are capitalized, while maintenance
and repairs are expensed currently.
Depreciation is computed using the straight-line method over estimated service lives which range as follows: long-term land leasehold rights, 60 years (lease period); buildings and improvements, 3 to 55 years; machinery and equipment, 3 to 8 years; furniture and fixtures, 1 to 15 years; transportation equipment, 3 to 8 years; and leased assets and leasehold improvements, 3 to 5 years. In the event that an asset depreciated to its residual value is deemed to have a continual useful life, the residual value is depreciated over the remaining life, not to exceed 2 years.
The Company reviews properties for impairment and determines whether an event or change in facts and circumstances indicated that their carrying amount may not be recoverable. Impairment losses on properties are recorded as an operating expense and included in general and administrative expenses.
When properties are retired or disposed of, their costs and accumulated depreciation are removed from the accounts and any gain or loss is credited or charged to income. Prior the January 1, 2001 the gain, after deducting applicable income tax, was reclassified to capital surplus at the end of the year.
Deferred Charges
Deferred charges are amortized using the straight-line method as follows:
tools, 2 years; license fees, 2 years; telecommunications, electrical,
computer network systems, 5 years; bond issuance cost, 4 years; and
others, 2 to 5 years.
Consolidated Debits
The consolidated debits as shown in the balance sheet represent goodwill arising from acquisitions or investments in the consolidated subsidiaries and are amortized on the straight-line method over 10 years.
Pension Cost
Pension cost is recorded based on actuarial calculations. Provisions for pension costs are accrued based on actuarially determined amounts which include service costs, interest, amortization of unrecognized net obligation and expected return on pension assets.
An additional accrued pension cost must be recognized if the accumulated benefit obligation exceeds the fair value of plan assets. The debit is either to an other asset-deferred pension cost or to a contra account to shareholders' equity entitled unrecognized pension cost. If the debit is less than unamortized balances of transition obligation, it is reported as an intangible asset. If the debit is greater than unamortized balances of transition obligation, the excess debit is reported as contra account to shareholders' equity.
Convertible Bonds
Conversion of convertible bonds into common shares is accounted for by the book value method. Under this method, unamortized bond issuance cost, accrued interest no longer payable and the carrying value of the bond are written off. In addition, common shares are recorded at the par value of the shares issued and the excess is recorded as capital surplus.
Revenue Recognition
Revenues from semiconductor packaging services that the Company provides are recognized upon shipment. Revenues from semiconductor testing services that the Company provides are recognized upon completion of the services. The Company does not take ownership of: (i) bare semiconductor wafers received from customers that the Company packages into finished semiconductors, and (ii) packaged semiconductors received from customers that the Company tests as to whether they meet certain performance specifications. The title and risk of loss remains with the customer for those bare semiconductors and/or packaged semiconductors. Accordingly, the cost of customer-supplied semiconductors materials is not included in the accompanying consolidated financial statements. Other criteria that the Company uses to determine when to recognize revenue are: (i) existence of persuasive evidence of the services provided, (ii) the selling price is fixed or determinable and (iii) collectibility is reasonably assured. The Company does not provide warranties to its customers except only in cases of defects in the packaging services provided and deficiencies in testing services provided. An appropriate sales allowance, based on historical experience, is recognized in the period the sale is recognized.
Income Tax
Tax effects of deductible temporary differences, unused tax credits and operating loss carryforwards are recognized as deferred income tax assets, while those taxable temporary differences are recognized as deferred income tax liabilities. A valuation allowance is provided for deferred income tax assets based on the estimated realizability.
Adjustments of prior years' income tax are added to or deducted from the current year's tax provision.
Income taxes on undistributed earnings (10%) as determined by tax authority generated in 1998 and onwards for consolidated entities in the ROC are recorded as expense in the following year when the shareholders have resolved that the earnings shall be retained.
Foreign Currency Transactions and Translation of Foreign-currency Financial Statements
The Company and its subsidiaries maintain their accounts in the currency of their respective countries of incorporation (local currencies) and functional currencies.
Foreign currency transactions, other than foreign currency forward exchange contracts, are recorded in the local currencies at the rates of exchange in effect when the transactions occur.
Gains or losses resulting from the application of different foreign exchange rates when foreign-currency assets and liabilities are settled, are credited or charged to income in the year of settlement. Year-end balances of foreign currency assets and liabilities are restated based on prevailing exchange rates and the resulting differences are credited or charged to income.
The financial statements of the foreign subsidiaries are translated into NT dollars at the following rates: Assets and liabilities, current rate; and income and expenses, average exchange rate during the year. The net resulting translation adjustment is reported as a separate component of shareholders' equity.
Derivative Financial Instruments
Premiums or discounts on foreign currency forward exchange contracts which have been acquired to manage the risk associated with assets and liabilities denominated in foreign currencies arising from the difference between the forward rate and the spot rate at the date of each contract are deferred and amortized over the contract period. At year end, the balances of the forward exchange receivables or payables are restated based on prevailing exchange rates and the resulting gain or loss is credited or charged to income. Any exchange gain or loss when the contract is settled is also credited or charged to income. The difference between receivable and payable balances arising from forward exchange contracts is accounted for as either current asset or current liability.
Written option contracts to purchase foreign currencies and cross currency swap contracts entered into for hedging purposes are not recorded as assets or liabilities on the contract dates. Gains or losses upon settlement are credited or charged to income. Amounts received or paid are amortized over each contract period. At year end, the outstanding written option contracts and cross currency swap contracts are marked to market with charges to current income.
Interest rate swap contracts to limit the impact of the variable interest rate of certain long-term debt are not recorded as assets or liabilities on the contract date. The differential between fixed and variable rates to be paid or received on swaps is accrued as interest rates change in accordance with the contracts and is included in current interest income or expense.
U.S. Dollar Amount
The Company prepares its consolidated financial statements in NT dollars. Translations into U.S. dollars for 2003 financial statements are included solely for the convenience of the reader, and are based on the U.S. Federal Reserve Bank of New York noon buying rate of NT$33.99 to US$1.00 in effect at December 31, 2003. The convenience translations should not be construed as representations that the NT dollar amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.
3. SHORT-TERM INVESTMENTS
December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------
Mutual funds 2,025,957 3,012,264 88,622
Stocks 5,305 5,895 173
Commercial paper 552,416 -- --
Convertible bonds 10,000 391 12
---------- ---------- ----------
2,593,678 3,018,550 88,807
Allowance for loss (3,242) (771) (23)
---------- ---------- ----------
2,590,436 3,017,779 88,784
========== ========== ==========
|
4. ACCOUNTS RECEIVABLE
December 31
----------------------------------
2002 2003
---------- ----------------------
NT$ NT$ US$
---------- ---------- ----------
Accounts receivable 9,229,641 13,180,553 387,778
Allowance for doubtful accounts (Note 2) (300,713) (337,311) (9,924)
Allowance for sales allowances (Note 2) (43,049) (45,107) (1,327)
---------- ---------- ----------
8,885,879 12,798,135 376,527
========== ========== ==========
|
The change in allowance for doubtful accounts and sales allowances are as follows:
Doubtful Sales
Accounts Allowances
---------- ----------
NT$ NT$
---------- ----------
Balance, beginning of 2001 314,243 38,676
Additions 15,619 65,010
Deductions (43,386) (50,060)
---------- ----------
Balance, end of 2001 286,476 53,626
Additions 67,567 18,256
Deductions (53,330) (28,833)
---------- ----------
Balance, end of 2002 300,713 43,049
Additions 95,853 111,165
Deductions (59,255) (109,107)
---------- ----------
Balance, end of 2003 337,311 45,107
========== ==========
US$ US$
---------- ----------
Balance, beginning of 2003 8,847 1,266
Additions 2,820 3,271
Deductions (1,743) (3,210)
---------- ----------
Balance, end of 2003 9,924 1,327
========== ==========
5. INVENTORIES
December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------
Raw materials 1,999,267 3,365,079 99,002
General supplies and spare parts 508,736 573,240 16,865
Work in process 436,872 637,692 18,761
Finished goods 333,427 399,699 11,759
Supplies in transit 66,107 29,620 872
---------- ---------- ----------
3,344,409 5,005,330 147,259
Allowance for obsolescence (212,757) (313,559) (9,225)
---------- ---------- ----------
3,131,652 4,691,771 138,034
========== ========== ==========
|
The movement of allowance for obsolescence is as follows:
Balance, beginning of 2001 155,061
Additions 131,197
Deductions (65,710)
--------
Balance, end of 2001 220,548
Additions 34,379
Deductions (42,170)
--------
Balance, end of 2002 212,757
Additions 240,844
Deductions (140,042)
--------
Balance, end of 2003 313,559
========
US$
--------
Balance, beginning of 2003 6,259
Additions 7,086
Deductions (4,120)
--------
Balance, end of 2003 9,225
========
6. LONG-TERM INVESTMENTS
|
December 31
----------------------------------------------------
2002 2003
------------------ ------------------------------
% of % of
Direct Direct
Owner- Owner-
NT$ ship NT$ US$ ship
---------- ------- --------- -------- -------
Equity method
Common stock
Universal Scientific Industrial Co., Ltd. (Note 8) 3,422,186 23.5 3,342,455 98,336 23.6
Hung Ching Development & Construction Co. 1,140,427 26.4 1,012,399 29,785 26.4
Hung Ching Kwan Co. 404,513 27.3 406,131 11,949 27.3
Inprocomm, Inc. -- -- 7,678 226 32.1
Universal Access Technology Inc. -- 25.0 -- -- 25.0
Preferred stock
Intergrated Programmable Communication, Inc. 85,870 30.0 52,599 1,548 30.0
---------- ---------- --------
5,052,996 4,821,262 141,844
Unrealized gain on sale of land (300,149) (300,149) (8,831)
---------- ---------- --------
4,752,847 4,521,113 133,013
---------- ---------- --------
Cost method
Taiwan Fixed Network Co., Ltd. 1,500,000 1.6 1,500,000 44,130 1.6
InveStar Burgeon Venture Capital, Inc. 160,732 13.0 83,228 2,449 13.0
Global Strategic Investment, Inc. 69,540 2.5 67,940 1,999 2.5
Digital Communications International Inc. 40,000 12.0 50,167 1,476 15.0
UC Fund II 34,770 -- 33,970 999 --
Crimson@Velocity Fund, L.P. 8,845 -- 21,237 625 --
---------- ---------- --------
1,813,887 1,756,542 51,678
---------- ---------- --------
Prepaid for long-term investments--ASE-Compeq
Technologies, Inc. -- -- 12,000 353
---------- ---------- --------
Other long-term investment--Asset Backed Security -- -- 50,000 1,471
---------- ---------- --------
Other financial assets -- -- 3,140 93
---------- ---------- --------
6,566,734 6,342,795 186,608
========== ========== ========
|
From February 1999 to April 2000, the Company acquired shares of Universal Scientific Industrial Co., Ltd. ("USI") from the stock market. As of December 31, 2003, the Company has an accumulated total investment cost of NT$3,838,368 (US$112,926). USI is engaged in the manufacturing, processing and sales of computer peripherals, integrated circuits, electrical parts, personal computers and related accessories. USI declared stock and cash dividends in 2001 for NT$1.30 and NT$0.25 per share, respectively. As of December 31, 2003, the undistributed earnings of USI are NT$776,285 (US$22,839).
From March 1995 to February 1999, the Company acquired shares of Hung Ching Development & Construction Co. ("HCDC") from the stock market. As of December 31, 2003, the Company has an accumulated total investment cost of NT$2,845,912 (US$83,728). HCDC is engaged in the development and management of commercial, residential and industrial real estate properties in Taiwan. As of December 31, 2003, the accumulated loss of HCDC is NT$887,085 (US$26,098).
The Company acquired its 27.3% equity interest in Hung Ching Kwan Co. ("HCKC") in 1992 by transferring to HCKC a parcel of land as an investment in HCKC at an agreed value of NT$390,470. The resulting gain of NT$300,149, which represents the excess of such value over the cost of the land plus land value increment tax, has been deferred until the disposal of this investment. As of December 31, 2003, the Company has a 44.1% effective interest in HCKC, which consists of 27.3% interest directly owned by the Company, and 16.8% interest indirectly owned through HCDC (based on HCDC's 63.5% interest in HCKC). HCKC did not declare dividends in 2002 and 2003. As of December 31, 2003, the undistributed earnings of HCKC are NT$51,592 (US$1,518).
The Company invested in Inprocomm, Inc. ("Inprocomm") in May 2003 with capital of NT$52,000 (US$1,530) and directly acquired its 32.1% equity interest. In addition, USI, Integrated Programmable Communication, Inc. ("IPC") and Global Strategic Investment, Inc. have 17.3%, 0.6% and 8.6% equity interests in Inprocomm, respectively. Inprocomm is engaged in the design of semiconductors for wireless communication applications. As of December 31, 2003, the accumulated loss of Inprocomm is NT$138,081 (US$4,062).
The Company invested in Universal Access Technology Inc. ("UAT") in December 2000 and directly acquired its 25.0% equity interest. In addition, HCDC and USI have 10.0% and 25.0% equity interest in UAT, respectively. Accordingly, as of December 31, 2003, the Company has a 33.3% effective interest in UAT. UAT had a negative net worth as of December 31, 2002 and accordingly, the carrying value of this investment had been written off.
In December 2000, the Company invested in convertible preferred stock issued by IPC. As of December 31, 2003, the Company and its subsidiary, J&R Holding, has made total investments of US$5.2 million, and own a 30.0% stake in IPC. In addition, USI has 16.1% equity interest in IPC. IPC is engaged in the design of semiconductors for wireless communication applications.
On October 27, 2003, the Company entered into a joint venture agreement with Compeg to establish ASE-Compeq Technologies, Inc. ("ASE-Compeq"), which will initially focus on the design and production of interconnect materials for packing semiconductors. Pursuant to the joint venture agreement, the Company will own 60% of the equity interest. As of December 31, 2003, the Company has made total investments of NT$12,000 (US$353) as prepayments. ASE-Compeq is currently in the pre-operating phase.
The Company recorded net investment losses of NT$1,246,836 in 2001, NT$410,348 in 2002 and NT$240,656 (US$7,080) in 2003, respectably, from its investments in the aforementioned equity-method investees.
7. PROPERTIES
Accumulated depreciation consists of:
December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------
Buildings and improvements 2,844,317 3,734,503 109,871
Machinery and equipment 35,399,098 42,959,968 1,263,900
Transportation equipment 71,622 66,463 1,955
Furniture and fixtures 842,146 1,044,699 30,736
Leased assets and leasehold improvements 543,397 466,688 13,730
Long-term land leasehold rights 8,739 9,614 283
---------- ---------- ----------
39,709,319 48,281,935 1,420,475
========== ========== ==========
|
Certain machinery and equipment related to the testing business of ASE Test and ISE Labs were impaired during 2002. As a result, an impairment loss of NT$1,225,555 (US$36,056) was recognized and included in general and administrative expenses in 2002.
Interest capitalized and included as cost of properties amounted to NT$100,453, NT$145,985 and NT$149,051 (US$4,385) for the years ended December 31, 2001, 2002 and 2003, respectively.
Machinery in transit pertains to the purchase of packaging, testing and substrate equipment that has been received but is not ready for use. Prepayments are payments made to purchase machinery with non-cancellable purchase orders.
Machinery in transit and prepayments consist of the following:
December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------
Bonders 649,783 457,944 13,473
Testers 845,585 2,726,211 80,206
Bumping 664,897 833,639 24,526
Flip Chip 355,220 503,225 14,805
Substrate 1,218,039 19,640 578
Others 2,048,642 1,652,954 48,630
---------- ---------- ---------
5,782,166 6,193,613 182,218
========== ========== =========
8. CONSOLIDATED DEBITS
|
These represent goodwill arising from the purchases of:
December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------
ASE Test shares 2,701,189 2,212,135 65,082
ISE Labs shares 2,514,629 2,113,500 62,180
ASE Korea shares 325,990 270,599 7,961
---------- ---------- ----------
5,541,808 4,596,234 135,223
========== ========== ==========
|
Amortization of goodwill is reflected in general and administrative expenses in the consolidated statement of income and was NT$692,919, NT$815,573 and NT$819,253 (US$24,103) for the years ended December 31, 2001, 2002 and 2003, respectively.
As of December 31, 2002 and 2003, unamortized goodwill for USI was NT$1,431,142 and NT$1,210,542 (US$35,615), respectively.
9. SHORT-TERM BORROWINGS
December 31
-------------------------------------------------------
2002 2003
--------------------- -------------------------------
Interest Interest
Rate (%) NT$ Rate (%) NT$ US$
--------- --------- --------- --------- -------
Letters of credit 0.88-5.45 1,748,209 0.86-3.60 2,967,178 87,296
Revolving 2.00-7.00 2,155,785 1.32-6.00 2,081,052 61,225
--------- --------- -------
3,903,994 5,048,230 148,521
========= ========= =======
|
As of December 31, 2003, unused credit lines for short-term borrowings, including commercial paper and bank acceptances, totaled approximately NT$7,654,000 (US$225,184).
10. COMMERCIAL PAPER AND BANK ACCEPTANCES PAYABLE
Commercial paper and bank acceptances payable bore interest rates ranging from 1.55% to 3.65% in 2002 and 1.10% to 2.35% in 2003, respectively.
11. LONG-TERM BONDS PAYABLE
December 31
------------------- -----------
2002 2003
--------- -------------------
NT$ NT$ US$
--------- --------- -------
Foreign convertible bonds--issued by ASE -- 6,794,000 199,882
Foreign convertible notes--issued by ASE Test Finance 3,820,875 -- --
Accrued interest 1,358,918 67,232 1,978
--------- --------- -------
5,179,793 6,861,232 201,860
========= ========= =======
|
Information on the long-term bonds payable is follows:
Foreign Convertible Bonds--Issued by the Company
In September 2003, the Company issued US$200,000 (NT$6,798,000) of unsecured zero coupon convertible bonds due September 2008, consisting of 200,000 units with face values of US$1 each. The bonds have an implied interest rate of 3.75%.
From the date 30 days after issuance through the date 10 days before the due date, the bondholders have the right to convert the bonds into the Company's common shares or ADS at the specified conversion price. The conversion rate was based on the current market price at the time of sale.
The Company may redeem the bonds at the redemption price if:
a. on or at any time after September 2007, the closing price of the common shares for a period of 20 consecutive trading days is higher than 130% of the conversion price (NT$37.716 per share at December 31, 2003) in effect on each such trading day and
b. at least 90% of the bonds have already been converted, redeemed, or purchased and cancelled.
c. if the applicable tax law is unfavorably changed, redeem at any time all, but not some, of the bonds.
In November 1997, the Company issued US$200.0 million of zero coupon convertible bonds due November 2002. Except for US$1.0 million aggregate principal amount of convertible bonds that were converted into 355,086 common shares during 2001, the remaining US$199.0 million aggregate principal amount of the outstanding bonds were repurchased from the open market and cancelled in 2001 and 2002. During 2001, the Company repurchased US$131.0 million in aggregate principal amount of the outstanding bonds from the open market with payments of NT$6,066,042, which resulted in an extraordinary loss of NT$144,565 (net of income tax benefit of NT$48,188). During 2002, the Company repurchased US$68.0 million in aggregate principal amount of the outstanding bonds from the open market with payments of NT$3,242,110, which resulted in an extraordinary loss of NT$34,613 (net of income tax benefit of NT$11,538).
Foreign Convertible Notes--Issued by ASE Test Finance
In June 1999, ASE Test, in connection with the acquisitions of ISE Labs and Motorola SPS Businesses, issued US$160.0 million of 1% guaranteed convertible bonds due July 1, 2004 through its subsidiary, ASE Test Finance. The Company subscribed US$50.0 million of the convertible bonds and, accordingly, the net balance of US$110,111 (NT$3,742,673) is recorded in the accompanying balance sheet as of December 31, 2002. On August 19, 2003, ASE Test Finance redeemed and cancelled the total outstanding, convertible notes with payments of NT$4,908,389 (US$144,407), which resulted in an extraordinary loss of NT$75,668 (US$2,226).
Under ROC GAAP, the loss incurred of NT$75,668 (US$2,226), as a result of the early redemption and cancellation of the convertible notes was recorded as an extraordinary loss. Under US GAAP. the loss would not qualify as extraordinary and would have been included in other expenses.
12. LONG-TERM DEBTS
Long-term debts consist of the following:
December 31
----------------------------------
2002 2003
---------- ---------------------
NT$ NT$ US$
---------- ---------- --------
Mortgage bank loans for purchase of building and
machinery 7,281,200 6,266,559 184,365
Revolving bank loans and acceptances payable 11,019,162 14,314,818 421,148
Bank loans secured by assets 1,724,760 2,025,672 59,596
Letters of credit loans for purchase of materials and
machinery 2,719,490 1,662,152 48,901
Loans for redemption of convertible bond 6,000,000 5,095,500 149,912
---------- ---------- --------
28,744,612 29,364,701 863,922
Current portion 6,008,709 5,491,389 161,559
---------- ---------- --------
22,735,903 23,873,312 702,363
========== ========== ========
|
Mortgage Bank Loans for Purchase of Building and Machinery
Mortgage bank loans obtained by the Company, ASE Test, Inc., ASE Chung Li, and ASE Material are repayable in monthly, quarterly or semi-annually installments. The loans bear interest at rates ranging from 3.00% to 7.92% in 2002 and 1.82% to 7.92% in 2003, respectively.
ASE Chung Li has a syndicated loan agreement with a total facility of NT$4,000,000, which will be repayable through May 2006. As of December 31, 2002, NT$1,600,000 (US$47,073) of the total facility had been drawn. The remaining NT$2,400,000 (US$70,609) available under the facility had not been drawn and, under the terms of the agreement, expired in November 2002. The agreement requires that, among other things, ASE Chung Li maintains certain financial ratios. As of December 31, 2003, ASE Chung Li was in compliance with the required covenants.
Revolving Bank Loans and Acceptance Payables
December 31
--------------------------------------
2002 2003
----------- -----------------------
NT$ NT$ US$
----------- ----------- --------
Syndicated bank loans--interest at 2.14%-5.90% in 2002
and 2.15%-2.53% in 2003
ASE 5,200,000 8,050,000 236,835
ASE Test, Inc. 300,000 -- --
Revolving credit lines due April 2004 to
June 2008--interest at 1.85%-4.88% in 2002 and
1.03%-5.05% in 2003
ASE 4,920,030 4,388,760 129,119
Others 606,341 1,876,260 55,200
----------- ----------- --------
11,026,371 14,315,020 421,154
Unamortized discounts (7,209) (202) (6)
----------- ----------- --------
11,019,162 14,314,818 421,148
=========== =========== ========
|
The five-year syndicated bank loan of NT$5.2 billion of the Company due in June 2004 was repaid in January 2003, with proceeds the Company obtained from a new long-term credit line of NT$7.0 billion.
The January 2003 syndicated bank loan of NT$7.0 billion is repayable in three semi-annual installments from December 2004 to December 2005, but the Company made an early payment in the amount of NT$3.35 billion in October 2003.
The remaining NT$3.65 billion will be repayable upon the original payment schedule. The other syndicated bank loan of NT$7.0 billion obtained in 2003 by the Company is repayable in seven semi-annually installments from September 2005 to September 2008. As of December 31, 2003, NT$4.4 billion of the total facility had been drawn.
The agreement requires, among other things, the following:
a. Without the prior written consent from the majority of the banks, ASE may not:
1) Pledge its assets or assume liabilities or change the scope of its operations or dispose material assets; or
2) Merge or combine with any other entity or make investments or acquire major assets of any other entity over 25 billion.
b. The Company's tangible net worth (as defined in a loan agreement) should not be less than NT$38.0 billion (US$1,118 million).
c. Maintenance by the Company of certain financial ratios.
Bank Loans Secured by Assets
These include various bank loans obtained by ISE Labs which are secured by ISE Labs' total assets (see Note 19). The loans are repayable in May 2009, and bear interest from 5.50% to 7.92% in 2001 and 4.75% to 7.75% in 2002, respectively. These agreements contain certain covenant and default provisions that require ISE Labs to maintain certain financial ratios, dividend and capital expenditure restrictions and maintenance of working capital requirements. ISE Labs was in violation of covenants under a US$10.0 million bank loan agreement to maintain certain monthly and quarterly financial ratios for the months from October 2002 through February 2003. These breaches constituted events of default and, as a result, the bank declared all of ISE Labs' obligations under the agreement immediately due and payable. Accordingly, the long-term debt portion of US$10.0 million was included in the current portion of long-term debt at December 31, 2002. ISE Labs subsequently obtained a waiver of the aforementioned breaches from the bank, repaid all of the amounts owed under the loan and terminated the loan agreement.
These also include various bank loans obtained by ASE Korea which are secured by ASE Korea's land, buildings and improvements, and machinery and equipment (see Note 19). The loans are repayable in July 2009 and bear interest from 3.70% to 4.30% in 2002 and 3.15% to 3.87% in 2003, respectively.
Letters of Credit Loans for Purchase of Materials and Machinery
These represent various bank loans obtained by the Company with original terms of one year or less, due from March 2004 through July 2004 with interest rates ranging from 0.86% to 5.45% in 2002, 0.83% to 1.61% in 2003. The Company and ASE Material have received permission from the relevant banks to refinance some of these loans on the same terms.
Loans for Redemption of Convertible Bonds
December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------
ASE 6,000,000 -- --
ASE Test Finance -- 5,095,500 149,912
---------- ---------- ----------
6,000,000 5,095,500 149,912
========== ========== ==========
|
The loan obtained in 2001 by the Company which was specified for use in the redemption of the Company's convertible bonds (Note 11) was repayable in semi-annual installments starting June 2003 to December 2004. The Company had repaid all of the amounts owed under the loan at October 2003. The interest rate on the loans was 5.79% in 2002 and 2003.
The loan obtained in 2003 by ASE Test Finance which specified for use in the redemption of its convertible bonds issued in 1999 (Note 11) is repayable in semi-annual installments starting June 2005 to June 2008 and bears interest is 2.24%. The funds were drawn in June 2003 and shown as restricted bank deposit on consolidated balance sheets as of June 30, 2003. The Company, ASE Test and ASE Test, Inc. provided guarantees for ASE Test Finance's payment obligations under the facility. Under the guaranty, ASE Test is required to maintain certain financial ratios and the tangible net worth of ASE Test shall not be less than US$400 million at any time.
The abovementioned bank loan contracts have variable interest rates and are subject to adjustments by banks or changes in prime rate. In addition, several of the loan agreements have default provisions, whereby a default under one debt agreement may also trigger cross-defaults under other debt agreements.
As of December 31, 2003, unused long-term bank facilities approximated NT$3,622,149 (US$106,565).
As of December 31, 2003, the maturities of long-term bonds payable, long-term bank loans and obligation under capital leases are as follows:
Amount
------------------------
NT$ US$
---------- ----------
Within the following year 5,656,001 166,402
During the second year 8,052,538 236,909
During the third year 6,220,416 183,007
During the fourth year 4,019,570 118,257
During the fifth year and thereafter 12,547,537 369,154
---------- ----------
36,496,062 1,073,729
|
Long-term bonds payable, long-term bank loans and obligation under capital leases by currencies are detailed as follows:
December 31
-------------- --------------
2002 2003
-------------- --------------
New Taiwan dollars NT$ 24,122,910 NT$ 18,322,350
U.S. dollars US$ 246,194 US$ 519,805
Japanese yen JPY 5,460,363 JPY 1,622,970
|
European currency unit EUR 2,986 EUR --
13. PENSION PLANS
The Company and its consolidated subsidiaries in the ROC have pension plans for their regular employees. Retirement benefits are based on the length of service and average salaries or wages of the last six months before retirement. ISE Labs has a defined contribution savings plan ("401k plan") for eligible employees. This plan permits employees to make contributions up to the maximum limits allowable under Internal Revenue Code Section 401k. ASE Test Malaysia also has a defined contribution plan. In addition, ASE Korea has a pension plan where eligible employees and directors with more than one year of service are entitled to receive a lump-sum payment upon termination of their service with ASE Korea, based on their length of service and rate of pay at the time of termination. The consolidated entities in the ROC make monthly contributions, at a specified percentage of salaries and wages, to pension funds which are in the name of, and are administered by, the employee pension plan committee of the respective entities and are deposited in the Central Trust of China (the "CTC"), a government agency. CTC may invest the assets of the plan assets in stocks, bonds and other securities. The changes in the retirement funds during the periods indicated are summarized as follows:
Year Ended December 31
-------------------------------------------
2001 2002 2003
-------- -------- -------------------
NT$ NT$ NT$ US$
-------- -------- -------- -------
Balance, beginning of year 339,500 440,746 535,412 15,752
Contributions 89,615 83,996 113,077 3,327
Payments (3,654) (145) (8,803) (259)
Interest income 15,285 10,815 9,349 275
-------- -------- -------- -------
Balance, end of year 440,746 535,412 649,035 19,095
======== ======== ======== =======
|
The plan assets deposited in the CTC allocations at December 31, 2003, by category, are as follows:
Type of Investment Allocation(%)
------------------ -------------
Cash 45
Government Loan 12
Equity 27
Notes 15
Bond 1
------------
100
============
|
Pension costs for these entities consist of:
Year Ended December 31
--------------------------------------------
2001 2002 2003
-------- -------- --------------------
NT$ NT$ NT$ US$
-------- -------- -------- --------
Service costs 114,393 191,707 238,560 7,019
Interest 28,503 36,102 43,312 1,274
Projected return on pension assets (21,611) (23,003) (19,413) (571)
Amortization of prior period service cost, gain
or loss on plan assets, etc 6,933 4,176 11,161 328
-------- -------- -------- --------
128,218 208,982 273,620 8,050
======== ======== ======== ========
|
Other pension information based on actuarial calculations of the plan during the periods indicated are as follows:
Year Ended December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------
a. Benefit obligations
Vested benefit obligation 21,347 63,229 1,860
Non-vested benefit obligation 738,300 971,450 28,581
---------- ---------- ----------
Accumulated benefit obligation 759,647 1,034,679 30,441
Additional benefits based on future salaries 486,056 642,098 18,891
---------- ---------- ----------
Projected benefit obligation 1,245,703 1,676,777 49,332
Fair value of assets (507,098) (619,260) (18,219)
---------- ---------- ----------
Funded status 738,605 1,057,517 31,113
Unrecognized net transition obligation (104,105) (96,979) (2,853)
Unrecognized prior service cost -- (15,247) (449)
Unrecognized net actuarial loss (210,955) (368,778) (10,850)
Additional pension cost -- 31,873 938
Portion in other current liabilities (6,874) (21,100) (621)
---------- ---------- ----------
Accrued pension cost 416,671 587,286 17,278
========== ========== ==========
b. Vested obligation 23,858 71,436 2,102
========== ============ ==========
c. Actuarial assumption
Discount rate 3.50% 3.25%
Increase in future salary level 3.00% 3.00%
Expected rate of return on plan assets 3.50% 3.25%
|
d. The consolidated entities in the ROC expect to make contributions of $ 110,268 to pension funds in 2004.
e. Expected benefit payments:
Year of Payments 2004 $4,705 2005 6,851 2006 14,829 2007 15,601 2008 33,176 2009 to 2053 8,983,570 |
Plan assets and obligations reflected herein were measured as of December 31, 2003.
The Company has no other post-retirement or post-employment benefit plans.
14. SHAREHOLDERS' EQUITY
American Depositary Shares
In July 1995, the Company issued 8,600,000 GDSs, representing 43,000,000 common shares. In September 2000, the Company issued 20,000,000 ADSs, representing 100,000,000 common shares. In connection with the ADS offering in 2000, the Company offered to exchange all outstanding GDSs for ADSs listed on the New York Stock Exchange.
As of December 31, 2003, a portion of the outstanding ADSs were cancelled in exchange for approximately 340,440 thousand common shares of the Company, which represented 9.51% of the Company's total outstanding common shares (including treasury stock). As of December 31, 2003, the outstanding ADSs represented 2.50% of the Company's total outstanding common shares (including treasury stock).
Capital Surplus
Under the ROC Company Law, capital surplus from the paid-in capital in excess of par value can be used to offset a deficit. In addition, such capital surplus may be transferred to capital and is subject to a specified limit under relevant regulations.
Capital surplus from long-term investments in shares of stock which are accounted for by the equity method may not be used for any purpose.
Appropriation of Retained Earnings
The Company's Articles of Incorporation provide that the annual net income shall be appropriated as follows:
a. offset against deficit, if any;
b. 10.0% of the remainder as legal reserve, until the accumulated amount equals paid-in capital;
c. an amount equal to the income from long-term investments in shares of stock accounted for by the equity method, excluding cash dividends, as special reserve;
d. not more than 2.0% of the remainder, as compensation to directors and supervisors;
e. between 5.0% to 7.0% of the remainder, as bonus to employees, of which 5.0% will be distributed in accordance with the employee bonus plan and the excess to be distributed to specific employees as decided by the board of directors; and
f. the remainder, as dividends to shareholders.
The aforementioned appropriations shall be approved by the shareholders in the following year and given effect in the financial statements of such year.
Under the ROC Company Law, the aforementioned legal reserve may be used to offset a deficit. Also, when the reserve has reached 50.0% of capital, up to 50.0% thereof may be transferred to capital.
The appropriation of 2002 earnings, resolved by the Company's annual shareholders' meeting, was as follows:
Amount
-----------------------
NT$ US$
---------- ----------
Legal reserve 12,903 380
Compensations to directors and supervisors 2,280 67
Bonus to employees--cash 8,000 235
Stock dividends--NT$0.03 per share 97,644 2,873
---------- ----------
120,827 3,555
========== ==========
|
The information related to appropriation of 2003 earnings may be accessed through the website of the Taiwan Stock Exchange.
Dividend Policy
In order to meet the needs of the Company's present and future capital expenditures, the Company's dividend distribution shall be primarily in the form of stock dividends. Cash dividends may also be distributed in certain circumstances. However, the percentage of cash dividends generally shall not exceed 20.0% in any dividend distribution, provided further that cash dividends shall not be paid if the dividend per share is less than NT$0.1.
With respect to the percentage of cash dividends to be paid referred to in the preceding paragraph, the Company may decide the most suitable dividend distribution in accordance with its current operational status, and taking into consideration the budget plan for the following year. The board of directors shall propose a profit distribution plan, which shall be submitted to the shareholders' meeting for approval before implementation.
Imputation Tax System
Under the Integrated Income Tax System which became effective on January 1, 1998, non-corporate resident shareholders are allowed a tax credit for the income tax paid or payable by the Company on earnings generated in 1998 and onwards. An Imputation Credit Account ("ICA") is maintained by the Company for such income tax and the tax credit allocated to each shareholder. The maximum credit available for allocation to each shareholder cannot exceed the balance shown in the ICA on the date of distribution of dividends.
As of December 31, 2003, the creditable taxes aggregated NT$89,586 (US$2,636). The actual percentage for the distribution of 2002 earnings and estimate percentage for the distribution of 2003 earnings were 20.35% and 4.40%.
Treasury Stock
Effective January 1, 2002, the Company reclassified the shares held by its subsidiaries with book value of NT$2,639,826, representing 164,441,857 shares, from long-term investment to treasury stock.
In June 2003, the 163,789,144 of the above-mentioned shares were sold at NT$2,850,524 (US$83,864). The excess of NT$220,735 (US$6,494) over the book value of NT$2,629,789 (US$77,369) was recorded as capital surplus, while subsidiaries recorded the excess as investment income. As of December 31, 2003, the book value of treasury stock accounted for by the Company's shareholdings is NT$10,037 (US$295) (represents 717,984 shares) and the related market value is NT$21,278 (US$626). This transaction resulted in the increase in capital surplus of NT$220,735 (US$6,494), the decrease in treasury stock of NT$2,629,789 (US$77,369) and the increase in realized loss on long-term investment of NT$354,787 (US$10,438) as of December 31, 2003.
Although these shares are treated as treasury stock in the financial statements, the shareholders are entitled to exercise their rights on these shares, except for participation in additional capital increases through cash payment.
15. EMPLOYEE STOCK OPTION PLANS
In order to attract, retain and incentivize employees, the Company adopted an employee stock option plan, which became effective on August 28, 2002. Under this plan, each option entitles the holder to purchase one common share of the Company at a price equal to the closing market price on the date of the option grant. Forty percent of the options originally granted vest upon the second anniversary of the grant date, and an additional 10% of the options originally granted vest every six months thereafter. Each option expires at the end of the 10th year following its issue date. A total of 159,968,000 options have been issued, 145,989,000 of which were issued at an exercise price of NT$18.90 (adjusted) per share and 13,979,000 of which were issued at an initial exercise price of NT$24.60. The exercise price was equal to the closing price of the Company's common shares listed on the Taiwan Stock Exchange on the date of grant.
ASE Test has five stock option plans, the 1996 Executive Management Option Plan (the "1996 Plan"), and the 1997, 1998, 1999 and 2000 Option Plans. Stock options granted under these plans are exercisable for ASE Test ordinary shares based on a vesting schedule over five to ten years until the options expire. The Company applies U.S. GAAP to the accounting for stock options granted under these plans (See Note 26e).
16. PERSONNEL EXPENDITURE, DEPRECIATION AND AMORTIZATION
Year Ended December 31, 2002 Year Ended December 31, 2003
------------------------------------ -------------------------------------------------
Cost of Operating Cost of Operating
Revenues Expense Total Revenues Expense Total
---------- ---------- ---------- ---------- ---------- -----------------------
NT$ NT$ NT$ NT$ NT$ NT$ US$
---------- ---------- ---------- ---------- ---------- ---------- ----------
Personnel
Salary 5,598,134 1,727,156 7,325,290 7,206,380 2,024,201 9,230,581 271,568
Pension cost 204,531 61,220 265,751 246,172 79,888 326,060 9,593
Meal allowance 196,162 30,750 226,912 228,783 36,951 265,734 7,818
Welfare 13,738 3,636 17,374 25,300 7,120 32,420 954
Labor and health insurance 362,116 126,383 488,499 476,816 153,492 630,308 18,544
Others 329,096 204,684 533,780 371,245 246,578 617,823 18,176
---------- ---------- ---------- ---------- ---------- ---------- ----------
6,703,777 2,153,829 8,857,606 8,554,696 2,548,230 11,102,926 326,653
========== ========== ========== ========== ========== ========== ==========
Depreciation 11,366,882 474,449 11,841,331 11,516,968 693,942 12,210,910 359,250
Amortization 160,291 284,704 444,995 377,623 178,035 555,658 16,348
|
17. INCOME TAX
a. Income tax benefit is summarized as follows:
Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------
Tax (benefit) based on pre-tax
accounting income (loss) at statutory
rate (579,651) (950,597) 604,102 17,773
Add (less) tax effects of:
Permanent differences
Tax-exempt income
Tax holiday (26,413) (52,126) (481,214) (14,158)
Gain from sales of securities (31,711) (16,798) (10,357) (305)
Temporary differences
Investment loss 814,148 793,812 131,560 3,871
Unfunded pension cost 7,842 24,239 86,255 2,538
Bond interest payable (189,164) (163,289) 16,776 494
Other 156,866 629,545 (184,453) (5,427)
---------- ---------- ---------- ----------
151,917 264,786 162,669 4,786
Income taxes on undistributed earnings 335,065 54,598 170,281 5,009
Credits for investments and research and
development (253,227) (331,255) (439,457) (12,929)
Net change in deferred income tax for the
period (449,933) (1,130,358) (1,190,500) (35,025)
Adjustment of prior year's income tax 17,018 1,905 18,859 555
---------- ---------- ---------- ----------
(199,160) (1,140,324) (1,278,148) (37,604)
========== ========== ========== ==========
|
b. The above-mentioned taxes on pre-tax accounting income (loss) at the statutory rates for domestic and foreign entities are shown below:
Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------
Domestic entities in ROC (25% statutory
rate) (501,553) (173,787) 750,348 22,078
Foreign entities
ASE Korea (30.8% statutory rate) -- -- 74,806 2,199
ISE Labs (federal tax rate 35% and
state tax rate 6%) (92,487) (725,744) (209,911) (6,176)
ASE Test Malaysia (30% statutory rate) 14,389 (51,066) (11,141) (328)
---------- ---------- ---------- ----------
(579,651) (950,597) 604,102 17,773
========== ========== ========== ==========
|
c. Deferred income tax assets and liabilities are summarized as follows:
December 31
------------------------------------
2002 2003
---------- ---------- --------
NT$ NT$ US$
---------- ---------- --------
Current deferred income tax assets
Unused tax credits 966,689 1,054,370 31,020
Provision for inventory obsolescence 38,212 50,475 1,485
Provision for doubtful accounts and sales allowance 23,305 33,754 993
Unrealized foreign exchange loss 49,351 65,118 1,916
Other 29,884 29,752 875
---------- ---------- --------
1,107,441 1,233,469 36,289
Valuation allowance (23,000) (8,968) (264)
---------- ---------- --------
Net current deferred income tax assets 1,084,441 1,224,501 36,025
========== ========== ========
Non-current deferred income tax assets
Unused tax credits 2,324,529 3,101,039 91,234
Accrued pension costs 498,087 153,924 4,529
Loss carryforward 455,589 483,538 14,226
Investment income (206,500) (144,000) (4,237)
Others (125,072) 120,387 3,542
---------- ---------- --------
2,946,633 3,714,888 109,294
Valuation allowance (1,765,860) (1,484,659) (43,679)
---------- ---------- --------
Net non-current deferred income tax assets 1,180,773 2,230,229 65,615
========== ========== ========
Non-current liabilities
Goodwill amortization (35,658) (34,674) (1,021)
========== ========== ========
|
In assessing the realizability of deferred income tax assets, the Company considers its future taxable earnings and expected timing for the reversal of temporary differences. In addition, in the event future taxable earnings do not materialize, the Company will consider executing certain tax planning strategies available to realize the deferred income tax assets. The valuation allowance is provided to reduce the gross deferred income tax assets to an amount which the Company believes will more likely than not be realized. Deferred income tax assets and liabilities are classified in the consolidated balance sheets based on the classification of the related assets or liabilities or the expected timing of the reversal of temporary differences.
The U.S. Federal and California State net operating loss carryforward of ISE Labs as of December 31, 2003 approximated US$11.6 million and US$22.1 million with expiration period in 2023 and 2013, respectively.
A portion of the Company's and ASE Test, Inc.'s income from the manufacturing, processing and testing of semiconductors is exempt from income tax for five years ending December 2005 and 2007. ASE Test Malaysia has been granted pioneer status by Ministry of International Trade and Industry in Malaysia for five from July 1, 1999 to June 30, 2004. The per share effect of this tax holiday is NT$0.01 in 2001, NT$0.02 in 2002 and NT$0.14 in 2003, respectively.
d. As of December 31, 2003, unused tax credits of ROC subsidiaries which can be utilized to offset their future income tax are set forth below:
December 31, 2003
---------------------------------------------------------------------
ASE ASE ASE
ASE Chung-Li Material Test, Inc. Total
Year of --------- --------- --------- --------- ---------------------
Expiry NT$ NT$ NT$ NT$ NT$ US$
------- --------- --------- --------- --------- --------- ---------
2004 296,870 122,824 230,676 308,056 958,426 28,198
2005 624,305 640 151,399 98,020 874,364 25,724
2006 523,654 106,391 200,806 233,824 1,064,675 31,323
2007 794,500 72,717 76,227 314,500 1,257,944 37,009
--------- --------- --------- --------- --------- ---------
2,239,329 302,572 659,108 954,400 4,155,409 122,254
========= ========= ========= ========= ========= =========
|
In the ROC, the tax credits may be utilized to reduce up to 50% of income tax payable each year. In the expiring year, any remainder of unused tax credits can be used entirely.
Income tax returns of ASE and all its subsidiaries in Taiwan has been examined by the ROC tax authorities through 2000.
18. EARNINGS PER SHARE
Since the Company incurred a loss from continuing operations for the two years ended December 31, 2001 and 2002, and the Company's common share equivalents attributable to the employees' stock options had no dilutive effect in 2002, only the basic earnings (loss) per share and per ADS are presented.
The Company's common share equivalents attributable to the employee's stock options had dilutive effect in 2003.
The denominator is the weighted average number of outstanding shares of common stock of 3,537,048,918 shares in 2003, after giving effect to the ASE stock options.
The denominator is the above-mentioned weighted average outstanding shares divided by five (one ADS represents five common shares). The numerator is the same as mentioned in the above EPS calculation.
19. ASSETS PLEDGED OR MORTGAGED
The assets pledged or mortgaged as first priority collateral are summarized as follows:
December 31
--------------------------------------
2002 2003
---------- ------------------------
NT$ NT$ US$
---------- ---------- ----------
Buildings and improvements 2,762,585 3,293,451 96,895
Machinery and equipment 8,629,757 8,832,549 259,857
Pledged time deposits 428,743 167,426 4,926
Guarantee deposit--time deposits 118,445 102,720 3,022
Short-term investment 260,120 90,000 2,648
Cash equivalents--commercial paper 552,416 -- --
---------- ---------- ----------
12,752,066 12,486,146 367,348
========== ========== ==========
|
20. COMMITMENTS AND CONTINGENCIES AS OF DECEMBER 31, 2003
a. The Company, ASE Test, Inc., and ASE Material lease the land on which their buildings are situated under various operating lease agreements with the government expiring on various dates through September 2009 to 2012. The agreements grant these entities option to renew the leases and reserve the right for the lessor to adjust the lease charges upon an increase in the assessed value of the land and to terminate the leases under certain conditions. In addition, the Company, ASE Test, Inc., ASE Material and ISE Labs also lease equipment under non-cancellable capital lease agreements. The net book value as of December 31, 2002 and 2003 of the equipment acquired under the capital obligations amounted to NT$506,637 and NT$559,615 (US$16,464), respectively. ASE Test, Inc., ASE Chung Li and ASE Test Malaysia lease machinery and equipment under non-cancelable operating lease. ISE Labs also leases office building and equipment under non-cancellable operating lease agreements expiring in December 2010. The rental expenses for the years ended December 31, 2001, 2002 and 2003 were $10,656, $9,936 and $10,427, respectively. The future minimum lease payments under the above-mentioned operating leases are as follows:
Operating Leases NT$ US$
---------------------------- ---------- ----------
2004 998,410 29,374
2005 964,743 28,383
2006 760,860 22,385
2007 223,795 6,584
Thereafter 371,037 10,916
---------- ----------
Total minimum lease payments 3,318,845 97,642
========== ==========
|
The future minimum lease payments under the above-mentioned capital leases as of December 31, 2003 are as follows:
NT$ US$
------------ ----------
Within the following year 182,201 5,360
Within the second year 107,165 3,153
Within the third year 1,043 31
Within the fourth year 1,009 30
Within the fifth year 688 20
------------ ----------
Total minimum lease payments 292,106 8,594
Less: Imputed interest 21,977 647
------------ ----------
Present value of future lease obligations 270,129 7,947
Capital lease obligation, current 164,612 4,843
------------ ----------
Capital lease obligation, long-term 105,517 3,104
============ ==========
|
b. The Company, ASE Test, Inc., ISE, ASE Test Malaysia, ASE Korea and ASE Chung Li engage outside sales agencies. Commissions and service fees were paid based on monthly incurred service-related costs and expenses plus certain percentage (there is limited amounts prescribed for costs and expenses incurred) or based on certain percentage of net export sales. Commissions and service fees paid in 2001, 2002 and 2003 were approximately NT$729,300, NT$734,322 and NT$973,031 (US$28,627), respectively.
c. As of December 31, 2003, commitments to purchase machinery and equipment were approximately NT$8,231,000 (US$242,159).
d. As of December 31, 2003, commitments for construction of buildings were approximately NT$625,000 (US$18,387).
e. As of December 31, 2003, unused letters of credit were approximately NT$1,692,000 (US$49,779).
f. The Company entered into technology license agreements with foreign companies which will expire on various dates through 2010 for the licensing of technology used in the packaging of certain products. Pursuant to such agreements, the Company shall pay royalties at a specified percentage of sales quantities. Such royalties in 2001, 2002 and 2003 were approximately NT$151,249, NT$176,711 and NT$200,132 (US$5,888), respectively. As of December 31, 2003, the Company had an accumulated total payments of US$6,150.
g. On October 28, 2003, the Company entered into a merger agreement with ASE Chung Li and ASE Material, pursuant to which ASE Chung Li and ASE Material will be merged with and into the Company with as the surviving corporation. Upon the completion of the merger, all of the assets and liabilities of ASE Chung Li and ASE Material will be owned and assumed by the Company, and the operations of ASE Chung Li and ASE Material will be integrated with the operations of the Company. The merger is to be consummated by means of a share exchange pursuant to which the respective shareholders (other than the Company) of ASE Chung Li and ASE Material will receive common shares of the Company in exchange for the common shares of each of ASE Chung Li and ASE Material. The Company expected to issue 282,315,437 common shares, or approximately 7.9% of outstanding shares as of October 28, 2003, in connection with the merger.
The merger agreement has been approved by the board of directors of each the Company, ASE Chung Li and ASE Material and by the shareholders of ASE Chung Li and ASE Material. Assuming receipt of all necessary approvals and consents, the Company expects that the merger will be completed by July 1, 2004.
h. As of December 31, 2003, the Company has endorsed and guaranteed the promissory notes of its subsidiaries and its as follows:
NT$ US$
---------- ----------
ASE Test Finance Ltd. 5,095,500 149,912
ASE Material 2,440,860 71,811
ASE investment (Labuan) 2,038,200 59,965
HCDC 960,000 28,243
ASE Holding Electronics
(Philippines), Incorporated 764,325 22,487
Omniquest Industrial Ltd. 339,700 9,994
ASE Chung Li 475,580 13,992
---------- ----------
12,114,165 356,404
========== ==========
|
21. SUBSEQUENT EVENTS
On February 3, 2004, the Company and J&R entered into a Shares Purchase Agreement with NEC Electronics Corporation and NEC Yamagata, Ltd. NEC Yamagata Ltd. will establish a new company and transfer all of its operating assets of its semiconductor business this new company, and then, J&R will purchase a 100% equity interest of this new company. In addition, the Company is in the process of negotiating a contract with NEC Electronics Corporation for the provision of packaging and testing services, to be provided by this new company.
22. DERIVATIVE FINANCIAL INSTRUMENTS
Information on derivative transactions is as follows:
a. Foreign currency option contracts
Because the Company, ASE Test, Inc. and ASE Material expect to receive U.S. dollars from export sales and to pay Japanese yen or NT dollars to settle payables or long-term or short-term borrowings, these companies occasionally enter into foreign currency option contracts to manage their exposure to exchange rate fluctuations.
The outstanding contracts as of December 31, 2003 are shown in Schedule I:
The loss arising from such outstanding contracts based on mark-to-market valuation as of December 31, 2003 was approximately NT$7,162 (US$211).
b. Forward exchange contracts
The Company entered into forward contracts to manage its exposure to foreign exchange rate fluctuations associated with its long-term debt and payables. As of December 31, 2003, there were no outstanding contracts. The gain or loss arising from such contracts for the year ended December 31, 2002 and 2003 was immaterial.
c. Cross currency swap contract
In October 2003, the Company entered into two cross currency swap contracts with a foreign bank to manage its exposure to interest rates and the effect of exchange rate fluctuations associated with its long-term bonds payable. These contracts will expire in April 2007 and September 2008, respectively. The term of these contracts, provide for a semi-annual exchange of interest payments, by two arranged interest rates, arising from an underlying nominal amount of US$200,000.
The Company has net interest income of NT$11,056 (US$325) from these contracts in 2003, and which was offset against the bonds interest.
The loss arising from such contracts was approximately NT$68,110 (US$2,004) based on prevailing exchange rate at December 31, 2003.
d. Interest rate swap
In June 2002, the Company entered into two interest rate swap contracts with a foreign bank to manage exposures to interest rate fluctuations. These contracts would have expired in December 2004. In September 30, 2002, the Company settled these contracts and recorded net interest income of NT$107,910.
e. Transaction risk
1) Credit risk
The Company is exposed to credit risk in the event of non-performance of the counter parties to forward contracts on maturity. In order to manage this risk, the Company transacts only with financial institutions with good credit ratings. As a result, no material losses resulting from counter party defaults are anticipated.
2) Market risk
Market risk is the exposure created by potential exposures to changes of foreign exchange rate related to its foreign-currency denominated assets and/or liabilities and changes on interest rates related to its obligations.
3) Liquidity risk and cash flow risk
The Company entered into European option contracts and forward exchange contracts to manage its exposure to the effect of exchange rate fluctuations on net assets or net liabilities. As the Company has sufficient operating capital to meet cash requirements upon the maturity of these contracts, the Company believes there are no significant liquidity or cash flow risks.
23. NON-DERIVATIVE AND DERIVATIVE FINANCIAL INSTRUMENTS
December 31
---------------------------------------------------------------------------
2002 2003
----------------------- -------------------------------------------------
Carrying Fair Carrying Fair Carrying Fair
Values Values Values Values Values Values
---------- ---------- ---------- ---------- ---------- ----------
NT$ NT$ NT$ NT$ US$ US$
---------- ---------- ---------- ---------- ---------- ----------
Non-derivative financial instruments
Assets
Cash and cash equivalents 9,829,508 9,829,508 8,562,425 8,562,425 251,910 251,910
Short-term investments 2,590,436 2,592,482 3,017,779 3,023,055 88,784 88,940
Notes receivable 112,667 112,667 111,596 111,596 3,283 3,283
Accounts receivable 8,885,879 8,885,879 12,798,135 12,798,135 376,526 376,526
Long-term investments 6,566,734 4,297,778 6,339,655 4,736,368 186,515 139,346
Pledged time deposit 428,743 428,743 167,426 167,426 4,926 4,926
Guarantee deposit 170,064 170,064 359,908 359,908 10,589 10,589
Liabilities
Short-term borrowings 3,903,994 3,903,994 5,048,230 5,048,230 148,521 148,521
C/P and B/A payable 2,384,577 2,384,577 1,075,965 1,075,965 31,655 31,655
Notes and Accounts payable 4,047,171 4,047,171 6,488,989 6,488,989 190,909 190,909
Accrued expense 1,839,423 1,839,423 1,839,276 1,839,276 54,112 54,112
Payables for properties 4,494,828 4,494,828 4,392,340 4,392,340 129,225 129,225
Long-term bonds payable 5,179,793 4,646,184 6,861,232 7,511,616 201,860 220,995
Long-term bank loan
(included current portion) 28,744,612 28,744,612 29,364,701 29,764,701 863,922 863,922
Capital lease obligation
(included current portion) 467,374 467,374 270,129 270,129 7,947 7,947
Long-term payable for investments
(included current portion) 3,327,118 3,327,118 2,309,960 2,309,960 67,960 67,960
Derivative financial instruments
Forward exchange contracts (5,781) (5,781) -- -- -- --
European options 39,141 39,141 (7,162) (7,162) (211) (211)
Cross currency swap contract -- -- (68,110) (68,110) (2,004) (2,004)
|
The carrying values of cash and cash equivalents, notes receivable, accounts receivable, short-term borrowings, commercial paper and bank acceptance payables, notes and accounts payable approximate fair values because of the short maturity of these instruments. The fair values of short-term and long-term investments are determined based on market values or net equity values. The recorded or book value of pledged time deposit and guarantee deposits represents their fair value. The fair values of long-term bonds capital lease obligation and payables for investments are determined based on the market value or the estimated present value of future cash flows using the interest rates of similar debt instruments which the Company is able to obtain as the discount rate. Fair value of long-term bank loan is carrying value because floating interest rates are applied. The derivative financial instruments are recorded at their fair market values.
24. SEGMENT AND GEOGRAPHICAL INFORMATION
a. Geographical sales information
1) Net revenue:
Year Ended December 31
----------------------------------------------------------------------------------------
2001 2002 2003
----------------------- ----------------------- ------------------------------------
% of % of % of
Total Total Total
NT$ Revenues NT$ Revenues NT$ US$ Revenues
---------- ---------- ---------- ---------- ---------- ---------- ----------
America 24,930,813 65 26,922,752 59 34,480,470 1,014,430 60
Taiwan 10,222,723 27 11,342,210 25 15,498,114 455,961 27
Europe 1,508,919 4 2,766,981 6 4,741,725 139,503 8
Asia and other areas 1,705,371 4 4,554,895 10 2,591,461 76,242 5
---------- ---------- ---------- ---------- ---------- ---------- ----------
38,367,826 100 45,586,838 100 57,311,770 1,686,136 100
========== ========== ========== ========== ========== ========== ==========
2) Long-lived assets:
December 31
--------------------------------------------------------------
2002 2003
----------------------- ------------------------------------
% of Total % of Total
Long-lived Long-lived
NT$ Assets NT$ US$ Assets
---------- ---------- ---------- ---------- ----------
Taiwan 47,958,294 76 52,020,556 1,530,466 77
Asia 13,288,531 21 14,442,830 424,914 22
America 1,842,045 3 876,561 25,789 1
---------- ---------- ---------- ---------- ----------
63,088,870 100 67,339,947 1,981,169 100
========== ========== ========== ========== ==========
b. Major customers
Customers that account for 10% or more of total revenues are shown
below:
Year Ended December 31
----------------------------------------------------------------------------
2001 2002 2003
-------------------- -------------------- ------------------------------
% of % of % of
Total Total Total
NT$ Revenues NT$ Revenues NT$ US$ Revenues
--------- -------- --------- -------- --------- ------- --------
Customer A 7,164,415 19 7,703,767 17 5,815,933 169,614 10
Customer B 4,413,854 12 3,837,476 8 4,405,356 129,578 8
|
c. Reported segment information
The Company has three reportable segments: Packaging, Testing and Investing. The Company packages bare semiconductors into finished semiconductors with enhanced electrical and thermal characteristics; provides testing services, including front-end engineering testing, wafer probing and final testing services; and engages in investing activities. The accounting policies of the segments are the same as those described in Note 2. Segment information for the years ended December 31, 2001, 2002 and 2003 is as follows:
Packaging Testing Investing All other Total
-------------- -------------- ------------ -------------- --------------
2001
Revenue from external customer NT$ 28,928,185 NT$ 9,637,615 NT$ -- NT$ 2,684,736 NT$ 41,250,536
Inter-segment revenues (30,000) (178,340) -- (2,674,370) (2,882,710)
Interest revenue 283,733 36,138 172,866 10,866 503,603
Interest expense 1,260,786 310,571 565,071 106,451 2,242,879
Net interest expense (977,053) (274,433) (392,205) (95,585) (1,739,276)
Depreciation and amortization 5,186,067 5,466,435 24,489 450,294 11,127,285
Segment profit(loss) (2,786,577) (1,195,344) 800,266 196,156 (2,985,499)
Segment asset 51,397,373 32,968,822 11,508,993 10,451,144 106,326,332
Expenditures for segment assets 5,879,357 4,415,168 -- 1,271,164 11,565,689
2002
Revenue from external customer NT$ 35,814,644 NT$ 10,060,635 NT$ -- NT$ 3,299,756 NT$ 49,175,035
Inter-segment revenues (14,291) (276,628) -- (3,297,278) (3,588,197)
Interest revenue 277,096 12,619 90,127 12,751 392,593
Interest expense 1,109,241 183,967 639,896 38,124 1,971,227
Net interest expense (832,145) (171,348) (549,769) (25,373) (1,578,634)
Depreciation and amortization 5,743,420 5,679,224 738 862,944 12,286,326
Segment profit(loss) 1,304,013 (2,797,405) (654,314) (561,999) (2,709,705)
Segment asset 53,667,786 31,338,672 8,099,495 11,799,063 104,905,016
Expenditures for segment assets 9,054,519 4,393,023 -- 2,302,265 15,749,807
2003
Revenue from external customer NT$ 45,117,444 NT$ 12,245,645 NT$ -- NT$ 5,225,067 NT$ 62,588,156
Inter-segment revenues (90,576) (103,249) -- (5,082,561) (5,276,386)
Interest revenue 53,678 7,593 47,621 5,735 114,627
Interest expense 734,312 147,975 429,750 107,315 1,419,352
Net interest revenue (expense) (680,634) (140,382) (382,129) (101,580) (1,304,725)
Depreciation and amortization 6,527,475 5,251,832 1,890 985,371 12,766,568
Segment profit (loss) 2,692,936 124,234 (706,384) (623,056) 1,487,730
Segment asset 61,923,742 33,343,057 6,578,117 12,479,327 114,324,243
Expenditures for segment assets 9,084,929 6,027,521 -- 2,121,874 17,234,324
2003
Revenue from external customer US$ 1,327,374 US$ 360,272 US$ -- US$ 153,724 US$ 1,841,370
Inter-segment revenues (2,665) (3,038) -- (149,531) (155,234)
Interest revenue 1,579 223 1,401 169 3,372
Interest expense 21,604 4,354 12,643 3,157 41,758
Net interest revenue (expense) (20,025) (4,131) (11,242) (2,988) (38,386)
Depreciation and amortization 192,041 154,511 56 28,990 375,598
Segment profit (loss) 79,227 3,655 (20,782) (18,330) 43,770
Segment asset 1,821,822 980,967 193,531 367,147 3,363,467
Expenditures for segment assets 267,283 177,332 -- 62,426 507,041
|
25. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE CORPORATION AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
The Company's consolidated financial statements have been prepared in
accordance with ROC GAAP, which differ in the following respects from U.S.
GAAP:
a. Pension benefits
The Company adopted U.S. Statement of Financial Accounting Standards ("U.S. SFAS") No. 87, "Accounting for Pensions", on January 1, 1987. A portion of the unrecognized net transition obligation at the adoption date is to be allocated directly to equity. ROC SFAS No. 18, which is substantially similar in many aspects to U.S. SFAS No. 87, was effective in 1996 for listed companies in Taiwan. Therefore, pension expense due to different adoption dates is adjusted.
b. Short-term investments
Under ROC GAAP, marketable equity securities are carried at the lower of aggregate cost or market, and debt securities are carried at cost, with only unrealized losses recognized. Under U.S. SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", debt and equity securities that have readily determinable fair values are to be classified as either trading, available-for-sale or held-to-maturity securities. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and traded for short-term profit are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as either held-to-maturity or trading are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of shareholders' equity.
All of the Company's short-term investments are classified as trading securities under U.S. GAAP, with gains and losses recognized currently in income. The unrealized gain included in earnings under U.S. GAAP for the three years ended December 31, 2001, 2002 and 2003 were as follows:
Year Ended December 31,
------------------------------------------
2001 2002 2003
-------- -------- -------------------
NT$ NT$ NT$ US$
-------- -------- -------- --------
Unrealized gain (loss) 5,952 (38,844) 3,151 93
-------- -------- -------- --------
|
All of the Company's short-term investments in mutual funds, stocks, commercial papers and convertible bonds are held principally for the purpose of selling them in the near term.
c. Bonuses to employees, directors and supervisors
According to ROC regulations and the Articles of Incorporation of the Company, a portion of distributable earnings should be set aside as bonuses to employees, directors and supervisors. Bonuses to directors and supervisors are always paid in cash. However, bonuses to employees may be granted in cash or stock or both. All of these appropriations, including stock bonuses which are valued at par value of NT$10, are charged against retained earnings under ROC GAAP after such appropriations are formally approved by the shareholders in the following year. Under U.S. GAAP, such bonuses are charged against income currently in the year earned. Shares issued as part of these bonuses are recorded at fair market value. Since the amount and form of such bonuses are not usually determinable until the shareholders' board of directors meeting in the subsequent year, the total amount of the aforementioned bonuses is initially accrued based on the management's estimate regarding the amount to be paid based on the Company's Articles of Incorporation. Any difference between the initially accrued amount and the fair market value of the bonuses upon the issuance of shares is recognized in the year of approval by the shareholder.
Aside from the aforementioned bonus plan, the Company granted a special stock bonus to employees amounting to NT$1,536,396 in 1997 and NT$2,506,617 in 2000. Employees who received the special stock bonus are required to continue working for the Company for an additional three years. Accordingly, the amount of special stock bonuses is being allocated over three years as additional compensation expense in the consolidated statement of income under U.S. GAAP.
d. Treasury stock
The common shares of the Company that are held by consolidated subsidiaries are, under U.S. GAAP, reflected as treasury stock in the consolidated balance sheet. Also, under U.S. GAAP, the minority interest reflected in the statements of income is adjusted to reflect the equity of the minority shareholders on the subsidiary's equity in the net income of the Company. The mutual or reciprocal holdings had no material effect on the minority interest reported in the consolidated statements
of income. In addition, under U.S. GAAP, the denominator used in calculating EPS is reduced by the number of the Company's common shares held by the subsidiary as of the date the subsidiary acquired the shares. The adjustment to the denominator is 164,441,865 shares in 2001. The capital gain (loss) from sales of treasury stock is deducted from or added to the consolidated balance of capital surplus.
Beginning January 1, 2002, the Company adopted ROC SFAS No. 30, "Accounting for Treasury Stock", which requires shares of parent stock held by subsidiaries to be recorded as treasury stock. The effect is similar to U.S. GAAP except the reduction of the minority share of treasury stock is required under ROC GAAP. Prior to 2002, common shares of the Company held by subsidiaries were presented as a long-term investment in the consolidated balance sheets with the gain or loss on the sale of the treasury stock reflected in the consolidated statements of income.
Prospectively, any unrealized losses that have accumulated prior to the effective date of the new standard will be recorded to the income statement when the corresponding shares are sold under ROC GAAP.
e. Depreciation of buildings
Under ROC GAAP, the estimated life of a building can be up to 55 years based on ROC practices. For U.S. GAAP purposes, the useful lives of buildings are estimated to be 25 years.
f. Excess of book value on transfer of buildings between consolidated subsidiaries
ASE Test, Inc., a consolidated subsidiary, purchased buildings and facilities from another consolidated subsidiary, ASE Technologies, in 1997. The purchase price from ASE Technologies was based on market value. Such additional payment for the excess of book value of NT$17,667 was capitalized by ASE Test, Inc. as allowed under ROC GAAP. Under U.S. GAAP, transfers of assets between entities under common control are accounted for using their historic cost.
g. Gain on sales of subsidiary's stock
The carrying value of stock investments in ASE Test by J&R Holding under ROC GAAP is different from that under U.S. GAAP mainly due to the differences in accounting for bonuses to employees, directors and supervisors.
h. Effects of U.S. GAAP adjustments on equity-method investments
The carrying values of equity-method investments and the investment income (loss) accounted for by the equity method in HCDC, HCKC, USI and Inprocomm are reflected in the consolidated financial statements under ROC GAAP. The financial statements of these equity investees prepared under ROC GAAP are different from the financial statements of such equity investees prepared under U.S. GAAP mainly due to the differences in accounting for bonuses to employees, directors and supervisors and depreciation of buildings. Therefore, the investment income (loss) has been adjusted to reflect the differences between ROC GAAP and U.S. GAAP in the investees' financial statements.
i. Impairment of long-lived assets
Under U.S. GAAP, in accordance with U.S. SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed by comparing undiscounted net cash flows of the assets against the net book value of the assets. If the recoverability test indicates that an impairment has occurred, the impairment loss is the amount of the asset's net book value in excess of the related fair value. As there are no requirements related to the evaluation of recoverability of impairment of long-lived assets under ROC GAAP, the Company has selected the same accounting for impairment of long-lived assets as U.S.
SFAS No. 144 for both ROC GAAP and U.S. GAAP reporting.
j. Stock dividends
Under ROC GAAP, stock dividends are recorded at par with a charge to retained earnings. Under U.S. GAAP, if the ratio of distribution is less than 25 percent of the same class of shares outstanding, the fair value of the shares issued should be charged to retained earnings. The difference for 2001 and 2003 stock dividends would be treated as an additional reduction to retained earnings and increase to capital surplus amounting to NT$3,181 million and NT$143 million (US$4 million), respectively.
k. Stock option compensation
For U.S. GAAP reporting, the Company has elected to follow Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", which measures compensation expense based on the difference, if any, between the market price of the underlying common shares and the exercise price of the stock option on the date of the grant. The Company is required under U.S. SFAS No. 123, "Accounting for Stock-based Compensation", to disclose the pro forma information regarding option grants to its employees computed as if the fair value method had been applied.
In May 2001, ASE Test's directors exercised their stock options for 2,480,000 shares at US$3.50 per share under the 1996 option plan. The Company decided, based on resolution of its Board of Directors, to purchase these shares from the directors at the prevailing market price of US$14.27 per share on the same day the options were exercised. Under ROC GAAP, such a share purchase is accounted for as additional investments of ASE Test's shares by the Company. However, under U.S. GAAP, the purchase of shares from employees within six months after exercise of a vested option creates a compensation expense equal to the difference between the market price of the share on the date of exercise and the market price on the date the options were granted. Consequently, compensation expense of NT$908,661 was recorded by ASE Test.
l. Derivative financial instruments
There are no specific accounting standards under ROC GAAP which address measurement for derivative instruments, except for foreign currency forward contracts. Under ROC GAAP, foreign-currency forward contracts are accounted for in a manner similar to that required under U.S. SFAS No. 52. Under U.S. GAAP, accounting for derivative instruments is covered under U.S. SFAS No. 133, as amended by U.S. SFAS No. 138, which requires that all entities recognize derivative instruments as assets and liabilities in the statement of financial position at fair value. If certain conditions are met, entities may elect to designate a derivative instrument as a hedge. Under U.S. GAAP, the Company does not apply hedge accounting, and derivatives have historically been, and continue to be, recorded on the consolidated balance sheet at fair value, with the changes in fair values recorded through current period earnings.
m. Goodwill
Under ROC GAAP, the Company amortizes goodwill arising from acquisitions over five to 20 years. Under U.S. GAAP, the Company adopted the provisions of U.S. SFAS No. 142 on January 1, 2002. U.S. SFAS No. 142 requires the Company to review for possible impairment of goodwill existing at the date of adoption and perform subsequent impairment tests on at least an annual basis. In addition, existing goodwill and intangible assets must be reassessed and classified consistently in accordance with the criteria set forth in U.S. SFAS No. 141 and U.S. SFAS No. 142. As a result, the Company will no longer amortize goodwill. Definite lived intangible assets will continue to be amortized over their estimated useful lives. The Company completed its transitional impairment test on January 1, 2002 and found no impairment. The Company performed its annual impairment test during the fourth quarter and determined the goodwill related to the acquisition of ASE Test was impaired and recorded a charge of NT$2,213,045. Total amortization expenses of goodwill under ROC GAAP in 2001, 2002 and 2003 are NT$692,919, NT$815,573 and NT$819,253 (US$24,103), respectively.
n. Undistributed earnings tax
Undistributed earnings generated after 1997 are subject to a 10% tax in compliance with the Income Tax Law of the ROC. Under ROC GAAP, the 10% tax on undistributed earnings is recorded as an expense at the time shareholders resolve that the Company's earnings shall be retained. Under U.S. GAAP, the Company measured its income tax expense, including the tax effects of temporary differences, using the rate that includes the tax on undistributed earnings.
o. Impairment of long-term investments
ROC GAAP and U.S. GAAP require an assessment of impairment of long-term investments whenever events or circumstances indicate a decline in value may be other than temporary. The criteria for determination are similar under ROC GAAP and U.S. GAAP; however, the methods to measure the amount of impairment may be based on different estimates of fair values depending on the circumstances. When impairment is determined to have occurred, U.S. GAAP requires the market price to be used, if available, to determine the fair value of the long-term investment and measure the amount of impairment at the reporting date. Under ROC GAAP, if the market price is deemed to be a result of an inactive market, another measure of fair value may be used. As such, the Company determined an other-than-temporary impairment occurred in one of its long-term investments in an equity-method investee at December 31, 2002. The amount recorded for ROC GAAP was based on the difference between the carrying value and the net-asset value of the investee with adjustments made to significant assets of the investee as determined using appraised values and other appropriate information. The amount recorded for U.S. GAAP was based on the market price of the stock of the investee at December 31, 2002. The difference resulted in an additional impairment charge for 2002 under U.S. GAAP of NT$883.6 million. No impairment charge was incurred under U.S. GAAP in 2003 as a result of the increase of the market price of the stock of investee companies.
The following reconciles net income (loss) and shareholders' equity under ROC GAAP as reported in the consolidated financial statements to the approximate net income (loss) and shareholders' equity amounts as determined under U.S. GAAP, giving effect to adjustments for the differences listed above.
Year Ended December 31
--------------------------------------------------------------------
2001 2002 2003
-------------- -------------- --------------------------------
NT$ NT$ NT$ US$
-------------- -------------- -------------- --------------
Net income (loss)
Net income (loss) based on ROC GAAP (2,142,219) 129,035 2,742,796 80,694
-------------- -------------- -------------- --------------
Adjustments:
a. Pension benefits 2,755 2,619 3,172 93
b. Short-term investments 5,952 (38,844) 3,151 93
c. Bonuses to employees, directors and supervisors:
Accrued regular bonuses -- -- (307,500) (9,047)
Special stock bonuses (963,572) (835,539) (417,769) (12,291)
d. Loss from sale of treasury stock -- -- 354,787 10,438
e. Depreciation of building (48,803) (99,981) (101,242) (2,979)
f. Excess of book value of building transferred between
consolidated subsidiaries 432 432 432 13
g. Restate carrying value and related capital gain from
sale of long-term investment 39,002 -- -- --
h. Effects for U.S. GAAP adjustments on equity-method
investees (33,785) 198,839 186,055 5,474
k. Stock option compensation (908,661) -- (819,027) (24,096)
m. Goodwill
Amortization -- 815,573 819,253 24,103
Impairment loss -- (2,213,045) -- --
o. Impairment loss on equity-method investee -- (883,620) -- --
Effect of U.S. GAAP adjustment on income tax 6,978 10,783 10,953 322
Effect of U.S. GAAP adjustments on minority interest (4,682) (160,517) (123,050) (3,620)
-------------- -------------- -------------- --------------
Net decrease in net income (1,904,384) (3,203,300) (390,785) (11,497)
-------------- -------------- -------------- --------------
(Continued)
|
Year Ended December 31
--------------------------------------------------------------------
2001 2002 2003
-------------- -------------- --------------------------------
NT$ NT$ NT$ US$
-------------- -------------- -------------- --------------
Net income (loss) based on U.S. GAAP (4,046,603) (3,074,265) 2,352,011 69,197
============== ============== ============== ==============
Earnings (loss) per share
Basic (1.32) (0.99) 0.67 0.02
Diluted (1.32) (0.99) 0.66 0.02
Earnings (loss) per ADS
Basic (6.59) (4.97) 3.36 0.10
Diluted (6.59) (4.97) 3.32 0.10
Number of weighted average shares outstanding
Basic 3,071,234,458 3,090,678,225 3,504,700,089 3,504,700,089
Diluted 3,071,234,458 3,090,678,225 3,537,048,918 3,537,048,918
Number of ADS
Basic 614,246,892 618,135,645 700,940,018 700,940,018
Diluted 614,246,892 618,135,645 707,409,784 707,409,784
Shareholders' equity
Shareholders` equity based on ROC GAAP 41,946,321 39,430,666 45,122,602 1,327,526
-------------- -------------- -------------- --------------
Adjustments:
a. Pension benefits (39,404) (36,785) (33,613) (989)
b. Restatement of short-term investments 40,890 2,046 5,197 153
c. Bonuses to employees, directors and supervisors -- -- (124,424) (3,661)
d. Treasury stocks
Reversal of unrealized loss 367,662 367,662 12,875 379
Classification of treasury stock (3,017,964) (378,138) (23,351) (687)
e. Effect of U.S. GAAP adjustments on useful life (176,226) (276,207) (377,449) (11,105)
f. Excess of book value of building transferred
between related parties (15,759) (15,327) (14,895) (438)
g. Restate carrying value of subsidiaries' long-term
investment (8,619) (8,619) (8,619) (254)
h. Effects of the above adjustments on equity-method
investments (272,658) (73,819) 112,236 3,302
k. Stock option compensation (908,661) (908,661) (908,661) (26,733)
m. Goodwill
Amortization -- 815,573 1,634,826 48,097
Impairment loss -- (2,213,045) (2,213,045) (65,109)
o. Impairment loss on equity-method investments -- (883,620) (883,620) (25,996)
Effect of U.S. GAAP adjustments on income tax 28,701 39,484 50,437 1,484
Effect on U.S. GAAP adjustments on minority interest 16,059 (144,458) (267,508) (7,870)
-------------- -------------- -------------- --------------
Net decrease in shareholders` equity (3,985,979) (3,713,914) (3,039,614) (89,427)
-------------- -------------- -------------- --------------
Shareholders' equity based on U.S. GAAP 37,960,342 35,716,752 42,082,988 1,238,099
============== ============== ============== ==============
Changes in shareholders` equity based on U.S. GAAP:
Balance, beginning of year 40,729,090 37,960,342 35,716,752 1,050,802
Net income (loss) for the year (4,046,603) (3,074,265) 2,352,011 69,197
Adjustment for common shares issued as bonuses to
employees, directors and supervisors 963,572 835,539 590,565 17,375
Adjustment for stock option compensation -- -- 819,027 24,096
Translation adjustment for subsidiaries 749,128 (126,378) (287,422) (8,456)
Adjustment from changes in ownership percentage of
investees (320,785) 102,888 57,668 1,696
Unrealized loss on long-term investment in shares of
stock (15,508) 18,626 -- --
Sale (purchase) of treasury stock (98,552) -- 2,850,524 83,864
Unrecognized pension cost -- -- (16,137) (475)
-------------- -------------- -------------- --------------
Balance, end of year 37,960,342 35,716,752 42,082,988 1,238,099
============== ============== ============== ==============
|
A reconciliation of the significant balance sheet accounts to the approximate amounts as determined under U.S. GAAP is as follows:
December 31
-----------------------------------------
2002 2003
----------- --------------------------
NT$ NT$ US$
----------- ----------- -----------
Short-term investments
As reported 2,590,436 3,017,779 88,784
U.S. GAAP adjustments
Restatement of investments to fair
value 2,046 5,197 153
----------- ----------- -----------
As adjusted 2,592,482 3,022,976 88,937
=========== =========== ===========
Long-term investments
As reported 6,566,734 6,342,795 186,608
U.S. GAAP adjustments
Equity investments (73,819) 112,236 3,302
Impairment loss (883,620) (883,620) (25,996)
----------- ----------- -----------
As adjusted 5,609,295 5,571,411 163,914
=========== =========== ===========
Buildings and improvement
As reported 16,656,394 18,391,271 541,079
U.S. GAAP adjustments
Effect of U.S. GAAP adjustments on
useful life (276,207) (377,449) (11,105)
Excess of book value of building
transferred between related parties (15,327) (14,895) (438)
----------- ----------- -----------
As adjusted 16,364,860 17,998,927 529,536
=========== =========== ===========
Other assets
As reported 2,675,845 4,587,365 134,962
U.S. GAAP
Effect of U.S. GAAP adjustments on
income tax 39,484 50,437 1,484
----------- ----------- -----------
As adjusted 2,715,329 4,637,802 136,446
=========== =========== ===========
Consolidated debits
As reported 5,541,808 4,596,234 135,223
U.S. GAAP adjustments
Restated carrying value of
subsidiaries' long-term investment (917,280) (917,280) (26,986)
Goodwill amortization 815,573 1,634,826 48,097
Goodwill impairment loss (2,213,045) (2,213,045) (65,109)
----------- ----------- -----------
As adjusted 3,227,056 3,100,735 91,225
=========== =========== ===========
Current liabilities
As reported 24,389,976 27,662,045 813,829
U.S. GAAP adjustments--bonuses to
employees, directors and supervisors -- 124,424 3,661
----------- ----------- -----------
As adjusted 24,389,976 27,786,469 817,490
=========== =========== ===========
Accrued pension cost
As reported 416,671 587,286 17,278
U.S. GAAP adjustments--pension benefits 36,785 33,613 989
----------- ----------- -----------
As adjusted 453,456 620,899 18,267
=========== =========== ===========
|
As a result of the adjustments presented above, the approximate amounts of total assets based on U.S. GAAP are NT$101,382,821 and NT$111,720,650 (US$3,286,868) as of December 31, 2002 and 2003, respectively. Total liabilities based on U.S. GAAP were NT$55,432,806 and NT$59,282,103 (US$1,744,104) as of December 31, 2002 and 2003, respectively.
26. ADDITIONAL DISCLOSURES REQUIRED BY U.S. GAAP
a. Recent accounting pronouncements
In June 2001, the FASB issued U.S. SFAS No. 143, "Accounting for Asset Retirement Obligations". The statement requires, among other provisions, retirement obligations to be recognized when they are incurred and displayed as liabilities, with a corresponding amount capitalized as part of the related long-lived asset. The capitalized element is required to be expensed using a systematic and rational method over its useful life. The Company adopted U.S. SFAS No. 143 on January 1, 2003, which did not have a material impact on the Company's U.S. GAAP financial information.
In June 2002, the FASB issued U.S. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities", which requires companies costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Such costs covered by the statement include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operations, plant closing, or other exit or disposal activity. SFAS No. 146 replaces the previous accounting guidance provided by the Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002 and adoption of this statement did not have a material impact on the Company's financial position, results of operations or cash flows.
In November 2002, the FASB issued Interpretation Number ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Other". This interpretation requires certain disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements of FIN No. 45 are effective for interim and annual periods ending after December 15, 2002 and have been adopted in the financial statements. The initial recognition and initial measurement requirements of FIN No. 45 are effective prospectively for guarantees issued or modified after December 31, 2002. The adoption of the recognition and initial measurement requirements of FIN No. 45 did not have a material impact on the Company's financial position, cash flows or results of operations.
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements" and provides guidance on the identification of entities for which control is achieved through means other than voting rights ("variable interest entities" or "VIEs") and how to determine when and which business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (1) the equity investors (if any) lack one or more characteristics deemed essential to a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. FIN 46 was applicable for periods ending December 15, 2003. In December 2003 the FASB issued FIN 46R which defers the implementation date to the end of the first reporting period after March 15, 2004 unless the Company has a special purpose entity in which case the provisions must be applied for fiscal years ending December 31, 2003. The Company does not have a special purpose entity therefore they will adopt the provisions in December 2004.
In November 2002, the FASB Emerging Issues Task Force ("EITF") reached a consensus on EITF 00-21, "Revenue Arrangements with Multiple Deliverables," related to the timing of revenue recognition for arrangements in which goods or services or both are delivered separately in a bundled sales arrangement. The EITF requires that when the deliverables included in this type of arrangement meet certain criteria they should be accounted for separately as separate units of accounting. This may result in a difference in the timing of revenue recognition but will not result in a change in the total amount of revenue recognized in a bundled sales arrangement. The allocation of revenue to the separate deliverables is based on the relative fair value of each item. If the fair value is not available for the delivered items then the residual method must be used. This method requires that the amount allocated to the undelivered items in the arrangement is their full fair value. This would result in the discount, if any, being allocated to the delivered items. This consensus is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of this consensus did not have a material impact on the Company's financial position, cash flows or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." The Statement establishes standards for how an issuer classifies and measures certain financial instruments. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity be classified as liabilities (or assets in some circumstances) in statement of positions or consolidated balance sheets, as appropriate. The financial instruments within the scope of this Statement are: (i) mandatorily redeemable shares those that an issuer is obligated to buy back in exchange for cash or other assets; (ii) financial instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and (iii) financial instruments that embodies obligation that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer's shares (excluding certain financial instruments indexed partly to the issuer's equity shares and partly, but not predominantly, to something else). This Statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The Statement also requires disclosures about alternative ways of settling the instruments and the capital structure of entities, all of whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on the Company's financial position, cash flows or results of operations.
b. Pension
Set forth below is pension information disclosed in accordance with U.S. FAS 132:
Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------
Components of net periodic benefit cost
Service cost 116,657 191,707 238,560 7,019
Interest cost 28,968 36,102 43,312 1,274
Expected return on plan assets (21,630) (23,003) (19,413) (571)
Amortization of prior service cost 1,468 1,557 7,989 235
---------- ---------- ---------- ----------
Net periodic benefit cost 125,463 206,363 270,448 7,957
========== ========== ========== ==========
Changes in benefit obligation
Benefit obligation at beginning of year 650,032 722,024 1,238,129 36,426
Service cost 116,657 191,707 238,560 7,018
Interest cost 28,968 36,102 43,312 1,274
Plan amendments -- -- 15,247 449
(Continued)
|
Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------
Actuarial (gain) loss (69,978) 288,441 150,332 4,423
Benefits paid (3,655) (145) (8,803) (259)
---------- ---------- ---------- ----------
Benefit obligation at end of year 722,024 1,238,129 1,676,777 49,331
========== ========== ========== ==========
Change in plan assets
Fair value of plan assets at beginning of
year 311,737 412,036 507,098 14,919
Actual return on plan assets 13,324 10,157 7,890 232
Employer contribution 90,468 85,050 113,173 3,330
Benefits paid (3,493) (145) (8,803) (259)
---------- ---------- ---------- ----------
412,036 507,098 619,358 18,222
---------- ---------- ---------- ----------
Funded status 309,988 731,031 1,057,419 31,109
Unrecognized actuarial gain (loss) 26,947 (270,641) (461,562) (13,579)
Additional pension cost -- -- 28,627 842
---------- ---------- ---------- ----------
Net amount recognized (recognized as
accrued pension cost) 336,935 460,390 624,484 18,372
========== ========== ========== ==========
Actuarial assumptions:
2001 to 2003
------------
Discount rate 3.25% to 5.00%
Rate of compensation increase 3.00% to 4.00%
Expected return on plan assets 3.25% to 5.00%
|
The Company has no other post-retirement or post-employment benefit plans.
c. Short-term investments
At December 31, 2002 and 2003, certain investments carried at cost under ROC GAAP were restated under U.S. FAS 115:
December 31
------------------------------------------------------------------------------------------------------
2002 2003
--------------------------------- ------------------------------------------------------------------
Unrealized Unrealized Unrealized
Carrying Fair Holding Carrying Fair Holding Carrying Fair Holding
Value Value Gains Value Value Gains Value Value Gains
--------- --------- --------- --------- --------- --------- -------- -------- --------
NT$ NT$ NT$ NT$ NT$ NT$ US$ US$ US$
--------- --------- --------- --------- --------- --------- -------- -------- --------
Short-term investments 2,590,436 2,592,482 2,046 3,017,779 3,022,976 5,197 88,784 88,937 153
|
d. Income taxes benefit
##
Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------
Tax benefit (101,310) (66,469) (276,788) (8,143)
Net change in deferred income tax
assets (liabilities) for the period (456,911) (1,261,021) (1,201,453) (35,347)
Income tax on undistributed earnings 335,065 174,478 170,281 5,009
Adjustment of prior years' income taxes 17,018 1,905 18,859 555
---------- ---------- ---------- ----------
(206,138) (1,151,107) (1,289,101) (37,926)
========== ========== ========== ==========
Reconciliation between the income tax calculated on pretax financial
statement income based on the statutory tax rate and the income tax
expense (benefit) which conforms to U.S. GAAP is as follows:
Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------
Tax (benefit) based on pre-tax accounting
income (loss) at statutory rate (830,326) (1,064,135) 527,790 15,528
Add (less) tax effects of:
Permanent differences
Tax-exempt income
Tax holiday (26,413) (52,126) (481,214) (14,158)
Gain from sale of securities (31,711) (16,798) (10,357) (305)
Bonus to employee and directors 240,893 52,221 96,519 2,840
Other -- 65,259 7,691 226
Tax credits
Utilized (253,227) (331,255) (439,457) (12,929)
Deferred 342,563 139,224 (1,179,213) (34,692)
Income taxes (10%) on undistributed
earnings 335,065 54,598 170,281 5,009
Adjustment of prior year's income tax 17,018 1,905 18,859 555
---------- ---------- ---------- ----------
Income tax expense (benefit) (206,138) (1,151,107) (1,289,101) (37,926)
========== ========== ========== ==========
The abovementioned taxes on pretax accounting income (loss) at the
statutory rates for domestic and foreign entities are shown below:
Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------
Domestic entities in ROC (25% statutory
rate) (752,228) (282,713) 674,036 19,831
Foreign entities
ASE Korea Inc. (30.8% statutory rate) -- -- 74,806 2,201
ISE Labs, Inc. (33% statutory rate) (92,487) (725,744) (209,911) (6,176)
ASE Test Malaysia (30% statutory rate) 14,389 (55,678) (11,141) (328)
---------- ---------- ---------- ----------
(830,326) (1,064,135) 527,790 (15,528)
========== ========== ========== ==========
|
Deferred income tax assets and liabilities as of December 31, 2001, 2002 and 2003 are summarized as follows:
December 31
-----------------------------------------
2002 2003
----------- --------------------------
NT$ NT$ US$
----------- ----------- -----------
Current deferred income tax assets
Unused tax credits 966,689 1,054,370 31,020
Provision for inventory obsolescence 38,212 50,475 1,485
Provision for doubtful accounts and
sales allowance 23,305 33,754 993
Unrealized foreign exchange loss 49,351 65,118 1,916
Other 29,884 29,752 875
----------- ----------- -----------
1,107,441 1,233,469 36,289
Valuation allowance (23,000) (8,968) (264)
----------- ----------- -----------
1,084,441 1,224,501 36,025
=========== =========== ===========
Non-current deferred income tax assets
(liabilities)
Unused tax credits 2,324,529 3,101,039 91,234
Accrued pension costs 498,087 153,924 4,529
Loss carryforward 455,589 483,538 14,226
Investment income (206,500) (144,000) (4,237)
Others (85,588) 170,824 5,026
----------- ----------- -----------
2,986,117 3,765,325 110,778
Valuation allowance (1,765,860) (1,484,659) (43,679)
----------- ----------- -----------
1,220,257 2,280,666 67,099
=========== =========== ===========
Non-current deferred income tax liabilities
Goodwill amortization (35,658) (34,674) (1,021)
=========== =========== ===========
|
e. Employee stock option plans
Information regarding the Company's employee stock option plan is as follows:
Outstanding
Option Rights
--------------------------
Option Weighted
Rights Number of Average
Available Option Exercise
----------- ----------- -----------
(In Thousands) (In Thousands) NT$
Option rights authorized 160,000 --
Options granted (159,968) 159,968 19.40
Options cancelled (32) --
----------- -----------
Balance, December 31, 2003 -- 159,968
=========== ===========
|
ASE Test currently maintains five stock option plans, the 1996 Executive Management Option Plan (the "1996 Plan"), the 1997 Option Plan, the 1998 Option Plan, the 1999 Option Plan and the 2000 Option Plan. Up to 10,000,000 shares, 3,200,000 shares, 1,600,000 shares, 2,000,000 shares and 12,000,000 shares have been reserved for issuance under the 1996, 1997, 1998, 1999 and 2000 Option Plans,
respectively.
The 1996, 1997, 1998, 1999 and 2000 Option Plans granted the following stock options to purchase the ASE Test shares which are exercisable based on a vesting schedule over a period of five years until the expiration of options, to directors, officers and key employees. If any granted shares are forfeited, the shares may be granted again, to the extent of any such forfeiture.
Each aforementioned option exercise price was equal to the stock's market price on the date of grant. Options granted under the 1996, 1997 and 1998 Option Plans expire 5 years after grant. Options granted under the 1999 and 2000 Option Plan expire 10 years after grant.
Information regarding the option plans of ASE Test is presented below:
Weighted
Weighted Average
Number of Average Exercise Grant Date
Shares Price Per Share Fair Values
----------- ----------- -----------
(US$) (US$)
Beginning balance--January 1, 2001 11,486,149 9.82
Option granted 10,158,650 8.94 4.24
===========
Option exercised (5,221,508) 3.81
Option forfeited (114,706) 17.11
-----------
Ending balance--December 31, 2001 16,308,585 11.15
Option granted 414,500 7.36 10.46
===========
Option exercised (2,420,591) 8.62
Option forfeited (882,051) 9.88
Option expired (89,080) 13.84
-----------
Ending balance--December 31, 2002 13,331,363 11.55
Option granted 2,000,000 12.95 12.95
===========
Option exercised (478,426) 8.99
Option forfeited (568,860) 13.72
Option expired (982,659) 11.08
-----------
Ending balance--December 31, 2003 13,301,418 11.80
=========== ===========
Options exercisable at:
December 31, 2001 6,233,453 11.89
December 31, 2002 5,199,349 13.50
December 31, 2003 6,132,503 13.68
|
Option outstanding at December 31, 2003 and the related weighted average exercise price and remaining contractual life information are as follows (in U.S. dollars):
Outstanding Exercisable
---------------------- --------------------- Weighted
Weighted Weighted Average
Average Average Remaining
ASE Test Shares Price Shares Price Life (Years)
-------- ---------- -------- ---------- ------- -----------
(US$) (US$)
Options which exercise price of:
US$20.00-US$25.00 2,591,740 20.76 2,268,420 20.61 4.36
US$11.00-US$16.50 2,242,400 12.81 97,150 11.58 9.71
US$6.10-US$9.15 8,467,278 8.79 3,766,933 8.84 7.11
---------- ----------
Options outstanding at
December 31, 2003 13,301,418 6,132,503
========== ==========
|
U.S. FAS 123, "Stock-Based Compensation" effective in 1996, establishes accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. Under U.S. FAS 123, the Company and ASE Test have elected to use the intrinsic value-based method and provide pro forma disclosures of net income and earnings per share as if the fair value accounting provisions of this statements had been adopted.
ASE Test has computed for pro forma disclosure purposes the fair value of each option grant, as defined by U.S. SFAS No. 123, using the Black-Scholes option pricing model with the following assumptions:
ASE Test 2001 2002 2003
------------------------ ---------- ----------- ----------
Risk free interest rate 3.62-4.66% 2.58-4.48% 3.38%
Expected dividend yield 0% 0% 0%
Expected lives 3.4 years 5.0 years 5.0years
Volatility 62.14% 62.14% 65.07%
|
For purposes of pro forma disclosure, the estimated fair value of the options are amortized to expense over the option rights vesting periods. Had ASE Test recorded compensation costs based on the estimated grant date fair value, as defined by U.S. SFAS No. 123, the Company's net income (loss) under U.S. GAAP would have been reduced to the pro forma amounts below.
Ended December 31
------------------------------------------------------------
2001 2002 2003
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ----------
Net income (loss) based on U.S. GAAP (4,046,603) (3,074,265) 2,352,011 69,197
Stock--based compensation expense
(net of related tax effects) (305,085) (331,872) (220,147) (6,477)
------------ ------------ ------------ ----------
Pro forma net income (loss) (4,351,688) (3,406,137) 2,131,864 62,720
============ ============ ============ ==========
Report EPS --Basic (1.32) (0.99) 0.67 0.02
======= ======= ======= =======
--Diluted (1.32) (0.99) 0.66 0.02
======= ======= ======= =======
Pro forma EPS --Basic (1.42) (1.10) 0.61 0.02
======= ======= ======= =======
--Diluted (1.42) (1.10) 0.60 0.02
======= ======= ======= =======
Reported EPS per ADS --Basic (6.59) (4.97) 3.36 0.10
======= ======= ======= =======
--Diluted (6.59) (4.97) 3.32 0.10
======= ======= ======= =======
Pro forma EPS per ADS --Basic (7.08) (5.51) 3.04 0.09
======= ======= ======= =======
--Diluted (7.08) (5.51) 3.01 0.09
======= ======= ======= =======
|
The pro forma amounts reflect compensation expense related to ASE TEST 1996, 1997, 1998, 1999 and 2000 option plans granted and vested only. In future years, the annual compensation expense may increase relative to the fair value of the options granted and vested in those future years.
f. In accordance with U.S. FAS 130, the statement of comprehensive income (loss) for the years ended December 31, 2001, 2002 and 2003 are presented below:
Year Ended December 31
----------------------------------------------------
2001 2002 2003
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------
Net income (loss) based on U.S. GAAP (4,046,603) (3,074,265) 2,352,011 69,197
Translation adjustment on subsidiaries--
net of income tax expense of
NT$187,282 in 2001, and income tax
benefit of NT$31,595 and NT$71,856 in
2002 and 2003, respectively 561,846 (94,783) (215,566) (6,342)
Unrecognized pension cost -- -- (16,137) (475)
---------- ---------- ---------- ----------
Comprehensive income (loss) (3,484,757) (3,169,048) 2,120,308 62,380
========== ========== ========== ==========
|
g. U.S. GAAP cash flow information
The following represents the major caption of cash flow under U.S.
GAAP pursuant to U.S. FAS 95:
Year Ended December 31
--------------------------------------------------------
2001 2002 2003
----------- ----------- --------------------------
NT$ NT$ NT$ US$
----------- ----------- ----------- -----------
Cash flows
Net cash provided by operating activities 10,595,115 11,313,800 13,295,953 391,173
Net cash used in investing activities (14,082,951) (13,719,654) (18,572,586) (546,413)
Net cash provided by financing activities 618,555 530,491 4,221,190 124,189
----------- ----------- ----------- -----------
Net decrease in cash (2,869,281) (1,875,363) (1,055,443) (31,051)
Cash, beginning of year 14,166,495 11,770,729 9,829,508 289,188
Effect of exchange rate changes in cash 473,515 (65,858) (211,640) (6,227)
----------- ----------- ----------- -----------
11,770,729 9,829,508 8,562,425 251,910
=========== =========== =========== ===========
|
The significant reclassifications for U.S. GAAP cash flow statements pertain to the following:
1) The effect of exchange rate changes on cash is shown in the reconciliation of the beginning balance and ending balance of cash (as opposed to operating activities under ROC GAAP).
2) Compensation to directors and supervisors and bonuses to employees is shown in the operating activity under U.S. GAAP (as opposed to financing activities under ROC GAAP).
3) Sales of treasury stock is shown in the financing activities under U.S. GAAP (as opposed to investing activities under ROC GAAP).
h. Goodwill
As of January 1, 2002, the Company adopted U.S. SFAS No. 142, "Goodwill and Other Intangible Assets", which requires that goodwill no longer be amortized, and instead, be tested for impairment on a periodic basis. In conjunction with the implementation of U.S. SFAS No. 142, the Company completed a goodwill impairment review as of January 1, 2002 using a fair-value based approach in accordance with the provision of the standard and found no impairment.
Based on acquisitions completed as of June 30, 2001, application of the goodwill non-amortization provisions resulted in a decrease in amortization of approximately NT$815.6 million for 2002. The Company completed its annual goodwill impairment test at December 31, 2002 and determined impairment of NT$2,213.0 million of the remaining goodwill associated with its acquisition of ASE Test. As of December 31, 2003, the Company had goodwill of NT$3,227.1 million (US$94.9 million), which was primarily in the reporting units of the testing operations.
The following pro forma information reconciles the net income (loss) and earnings (loss) per share reported for 2000 and 2001 to adjusted net income (loss) and earnings (loss) per share, which reflect the adoption of U.S. SFAS No. 142 and compares the adjusted information to the current year results:
Year Ended December 31
-----------------------------------------------------------
2001 2002 2003
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ------------
Net income (loss) based on U.S. GAAP (4,046,603) (3,074,265) 2,352,011 69,197
Goodwill amortization 653,917 -- -- --
------------ ------------ ------------ ------------
Net income (loss), as adjusted (3,392,686) (3,074,265) 2,352,011 69,197
============ ============ ============ ============
Earnings (loss) per share
Basic earnings (loss) per share, as
reported (1.32) (0.99) 0.67 0.02
Goodwill amortization 0.21 -- -- --
------------ ------------ ------------ ------------
Basic earnings (loss) per share, as
adjusted (1.11) (0.99) 0.67 0.02
============ ============ ============ ============
Diluted earnings (loss) per share, as
reported (1.32) (0.99) 0.66 0.02
Goodwill amortization 0.21 -- -- --
------------ ------------ ------------ ------------
Diluted earnings (loss) per share, as
adjusted (1.11) (0.99) 0.66 0.02
============ ============ ============ ============
Earnings (loss) per ADS
Basic earnings (loss) per share, as
reported (6.59) (4.97) 3.36 0.10
Goodwill amortization 1.06 -- -- --
------------ ------------ ------------ ------------
Basic earnings (loss) per share, as
adjusted (5.53) (4.97) 3.36 0.10
============ ============ ============ ============
Diluted earnings (loss) per share, as
reported (6.59) (4.97) 3.32 0.10
Goodwill amortization 1.06 -- -- --
------------ ------------ ------------ ------------
Diluted earnings (loss) per share, as
adjusted (5.53) (4.97) 3.32 0.10
============ ============ ============ ============
|
Changes in the carrying amount of goodwill for the years ended December 31, 2002 and 2003, by reportable segment, are as follows:
Packaging Testing Total
---------- ---------- ------------------------
NT$ NT$ NT$ US$
---------- ---------- ---------- ----------
Balance as of January 1, 2002 509,613 3,814,080 4,323,693 127,205
Goodwill acquired during the period 24,169 1,140,009 1,164,178 34,250
Goodwill impairment (354,280) (1,858,765) (2,213,045) (65,109)
Translation adjustment (7,461) (40,309) (47,770) (1,405)
---------- ---------- ---------- ----------
Balance as of December 31, 2002 172,041 3,055,015 3,227,056 94,941
Translation adjustment (6,734) (119,587) (126,321) (3,716)
---------- ---------- ---------- ----------
Balance as of December 31, 2003 65,307 2,935,428 3,100,735 91,225
========== ========== ========== ==========
|
i. Earnings per share
The following table represents the computation of basic and diluted earnings (loss) per share for each of the years ended at December 31:
2001 2002 2003
-------------- -------------- -------------------------------
NT$ NT$ NT$ US$
-------------- -------------- -------------- --------------
Net income (loss) (4,046,603) (3,074,265) 2,352,011 69,197
============== ============== ============== ==============
Weighted average shares
outstanding
Basic 3,071,234,458 3,090,678,225 3,504,700,089 3,504,700,089
Effect of dilution
securities -- -- 32,348,829 32,348,829
-------------- -------------- -------------- --------------
Diluted 3,071,234,458 3,090,678,225 3,537,048,918 3,537,048,918
============== ============== ============== ==============
|
Diluted earnings per share for the year ended December 31, 2003 are calculated as follows:
The denominator is the weighted average number of outstanding shares of common share of 3,537,048,918 shares in 2003 with consideration of the adjustment of ASE stock options in 2003.
The denominator of earnings (loss) per ADS is the above-mentioned weighted average outstanding shares divided by five (one ADS represents five common shares). The numerator is the same as mentioned in the above EPS calculation.
Schedule I
Amount
Contract (in milions) Strike Price Maturity Date
---------------------- ------------ ------------ -----------------
ASE
---
Sell US$ Call/JPY Put US$ 3.0 US$1:JPY$111.6 January 14. 2004
Buy US$ Put/JPY Call US$ 3.0 US$1:JPY$111.6 January 15. 2004
Buy NT$ Call/US$ Put US$ 157.0 US$1:NTD$33.95 April 16. 2004
Sell NT$ Call/US$ Put US$ 157.0 US$1:NTD$33.46 October 18. 2004
Sell US$ Call/JPY Put US$ 10.0 Note 1 January 13. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 2 January 13. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 3 January 13. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 4 January 13. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 5 January 13. 2004
Sell US$ Call/JPY Put US$ 10.0 Note 1 February 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 2 February 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 3 February 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 4 February 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 5 February 12. 2004
Sell US$ Call/JPY Put US$ 10.0 Note 1 March 10. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 2 March 10. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 3 March 10. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 4 March 10. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 5 March 10. 2004
Sell US$ Call/JPY Put US$ 10.0 Note 1 April 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 2 April 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 3 April 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 4 April 12. 2004
Buy US$ Put/JPY Call US$ 5.0 Note 5 April 12. 2004
|
Note 1: If USD/JPY>111.6, strike price =111.6.
Note 2: If 109<USD/JPY<=111.6, strike price =111.6.
Note 3: If 108<USD/JPY<=109, strike price =112.6.
Note 4: If 107<USD/JPY<=108, strike price =113.6.
Note 5: If 105<USD/JPY<=107, strike price is based on the spot rate
(at maturity date) plus 200bp.
If USD/JPY=<105, no transaction deal.
(Continued)
Amount
Contract (in milions) Strike Price Maturity Date
---------------------- ------------ ------------ -----------------
ASE Test Inc.
-------------
Sell US$ Call/NT$ Put US$ 5.00 US$1:NT$34.08 January 13, 2004
Sell US$ Call/JPY Put US$ 3.00 US$1:JPY$115 January 14, 2004
Sell US$ Call/JPY Put US$ 2.00 Note 1 January 19, 2004
Buy US$ Put/JPY Call US$ 1.00 Note 2 January 19, 2004
Buy US$ Put/JPY Call US$ 1.00 Note 3 January 19, 2004
Buy US$ Put/JPY Call US$ 1.00 Note 4 January 19, 2004
Buy US$ Put/JPY Call US$ 1.00 Note 5 January 19, 2004
Buy US$ Put/NT$ Call US$ 1.00 US$1:NT$34.35 January 29, 2004
Sell US$ Call/NT$ Put US$ 5.00 US$1:NT$34.08 February 13, 2004
Sell US$ Call/JPY Put US$ 2.00 Note 1 February 19, 2004
Buy US$ Put/JPY Call US$ 1.00 Note 2 February 19, 2004
Buy US$ Put/JPY Call US$ 1.00 Note 3 February 19, 2004
Buy US$ Put/JPY Call US$ 1.00 Note 4 February 19, 2004
Buy US$ Put/JPY Call US$ 1.00 Note 5 February 19, 2004
Buy US$ Put/NT$ Call US$ 1.00 US$1:NT$34.38 February 26, 2004
Sell US$ Call/JPY Put US$ 2.00 Note 1 March 18, 2004
Buy US$ Put/JPY Call US$ 1.00 Note 2 March 18, 2004
Buy US$ Put/JPY Call US$ 1.00 Note 3 March 18, 2004
Buy US$ Put/JPY Call US$ 1.00 Note 4 March 18, 2004
Buy US$ Put/JPY Call US$ 1.00 Note 5 March 18, 2004
Sell US$ Call/NT$ Put US$ 2.00 US$1:NT$34.60 April 29, 2004
Sell US$ Call/NT$ Put US$ 2.00 US$1:NT$34.60 May 28, 2004
Note 1: If USD/JPY>112, strike price=112.
Note 2: If 109<USD/JPY=<112, strike price=112.
Note 3: If 108<USD/JPY=<109, strike price=113.
Note 4: If 107<USD/JPY=<108, strike price=114.
Note 5: If 105<USD/JPY=<107, ASE Test, Inc. will receive JPY
2,000,000.
(Continued)
|
Amount
Contract (in milions) Strike Price Maturity Date
---------------------- ------------ ------------ -----------------
ASE Material
Buy USD Put/JPY Call US$ 1.5 Note 1 January 30, 2004
Buy USD Put/JPY Call US$ 1.5 Note 1 February 27, 2004
Buy USD Put/JPY Call US$ 1.5 Note 1 March 31, 2004
Buy USD Put/JPY Call US$ 1.5 Note 1 April 30, 2004
Sell USD Call/JPY Put US$ 3.0 Note 1 January 30, 2004
Sell USD Call/JPY Put US$ 3.0 Note 1 February 27, 2004
Sell USD Call/JPY Put US$ 3.0 Note 1 March 31, 2004
Sell USD Call/JPY Put US$ 3.0 Note 1 April 30, 2004
Buy USD Put/JPY Call US$ 1.0 Note 2 January 21, 2004
Buy USD Put/JPY Call US$ 1.0 Note 2 February 23, 2004
Buy USD Put/JPY Call US$ 1.0 Note 2 March 22, 2004
Buy USD Put/JPY Call US$ 1.0 Note 2 April 21, 2004
Sell USD Call/JPY Put US$ 2.0 Note 2 January 21, 2004
Sell USD Call/JPY Put US$ 2.0 Note 2 February 23, 2004
Sell USD Call/JPY Put US$ 2.0 Note 2 March 22, 2004
Sell USD Call/JPY Put US$ 2.0 Note 2 April 21, 2004
Buy USD Put/JPY Call US$ 1.0 Note 3 January 19, 2004
Buy USD Put/JPY Call US$ 1.0 Note 3 February 19, 2004
Buy USD Put/JPY Call US$ 1.0 Note 3 March 18, 2004
Buy USD Put/JPY Call US$ 1.0 Note 3 April 19, 2004
Sell USD Call/JPY Put US$ 2.0 Note 3 January 19, 2004
Sell USD Call/JPY Put US$ 2.0 Note 3 February 19, 2004
Sell USD Call/JPY Put US$ 2.0 Note 3 March 18, 2004
Sell USD Call/JPY Put US$ 2.0 Note 3 April 19, 2004
Buy USD Put/JPY Call US$ 1.0 Note 4 January 20, 2004
Buy USD Put/JPY Call US$ 1.0 Note 4 February 25, 2004
Buy USD Put/JPY Call US$ 1.0 Note 4 March 25, 2004
Buy USD Put/JPY Call US$ 1.0 Note 4 April 23, 2004
Sell USD Call/JPY Put US$ 2.0 Note 4 January 20, 2004
Sell USD Call/JPY Put US$ 2.0 Note 4 February 25, 2004
Sell USD Call/JPY Put US$ 2.0 Note 4 March 25, 2004
Sell USD Call/JPY Put US$ 2.0 Note 4 April 23, 2004
Buy USD Put/JPY Call US$ 1.0 Note 5 February 04, 2004
Buy USD Put/JPY Call US$ 1.0 Note 5 March 04, 2004
|
Buy USD Put/JPY Call US$ 1.0 Note 5 April 02, 2004
Buy USD Put/JPY Call US$ 1.0 Note 5 April 28, 2004
Sell USD Call/JPY Put US$ 2.0 Note 5 February 04, 2004
Sell USD Call/JPY Put US$ 2.0 Note 5 March 04, 2004
Sell USD Call/JPY Put US$ 2.0 Note 5 April 02, 2004
Sell USD Call/JPY Put US$ 2.0 Note 5 April 28, 2004
Buy USD Put/JPY Call US$ 1.0 Note 6 February 04, 2004
Buy USD Put/JPY Call US$ 1.0 Note 6 March 04, 2004
(Continued)
|
Amount
Contract (in milions) Strike Price Maturity Date
---------------------- ------------ ------------ -----------------
Buy USD Put/JPY Call US$ 1.0 Note 6 April 02, 2004
Buy USD Put/JPY Call US$ 1.0 Note 6 April 28, 2004
Sell USD Call/JPY Put US$ 2.0 Note 6 February 04, 2004
Sell USD Call/JPY Put US$ 2.0 Note 6 March 04, 2004
Sell USD Call/JPY Put US$ 2.0 Note 6 April 02, 2004
Sell USD Call/JPY Put US$ 2.0 Note 6 April 28, 2004
Buy USD Put/JPY Call US$ 2.0 Note 7 February 24, 2004
Buy USD Put/JPY Call US$ 2.0 Note 7 March 24, 2004
Buy USD Put/JPY Call US$ 2.0 Note 7 April 22, 2004
Buy USD Put/JPY Call US$ 2.0 Note 7 March 24, 2002
Sell USD Call/JPY Put US$ 4.0 Note 7 February 24, 2004
Sell USD Call/JPY Put US$ 4.0 Note 7 March 24, 2004
Sell USD Call/JPY Put US$ 4.0 Note 7 April 22, 2004
Sell USD Call/JPY Put US$ 4.0 Note 7 March 24, 2002
|
Note 1: If USD/JPY>110.7, strike price =110.7;.
If 109<USD/JPY=<110.7, strike price =110.7;
If 108<USD/JPY=<109, strike price =111.7;
If 107<USD/JPY=<108, strike price =112.7;
If 105<USD/JPY=<107, strike price is spot rate multiply
contract price and plus JPY 2,000,000;
If USD/JPY=<105, there is no right and obligation.
Note 2: If USD/JPY>112, strike price =112;
If 109<USD/JPY=<112, strike price =112;
If 108<USD/JPY=<109, strike price =113;
If 107<USD/JPY=<108, strike price =114;
If 105<USD/JPY=<107, strike price is based on the spot rate
(at maturity date) plus 200bp.
If USD/JPY=<105, there is no right and obligation.
Note 3: If USD/JPY>112.5, strike price =112.5;
If 109<USD/JPY=<112.5, strike price =112.5;
If 108<USD/JPY=<109, strike price =113.5;
If 107<USD/JPY=<108, strike price =114.5;
(Continued)
If USD/JPY=<107, strike price is based on the spot rate (at maturity date) plus JPY 2,000,000.
Note 4: If USD/JPY>112.5, strike price =112.5;
If 109<USD/JPY=<112.5, strike price =112.5;
If 108<USD/JPY=<109, strike price =113.5;
If 107<USD/JPY=<108, strike price =114.5;
If USD/JPY=<107, strike price is based on the spot rate (at
maturity date) plus JPY 2,000,000.
Note 5: If USD/JPY>113.2, strike price =112;
If 112<USD/JPY=<113.2, strike price =113.2;
If 109<USD/JPY=<112, strike price =113.2;
If 108<USD/JPY=<109, strike price =114.2;
If 107<USD/JPY=<108, strike price =115.2;
If 105<USD/JPY=<107, strike price is based on the spot rate
(at maturity date) plus JPY 2,000,000.
If USD/JPY=<105, strike price is based on the spot rate (at
maturity date) plus JPY 1,000,000.
Note 6: If USD/JPY>112.3, strike price =112;
If 112<USD/JPY=<112.3, strike price =112.3;
If 109<USD/JPY=<112, strike price =112.3;
If 108<USD/JPY=<109, strike price =113.3;
If 107<USD/JPY=<108, strike price =114.3;
If 105<USD/JPY=<107, strike price is based on the spot rate
(at maturity date) plus JPY 2,000,000.
If USD/JPY=<105, strike price is based on the spot rate (at
maturity date) plus JPY 1,000,000.
Note 7: If USD/JPY>112, strike price =112;
If 111<USD/JPY=<112, no transaction deal;
If 109<USD/JPY=<111, strike price =111;
(Continued)
If 108<USD/JPY=<109, srike price =112;
If 107<USD/JPY=<108, strike price =113;
If 105<USD/JPY=<107, strike price is based on the spot rate (at maturity date) plus JPY 2,000,000.
If USD/JPY=<105, strike price is based on the spot rate (at maturity date) plus JPY 1,000,000.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report.
ADVANCED SEMICONDUCTOR ENGINEERING, INC.
By: /s/ Joseph Tung
-----------------------------------
Joseph Tung
Chief Financial Officer
Date: June 30, 2004
|
EXHIBITS INDEX
1. Articles of Association of the Registrant (in Chinese with English translation) (incorporating all amendments as of June 15, 2004).
2. Amended and Restated Deposit Agreement dated as of September 29, 2000 among ASE Inc., Citibank N.A., as depositary, and Holders and Beneficial Holders of American Depositary Shares evidenced by American Depositary Receipts issued thereunder, including the form of American Depositary Receipt (incorporated by reference to Exhibit 4.1 to our registration statement on Form F-3 (File No. 333-87428) filed on March 31, 2003).
4. (a) Asset Purchase Agreement dated as of July 3, 1999 among ASE (Chung Li) Inc., ASE Inc., Motorola Electronics Taiwan, Ltd. and Motorola, Inc. (incorporated by reference to Exhibit 10.2 to ASE Test's registration statement on Form F-3 (File No. 333-10892) filed on September 27, 1999 (the "ASE Test 1999 Form-3")).
(b) Agreement dated as of June 5, 2002 among ASE (Chung Li) Inc., ASE Inc., Motorola Electronics Taiwan, Ltd. and Motorola, Inc. amending certain earn-out arrangements provided for in Section 2.09(b)(ii)(D) of the Asset Purchase Agreement dated as of July 3, 1999 among the same parties (incorporated by reference to Exhibit 4(b) to our annual report on Form 20-F (File No. 001-16125) for the year ended December 31, 2002 filed on June 30, 2003).
(c) Stock Purchase Agreement dated as of July 3, 1999 among ASE Investment (Labuan) Inc., ASE Inc., Motorola Asia Ltd. and Motorola, Inc. relating to the purchase and sale of 100% of the common stock of Motorola Korea Ltd. (incorporated by reference to Exhibit 10.3 to the ASE Test 1999 Form F-3).
(d)+ Manufacturing Services Agreement dated as of July 3, 1999 among Motorola, Inc., ASE Inc. and ASE (Chung Li) Inc. (incorporated by reference to Exhibit 10.4 to our registration statement on Form F-1 (File No. 333-44622) filed on September 21, 2000 (the "Form F-1")).
(e)+ Manufacturing Services Agreement dated as of July 3, 1999 among Motorola, Inc., ASE Inc. and ASE (Korea) Inc. (incorporated by reference to Exhibit 10.5 to the Form F-1).
(f)+ BGA Immunity Agreement dated as of January 25, 1994 between ASE Inc. and Motorola, Inc. (incorporated by reference to Exhibit 10.6 to the Form F-1).
(g)++ Amendment dated March 18, 2003 renewing the BGA Immunity Agreement dated as of January 25, 1994 between ASE Inc. and Motorola, Inc.
(h) Consent dated June 10, 2004 to the Assignment of the BGA Immunity Agreement between ASE Inc. and Motorola, Inc. dated January 25, 1994.
(i) Service Agreement dated as of August 1, 2003 between ASE Electronics (M) Sdn. Bhd. and ASE (U.S.) Inc.
(j) Service Agreement dated as of August 1, 2003 between ASE Test, Inc. and ASE (U.S.) Inc.
(k) Service Agreement dated as of August 1, 2003 between ASE (Korea) Inc. and ASE (U.S.) Inc.
(l) Service Agreement dated as of August 1, 2003 between ASE (Chung-Li) Inc. and ASE (U.S.) Inc.
(m) Service Agreement dated as of August 1, 2003 between ISE Labs, Inc. and ASE (U.S.) Inc.
(n) Service Agreement dated as of August 1, 2003 between Advanced Semiconductor Engineering, Inc. and ASE (U.S.) Inc.
(o) Commission Agreement dated as of August 1, 2003 between ASE Electronics (M) Sdn. Bhd. and Gardex International Limited.
(p) Commission Agreement dated as of August 1, 2003 between ASE Test, Inc. and Gardex International Limited.
(q) Commission Agreement dated as of August 1, 2003 between ASE (Korea) Inc. and Gardex International Limited.
(r) Commission Agreement dated as of August 1, 2003 between ASE (Chung Li) Inc. and Gardex International Limited.
(s) Commission Agreement dated as of August 1, 2003 between Advanced Semiconductor Engineering, Inc. and Gardex International Limited.
(t) Joint Venture Agreement dated as of October 28, 2003 by and between ASE Inc. and Compeq Manufacturing Co., Ltd. (in Chinese with English translation) (incorporated by reference to Exhibit 10.51 to our registration statement on Form F-3 (File No. 333-111172) filed on December 15, 2003 (the "December 2003 Form F-3")).
(u) Merger Agreement dated as of October 28, 2003 by and among ASE Inc., ASE Chung Li and ASE Material (in Chinese with English translation) (incorporated by reference to Exhibit 10.52 to the December 2003 Form F-3).
(v) Share Sale and Purchase Agreement dated as of February 3, 2004 among NEC Electronics Corporation, NEC Yamagata Ltd., J&R Holding Ltd., and ASE Inc.
8. List of Subsidiaries.
12. (a) Certification of Jason C.S. Chang, Chief Executive Officer of
Advanced Semiconductor Engineering, Inc. required by Rule
13a-14(a) of the Exchange Act.
(b) Certification of Joseph Tung, Chief Financial Officer of
Advanced Semiconductor Engineering, Inc. required by Rule
13a-14(a) of the Exchange Act.
13. Certification of the Chief Executive Officer and the Chief
Financial Officer of Advanced Semiconductor Engineering, Inc.
required by Rule 13a-14(b) of the Exchange Act and Section 1350
of Chapter 63 of Title 18 of the United States Code.
14. Land Leases with the Nantze Export Processing Zone (in Chinese
with English translation summary).
---------
|
+ Does not contain portions for which confidential treatment has been granted.
++ Does not contain portions for which confidential treatment has been requested.
The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of any instrument which defines the rights of holders of long-term debt of the Company and its consolidated subsidiaries.
Exhibit 1
Advanced Semiconductor Engineering, Inc.
Articles of Incorporation
(Translation)
Chapter One: General Principles
Article 1. This company is called Advanced Semiconductor Engineering, Inc., and is registered as a company limited by shares according to the Company Law. The English name of this company is Advanced Semiconductor Engineering, Inc.
Article 2. This company is engaged in the following businesses:
(1) The manufacture, assembly, processing, test and export of various types of integrated circuitry;
(2) The research, development, design and manufacture, assembly, processing, test and export of various computers, electronics, communications, information products and their peripheral products;
(3) General import and export trading business (excluding the approved businesses requiring special permits);
(4) CC01080 Electronic parts and components manufacture business.
(5) CC01990 Other mechanical, electronic and mechanical devices manufacture businesses (integrated circuit lead frame, ball grid array substrate and flip chip substrate).
(6) F119010 Electronic material wholesale business.
(7) F219010 Electronic material retail business.
(8) I199990 Other consulting service businesses (technical and counseling service for integrated circuit lead frame, ball grid array substrate and flip chip substrate).
(9) I601010 Leasing business.
(10) All other businesses not prohibited or restricted by laws and regulations except special permitted businesses.
Article 3. The investment made by this company in other companies as limited liability shareholder thereof is not subject to the limitation that such investment shall not exceed a certain percentage of the paid-in capital as set forth in the Company Law.
Article 4. This company may provide guaranty.
Article 5. This company's headquarter is located in the Nantze Export Processing Zone, Kaohsiung, Taiwan, R.O.C. and may set up domestic or foreign branch offices as resolved by the Board of Directors, if necessary.
Chapter Two: Shares
Article 6. This company's total capital is NT$ 51,500,000,000, divided into 5,150,000,000 shares, NT$10 per share, NT$3,000,000,000 of which are reserved for employee stock options. The Board of Directors is authorized to determine the issue of unissued shares in installments if deemed necessary for business needs.
Article 7. The share certificates shall be in registered form and have the signatures or seals of at least three directors of this company and shall be legally authenticated before issuance.
Article 8. No registration of share transfer shall be made within sixty days before each regular shareholders meeting, or within thirty days before each extraordinary shareholders meeting or five days before the record date for dividends, bonuses or other distributions as determined by this company.
Article 9. The rules governing stock affairs shall be made pursuant to the laws and the regulations of the relevant authorities.
Chapter Three: Shareholders Meeting
Article 10. Shareholders meetings include regular meetings and extraordinary meetings. Regular meetings shall be held once annually within 6 months of each fiscal year convened by the Board of Directors. Extraordinary meetings will be held according to the law whenever necessary.
Article 11. Shareholders meetings shall be convened by written notice stating the date, place and purpose dispatched to each shareholder at least 30 days, in case of regular meetings, and 15 days, in case of extraordinary meetings, prior to the date set for such meeting.
Article 12. Unless otherwise required by the Company Law, the resolution shall be adopted by at least a majority of the votes of Shareholders present at a shareholders meeting which hold a majority of all issued and outstanding shares.
Article 13. Each share has one vote, but shares held by this company pursuant to laws are not entitled to voting rights.
Article 14. Any shareholder, who for any reason is unable to attend shareholders meetings, may execute a proxy printed by this company to authorize a proxy attending the meeting for him in which the authorization matters shall expressly stated. Such proxy shall be submitted to this company at least 5 days prior to the shareholders meeting.
Article 15. The shareholders meeting shall be convened by the Board of Directors unless otherwise stipulated in the Company Law, and the person presiding the meeting will be the chairman. If the chairman is on leave or for any reason could not discharge his duty, Paragraph 3 of Article 208 of the Company Law should apply. If the shareholders meeting is called by a person entitled to do so other than the chairman, the person shall be the chairman. If two or more persons are entitled to call the shareholders meeting, those persons shall elect one as the chairman.
Chapter Four: Directors, supervisors and managers
Article 16. This company has 5 to 7 directors and 5 supervisors with tenures of 3 years and who are elected from among the persons with legal capacities. Re-elections are allowed.
Article 17. The Board of Directors is constituted by directors. Their powers and duties are as follows:
(1). Devising operations strategy.
(2). Proposing to distribute dividends or make up losses.
(3). Proposing to increase or decrease capital.
(4). Reviewing material internal rules and contracts.
(5). Hiring and discharging the general manager.
(6). Establishing and dissolving branch offices.
(7). Reviewing budgets and audited financial statements.
(8). Other duties and powers granted by or in accordance with the
Company Law or shareholders resolutions.
Article 18. The Board of Directors is constituted by directors, and the chairman and vice chairman is elected by the majority of the directors at a board meeting at which the majority of directors are present. If the chairman is on leave or for any reason could not discharge his duties, his acting proxy shall be elected in accordance with Article 208 of the Company Law.
Article 19. Board of Directors meetings shall be convened by the chairman, unless otherwise stipulated by the Company Law. Board of Directors meetings can be held at any place in the ROC or via teleconference.
Article 20. A director may appoint another director to attend the Board of Directors meeting and to exercise the voting right, but a director can accept only one proxy.
Chapter Five: Managers
Article 21. This company has one general manager. The appointment, discharge and salary of the general manager shall be managed in accordance with Article 29 of Company Law.
Chapter Six: Accounting
Article 22. The fiscal year of this company starts from January 1 and ends on December 31 every year. At the end of each fiscal year, the Board of Directors shall prepare financial and accounting books in accordance with the Company Law and submit them to the regular shareholders meeting for recognition.
Article 23. The annual net income ("Income") shall not be distributed before:
(1) Making up losses, if any;
(2) 10% being set aside as legal reserve;
(3) A special reserve being set aside pursuant to the laws or
regulation of
governmental authority;
(4) Setting aside a special reserve equal to the (unrealized)
investment income under equity method for long-term investment,
excluding cash dividends (the realized income shall be
classified as earnings for distribution);
If any Income remains, it shall be distributed as follows:
(5) Not more than 2% of the balance (i.e., the Income deducting (1)
to (4) above) as compensation to directors and supervisors;
(6) Not less than 5% and not more than 7% of the balance (i.e. the
Income deducting (1) to (5) above) as bonus to employees (the 5%
portion being distributed to all employees in the form of stock
bonus in accordance with the employee bonus rules, while the
portion exceeding 5% being distributed to individual employees
(having special contributions) in accordance with the rules made
by the board of directors with the authority granted hereby);
and
(7) The remainder is distributed in proportion to the aggregate
amount of outstanding shares proposed by the board.
"Employees" referred to in subparagraph (6) above include employees of affiliated companies meeting certain qualifications. Such qualifications are to be determined by the Board of Directors.
Article 24 This Company is at the developing stage. In order to accommodate the capital demand for the present and future business development and satisfy the shareholder's demand for the cash, the dividend policy of this Company is that stock dividends be distributed preferably than cash dividends. The ratio for cash dividends shall not exceed 20% in principle.
Given the above, the distribution ratio for cash dividend depends on the operation of business in such year and take the capital budget plan in the next year into consideration so as to determine the most appropriate dividend policy and distribution manner which shall be proposed by the board and resolved by the shareholders meeting.
Chapter Seven: Appendix
Article 25. The constitutive rules and the operation rules of this company shall be decided otherwise.
Article 26. Any matter not covered by this Articles of Incorporation shall be subject to the Company Law.
Article 27. This Articles of Incorporation was enacted on March 31, 1984 as approved by all the promoters.
The first amendment was made on May 3, 1984. The second amendment was made on June 11, 1984. The third amendment was made on June 25, 1984. The fourth amendment was made on May 28, 1986. The fifth amendment was made on July 10, 1986. The sixth amendment was made on September 1, 1988. The seventh amendment was made on May 28, 1988. The eighth amendment was made on July 18, 1988. The ninth amendment was made on September 1, 1988. The tenth amendment was made on October 30, 1988. The eleventh amendment was made on November 24, 1988. The twelfth amendment was made on December 5, 1988. The thirteenth amendment was made on February 21, 1989. The fourteenth amendment was made on December 11, 1989. The fifteenth amendment was made on March 31, 1990. The sixteenth amendment was made on March 30, 1991. The seventeenth amendment was made on April 11, 1992. The eighteenth amendment was made on April 28, 1993. The nineteenth amendment was made on March 21, 1994. The twentieth amendment was made on March 21, 1995. The twenty-first amendment was made on April 8, 1996. The twenty-second amendment was made on April 12, 1997. The twenty-third amendment was made on March 21, 1998. The twenty-fourth amendment was made on June 9, 1999. The twenty-fifth amendment was made on July 11, 2000. The twenty-sixth amendment was made on June 1, 2001. The twenty-seventh amendment was made on June 21, 2002.
The twenty-eighth amendment was made on June 21, 2002. The twenty-ninth amendment was made on June 19, 2003. The thirtieth amendment was made on June 19, 2003. The thirty-first amendment was made on June 15, 2004.
Exhibit 4(g)
Amendment renewing the IMMUNITY AGREEMENT entered into January 25, 1994 between Motorola, Inc. and ASE, Incorporated
Motorola Inc. and ASE, Incorporated agree to amend the above-identified IMMUNITY AGREEMENT as follows:
In Section 1.4, line 6, replace "integrated circuit device" with
"INTEGRATED CIRCUIT STRUCTURE or STRUCTURES".
2. In Section 1.7, replace "the date of the last signature hereto." with "January 1, 2003."
3. In Section 4.1, line 2, replace "2002" with "2010".
4. *
5. Delete Section 4.1.2.
6. In Section 5.1, line 2, replace "2002" with "2010".
7. In Section 5.6, lines 3-7, remove ", except to a successor in ownership of all or substantially all of the assets of the assigning party. Such successor, before such assignment or transfer is effective, shall expressly assume in writing to the other party the performance of all of the terms and conditions of this Agreement to be performed by the assigning party".
8. Renumber Section "6.9" to "6.10".
9. Renumber Section "6.9.1" to "6.10.1".
10. Renumber Section "6.9.2" to "6.10.2".
11. Renumber Section "6.9.3" to "6.10.3".
12. After Section 6.8, add new Sections 6.9 and 6.9.1-6.9.6 as indicated below:
6.9 The parties shall have the right to disclose the existence of this Agreement. The parties hereto, however, shall keep the terms of the Agreement confidential and shall not now or hereafter divulge any part thereof to any third party except:
6.9.1 with the prior written consent of the other party; or
6.9.2 to any governmental body having jurisdiction to request and to read the same; or
Amendment renewing the IMMUNITY AGREEMENT entered into January 25, 1994 between Motorola, Inc. and ASE, Incorporated
6.9.3 as otherwise may be required by law or legal processes; or
6.9.4 to legal counsel representing either party.
6.9.5 Notwithstanding the above, no disclosure of this Agreement shall be made pursuant to Section 6.9.2 or 6.9.3 without the disclosing party first giving the other party reasonable prior notice of such intended disclosure so as to allow the other party sufficient time to seek a protective order or otherwise assure the confidentiality of this Agreement as that other party shall deem appropriate.
6.9.6 Notwithstanding anything to the contrary herein, the provisions of this Section 6.9 shall survive termination of this Agreement and continue in perpetuity.
All other terms and conditions of the above-identified IMMUNITY AGREEMENT remain the same.
Indicating their agreement to the foregoing, the parties have hereto executed this Agreement in duplicate.
Motorola, Inc. ASE, Incorporated
By: /s/ Paul Reidy By: /s/ John Nickelsen
----------------------------------- ---------------------------------
Title: DIRECTOR, IP LICENSING Title: Vice President of Sales
|
Date: 3/18/03 Date: 3/12/03
Exhibit 4(h)
June 9, 2004
ASE, Inc.
7855 South River Parkway
Suite 106
Tempe, Arizona 85284
Attn: Attn: Jim Kelly, VP Marketing & Sales
Re: Consent to Assignment of the Immunity Agreement (the "Agreement", copy enclosed) between Motorola and ASE, Inc. dated 1/25/1994
Dear Attn: Jim Kelly, VP Marketing & Sales:
Motorola, Inc. ("Motorola") has reorganized its Semiconductor Products
Sector ("SPS") into a subsidiary of Motorola under the name Freescale
Semiconductor, Inc. ("Freescale") as part of the process of effecting its
previously announced separation from Motorola (the "Separation"). The SPS
business is now being operated under Freescale and its affiliates. Motorola
intends to distribute its ownership interest in Freescale to shareholders of
Motorola in the form of a spin-off ("Spin-Off") by means of a special dividend.
Completion of the Spin-Off is contingent upon the satisfaction or waiver of a
variety of conditions. For more information on Freescale please visit:
http://www.freescale.com.
Freescale would like to continue business relationship under the Agreement. Accordingly, Motorola and Freescale respectfully request that you countersign this letter below, indicating your company's consent to the assignment of the Agreement from Motorola to Freescale, with Freescale assuming all of Motorola's rights, duties and obligations under the Agreement. All terms of the agreement currently in place remain the same, however, please note the following administrative changes:
o Communications regarding the Agreement should now be addressed to:
Freescale Semoconductor
Lee Chastain, Business Law Director
7700 W. Parmer Lane
Mail Drop TX32, PL02
Austin, Texas 78729
o All other questions should be directed to Freescale General Counsel:
Lee E. Chastain
Business Law Director
Freescale Semiconductor, Inc.
7700 W. Parmer Lane
Mail Drop TX32/PL02
Austin, Texas 78729
512-996-6827
512-996-6853 (facsimile)
lee.chastain@freescale.com
Please have an authorized representative sign this letter where indicated below and return it via facsimile to the attention of Freescale Semiconductor General Counsel at 512-996-6853 within the next ten (10) business days. Please contact Freescale International General Counsel at 512-996-6827 with any questions. All parties to this letter agree that a signed, facsimile copy is equivalent to an original signed copy.
Sincerely,
MOTOROLA, INC. FREESCALE SEMICONDUCTOR, INC. By: /s/ Jonathan P. Meyer By: /s/ Lee E. Chastain -------------------------------- -------------------------------- Name: Jonathan P. Meyer Name: Lee E. Chastain Title: Assistant General Counsel Title: Business Law Director |
I am an authorized representative of ASE, Inc. and acknowledge and agree with the terms of this letter agreement and hereby consent as described above.
Acknowledged and agreed:
ASE, Inc,
By: /s/ John M. Nickelsen -------------------------------- Name: John M. Nickelsen Title: Vice President of Sales Date: 6/10/04 |
Exhibit 4(i)
SERVICE AGREEMENT
PARTIES: ASE (U.S.) INC. ("ASE US")
(a California corporation)
ASE Electronics (M) Sdn. Bhd. ("ASEM")
(a Malaysia corporation)
Date: August 1, 2003
ASEM hereby retains ASEUS to be its Service Agent to provide after sales service and sales support ("Services") to its Europe and North America customers ("Customers") for present and future products and services as specified by ASEM as follows
1. Service to rendered
(a) To facilitate market information collection, Customer and business identification, and Customer inquiry dissemination, and;
(b) To liaise with ASEM and Customers regarding price, delivery and other key terms of the sales contract as ASEM may from time to time specify in writing, and;
(c) To monitor sales contract performance by the Customers, including acceptance of delivery, payment, etc., and;
(d) To provide after sales services including problem solving, capacity planning coordination and other items as may be necessary.
2. Compensation to ASE US
For services hereunder, ASEM will monthly compensate ASE US as follows:
(a) 8.5% of ASE US's monthly incurred services associated cost and expenses (excluding bonus) plus 5%, or USD 160,650, whichever is lower.
(b) Upon payment request, ASE US is to submit monthly expense report certified by it's Financial Manager for accuracy, and;
(c) The compensation agreement is valid for one year and is subject to quarterly revision accepted by both parties.
(d) Compensation hereunder shall be net of any and all taxes required to be paid under applicable law.
3. Compensation from ASE US
ASE US agrees to pay a reasonable portion of ASEM employee's traveling
expenses incurred in the United States or Europe, when the trip is deemed necessary by ASEM to assist ASE US in providing its services hereunder.
4. Term of Agreement
This Agreement is effective from August 1, 2003 and shall expire on July 31, 2004, unless earlier terminated by (i) mutual agreement or (ii) ASEM on at least 30 days' prior written notice with or without causes.
5. Representations and Covenants
(a) ASE US agrees to perform its obligations hereunder to the extent permissible by law and the sales contracts between ASEM and the Customers.
ASE US will not enter into any contract or agreement, nor engage in any activities, that would result in a conflict with ASE US's duties under this Agreement.
With the terms of this agreement, ASE US shall not have the authority to make any commitments whatsoever on behalf of ASEM, as agent or otherwise, or to bind ASEM in any respect.
(b) Each party will provide to the other on a regular basis such information as may be required to enable the other party to be assured of compliance with this Agreement.
(c) Unless required by laws, all confidential information received or learned by ASE US relating to ASEM or its business and products shall be kept in confidence by ASE US and neither used by ASE US nor disclosed to others for any purpose inconsistent with this Agreement. ASE US shall use ASEM trademark only, as ASEM may authorize from time to time, and ASE US shall not claim any proprietary right to or interest in such trademarks.
6. Miscellaneous
This Agreement shall be governed by the laws of Republic of China ("ROC"). In case of any disputes arising from or in connection with this Agreement, the parties hereto consent to submit to the non-exclusive jurisdiction of the Taipei District Court.
Without the prior written consent of ASEM, ASE US shall not assign or transfer any of its rights or obligations hereunder to any other person.
This Agreement can be amended or modified only in writing signed by the parties hereto. Any communication or notice made hereunder shall be in writing and sent by way of (i) hand delivery, (ii) postage prepaid registered air mail, or (iii) facsimile to the address as follows:
ASE US: ASEM: Address: Address: 3590 Peterson Way, Phase 4, Bayan Lepas Free Trade Santa Clara, CA 95054, USA Zone, 11900 Penang, Malaysia Telefax No: 408-432-0440 Telefax No: 60-4-644-8411 |
The notice or communication shall become effective (i) upon delivery if sent by hand delivery, (ii) upon the dispatch if sent by facsimile and confirmed by writing and (iii) upon the fifth days later than the post date if sent by air mail.
This Agreement shall in no event be construed to establish a sales agency relationship between ASEM and ASE US.
IN WITNESS WHEREOF, the parties hereto hereby have duly executed and delivered this Agreement as of the date and year first written above.
ASE Electronics (M) Sdn. Bhd. ASE US By /s/ Kanapathi A/L Kuppusamy By /s/ Y.C. Hsu -------------------------------- ------------------------- Name: Kanapathi A/L Kuppusamy Name: Y.C. Hsu Title: President Title: Director |
Exhibit 4(j)
SERVICE AGREEMENT
PARTIES: ASE (U.S.) INC. ("ASE US")
(a California corporation)
ASE Test Inc. ("ASET")
(a Taiwan corporation)
Date: August 1, 2003
ASET hereby retains ASEUS to be its Service Agent to provide after sales service and sales support ("Services") to its Europe and North America customers ("Customers") for present and future products and services as specified by ASET as follows
1. Service to rendered
(a) To facilitate market information collection, Customer and business identification, and Customer inquiry dissemination, and;
(b) To liaise with ASET and Customers regarding price, delivery and other key terms of the sales contract as ASET may from time to time specify in writing, and;
(c) To monitor sales contract performance by the Customers, including acceptance of delivery, payment, etc., and;
(d) To provide after sales services including problem solving, capacity planning coordination and other items as may be necessary.
2. Compensation to ASE US
For services hereunder, ASET will monthly compensate ASE US as follows:
(a) 18% of ASE US's monthly incurred services associated cost and expenses (excluding bonus) plus 5%, or USD 340,200, whichever is lower.
(b) Upon payment request, ASE US is to submit monthly expense report certified by it's Financial Manager for accuracy, and;
(c) The compensation agreement is valid for one year and is subject to quarterly revision accepted by both parties.
(d) Compensation hereunder shall be net of any and all taxes required to be paid under applicable law.
3. Compensation from ASE US
ASE US agrees to pay a reasonable portion of ASET employee's traveling
expenses incurred in the United States or Europe, when the trip is deemed necessary by ASET to assist ASE US in providing its services hereunder.
4. Term of Agreement
This Agreement is effective from August 1, 2003 and shall expire on July 31, 2004, unless earlier terminated by (i) mutual agreement or (ii) ASET on at least 30 days' prior written notice with or without causes.
5. Representations and Covenants
(a) ASE US agrees to perform its obligations hereunder to the extent permissible by law and the sales contracts between ASET and the Customers.
ASE US will not enter into any contract or agreement, nor engage in any activities, that would result in a conflict with ASE US's duties under this Agreement.
With the terms of this agreement, ASE US shall not have the authority to make any commitments whatsoever on behalf of ASET, as agent or otherwise, or to bind ASET in any respect.
(b) Each party will provide to the other on a regular basis such information as may be required to enable the other party to be assured of compliance with this Agreement.
(c) Unless required by laws, all confidential information received or learned by ASE US relating to ASET or its business and products shall be kept in confidence by ASE US and neither used by ASE US nor disclosed to others for any purpose inconsistent with this Agreement. ASE US shall use ASET trademark only, as ASET may authorize from time to time, and ASE US shall not claim any proprietary right to or interest in such trademarks.
6. Miscellaneous
This Agreement shall be governed by the laws of Republic of China ("ROC"). In case of any disputes arising from or in connection with this Agreement, the parties hereto consent to submit to the non-exclusive jurisdiction of the Taipei District Court.
Without the prior written consent of ASET, ASE US shall not assign or transfer any of its rights or obligations hereunder to any other person.
This Agreement can be amended or modified only in writing signed by the parties hereto. Any communication or notice made hereunder shall be in writing and sent by way of (i) hand delivery, (ii) postage prepaid registered air mail, or (iii) facsimile to the address as follows:
ASE US: ASET:
Address: Address:
3590 Peterson Way, No. 10 West 5th Street, Nantze
Santa Clara, CA 95054, USA Export Processing Zone,
Kaohsiung, Taiwan
Telefax No: 408-432-0440 Telefax No: 886-7-363-6663
|
The notice or communication shall become effective (i) upon delivery if sent by hand delivery, (ii) upon the dispatch if sent by facsimile and confirmed by writing and (iii) upon the fifth days later than the post date if sent by air mail.
This Agreement shall in no event be construed to establish a sales agency relationship between ASET and ASE US.
IN WITNESS WHEREOF, the parties hereto hereby have duly executed and delivered this Agreement as of the date and year first written above.
ASE Test Inc. ASE US By /s/ Raymond Lo By /s/ Y.C. Hsu --------------------------------- ----------------------------- Name: Raymond Lo Name: Y.C. Hsu Title: President Title: Director |
Exhibit 4(k)
SERVICE AGREEMENT
PARTIES: ASE (U.S.) INC. ("ASE US")
(a California corporation)
ASE (Korea) Inc. ("ASEKR")
(a Korea corporation)
Date: August 1, 2003
ASEKR hereby retains ASEUS to be its Service Agent to provide after sales service and sales support ("Services") to its Europe and North America customers ("Customers") for present and future products and services as specified by ASEKR as follows
1. Service to rendered
(a) To facilitate market information collection, Customer and business identification, and Customer inquiry dissemination, and;
(b) To liaise with ASEKR and Customers regarding price, delivery and other key terms of the sales contract as ASEKR may from time to time specify in writing, and;
(c) To monitor sales contract performance by the Customers, including acceptance of delivery, payment, etc., and;
(d) To provide after sales services including problem solving, capacity planning coordination and other items as may be necessary.
2. Compensation to ASE US
For services hereunder, ASEKR will monthly compensate ASE US as follows:
(a) 8.5% of ASE US's monthly incurred services associated cost and expenses (excluding bonus) plus 5%, or USD 160,650, whichever is lower.
(b) Upon payment request, ASE US is to submit monthly expense report certified by it's Financial Manager for accuracy, and;
(c) The compensation agreement is valid for one year and is subject to quarterly revision accepted by both parties.
(d) Compensation hereunder shall be net of any and all taxes required to be paid under applicable law.
3. Compensation from ASE US
ASE US agrees to pay a reasonable portion of ASEKR employee's traveling expenses incurred in the United States or Europe, when the trip is deemed necessary by ASEKR to assist ASE US in providing its services hereunder.
4. Term of Agreement
This Agreement is effective from August 1, 2003 and shall expire on July 31, 2004, unless earlier terminated by (i) mutual agreement or (ii) ASEKR on at least 30 days' prior written notice with or without causes.
5. Representations and Covenants
(a) ASE US agrees to perform its obligations hereunder to the extent permissible by law and the sales contracts between ASEKR and the Customers.
ASE US will not enter into any contract or agreement, nor engage in any activities, that would result in a conflict with ASE US's duties under this Agreement.
With the terms of this agreement, ASE US shall not have the authority to make any commitments whatsoever on behalf of ASEKR, as agent or otherwise, or to bind ASEKR in any respect.
(b) Each party will provide to the other on a regular basis such information as may be required to enable the other party to be assured of compliance with this Agreement.
(c) Unless required by laws, all confidential information received or learned by ASE US relating to ASEKR or its business and products shall be kept in confidence by ASE US and neither used by ASE US nor disclosed to others for any purpose inconsistent with this Agreement. ASE US shall use ASEKR trademark only, as ASEKR may authorize from time to time, and ASE US shall not claim any proprietary right to or interest in such trademarks.
6. Miscellaneous
This Agreement shall be governed by the laws of Republic of China ("ROC"). In case of any disputes arising from or in connection with this Agreement, the parties hereto consent to submit to the non-exclusive jurisdiction of the Taipei Court.
Without the prior written consent of ASEKR, ASE US shall not assign or transfer any of its rights or obligations hereunder to any other person.
This Agreement can be amended or modified only in writing signed by the parties hereto. Any communication or notice made hereunder shall be in writing and sent by way of (i) hand delivery, (ii) postage prepaid registered air mail, or (iii) facsimile to the address as follows:
ASE US: ASEKR: Address: Address: 3590 Peterson Way, 494, Munbai-ri, Kyoha-myun, Santa Clara, CA 95054, USA Paju-shi Kyunggi-do, Korea Telefax No: 408-432-0440 Telefax No: 82-348-9400-621 |
The notice or communication shall become effective (i) upon delivery if sent by hand delivery, (ii) upon the dispatch if sent by facsimile and confirmed by writing and (iii) upon the fifth days later than the post date if sent by air mail.
This Agreement shall in no event be construed to establish a sales agency relationship between ASEKR and ASE US.
IN WITNESS WHEREOF, the parties hereto hereby have duly executed and delivered this Agreement as of the date and year first written above.
ASE (Korea) Inc. ASE US By /s/ S.J. Maeng By /s/ Y.C. Hsu ----------------------------- -------------------------- Name: S.J. Maeng Name: Y.C. Hsu Title: President Title: Director |
Exhibit 4(l)
SERVICE AGREEMENT
PARTIES: ASE (U.S.) INC. ("ASE US")
(a California corporation)
ASE (Chung-Li) Inc. ("ASECL")
(a Taiwan corporation)
Date: August 1, 2003
ASECL hereby retains ASEUS to be its Service Agent to provide after sales service and sales support ("Services") to its Europe and North America customers ("Customers") for present and future products and services as specified by ASECL as follows
1. Service to rendered
(a) To facilitate market information collection, Customer and business identification, and Customer inquiry dissemination, and;
(b) To liaise with ASECL and Customers regarding price, delivery and other key terms of the sales contract as ASECL may from time to time specify in writing, and;
(c) To monitor sales contract performance by the Customers, including acceptance of delivery, payment, etc., and;
(d) To provide after sales services including problem solving, capacity planning coordination and other items as may be necessary.
2. Compensation to ASE US
For services hereunder, ASECL will monthly compensate ASE US as follows:
(a) 8.5% of ASE US's monthly incurred services associated cost and expenses (excluding bonus) plus 5%, or USD 160,650, whichever is lower.
(b) Upon payment request, ASE US is to submit monthly expense report certified by it's Financial Manager for accuracy, and;
(c) The compensation agreement is valid for one year and is subject to quarterly revision accepted by both parties.
(d) Compensation hereunder shall be net of any and all taxes required to be paid under applicable law.
3. Compensation from ASE US
ASE US agrees to pay a reasonable portion of ASECL employee's traveling expenses incurred in the United States or Europe, when the trip is deemed necessary by ASECL to assist ASE US in providing its services hereunder.
4. Term of Agreement
This Agreement is effective from August 1, 2003 and shall expire on July 31, 2004, unless earlier terminated by (i) mutual agreement or (ii) ASECL on at least 30 days' prior written notice with or without causes.
5. Representations and Covenants
(a) ASE US agrees to perform its obligations hereunder to the extent permissible by law and the sales contracts between ASECL and the Customers.
ASE US will not enter into any contract or agreement, nor engage in any activities, that would result in a conflict with ASE US's duties under this Agreement.
With the terms of this agreement, ASE US shall not have the authority to make any commitments whatsoever on behalf of ASECL, as agent or otherwise, or to bind ASECL in any respect.
(b) Each party will provide to the other on a regular basis such information as may be required to enable the other party to be assured of compliance with this Agreement.
(c) Unless required by laws, all confidential information received or learned by ASE US relating to ASECL or its business and products shall be kept in confidence by ASE US and neither used by ASE US nor disclosed to others for any purpose inconsistent with this Agreement. ASE US shall use ASECL trademark only, as ASECL may authorize from time to time, and ASE US shall not claim any proprietary right to or interest in such trademarks.
6. Miscellaneous
This Agreement shall be governed by the laws of Republic of China ("ROC"). In case of any disputes arising from or in connection with this Agreement, the parties hereto consent to submit to the non-exclusive jurisdiction of the Taipei District Court.
Without the prior written consent of ASECL, ASE US shall not assign or transfer
any of its rights or obligations hereunder to any other person.
This Agreement can be amended or modified only in writing signed by the parties hereto. Any communication or notice made hereunder shall be in writing and sent by way of (i) hand delivery, (ii) postage prepaid registered air mail, or (iii) facsimile to the address as follows:
ASE US: ASE (Chung-Li) Inc.: Address: Address: 3590 Peterson Way, 550, Chung-Hwa Road Section 1, Santa Clara, CA 95054, USA Chung-Li, Taiwan, R.O.C. Telefax No: 408-432-0440 Telefax No: 886-3-462-8658 |
The notice or communication shall become effective (i) upon delivery if sent by hand delivery, (ii) upon the dispatch if sent by facsimile and confirmed by writing and (iii) upon the fifth days later than the post date if sent by air mail.
This Agreement shall in no event be construed to establish a sales agency relationship between ASECL and ASE US.
IN WITNESS WHEREOF, the parties hereto hereby have duly executed and delivered this Agreement as of the date and year first written above.
ASE (Chung-Li) Inc. ASE US By /s/ T.S. Chen By /s/ Y.C. Hsu -------------------------------- --------------------------- Name: T.S. Chen Name: Y.C. Hsu Title: President Title: Director |
Exhibit 4(m)
SERVICE AGREEMENT
PARTIES: ASE (U.S.) INC. ("ASE US")
(a California corporation)
ISE Labs. ("ISE")
(a California corporation)
Date: August 1, 2003
ISE hereby retains ASE US to be its Service Agent to provide after sales service and sales support ("Services") to its Europe and North America customers ("Customers") for present and future products and services as specified by ISE as follows
1. Service to rendered
(a) To facilitate market information collection, Customer and business identification, and Customer inquiry dissemination, and;
(b) To liaise with ISE and Customers regarding price, delivery and other key terms of the sales contract as ISE may from time to time specify in writing, and;
(c) To monitor sales contract performance by the Customers, including acceptance of delivery, payment, etc., and;
(d) To provide after sales services including problem solving, capacity planning coordination and other items as may be necessary.
2. Compensation to ASE US
For services hereunder, ISE will monthly compensate ASE US as follows:
(a) 1.75% of ASE US's monthly incurred services associated cost and expenses (excluding bonus) plus 5%, or USD 66,150, whichever is lower.
(b) Upon payment request, ASE US is to submit detailed monthly expense report certified by it's Financial Manager for accuracy, and;
(c) The compensation agreement is valid for one year and is subject to quarterly revision accepted by both parties.
(d) Compensation hereunder shall be net of any and all taxes required to be paid under applicable law.
3. Compensation from ASE US
ASE US agrees to pay a reasonable portion of ISE employee's traveling expenses incurred in the United States or Europe, when the trip is deemed necessary by ISE
to assist ASE US in providing its services hereunder.
4. Term of Agreement
This Agreement is effective from August 1, 2003 and shall expire on July 31, 2004, unless earlier terminated by (i) mutual agreement or (ii) ISE on at least 30 days' prior written notice with or without causes.
5. Representations and Covenants
(a) ASE US agrees to perform its obligations hereunder to the extent permissible by law and the sales contracts between ISE and the Customers.
ASE US will not enter into any contract or agreement, nor engage in any activities, that would result in a conflict with ASE US's duties under this Agreement.
With the terms of this agreement, ASE US shall not have the authority to make any commitments whatsoever on behalf of ISE, as agent or otherwise, or to bind ISE in any respect.
(b) Each party will provide to the other on a regular basis such information as may be required to enable the other party to be assured of compliance with this Agreement.
(c) Unless required by laws, all confidential information received or learned by ASE US relating to ISE or its business and products shall be kept in confidence by ASE US and neither used by ASE US nor disclosed to others for any purpose inconsistent with this Agreement. ASE US shall use ISE trademark only, as ISE may authorize from time to time, and ASE US shall not claim any proprietary right to or interest in such trademarks.
6. Miscellaneous
This Agreement shall be governed by the laws of Republic of China ("ROC"). In case of any disputes arising from or in connection with this Agreement, the parties hereto consent to submit to the non-exclusive jurisdiction of the Taipei District Court.
Without the prior written consent of ISE, ASE US shall not assign or transfer any of its rights or obligations hereunder to any other person.
This Agreement can be amended or modified only in writing signed by the parties
hereto. Any communication or notice made hereunder shall be in writing and sent by way of (i) hand delivery, (ii) postage prepaid registered air mail, or (iii) facsimile to the address as follows:
ASE US: ISE: Address: Address: 3590 Peterson Way, 46800 Bayside Parkway Santa Clara, CA 95054, USA Fremont, CA 94538, USA Telefax No: 408-432-0440 Telefax No: 510-687-2513 |
The notice or communication shall become effective (i) upon delivery if sent by hand delivery, (ii) upon the dispatch if sent by facsimile and confirmed by writing and (iii) upon the fifth days later than the post date if sent by air mail.
This Agreement shall in no event be construed to establish a sales agency relationship between ISE and ASE US.
IN WITNESS WHEREOF, the parties hereto hereby have duly executed and delivered this Agreement as of the date and year first written above.
ISE Labs. ASE US By /s/ Tien Wu By /s/ Y.C. Hsu --------------------------- --------------------------- Name: Tien Wu Name: Y.C. Hsu Title: Chief Executive Officer Title: Director |
Exhibit 4(n)
SERVICE AGREEMENT
PARTIES: ASE (U.S.) INC. ("ASE US")
(a California corporation)
Advanced Semiconductor Engineering, Inc. ("ASEK")
(a Taiwan corporation)
Date: August 1, 2003
ASEK hereby retains ASE US to be its Service Agent to provide after sales service and sales support ("Services") to its Europe and North America customers ("Customers") for present and future products and services as specified by ASEK as follows
1. Service to rendered
(a) To facilitate market information collection, Customer and business identification, and Customer inquiry dissemination, and;
(b) To liaise with ASEK and Customers regarding price, delivery and other key terms of the sales contract as ASEK may from time to time specify in writing, and;
(c) To monitor sales contract performance by the Customers, including acceptance of delivery, payment, etc., and;
(d) To provide after sales services including problem solving, capacity planning coordination and other items as may be necessary.
2. Compensation to ASE US
For services hereunder, ASEK will monthly compensate ASE US as follows:
(a) 54.75% of ASE US's monthly incurred services associated cost and expenses (excluding bonus) plus 5%, or USD 1,001,700, whichever is lower.
(b) Upon payment request, ASE US is to submit monthly expense report certified by it's Financial Manager for accuracy, and;
(c) The compensation agreement is valid for one year and is subject to quarterly revision accepted by both parties.
(d) Compensation hereunder shall be net of any and all taxes required to be paid under applicable law.
3. Compensation from ASE US
ASE US agrees to pay a reasonable portion of ASEK employee's traveling expenses incurred in the United States or Europe, when the trip is deemed
necessary by ASEK to assist ASE US in providing its services hereunder.
4. Term of Agreement
This Agreement is effective from August 1, 2003 and shall expire on July 31, 2004, unless earlier terminated by (i) mutual agreement or (ii) ASEK on at least 30 days' prior written notice with or without causes.
5. Representations and Covenants
(a) ASE US agrees to perform its obligations hereunder to the extent permissible by law and the sales contracts between ASEK and the Customers.
ASE US will not enter into any contract or agreement, nor engage in any activities, that would result in a conflict with ASE US's duties under this Agreement.
With the terms of this agreement, ASE US shall not have the authority to make any commitments whatsoever on behalf of ASEK, as agent or otherwise, or to bind ASEK in any respect.
(b) Each party will provide to the other on a regular basis such information as may be required to enable the other party to be assured of compliance with this Agreement.
(c) Unless required by laws, all confidential information received or learned by ASE US relating to ASEK or its business and products shall be kept in confidence by ASE US and neither used by ASE US nor disclosed to others for any purpose inconsistent with this Agreement. ASE US shall use ASEK trademark only, as ASEK may authorize from time to time, and ASE US shall not claim any proprietary right to or interest in such trademarks.
6. Miscellaneous
This Agreement shall be governed by the laws of Republic of China ("ROC"). In case of any disputes arising from or in connection with this Agreement, the parties hereto consent to submit to the non-exclusive jurisdiction of the Taipei District Court.
Without the prior written consent of ASEK, ASE US shall not assign or transfer any of its rights or obligations hereunder to any other person.
This Agreement can be amended or modified only in writing signed by the parties
hereto. Any communication or notice made hereunder shall be in writing and sent by way of (i) hand delivery, (ii) postage prepaid registered air mail, or (iii) facsimile to the address as follows:
ASE US: ASEK:
Address: Address:
3590 Peterson Way, No. 26 Chin 3rd Road, Nantze
Santa Clara, CA 95054, USA Export Processing Zone,
Kaohsiung, Taiwan, R.O.C.
Telefax No: 408-432-0440 Telefax No: 886-7-361-3094
|
The notice or communication shall become effective (i) upon delivery if sent by hand delivery, (ii) upon the dispatch if sent by facsimile and confirmed by writing and (iii) upon the fifth days later than the post date if sent by air mail.
This Agreement shall in no event be construed to establish a sales agency relationship between ASEK and ASE US.
IN WITNESS WHEREOF, the parties hereto hereby have duly executed and delivered this Agreement as of the date and year first written above.
Advanced Semiconductor Engineering, Inc. ASE US By /s/ K.J. Chin By /s/ Y.C Hsu ------------------------------- ------------------------- Name: K.J. Chin Name: Y.C. Hsu Title: General Manager Title: Director |
Exhibit 4(o)
COMMISSION AGREEMENT
PARTIES: GARDEX INTERNATIONAL LIMITED ("GARDEX")
( a British Virgin Islands Corporation)
ASE Electronics (M) Sdn. Bhd. ("ASEM")
( a Malaysia corporation)
DATE: August 1, 2003
AGREEMENT
1. Services to be rendered. ASEM hereby retains GARDEX to provide the sales services to ASEM as a Sales Agency with the following terms.
To be non-exclusive world-wide sales agent for all present and future products and services to be specified by ASEM in writing with the following authority:
(a). Identify customers for ASEM products and services;
(b). Within such limitations relating to price, delivery and other key terms as ASEM may from time to time specify in writing, and subject to acceptance by ASEM (by telex or otherwise) negotiate sales contracts as ASEM's agent.
2. Compensation to GARDEX. For services hereunder, ASEM shall pay monthly compensation to GARDEX in respect of net export sales (outside of Malaysia), the compensation amount is 0.50% of the total monthly export sales.
The above scheme of compensation payment is applicable from August 1, 2003 to July 31, 2004. Compensation payment thereafter is subject to further negotiation on a yearly basis between ASEM and GARDEX.
All payments to GARDEX shall be in US dollars. Currency conversions, where necessary, shall be based on the prevailing free-market rates of the time the payment is earned (not at the time of payment) as quoted in the Wall Street Journal or other authoritative source.
3. Term of Agreement. This agreement is effective from August 1, 2003 and shall expire on July 31, 2004 unless earlier terminated by (i) mutual agreement, or (ii) ASEM on at least 30 days' prior written notice with or without cause. Neither expiration nor termination of this Agreement shall terminate the obligation of ASEM to pay GARDEX for services rendered with respect to sales following such date that result from orders received prior to such date.
4. Representative and Covenants.
(a). GARDEX agree to use its best efforts to perform its obligations hereunder and to give priority to ASEM over all other customers of GARDEX in terms of management time, and efforts. GARDEX will not enter into any management consulting, sales, agency or similar relationship, nor engage in activities, that would result in a conflict with GARDEX's duties under this Agreement.
(b). Each party will provide to the other on a regular basis such documentation as may
reasonably be required to enable the other party to be assured of compliance with this Agreement, and shall permit the other party to inspect its books of account and other records at such a reasonable times as the other party may request.
(c). All confidential information received or learned by GARDEX relating to ASEM's business and products shall be kept in confidence by GARDEX and neither used by GARDEX nor disclosed to any other person for any purpose outside this Agreement.
5. Governing Law and Jurisdiction. This Agreement shall be governed and construed under the laws of Republic of China unless the parties agree in writing to voluntary arbitration. The Courts in the Republic of China shall have exclusive jurisdiction to hear and decide any case or controversy arising out of this Agreement.
Each party consents to in person jurisdiction over it by such courts and to service of process by registered mail sent to its principal business address.
ASE Electronics (M) Sdn. Bhd.
BY:
/s/ Kanapathi A/L Kuppusamy ---------------------------------- |
GARDEX INTERNATIONAL LIMITED
BY:
/s/ Philip Nicholls ---------------------------------- |
Exhibit 4(p)
COMMISSION AGREEMENT
PARTIES: GARDEX INTERNATIONAL LIMITED ("GARDEX")
(a British Virgin Islands Corporation)
ASE Test Inc. ("ASET")
(a Taiwan Corporation)
DATE: August 1, 2003
AGREEMENT
1. Services to be rendered. ASET hereby retains GARDEX to provide the sales services to ASET as a Sales Agency with the following terms.
To be non-exclusive world-wide sales agent for all present and future products and services to be specified by ASET in writing with the following authority:
(a). Identify customers for ASET products and services;
(b). Within such limitations relating to price, delivery and other key terms as ASET may from time to time specify in writing, and subject to acceptance by ASET (by telex or otherwise) negotiate sales contracts as ASET's agent.
2. Compensation to GARDEX. For services hereunder, ASET shall pay monthly compensation to GARDEX in respect of net export sales (outside of Taiwan), the compensation amount is 0.50% of the total monthly export sales.
The above scheme of compensation payment is applicable from August 1, 2003 to July 31, 2004. Compensation payment thereafter is subject to further negotiation on a yearly basis between ASET and GARDEX.
All payments to GARDEX shall be in US dollars. Currency conversions, where necessary, shall be based on the prevailing free-market rates of the time the payment is earned (not at the time of payment) as quoted in the Wall Street Journal or other authoritative source.
3. Term of Agreement. This agreement is effective from August 1, 2003 and shall expire on July 31, 2004 unless earlier terminated by (i) mutual agreement, or (ii) ASET on at least 30 days' prior written notice with or without cause. Neither
expiration nor termination of this Agreement shall terminate the obligation of ASET to pay GARDEX for services rendered with respect to sales following such date that result from orders received prior to such date.
4. Representative and Covenants.
(a). GARDEX agree to use its best efforts to perform its obligations hereunder and to give priority to ASET over all other customers of GARDEX in terms of management time, and efforts. GARDEX will not enter into any management consulting, sales, agency or similar relationship, nor engage in activities, that would result in a conflict with GARDEX's duties under this Agreement.
(b). Each party will provide to the other on a regular basis such documentation as may reasonably be required to enable the other party to be assured of compliance with this Agreement, and shall permit the other party to inspect its books of account and other records at such a reasonable times as the other party may request.
(c). All confidential information received or learned by GARDEX relating to ASET's business and products shall be kept in confidence by GARDEX and neither used by GARDEX nor disclosed to any other person for any purpose outside this Agreement.
5. Governing Law and Jurisdiction. This Agreement shall be governed and construed under the laws of Republic of China unless the parties agree in writing to voluntary arbitration. The Courts in the Republic of China shall have exclusive jurisdiction to hear and decide any case or controversy arising out of this Agreement.
Each party consents to in person jurisdiction over it by such courts and to service of process by registered mail sent to its principal business address.
ASE Test Inc. BY:
/s/ Raymond Lo
----------------------------------
GARDEX INTERNATIONAL LIMITED
BY:
|
/s/ Philip Nicholls ---------------------------------- |
Exhibit 4(q)
COMMISSION AGREEMENT
PARTIES: GARDEX INTERNATIONAL LIMITED ("GARDEX")
(a British Virgin Islands Corporation)
ASE (Korea) Inc. ("ASEKR")
(a Korea Corporation)
DATE: August 1, 2003
AGREEMENT
1. Services to be rendered. ASEKR hereby retains GARDEX to provide the sales services to ASEKR as a Sales Agency with the following terms.
To be non-exclusive world-wide sales agent for all present and future products and services to be specified by ASEKR in writing with the following authority:
(a). Identify customers for ASEKR products and services;
(b). Within such limitations relating to price, delivery and other key terms as ASEKR may from time to time specify in writing, and subject to acceptance by ASEKR (by telex or otherwise) negotiate sales contracts as ASEKR's agent.
2. Compensation to GARDEX. For services hereunder, ASEKR shall pay monthly compensation to GARDEX in respect of net export sales (outside of Korea), the compensation amount is 0.40% of the total monthly export sales.
The above scheme of compensation payment is applicable from August 1, 2003 to July 31, 2004. Compensation payment thereafter is subject to further negotiation on a yearly basis between ASEKR and GARDEX.
All payments to GARDEX shall be in US dollars. Currency conversions, where necessary, shall be based on the prevailing free-market rates of the time the payment is earned (not at the time of payment) as quoted in the Wall Street Journal or other authoritative source.
3. Term of Agreement. This agreement is effective from August 1, 2003 and shall expire on July 31, 2004 unless earlier terminated by (i) mutual agreement, or (ii) ASEKR on at least 30 days' prior written notice with or without cause. Neither
expiration nor termination of this Agreement shall terminate the obligation of ASEKR to pay GARDEX for services rendered with respect to sales following such date that result from orders received prior to such date.
4. Representative and Covenants.
(a). GARDEX agree to use its best efforts to perform its obligations hereunder and to give priority to ASEKR over all other customers of GARDEX in terms of management time, and efforts. GARDEX will not enter into any management consulting, sales, agency or similar relationship, nor engage in activities, that would result in a conflict with GARDEX's duties under this Agreement.
(b). Each party will provide to the other on a regular basis such documentation as may reasonably be required to enable the other party to be assured of compliance with this Agreement, and shall permit the other party to inspect its books of account and other records at such a reasonable times as the other party may request.
(c). All confidential information received or learned by GARDEX relating to ASEKR's business and products shall be kept in confidence by GARDEX and neither used by GARDEX nor disclosed to any other person for any purpose outside this Agreement.
5. Governing Law and Jurisdiction. This Agreement shall be governed and construed under the laws of Republic of China unless the parties agree in writing to voluntary arbitration. The Courts in the Republic of China shall have exclusive jurisdiction to hear and decide any case or controversy arising out of this Agreement.
Each party consents to in person jurisdiction over it by such courts and to service of process by registered mail sent to its principal business address.
ASE (Korea) Inc. BY:
/s/ S.J. Maeng ---------------------------------- |
GARDEX INTERNATIONAL LIMITED
BY:
/s/ Philip Nicholls ---------------------------------- |
Exhibit 4(r)
COMMISSION AGREEMENT
PARTIES: GARDEX INTERNATIONAL LIMITED ("GARDEX")
(a British Virgin Islands Corporation)
ASE (Chung-Li) Inc. ("ASECL")
(a Taiwan Corporation)
DATE: August 1, 2003
AGREEMENT
1. Services to be rendered. ASECL hereby retains GARDEX to provide the sales services to ASECL as a Sales Agency with the following terms.
To be non-exclusive world-wide sales agent for all present and future products and services to be specified by ASECL in writing with the following authority:
(a). Identify customers for ASECL products and services;
(b). Within such limitations relating to price, delivery and other key terms as ASECL may from time to time specify in writing, and subject to acceptance by ASECL (by telex or otherwise) negotiate sales contracts as ASECL's agent.
2. Compensation to GARDEX. For services hereunder, ASECL shall pay monthly compensation to GARDEX in respect of net export sales (outside of Taiwan), the compensation amount is 0.50% of the total monthly export sales.
The above scheme of compensation payment is applicable from August 1, 2003 to July 31, 2004. Compensation payment thereafter is subject to further negotiation on a yearly basis between ASECL and GARDEX.
All payments to GARDEX shall be in US dollars. Currency conversions, where necessary, shall be based on the prevailing free-market rates of the time the payment is earned (not at the time of payment) as quoted in the Wall Street Journal or other authoritative source.
3. Term of Agreement. This agreement is effective from August 1, 2003 and shall expire on July 31, 2004 unless earlier terminated by (i) mutual agreement, or (ii) ASECL on at least 30 days' prior written notice with or without cause. Neither
expiration nor termination of this Agreement shall terminate the obligation of ASECL to pay GARDEX for services rendered with respect to sales following such date that result from orders received prior to such date.
4. Representative and Covenants.
(a). GARDEX agree to use its best efforts to perform its obligations hereunder and to give priority to ASECL over all other customers of GARDEX in terms of management time, and efforts. GARDEX will not enter into any management consulting, sales, agency or similar relationship, nor engage in activities, that would result in a conflict with GARDEX's duties under this Agreement.
(b). Each party will provide to the other on a regular basis such documentation as may reasonably be required to enable the other party to be assured of compliance with this Agreement, and shall permit the other party to inspect its books of account and other records at such a reasonable times as the other party may request.
(c). All confidential information received or learned by GARDEX relating to ASECL's business and products shall be kept in confidence by GARDEX and neither used by GARDEX nor disclosed to any other person for any purpose outside this Agreement.
5. Governing Law and Jurisdiction. This Agreement shall be governed and construed under the laws of Republic of China unless the parties agree in writing to voluntary arbitration. The Courts in the Republic of China shall have exclusive jurisdiction to hear and decide any case or controversy arising out of this Agreement.
Each party consents to in person jurisdiction over it by such courts and to service of process by registered mail sent to its principal business address.
ASE (Chung-Li) Inc. BY:
/s/ T.S. Chen ----------------------------------- |
GARDEX INTERNATIONAL LIMITED
BY:
/s/ Philip Nicholls ----------------------------------- |
Exhibit 4(s)
COMMISSION AGREEMENT
PARTIES: GARDEX INTERNATIONAL LIMITED ("GARDEX")
(a British Virgin Islands Corporation)
Advanced Semiconductor Engineering, Inc. ("ASEK")
(a Taiwan Corporation)
DATE: August 1, 2003
AGREEMENT
1. Services to be rendered. ASEK hereby retains GARDEX to provide the sales services to ASEK as a Sales Agency with the following terms.
To be non-exclusive world-wide sales agent for all present and future products and services to be specified by ASEK in writing with the following authority:
(a). Identify customers for ASEK products and services;
(b). Within such limitations relating to price, delivery and other key terms as ASEK may from time to time specify in writing, and subject to acceptance by ASEK (by telex or otherwise) negotiate sales contracts as ASEK's agent.
2. Compensation to GARDEX. For services hereunder, ASEK shall pay monthly compensation to GARDEX in respect of net export sales (outside of Taiwan), the compensation amount is 0.70% of the total monthly export sales.
The above scheme of compensation payment is applicable from August 1, 2003 to July 31, 2004. Compensation payment thereafter is subject to further negotiation on a yearly basis between ASEK and GARDEX.
All payments to GARDEX shall be in US dollars. Currency conversions, where necessary, shall be based on the prevailing free-market rates of the time the payment is earned (not at the time of payment) as quoted in the Wall Street Journal or other authoritative source.
3. Term of Agreement. This agreement is effective from August 1, 2003 and shall expire on July 31, 2004 unless earlier terminated by (i) mutual agreement, or (ii) ASEK on at least 30 days' prior written notice with or without cause. Neither
expiration nor termination of this Agreement shall terminate the obligation of ASEK to pay GARDEX for services rendered with respect to sales following such date that result from orders received prior to such date.
4. Representative and Covenants.
(a). GARDEX agree to use its best efforts to perform its obligations hereunder and to give priority to ASEK over all other customers of GARDEX in terms of management time, and efforts. GARDEX will not enter into any management consulting, sales, agency or similar relationship, nor engage in activities, that would result in a conflict with GARDEX's duties under this Agreement.
(b). Each party will provide to the other on a regular basis such documentation as may reasonably be required to enable the other party to be assured of compliance with this Agreement, and shall permit the other party to inspect its books of account and other records at such a reasonable times as the other party may request.
(c). All confidential information received or learned by GARDEX relating to ASEK's business and products shall be kept in confidence by GARDEX and neither used by GARDEX nor disclosed to any other person for any purpose outside this Agreement.
5. Governing Law and Jurisdiction. This Agreement shall be governed and construed under the laws of Republic of China unless the parties agree in writing to voluntary arbitration. The Courts in the Republic of China shall have exclusive jurisdiction to hear and decide any case or controversy arising out of this Agreement.
Each party consents to in person jurisdiction over it by such courts and to service of process by registered mail sent to its principal business address.
Advanced Semiconductor Engineering, Inc. BY:
/s/ K. J. Chin
----------------------------------
GARDEX INTERNATIONAL LIMITED
BY:
|
/s/ Philip Nicholls ---------------------------------- |
Exhibit 4(v)
SHARE SALE AND PURCHASE AGREEMENT
dated as of
February 3, 2004
among
NEC Electronics Corporation,
NEC Yamagata, Ltd.,
J&R Holding Ltd.,
and
Advanced Semiconductor Engineering, Inc.
SHARE SALE AND PURCHASE AGREEMENT
THIS SHARE SALE AND PURCHASE AGREEMENT is made as of the 3rd day of February, 2004 among
NEC Yamagata, Ltd., a company established under the laws of Japan, having its principal place of business at 1863 Iryuuda, Takahata-machi, Higashi Okitama-gun, Yamagata, Japan, and a wholly-owned subsidiary of NECEL ("NECY");
NEC Electronics Corporation, a company established under the laws of Japan, having its principal place of business at 1753, Shimonumabe, Nakahara-ku, Kawasaki, Kanagawa, Japan ("NECEL", and together with NECY, the "Seller Parties");
Advanced Semiconductor Engineering, Inc., a company established under the laws of Taiwan, having its principal place of business at No. 26, Chin 3rd Road, Nantze Export Processing Zone, Kaohsiung, Taiwan ("ASE"); and
J&R Holding Ltd., a company established under the laws of Bermuda, having its principal place of business at Canon's Court, 22 Victoria Street, Hamilton HM 12, Bermuda, and a wholly-owned subsidiary of ASE (the "Buyer", and together with ASE, the "Buyer Parties").
The Seller Parties and the Buyer Parties are also hereinafter referred to collectively as the "Parties", and each of them individually as a "Party".
W I T N E S S T H
WHEREAS, NECY intends to, by way of company split (kaisha bunkatsu) under the Commercial Code, establish the Company as a wholly-owned subsidiary and transfer the Business to the Company on and subject to the terms of this Agreement; and
WHEREAS, NECY wishes to sell, and the Buyer wishes to acquire, the entire issued shares in the Company on and subject to the terms of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained herein and for other valuable consideration, the Parties agree as follows:
A G R E E M E N T
1. Definitions and Interpretation
1.1 Definitions
In this Agreement where the context admits:
"Adjustment Dispute Notice" shall have the meaning as specified in Clause 5.1(b).
"Affiliate" of a specified Person means any Person that controls, is controlled by or is under common control with such specified Person. For purposes of this definition, "control" shall mean the possession (directly or indirectly) of power to direct or cause the direction of
management or policies of a Person, whether through ownership of securities or other ownership interests, by Contract or otherwise.
"Approval" of a Person shall mean any consent, approval, authorization, waiver, grant, concession, license, permit, exemption or order of, registration, certificate, declaration or filing with, or report or notice to, such Person.
"Benefit Plan" shall mean any plan, Contract, policy or procedure under
which any of the following benefits are provided to applicable employees:
health, welfare, unemployment benefits, bonus or other incentive
compensation, pensions, profit sharing, deferred compensation, stock
option or other equity compensation, retirement, medical, dental,
severance pay, lay off or reduction in force, change in control, sick
pay, vacation pay, salary continuation, retainer, leave of absence,
disability, educational assistance, service award, employee discount,
fringe benefit and similar plans, arrangements, policies or practices.
"Book Equity Value" shall have the meaning as specified in Clause 4.1.
"Business" means the semiconductor assembly and test operations of NECY conducted at the Facilities, exclusive of those related to compound semiconductor devices, and the assets and rights and Liabilities of NECY in connection therewith (but excluding the Excluded Liabilities, for which the Company shall have no Liability).
"Business Assets" shall mean all assets of NECY of every kind and nature that are principally used in the conduct of the Business. Except for those Business Assets otherwise agreed between the Parties in writing, the Business Assets will be transferred to the Company pursuant to the Company Split.
"Business Day" means any day except (a) Saturday or Sunday, or (b) any other day on which commercial banks in Tokyo, Japan are closed for ordinary banking business.
"Business Tax Returns" shall have the meaning as specified in Clause 19(a) of Schedule 8.2.
"Buyer Indemnified Party" shall have the meaning as specified in Clause 14.1.
"Buyer Party Warranties" means the representations and warranties of the Buyer Parties as set forth in Schedule 8.3 and in the certificate of the Buyer Parties referenced in Clause 6.1(d).
"Charter Documents" of any Person shall mean such Person's articles of incorporation, by laws, certificate of formation or equivalent governing or organizational documents.
"Claim Amount" shall have the meaning as specified in Clause 14.4.
"Company" means a Japanese corporation which will be established under the Commercial Code as a wholly-owned subsidiary of NECY as a result of the Company Split and which will consequently assume the Business from NECY in accordance with this Agreement.
"Company Split" means the company split (kaisha bunkatsu) transaction under the Commercial Code, which will be conducted as a draw down split (butteki bunkatsu), and as a result of which the Company will be established and the Company will assume the Business from NECY in accordance with this Agreement.
"Company Split Date" means the date on which the Company Split becomes effective under the Commercial Code, which is anticipated to occur on May 1, 2004 (subject to change as agreed by ASE and NECY).
"Company Split Plan" means a company split plan (bunkatsu keikakusho) of NECY with regard to the Company Split, which shall be prepared in accordance with Clause 3.1.
"Commercial Code" means the Commercial Code in Japan (1899, March 9, Law No. 48, as amended).
"Completion" means completion of the sale and purchase of the Shares in accordance with Article 7 of this Agreement.
"Completion Date" means the day on which Completion takes place, which is anticipated to occur on May 31, 2004 (subject to change as agreed by ASE and NECY).
"Completion Date Net Worth" means the difference between the amount of total assets and the amount of total Liabilities (including the Seller Loan and the Working Capital Loan, both of which will be paid at Completion in accordance with Clause 7.4(b)) of the Company set forth on the Final Completion Date Balance Sheet, which shall be prepared in accordance with GAAP and practices consistently applied in the preparation of the Estimated Completion Date Balance Sheet.
"Confidential Information" shall have the meaning as specified in Clause 16.1.
"Contract" means any contract, agreement, lease, commitment, arrangement, undertaking, practice, understanding or authorization, in each case whether or not in writing.
"Damages" shall have the meaning as specified in Clause 14.1.
"Deferred Tax Assets" shall have the meaning as specified in Clause 3.2(c).
"Disclosing Party" shall have the meaning as set out in Clause 16.1.
"Dispute" means any controversy, claim or dispute of whatever nature arising among the Parties with respect to the subject matter of this Agreement, whether such claim is based on rights, privileges or interests recognized by or based upon statute, contract, tort, common law or otherwise.
"Encumbrance" means any mortgage, charge, pledge, lien, assignment, hypothecation, encumbrance, security interest (including any created by Law), or other security agreement or arrangement.
"Environmental Claim" means any claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law or for release or injury to the environment or threat to public health, personal injury (including sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties, injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non negligent, sudden or non sudden, accidental or non accidental placement, spills, leaks, discharges, emissions or releases) of any Hazardous Material at, in, or from any property, whether or not owned by such person, or (b) any other circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.
"Environmental Laws" means Basic Environment Law (kankyo kihon ho) (November 19, 1993, Law No. 91, as amended), Air Pollution Control Law (taiki osen boshi ho) (June 10, 1968, Law No. 97, as amended), Water Pollution Control Law (suishitsu odaku boshi ho)
(December 25, 1970, Law No. 138, as amended), Noise Regulation Law (so-on kisei ho) (June 10, 1976, Law No. 64, as amended), Vibration Regulation Law (shindo kisei ho) (June 10, 1968, Law No. 98, as amended), Soil Contamination Control Law (February 15, 2003, as amended) and Ground Pollution Control Law (dojo osen taisaku ho) (May 29, 2002, Law No. 53, as amended) and other Laws relating to pollution, protection of the environment, natural resources, or human health and safety.
"Environmental Liability" means any Liability relating to or arising out of an actual or potential Environmental Claim, whether or not asserted.
"Estimated Completion Date Balance Sheet" means the balance sheet of the Company set out in Clause 3.2(a).
"Estimated Completion Date Net Worth" means the estimated Completion Date Net Worth indicated in the Estimated Completion Date Balance Sheet.
"Excluded Liabilities" means (a) all Environmental Liabilities and Seller Benefit Plan Liabilities (other than the PBO Liability under the NECY Plans reflected on the Final Completion Date Balance Sheet) of NECY and its Affiliates, in each case as of, arising from or attributable to events or circumstances occurring or in existence at, or prior to, the Completion Date, and (b) all Warranty Liabilities of NECY and its Affiliates.
"External Claim" shall have the meaning as specified in Clause 15.1.
"Facilities" means the Takahata Factory Premises, the Facility 1 Premises and the Facility 2 Premises, which constitute the facilities currently used by NECY for the conduct of the Business.
"Facility 1 Premises" means the premises at Yamagata Denshi's facility in Yamagata city that are leased by NECY and used for the Business.
"Facility 2 Premises" means the premises at Niino's facility in Higashi Okitama-gun that are leased by NECY and used for the Business.
"Final Completion Date Balance Sheet" means the balance sheet of the Company set out in Clause 5.1(a).
"Final Completion Date Net Worth" shall have the meaning as specified in Clause 5.1(b).
"GAAP" means generally accepted accounting principles applied in Japan.
"Governmental Approvals" means Approvals of Governmental Authorities.
"Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, or any stock exchange or quotation system or similar self-regulatory organization.
"Hazardous Materials" means contaminants, pollutants, wastes, chemicals and other materials that are controlled or regulated under or by any Environmental Laws or with respect to which any Environmental Liability may arise or be imposed.
"Incorporation Balance Sheet" shall have the meaning as specified in Clause 3.2(a).
"Initial Purchase Price" means the amount equal to the Estimated Completion Date Net Worth.
"Key Employees" means certain key employees with respect to the Business, as separately agreed by NECEL and ASE at the date hereof.
"Law" means all applicable provisions of all (i) constitutions, treaties, statutes, laws (including common law and equity), rules, regulations, ordinances or codes of any Governmental Authority, and (ii) orders, decisions, injunctions, judgments, awards and decrees of any arbitrator or Governmental Authority.
"Lease Agreements" means the lease agreements for the Takahata Factory Premises, the Facility 1 Premises and the Facility 2 Premises, which are intended to be entered into by the Company and NECY prior to the Completion Date, pursuant to which NECY shall lease the respective Facilities to the Company. The terms and conditions of each Lease Agreement shall be separately determined by the Parties prior to the Completion, and shall include the terms and conditions set forth on Schedule 1.1(i).
"Liability" means any direct or indirect liability, indebtedness, obligation, expense, cost, guaranty or endorsement of or by any Person, absolute or contingent, accrued or unaccrued, due or to come due, liquidated or unliquidated, whether or not made or asserted.
"Material Adverse Effect" means a material adverse effect (i) on the financial condition, operations, assets, Liabilities or prospects of the Business or the Company, or (ii) on the ability of the Seller Parties to enter into and perform their obligations under the Transaction Documents.
"Material Contracts" shall have the meaning as specified in Clause 10(b) of Schedule 8.2.
"Mutual Non-disclosure Agreement" means the Mutual Non-disclosure Agreement entered into by and between NECEL and ASE dated March 1, 2003.
"NECY Plans" means the taishoku kin retirement plan and the tekikaku nenkin tax qualified pension plan of NECY as in effect on the date hereof under which the Transferred Employees are eligible.
"NECY Plan Assets" shall have the meaning as specified in Clause 11.4(a).
"Permitted Encumbrances" means (i) Encumbrances reserved against in the Final Completion Date Balance Sheet to the extent so reserved, (ii) mechanics', carriers', workers', repairers', materialmen's, warehousemen's and other similar Encumbrances arising out of operation of Law with respect to a Liability incurred in the ordinary course of the Business, (iii) Encumbrances for Taxes which are being contested in good faith by appropriate Proceedings or Encumbrances for Taxes not yet due, and (iv) such other Encumbrances that do not and would not be reasonably likely to materially detract from the value of or impair the use of the property subject thereto.
"Person" means any natural person, business trust, corporation, partnership, limited liability company, joint stock company, proprietorship, association, trust, unincorporated association or any other legal entity of whatever nature organized under any applicable Law, an unincorporated organization or any Governmental Authority.
"PBO Liability" means the reasonably estimated aggregate projected benefit obligation to the Transferred Employees as of the Completion Date under the NECY Plans, net of the
reasonably estimated amount of the NECY Plan Assets agreed by the Parties pursuant to Clause 11.4, as set forth in the Final Completion Date Balance Sheet.
"Pre-Completion Period Bonus" shall have the meaning as specified in Clause 10.4(a).
"Prime Leases" means the lease agreements under which NECY leases the Facility 1 Premises from Yamagata Denshi and the Facility 2 Premises from Niino.
"Proceeding" means any action, litigation, arbitration, suit, claim, proceeding, or investigation or review of any nature, civil, criminal, regulatory or otherwise, before any Governmental Authority.
"Proposed Transferred Employees" means the permanent employees who, as agreed upon by NECY and ASE as provided herein, are intended to be transferred to the Company in connection with the Transactions.
"Purchase Price" means the Final Completion Date Net Worth as determined in accordance with Clause 5.1.
"Representatives" shall have the meaning as specified in Clause 16.3(a).
"Recipient" shall have the meaning as specified in Clause 16.1.
"Reviewing Accountant" shall have the meaning as specified in Clause 5.1(b).
"Seller's Accountants" shall have the meaning as specified in Clause 5.1(b).
"Seller Benefit Plans" means Benefit Plans (a) maintained by any of the Seller Parties or their Affiliates, or to or for which any of them contributes or has Liability, and (b) under which any of the Transferred Employees receives or is eligible to receive any benefits at or prior to Completion.
"Seller Disclosure Schedule" shall have the meaning as specified in Clause 8.1.
"Seller Indemnified Party" shall have the meaning as specified in Clause 14.2.
"Seller Loan" shall have the meaning as specified in Clause 4.2.
"Seller Party Warranties" means the representations and warranties of the Seller Parties as set forth in Schedule 8.2 and in the certificate of the Seller Parties referenced in Clause 6.2(e).
"Services Agreement" means the Packaging and Testing Services Agreement in the form of Exhibit 1.1(i), which shall be executed as of the date hereof and shall be effective as provided therein.
"Shares" means 7,200 ordinary shares of the Company to be bought and sold pursuant to Clause 2.1, being all the issued shares in the capital of the Company.
"Subcontractors Act" shall mean the Act Against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors (Law No. 120, June 1, 1956, as amended).
"Supplying Period" means the initial four (4) year term of the Services Agreement, subject to early termination as provided therein.
"Takahata Factory" means the Takahata factory owned by NECY as at the date hereof located at 1863 Iryuuda, Takahata-machi, Higashi Okitama-gun, Yamagata, Japan.
"Takahata Factory Premises" means the premises at the Takahata Factory that are owned by NECY and used for the Business.
"Taxes" means (i) all taxes, charges, fees, levies, or other assessments, imposed by any taxing authority, including income, gross receipts, excise, property, consumption, sales, use, transfer, payroll, license, ad valorem, value added, withholding, franchise, estimated, severance and stamp taxes (including any interest, fines, penalties or additions attributable to, or imposed on or with respect to, any such taxes, charges, fees, levies or other assessments), (ii) Liability of a Person for the payment of any amounts of the type described in clause (i) as a result of being a member of an affiliated, consolidated, combined, unitary or similar group, and (iii) Liability of a Person for the payment of any amounts of the type described in clause (i) as a result of any express or implied obligation to indemnify any other Person.
"Tax Benefit" shall have the meaning as specified in Clause 14.6.
"Transactions" means the transactions contemplated under this Agreement and the Transaction Documents.
"Transaction Documents" means the Services Agreement, the Lease Agreements and the other agreements set forth on Schedule 1.1(ii).
"Transferred Employees" means the individuals who are actually transferred as permanent employees to the Company in connection with the Transactions.
"Warranty Liability" means any Liability relating to or arising out of product warranty, product liability or similar claims, whether express or implied, arising out of Law, Contract or otherwise, to the extent relating to the products that are produced by (or the related services provided by) NECY or the Company prior to the Completion.
1.2 Construction of Certain References
In this Agreement, where the context admits:
(a) where any statement is to the effect that NECY is not aware of any matter or circumstance, or is a statement qualified by the expression "so far as NECY is aware" or "to NECY's best knowledge" or any similar expression, that statement shall refer to the knowledge of the officers of the Seller Parties principally responsible for the management and conduct of the Business, including their actual knowledge and their knowledge obtainable in a reasonable investigation of the applicable matter;
(b) references to Clauses, Exhibits, and Schedules are references to Clauses of and Exhibits and Schedules to this Agreement, references to Paragraphs are, unless otherwise stated, references to Paragraphs of the Schedule in which the reference appears, and references to this Agreement include the Exhibits and Schedules;
(c) references to the singular shall include the plural and vice versa and references to the masculine, the feminine and the neuter shall include all such genders; and
(d) "company" includes any body corporate.
1.3 Exhibits and Schedules
All Exhibits and Schedules attached hereto are hereby incorporated by reference into, and made a part of, this Agreement.
2. Sale of Shares
2.1 Sale and Purchase of Shares
On the terms and subject to the conditions of this Agreement, NECY agrees to sell to the Buyer, and the Buyer agrees to purchase from NECY, the Shares on the Completion Date, free and clear from all Encumbrances.
2.2 Payment of Initial Purchase Price
The Initial Purchase Price shall be paid by the Buyer at the Completion
in consideration of the Shares by wire transfer of immediately available
funds to the bank account designated by NECY in accordance with Clause
7.2. After the Completion Date, the Initial Purchase Price shall be
subject to adjustment pursuant to Clause 5.1.
3. Company Split
3.1 General
The Seller Parties shall complete the Company Split in accordance with applicable Japanese law and the terms and conditions of this Agreement. In connection therewith, NECY shall prepare and adopt a Company Split Plan that is consistent with the terms and conditions of this Agreement with respect to the Company Split and shall complete the Company Split in accordance with such plan.
3.2 Deliveries by NECY
As promptly as practicable following the date hereof but not later than two weeks prior to the Company Split Date, NECY shall deliver the following to ASE:
(a) Estimated Company Balance Sheets. A proposed estimated balance sheet of the Company as of the Company Split Date (the "Incorporation Balance Sheet") and a proposed estimated Completion Date balance sheet prepared in good faith in accordance with GAAP and practices consistently applied (the "Estimated Completion Date Balance Sheet");
(b) PBO Liability. A statement of the proposed PBO Liability, together with a description of the assumptions and parameters used in calculating such proposed PBO Liability;
(c) Deferred Tax Assets. A statement of the proposed amount of deferred Tax assets relating to the PBO Liability to be included in the Business Assets transferred to the Company in the Company Split, and reflected on the Incorporation Balance Sheet and the Estimated Completion Date Balance Sheet (the "Deferred Tax Assets"). The amount of the Deferred Tax Assets shall be the estimated amount of valid and permissible income Tax deductions by the Company resulting from payments under the NECY Plans (and corresponding to the PBO Liability) to (i) Company employees scheduled to retire at the age of sixty (60) and (ii) probable early retirees at the age of fifty-six (56) during the four year period following the Completion Date, and shall in no event exceed three hundred ninety-five million Japanese yen (JPY 395,000,000); and
(d) Transferred Employees. A list and organizational chart identifying the Proposed Transferred Employees, and including a separate list for the Key Employees.
4. Company Book Value
4.1 The Parties intend that, at the Company Split Date, the Company will have a book equity value equal to three billion Japanese yen (JPY 3,000,000,000), or another amount mutually agreed by the Parties ("Book Equity Value"), which shall reflect paid-in capital equal to three hundred sixty million Japanese yen (JPY 360,000,000).
4.2 To achieve the desired Book Equity Value of the Company described in Clause 4.1, NECEL will cause the Company to become subject to a loan (the "Seller Loan") as of the Company Split Date in an amount equal to the difference between the Company's estimated net book value as of the Company Split Date and the Book Equity Value. The amount of the Seller Loan will be agreed by NECEL and ASE prior to the Company Split Date. The Buyer will cause the Seller Loan to be paid in full at Completion as provided in Clause 7.4(b).
5. Purchase Price Adjustment
5.1 Post Completion Purchase Price Adjustment
The Purchase Price shall be subject to adjustment after the Completion Date according to this Clause 5.1.
(a) As soon as practicable, but in any event no later than forty-five
(45) days after the Completion Date, ASE shall, at its cost and
expense, prepare and deliver to NECY a balance sheet of the
Company as of the Completion Date (the "Final Completion Date
Balance Sheet"), including a calculation of the proposed
Completion Date Net Worth of the Company, together with a report
thereon from an internationally recognized firm of independent
certified public accountants reasonably satisfactory to NECY
confirming the consistency of such calculation with GAAP and
practices consistently applied.
(b) NECY shall have a period commencing upon delivery of the Final Completion Date Balance Sheet by ASE to NECY and expiring forty-five (45) days after such delivery date to review the Final Completion Date Balance Sheet. NECY and NECY's independent certified public accountants (the "Seller's Accountants") shall have full access during regular business hours and upon reasonable notice to all relevant books and records and employees of the Company to the extent necessary to complete their review of the Final Completion Date Balance Sheet in a manner not unreasonably interfering with the business of the Company. In the event NECY disputes that the Completion Date Net Worth was determined in accordance with GAAP and practices consistently applied with the Estimated Completion Date Balance Sheet, NECY shall, within forty-five (45) days after delivery of the Final Completion Date Balance Sheet, deliver a notice to ASE (the "Adjustment Dispute Notice"), setting forth in reasonable detail the component or components which are in dispute and the basis of such dispute. If the Parties fail to resolve any such dispute within thirty (30) days after receipt by ASE of the Adjustment Dispute Notice, the Parties shall submit the dispute to PricewaterhouseCoopers LLP or its Japanese affiliate (the "Reviewing Accountant") to review the Completion Date Net Worth set forth on the Final Completion Date Balance Sheet. Each Party hereby represents and warrants that neither the Party nor any of its Affiliates uses the Reviewing Accountant as its accountant or has any material relationship therewith. The Parties shall make available to the Reviewing Accountant all work papers and all other information and material in their possession relating to the matters in the Adjustment Dispute Notice. The Reviewing Accountant's authority shall be limited to determining whether the component or components of Completion Date Net Worth set forth on the Final Completion Date Balance Sheet which have been so disputed by NECY were
calculated in accordance with GAAP and practices consistently applied with the Estimated Completion Date Balance Sheet and, if necessary, determining the adjustments required to such Completion Date Net Worth to cause it to be calculated in accordance with GAAP and practices consistently applied with the Estimated Completion Date Balance Sheet. The Reviewing Accountant shall be instructed by the Parties to use its best efforts to deliver to the Parties its determination as promptly as practicable after such submission of the dispute to the Reviewing Accountant. The Parties hereby expressly agree that the determination of the Reviewing Accountant shall be final and binding on the Parties (absent fraud or manifest bad faith by the Reviewing Accountant). The Completion Date Net Worth on the Final Completion Date Balance Sheet as determined by ASE (if not disputed), or as modified (if at all) by agreement of ASE and NECY or by decision of the Reviewing Accountant, shall be the "Final Completion Date Net Worth". Each Party shall bear its own expenses and the fees and expenses of its own representatives and experts, including its independent accountants, in connection with the preparation, review, dispute (if any) and final determination of the Final Completion Date Net Worth. The Parties shall share equally in the costs, expenses and fees of the Reviewing Accountant.
(c) If the Final Completion Date Net Worth varies greater than one
million Japanese yen (JPY 1,000,000) from the Estimated Completion
Date Net Worth, within five (5) days following the determination
of the Final Completion Date Net Worth, the Purchase Price shall
be adjusted yen for yen and payment shall become due as follows:
(i) if the Final Completion Date Net Worth exceeds the Estimated
Completion Date Net Worth, the Purchase Price shall be increased
by the amount of such excess and the Buyer shall pay over such
excess to NECY in accordance with Clause 5.1(d) below, or (ii) if
the Final Completion Date Net Worth is less than the Estimated
Completion Date Net Worth, the Purchase Price shall be decreased
by the amount of such deficit and NECY shall pay over such deficit
to the Buyer in accordance with Clause 5.1(d) below. If the Final
Completion Date Net Worth varies less than one million Japanese
yen (JPY 1,000,000) from the Estimated Completion Date Net Worth,
no adjustment to the Purchase Price shall be made.
(d) The payment of any adjustment provided for in this Clause 5.1 shall be made by wire transfer of immediately available funds to an account designated by the receiving party. Any such payment shall also include interest on the amount of such payment, calculated for the period between the Completion Date and the date of payment (both dates are inclusive) at the short term prime rate then offered by most Japanese city banks (toshi ginko) as according to the most recent financial and economic statistics (kinyu keizai toukei) reported by the Bank of Japan.
6. Conditions Precedent to the Completion
6.1 Seller Parties' Conditions
The obligations of the Seller Parties to sell the Shares and deliver the share certificate representing the Shares to the Buyer and take other actions which are to occur on the Completion hereof are subject to the satisfaction as of the Completion of the following conditions:
(a) no Proceeding by any Person with respect to the Transactions shall be pending or threatened and no statute, rule or regulation and no injunction, order, decree or judgment of any court or Governmental Authority of competent jurisdiction shall be in effect as of the Completion Date which restrains or prohibits the Transactions;
(b) the Buyer Party Warranties shall be true and correct in all material respects (i) on and as of the date hereof and (ii) on and as of the Completion Date to the same extent as though made on and as of such date;
(c) the Buyer Parties shall have performed and complied in all material respects with all agreements and covenants contained in the Transaction Documents that are required to be performed or complied with by the Buyer Parties on or prior to the Completion Date;
(d) pursuant to a certificate satisfactory to the Seller Parties, the Buyer Parties shall have jointly and severally represented and warranted to the Seller Parties that (i) the Buyer Party Warranties are true, accurate and not misleading as of the Completion Date, and that (ii) the Buyer Parties have performed and complied in all material respects with all agreements and covenants contained in the Transaction Documents that are required to be performed or complied with by the Buyer Parties on or prior to the Completion Date;
(e) all material Approvals required to consummate the Completion shall have been granted, made or obtained; and
(f) the Transaction Documents shall have been executed and delivered by the relevant parties thereto other than the Seller Parties and shall not have been terminated.
6.2 Buyer Parties' Conditions
The obligations of the Buyer Parties to pay the Initial Purchase Price, purchase the Shares and take other actions which are to occur on the Completion are subject to the satisfaction as of the Completion of the following conditions:
(a) NECY shall have completed the Company Split and transferred the Business to the Company in accordance with this Agreement. As a result of the Company Split, the Company shall have (i) been duly established under Japanese law, and (ii) acquired the Business;
(b) no Proceeding by any Person with respect to the Transactions shall be pending or threatened and no statute, rule or regulation and no injunction, order, decree or judgment of any court or Governmental Authority of competent jurisdiction shall be in effect as of the Completion Date which restrains or prohibits the Transactions;
(c) the Seller Party Warranties shall be true and correct in all material respects (i) on and as of the date hereof and (ii) on and as of the Completion Date to the same extent as though made on and as of such date;
(d) the Seller Parties shall have performed and complied in all material respects with all agreements and covenants contained in the Transaction Documents that are required to be performed or complied with by the Seller Parties on or prior to the Completion Date;
(e) pursuant to a certificate satisfactory to the Buyer Parties, the Seller Parties shall have jointly and severally represented and warranted to the Buyer Parties that (i) the Seller Party Warranties are true, accurate and not misleading as of the Completion Date, and that (ii) the Seller Parties have performed and complied in all material respects with all agreements and covenants contained in the Transaction Documents that are
required to be performed or complied with by the Seller Parties on or prior to the Completion Date;
(f) all material Approvals required to consummate the Completion shall have been granted, made or obtained;
(g) the Transaction Documents shall have been executed and delivered by the relevant parties thereto other than the Buyer Parties and shall not have been terminated;
(h) Prior to the consummation of the Company Split:
(i) NECY shall have timely delivered the proposed Incorporation Balance Sheet and the proposed Estimated Completion Date Balance Sheet pursuant to Clause 3.2(a), proposed PBO Liability pursuant to Clause 3.2(b) and proposed amount of Deferred Tax Assets pursuant to Clause 3.2(c), and shall have complied with its obligations under Clause 12.3 with respect to such deliveries;
(ii) ASE shall not have reasonably objected in writing to any such delivery within two (2) weeks following its receipt thereof, provided that (1) ASE's objections to such deliveries shall only be asserted when ASE reasonably determines (as confirmed by ASE's internationally recognized outside accounting or actuarial advisors) that there is non-compliance with GAAP, the applicable terms of this Agreement or prevailing market assumptions, and (2) ASE shall disclose the details of the objection to NECY in writing upon providing the objection notice; and
(iii) NECY and ASE shall have agreed to a resolution of ASE's objection, if any, following good faith discussions for no longer than fourteen (14) days after NECY's receipt of ASE's objection.
The Parties acknowledge that notwithstanding the satisfaction of this condition to Completion, the Estimated Completion Date Balance Sheet, the PBO Liability and the Deferred Tax Assets shall be subject to final review and approval (and additional revisions in connection therewith) pursuant to the procedures contained in Clause 5.1.
(i) With respect to the Transferred Employees:
(i) Prior to the consummation of the Company Split, ASE shall have agreed to the list of Proposed Transferred Employees and the related organizational chart described in Clause 3.2(d);
(ii) At the Completion Date, all of the Key Employees (or their replacements agreed to in advance by ASE) shall be employed by the Company, except for any Key Employees whose employment is prevented due to death, serious illness or similar events; and
(iii) The aggregate number of Transferred Employees at the Completion Date shall not exceed 790, and not more than an immaterial number of such Employees shall have refused to transfer to the Company or objected to the Transactions; and
(j) There shall not have occurred any event, fact, circumstance, or action that would be reasonably likely to have a Material Adverse Effect.
6.3 Waiver
NECY and ASE may each, at its sole discretion, waive in whole or in part all or any of the conditions to its obligations to consummate the Completion.
7. Completion
7.1 Time and Place of Completion
Completion shall take place at the offices of TMI Associates which are located at Roppongi Hills Mori Tower 23F, 6-10-1 Roppongi, Minato-ku, Tokyo, Japan at an agreed time on the Completion Date, or at such other time and place as NECY and ASE may agree in writing.
7.2 Pre-Completion
At least five (5) Business Days before the Completion Date, NECY shall give ASE full details of the Seller Parties' bank account(s) to which the Initial Purchase Price, the Seller Loan payment and the Working Capital Loan payment are to be remitted.
7.3 NECY's Obligations at Completion
At the Completion, NECY shall deliver to the Buyer:
(a) the share certificate representing the Shares;
(b) abstract copy of the Shareholders' Meeting adopting the resolution of the Company Split;
(c) copy of the registration documents which NECY has filed with the Legal Affairs Bureau (homu-kyoku) in connection with the Company Split with receipt stamp of the Legal Affairs Bureau affixed thereon;
(d) registered corporate seal of the Company;
(e) all shareholders and board meeting minutes of the Company;
(f) abstract copy of the minutes of the Board of Directors of the Company which approves the transfer of the Shares from NECY to the Buyer; and
(g) letters of resignation executed by the directors and auditors of the Company listed in Schedule 7.3(g).
7.4 ASE's Obligations at the Completion
At the Completion, ASE shall
(a) deliver the certificate certifying the payment of the Initial Purchase Price for the Shares as provided by Clause 2.2 (before any adjustment as is therein mentioned); and
(b) cause the Seller Loan and Working Capital Loan to be paid in full by wire transfer of immediately available funds to the bank account designated by the Seller Parties in accordance with Clause 7.2.
7.5 New Directors and Auditors
Promptly following the Completion, the Buyer Parties shall cause the Company to hold the extraordinary shareholders' meeting and appoint and register new directors and auditors in accordance with the Company's Charter Documents and Japanese law.
8. Representations and Warranties
8.1 Disclosure
The Seller Party Warranties are given subject to facts and matters expressly disclosed in the Seller Parties' disclosure schedule attached hereto (the "Seller Disclosure Schedule"), which shall refer to the relevant articles and clauses of this Agreement.
8.2 Seller Party Warranties
The Seller Parties hereby jointly and severally represent and warrant to the Buyer Parties that each Seller Party Warranty set forth in Schedule 8.2 is true, accurate and not misleading as at the date hereof.
8.3 Buyer Party Warranties
The Buyer Parties hereby jointly and severally represent and warrant to the Seller Parties that each Buyer Party Warranty set forth in Schedule 8.3 is true, accurate and not misleading as at the date hereof.
9. Covenants by ASE
9.1 Pre-Completion Covenants
No later than one (1) day prior to the Company Split Date, ASE Japan Co., Ltd. shall change its corporate name to such other name which does not include or is not similar to "ASE Japan", and immediately after the name change, notify NECY thereof in writing.
9.2 Use of "ASE Japan"
ASE agrees (on behalf of itself and its Affiliates) that neither it nor any of its Affiliates will bring any claim or action against the Seller Parties, or any of their Affiliates or agents, with regard to the use of "ASE Japan" as the company name of the Company, subject to the Seller Parties' compliance with their obligations under Clause 12.1(a) and any express restrictions agreed by the Parties with respect to the use of the "ASE Japan" name, and except for any Damages regarding the use of "ASE Japan" as the Company's name to the extent attributable to actions of (i) the Seller Parties or (ii) the Company prior to the Completion Date that are not authorized by the Buyer Parties.
9.3 Transfer Restriction of Shares
During the Supplying Period:
(a) ASE shall hold more than two-thirds (2/3) of the voting rights of the issued and outstanding shares in the Buyer, and the Buyer shall hold more than two-thirds (2/3) of the voting rights of the issued and outstanding shares in the Company; and
(b) The product of (i) ASE's ownership percentage of the voting rights of the issued and outstanding shares in the Buyer times (ii) the Buyer's ownership percentage of the
voting rights of the issued and outstanding shares in the Company shall exceed fifty percent (50%).
9.4 Paid-in Capital
During the Supplying Period, ASE shall cause the Company to maintain an amount of paid-in capital of greater than three hundred million Japanese yen (JPY 300,000,000) in order to prevent the Company from being categorized as a Subcontractor (shitauke jigyousha) under the Subcontractors Act. In the event that Article 2, Section 4 of the Subcontractors Act should be amended, then ASE shall cause the Company to maintain an amount of paid-in capital so that the Company will not be categorized as a Subcontractor (shitauke jigyosha) in relation to both NECY and NECEL under the Subcontractors Act.
9.5 Finance
After the Completion Date, the Seller Parties shall not be responsible for any financial assistance required by the Company.
9.6 Books and Records
ASE shall procure that:
(a) the Company shall preserve (pursuant to a commercially reasonable retention program) until the fifth (5th) anniversary of the Completion the material books, records and documents of the Company relating to matters recorded therein which occurred on or before the Completion with respect to the Business; and
(b) until the fifth (5th) anniversary of the Completion (or in the event of any claim being made by ASE under the Seller Party Warranties until such later time as the same is determined) NECY and its agents, accountants, lawyers and other professional advisers shall be allowed the right to inspect and, at NECY's expense, take copies of the books, records and documents (but in each case only in relation to matters recorded therein which occurred on or before the Completion) at all reasonable times upon NECY giving reasonable notice of such requirement to the Company. NECY's rights under this Clause may be exercised solely for purposes relating to the Transaction Documents or NECY's compliance with requirements of Governmental Authorities.
9.7 Continuation of Employees
During the Supplying Period, ASE shall ensure that:
(a) material changes to the employment terms (including compensation package and Benefit Plan) of the Transferred Employees or other restructuring of the Transferred Employees will not be implemented without prior written consent of NECEL, not to be unreasonably withheld, and shall comply with applicable Laws (including communications with labor unions); provided however that the following will not require NECEL's prior consent:
(i) the termination of a Transferred Employee for breach of applicable employment terms, wrongdoing, misconduct or inadequate job performance (including failure to comply with management policies or directives) in accordance with applicable Laws; or
(ii) decisions regarding management personnel of the Company.
(b) In the case of Clause 9.7(a)(i), the Company shall provide NECEL
with a copy of the applicable employee termination notice not
later than the earlier of (i) fourteen (14) days prior to the
intended termination date, or (ii) such other date on which a
notice to the employee is required under applicable Law. In the
case of Clause 9.7(a)(ii), the Company shall provide written
notice to NECEL at least fourteen (14) days prior to the
applicable management personnel decision.
10. Employee Arrangements
10.1 The Seller Parties shall use their commercially reasonable efforts to
cause the Proposed Transferred Employees to transfer to the Company in
connection with the Transactions as contemplated by this Agreement. In
connection therewith:
(a) The Parties acknowledge that certain of NECY's employees engaged
in the Business will not be included in the Proposed Transferred
Employees, even though such employees are entitled under Law to be
transferred to the Company in the Company Split. NECY shall use
its commercially reasonable efforts to obtain consents from these
employees not to be transferred in the Company Split; and
(b) The Parties acknowledge that certain of the Proposed Transferred
Employees are not employees who would transfer to the Company by
operation of Law in the Company Split. NECY shall use its
commercially reasonable efforts to obtain consents from these
Proposed Transferred Employees to transfer to the Company in
connection with the Transactions.
10.2 The Seller Parties shall use their commercially reasonable efforts to
cause all independent contractors, contract or temporary workers, leased
employees, consultants and similar persons who provide services with
respect to the Business to continue to provide such services to the
Company following the Completion on terms no less favorable to the
Company than the terms currently in effect.
10.3 Four identified individuals currently seconded to NECY and working in the
Business will continue as seconded employees to the Company upon
Completion; provided that the secondment term shall not be longer than
four (4) years following the Completion Date without ASE's prior consent.
10.4 Pre-Completion Period Bonus
(a) On June 18, 2004 or such other date as designated by NECY, the
Company shall pay certain bonuses as designated by NECY to each of
the Transferred Employees designated by NECY, which corresponds to
the service period from October 1, 2003 to March 31, 2004
("Pre-Completion Period Bonus").
(b) Within five (5) Business Days following the Company's payment of
the Pre-Completion Period Bonus, the Company shall notify NECY of
the Pre-Completion Period Bonus payment, together with
documentation which reasonably demonstrates that the Company has
actually paid the Pre-Completion Period Bonus to the applicable
Transferred Employees.
(c) Within five (5) Business Days following the Company's notification
of payment under Clause 10.4(b), NECY shall reimburse the Company
for its payment of the Pre-Completion Period Bonus, such
reimbursement to be made to the bank account designated by the
Company in writing.
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11. Benefit Plan Arrangements
11.1 In principle, upon the completion of the Company Split, the Company shall
succeed to and assume the Seller Benefit Plans with respect to the
Transferred Employees for periods from and after the Company Split Date.
For the avoidance of doubt, the treatment of Seller Benefit Plan
Liabilities as part of the Excluded Liabilities (as provided in the
definition of Excluded Liabilities) and the Company's indemnification
rights under Clause 14.1(d) with respect to such Seller Benefit Plan
Liabilities shall not be affected by this Clause and the Company's
succession and assumption contemplated hereby.
11.2 The Seller Parties shall ensure that the Company will not at any time
prior to Completion become subject to, or participate in, or incur any
Liability with respect to the NEC Employee Pension Fund (NEC kigyou
nenkin kikin).
11.3 As promptly as practicable following the date hereof, the Buyer Parties
shall deliver a statement describing the Buyer Parties' intentions
regarding a new health insurance plan that the Transferred Employees will
participate in after the Completion Date.
11.4 NECY Plan Assets
(a) At least two (2) weeks prior to the Company Split Date, NECY may
submit a proposal to ASE for the post-Completion transfer to the
Company of certain investment assets covering the Company's
obligations under the NECY Plans, to the extent such assets relate
to the PBO Liability (such assets contemplated to be transferred
are described herein as the "NECY Plan Assets"). Such proposal
shall include the estimated value of the NECY Plan Assets as of
the Completion Date, and information (including fund trustee and
other third party confirmation) about the feasibility of
transferring the NECY Plan Assets to the Company. NECY and ASE
shall discuss such proposal in good faith. If NECY and ASE agree
on the estimated value of the NECY Plan Assets as of the
Completion Date, such agreed value shall be netted against the
reasonably estimated aggregate projected benefit obligation to the
Transferred Employees as of the Completion Date under the NECY
Plans in determining the amount of the PBO Liability, in
accordance with the definition of such term.
(b) If the Parties are not able to agree on the estimated value of the
NECY Plan Assets as of the Completion Date, no such netting shall
occur in determining the amount of the PBO Liability; provided
that if NECY is able to achieve the transfer of such assets to the
Company within a reasonable period of time following the
Completion, ASE shall cause the Company to compensate NECY in the
amount of such transferred assets promptly after such transfer.
12. Covenants by the Seller Parties
12.1 Pre-Completion Covenants
The Seller Parties shall observe each of the following covenants until
the Completion Date:
(a) NECY shall conduct the Business, and cause the Company to conduct
the Business after the Company Split Date, only in the ordinary
course; and
(b) The applicable Seller Parties shall enter into the Transaction
Documents with the Company at or prior to the Completion Date.
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12.2 Interim Working Capital
NECEL shall provide debt financing to the Company at an annual interest
rate not to exceed 3-month Yen TIBOR as at 11am (Tokyo time) on the 2nd
Business Day prior to the draw-down date plus 0.55% to finance the
working capital requirements of the Company from the Company Split Date
until the Completion. Repayment of such debt financing (the "Working
Capital Loan") will be paid in full to NECEL at Completion as
contemplated by Clause 7.4(b).
12.3 Access and Availability
Between the date hereof and the Completion Date, the Seller Parties shall
give ASE and its representatives reasonable access during normal business
hours and upon reasonable notice to all the Facilities, financial data
and other books and records of the Seller Parties, to the extent
applicable to or in connection with the Business, the related assets and
liabilities, the establishment of the Company, the Transaction Documents
or compliance by ASE or its Affiliates with the requirements of Law or
Governmental Authorities, and shall furnish ASE and its representatives
with all such information related thereto and facilitate such compliance
therewith, and with access to employees, representatives, independent
contractors, consultants or similar persons, accountants, lawyers and
other professional advisors of the Seller Parties as ASE may reasonably
request, including actuarial and other information, assumptions, and
materials relating to the deliveries by NECY pursuant to Clause 3.2;
provided, however, that such access does not unreasonably disrupt the
normal operations of NECY.
13. Commercially Reasonable Efforts
Each Party shall use its commercially reasonable efforts to cause the
conditions to the other Party's Completion obligations in Article 6 to be
satisfied as soon as practicable, including using its commercially
reasonable efforts to obtain all material Governmental Approvals which
are necessary for the consummation of the Transactions. Without limiting
the foregoing, neither Party shall take any action that would reasonably
be expected to cause any of the other Party's Completion conditions in
Article 6 not to be satisfied as of the Completion.
14. Indemnity
14.1 Indemnification by the Seller Parties
The Seller Parties jointly and severally agree to pay, indemnify and hold
harmless the Buyer Parties, the Company and their respective Affiliates,
directors, officers, employees, agents and assigns (the "Buyer
Indemnified Parties") from and against any and all losses, Liabilities,
claims, damages, judgments, costs and expenses (including reasonable
attorneys' fees) ("Damages") as a result of, or based upon or arising
from:
(a) the breach or inaccuracy of any of the Seller Party Warranties
provided herein or in the certificate of the Seller Parties
pursuant to Clause 6.2(e);
(b) the facts and matters disclosed in Section 11 of the Seller
Disclosure Schedule;
(c) any breach or failure to perform any of the covenants, agreements
or obligations of the Seller Parties in this Agreement; or
(d) the Excluded Liabilities; provided that (i) the Seller Parties'
indemnity obligations with respect to Warranty Liabilities that
are part of the Excluded Liabilities shall expire upon the
expiration of the applicable statute of limitations or effective
term of
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the Law or Contract (as applicable) giving rise to the Warranty
Liability, and (ii) the Seller Parties' indemnity obligations
with respect to Environmental Liabilities that are part of the
Excluded Liabilities shall expire on the fifth (5th) anniversary
of the Completion Date, provided that if any claim or notice for
indemnity hereunder with respect to Environmental Liabilities
that are part of the Excluded Liabilities is given prior to the
fifth (5th) anniversary of the Completion Date, then the
liability of the Seller Parties for such claim shall continue
indefinitely until such claim is finally resolved.
14.2 Indemnification by the Buyer Parties
The Buyer Parties jointly and severally agree to pay, indemnify and hold
harmless the Seller Parties and their respective Affiliates, directors,
officers, employees, agents and assigns (the "Seller Indemnified
Parties") from and against any and all Damages as a result of, or based
upon or arising from:
(a) the breach or inaccuracy of any of the Buyer Party Warranties
provided herein or in the certificate of the Buyer Parties
pursuant to Clause 6.1(d);
(b) any breach or failure to perform any of the covenants, agreements
or obligations of the Buyer Parties in this Agreement; or
(c) the use of "ASE Japan" as the Company's name, subject to the
Seller Parties' compliance with their obligations under Clause
12.1(a) and any express restrictions agreed by the Parties with
respect to the use of the "ASE Japan" name, and except for any
Damages regarding the use of "ASE Japan" as the Company's name to
the extent attributable to actions of (i) the Seller Parties or
(ii) the Company prior to the Completion Date that are not
authorized by the Buyer Parties.
14.3 Effective Period
The Liabilities of the Seller Parties under the Seller Party Warranties
contained in Schedule 8.2 and of the Buyer Parties under the Buyer
Party Warranties contained in Schedule 8.3 (and their respective
indemnity obligations under this Article 14 with respect to such
warranties) shall cease on the date which is eighteen (18) months after
the Completion Date except that:
(a) if any claim or notice for indemnity hereunder with respect to any
Seller Party Warranties or Buyer Party Warranties is given prior
to the termination of the applicable warranties under this clause,
then the liability of the applicable Parties for such warranties
shall continue indefinitely until such claim is finally resolved;
and
(b) the Seller Party Warranties under Clause 4(b) (Title of Shares),
Clause 14 (Benefit Plans), Clause 17 (Environmental Matters) and
Clause 19 (Taxes) of Schedule 8.2 shall continue through the
expiration of the applicable statute of limitations.
14.4 Procedure for Indemnification
A claim by the Seller Indemnified Parties to the Buyer Parties or by
the Buyer Indemnified Parties to the Seller Parties for indemnification
for any matter (other than an External Claim, which will be governed by
Article 15) shall be made by written notice reasonably specifying the
nature of the claim and the amount of Damages asserted to the extent
known. Upon receipt of such notice, the indemnifying parties and
indemnified parties shall negotiate in good faith for a period of up to
sixty
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(60) days to agree on the amount of indemnifiable Damages suffered by the indemnified parties. If no agreement is reached within this sixty (60) day period, the Parties shall resolve the dispute in accordance with Clause 18.3 (for the avoidance of doubt, no further discussions between the Parties under Clause 18.3(a) shall be required as a condition to a Party's request for arbitration under Clause 18.3). The amount of Damages agreed by the Parties or the amount of Damages determined in accordance with Clause 18.3, as the case may be, is hereafter referred to as a "Claim Amount".
14.5 Limitations on Claim Amount
(a) The Seller Parties shall have no Liability with respect to claims for indemnity under Clause 14.1(a) (i) for any single claim unless the Damages under such claim (together with all related claims) exceeds one million Japanese yen (JPY 1,000,000), or (ii) unless the aggregate Damages under all such claims from the Completion Date exceed fifty million Japanese yen (JPY 50,000,000), in which case the Seller Parties shall be liable (subject always to the other provisions of this Article 14) for the entire amount of such Damages. The Buyer Parties shall have no Liability with respect to claims for indemnity under Clause 14.2(a) (i) for any single claim unless the Damages under such claim (together with all related claims) exceeds one million Japanese yen (JPY 1,000,000), or (ii) unless the aggregate Damages under all such claims exceed fifty million Japanese yen (JPY 50,000,000), in which case the Buyer Parties shall be liable (subject always to the other provisions of this Article 14) for the entire amount of such Damages.
(b) The aggregate indemnification obligations of the Seller Parties to
the Buyer Indemnified Parties pursuant to Clause 14.1(a) or the
Buyer Parties to the Seller Indemnified Parties pursuant to Clause
14.2(a) shall not exceed the amount equal to fifty percent (50%)
of the sum of the Purchase Price plus the Seller Loan.
14.6 Adjustments
Any Claim Amount shall be computed net of (i) any insurance proceeds
received by the indemnified party and (ii) indemnification received by
the indemnified party from a third party (other than a Seller Party or
Buyer Party, as applicable) in connection with such claim. To the
extent that a Claim Amount gives rise to a subsequently realized Tax
Benefit to the indemnified party, the indemnified party shall refund to
the indemnifying party the amount of such Tax Benefit when, as and if
realized. For purposes of this Clause 14.6, "Tax Benefit" means an
amount by which the tax liability of the indemnified party (or group of
corporations including the indemnified party) is reduced (including,
without limitation, by deduction, reduction of income by virtue of
increased tax basis or otherwise, entitlement to refund, credit or
otherwise) plus any related interest received from the relevant taxing
authority. Where the indemnified party has other losses, deductions,
credits or items available to it, the Tax Benefit from any losses,
deductions, credits or items relating to the Claim Amount shall be
deemed to be realized proportionately with any other losses,
deductions, credits or items. In the event that there should be a
determination disallowing the Tax Benefit, the indemnifying party shall
be liable to refund to the indemnified party the amount of any related
reduction previously allowed or payments previously made to the
indemnifying party pursuant to this Article 14.6. The amount of the
refunded reduction or payment shall be deemed a payment under this
Article 14 and thus shall be paid subject to any applicable reductions
under this Article 14.
14.7 Prompt Disclosure of Breach
Until the 18-month anniversary of the Completion Date, each Party will
promptly notify the other Party in writing of any matter or thing of
which it may become aware which is a material breach of or is
inconsistent with any of the warranties contained herein in any
material respect; provided, that any failure or delay to give such
notification shall not affect
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the indemnification provided under this Agreement except, and only, to
the extent the indemnifying party shall have been actually prejudiced as
a result of such failure or delay.
15. External Claims
15.1 Notification and Consultation
If an indemnified party becomes aware of any actual or threatened
claim, demand or Proceeding asserted by any Person other than a Party
or an Affiliate of a Party in relation to any matter to which the
indemnities provided in Article 14 relate (an "External Claim"):
(a) the indemnified party shall as soon as reasonably practicable
after so becoming aware and in any event within twenty-five (25)
Business Days notify the indemnifying party in writing of (and in
reasonable detail regarding) the External Claim; provided, that
any failure or delay to give such notification shall not affect
the indemnification provided under this Agreement except, and
only, to the extent the indemnifying party shall have been
actually prejudiced as a result of such failure or delay; and
(b) subject always to the condition, and only to the extent, that the
interests of the indemnified party are not actually or potentially
prejudiced thereby, the indemnified party shall thereafter consult
with the indemnifying party in respect of the External Claim and
permit the indemnifying party and its advisers reasonable access
to relevant employees, premises, chattels, documents and records
(including the right to take copies at indemnifying party's
expense of such documents and records) for the purposes of
investigating the External Claim and enabling the indemnifying
party to take any action permitted by this Article 15.
15.2 Defense
(a) The indemnifying party shall be entitled to participate in the
defense of the External Claim and, if it so chooses, to assume and
control the defense thereof with counsel selected by the
indemnifying party and reasonably acceptable to the indemnified
party (which acceptance shall not be unreasonably withheld or
delayed); provided that following such assumption the indemnifying
party diligently conducts the defense thereof. If the indemnifying
party assumes such defense, the indemnified party shall have the
right to participate in the defense thereof, and to employ counsel
at its own expense, provided that the indemnifying party shall be
liable for all reasonable fees and expenses of such counsel in the
circumstances set forth in Clause 15.2(b), it being understood
that the indemnifying party shall control such defense and shall
be empowered to make any settlement with respect to the External
Claim that satisfies the conditions to the indemnified party's
consent obligation pursuant to the last sentence of Clause
15.2(c).
(b) The indemnifying party shall be liable for the reasonable fees and
expenses of legal counsel employed by the indemnified party for
any period during which the indemnifying party has not assumed the
defense thereof (other than the period prior to the date on which
the indemnified party gives notice of the External Claim as
provided above). Notwithstanding the foregoing, if (i) the
indemnifying party and the indemnified party shall have mutually
agreed to the retention of separate counsel for the indemnified
party or (ii) the named parties (including any impleaded parties)
to an External Claim include both the indemnifying party and the
indemnified party and the indemnified party has been advised by
legal counsel that there is material conflict of interest
requiring or making it advisable that the indemnified party have
separate legal counsel, the indemnifying party shall be liable for
all reasonable fees and expenses of
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separate legal counsel for the indemnified party in connection with that External Claim.
(c) Whether or not the indemnifying party assumes the defense of an
External Claim, the indemnified party shall not admit any
liability with respect to, or settle, compromise or discharge,
such External Claim without the indemnifying party's prior written
consent (which consent shall not be unreasonably withheld or
delayed). However, if settled with such consent, the indemnifying
party shall indemnify the indemnified party from and against any
loss or liability by reason of such settlement or judgment. The
indemnifying party shall not, without the prior written consent of
the indemnified party, effect any settlement, compromise or
discharge of any External Claim in respect of which any
indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless
such settlement, compromise or discharge (i) provides for full
settlement and complete release, without any equitable award or
relief, and (ii) by its terms (or pursuant to a binding commitment
of the indemnifying party) obligates the indemnifying party to pay
the full amount of the liability in connection with such External
Claim (subject to the provisions of Clause 14.5).
16. Confidentiality
16.1 Each Party (the "Recipient") shall maintain in confidence all
information (whether documentary, computerized or oral) furnished by or
on behalf of the other Party (the "Disclosing Party") or which
otherwise comes into the possession of the Recipient as a result of
entering into this Agreement or the Transactions to be consummated at
or prior to the Completion (the "Confidential Information"), shall use
such Confidential Information only for purpose of fulfilling the terms
of this Agreement and shall not disclose any such Confidential
Information to a third party or make any unauthorized use thereof.
Further, the Parties hereby confirm that the information provided from
NECEL or NECY to ASE or the Buyer or those from ASE or the Buyer to
NECEL or NECY pursuant to the Mutual Non-disclosure Agreement shall be
included in the Confidential Information.
16.2 Each Recipient shall treat such Confidential Information with the same
degree of care against disclosure or unauthorized use which it affords
to its own confidential information of a similar nature or a reasonable
degree of care, whichever is greater. The obligation of confidential
treatment shall not apply to any Confidential Information that:
(a) was or has become generally available in the public domain other
than through unauthorized or improper disclosure by the Recipient;
(b) was in the Recipient's possession prior to disclosure by the
Disclosing Party as evidenced by documentary records;
(c) was independently developed by the Recipient, provided that the
person(s) developing the same did not have prior access to
Confidential Information received from the Disclosing Party; or
(d) was received from a third party who had a right to disclose such
information.
Notwithstanding the foregoing, (1) at the Completion, the obligations
of the Buyer Parties under the Mutual Non-disclosure Agreement and this
Article 16 with respect to all information relating to the Business
shall terminate; and (2) from and after the Completion, the Seller
Parties shall, and shall cause their Affiliates to, treat all
information related to the Business (including all information related
to the Business and disclosed to the Seller Parties and their
Affiliates by the Buyer Parties or held or owned by the Seller Parties
or their
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Affiliates prior to Completion, and excluding information which (i) was
or has become generally available in the public domain other than through
unauthorized or improper disclosure by the Seller Parties, (ii) is
independently developed by the Seller Parties after the Completion, (iii)
is received from a third party who has a right to disclose such
information after the Completion, or (iv) generally relates to NECEL's
assembly and test business) as Confidential Information in accordance
with this Article 16.
16.3 In furtherance, and not in limitation, of the foregoing, each Recipient
agrees to do the following with respect to all such Confidential
Information:
(a) instruct and require all of its officers, directors, employees,
agents, representatives or independent contractors (the
"Representatives") to maintain the confidentiality of such
Confidential Information and not to use such Confidential
Information except as expressly permitted herein; and
(b) restrict such Confidential Information to those of its
Representatives who have a "need to know" consistent with the
purposes for which such Confidential Information was disclosed.
16.4 In the event that a Recipient or any of its respective Representatives
is requested pursuant to or required by the disclosure requirements of
any Law, rule, regulation or form of any Governmental Authority or by
oral questions, interrogatories, requests for information or documents
by any Governmental Authority or other Person in legal proceedings,
subpoenas, civil investigative demands or other similar processes to
disclose any of the Confidential Information received from the
Disclosing Party, the Recipient or the Representative who has been so
requested or required shall provide the Disclosing Party with prompt
written notice of any such request or requirement so that the
Disclosing Party may object to production, seek a protective order or
other remedy and/or waive compliance with the provisions of this
Agreement.
16.5 Each of the Recipients and their respective Representatives, as
applicable, shall exercise their respective commercially reasonable
efforts to preserve the confidentiality of such Confidential
Information, including, without limitation, by cooperating with the
Disclosing Party to obtain an appropriate protective order or other
reliable assurance that confidential treatment will be afforded such
Confidential Information. If in the absence of a protective order or
other appropriate remedy or the receipt of a waiver of the Disclosing
Party, the Recipient or any of its Representatives is nonetheless
legally required or compelled to disclose such Confidential
Information, including to any tribunal or else stand liable for
contempt or suffer other censure or significant penalty, the Recipient
or its Representative may, without liability hereunder, disclose only
that portion of the Confidential Information which is legally required
to be disclosed.
17. Termination
17.1 This Agreement may be terminated at any time prior to the Completion
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Date:
(a) By consent in writing of ASE and NECY.
(b) By ASE or NECY, effective immediately upon written notice to the other party, if there has been a material violation or material breach by the other party of any representation, warranty, covenant or agreement contained herein, which violation or breach shall not have been cured or corrected by the violating or breaching party within twenty (20) Business Days after receipt of notice thereof, describing such violation or breach in reasonable detail.
(c) By ASE or NECY, effective immediately upon written notice to the
other party, if the Completion has not occurred by October 31,
2004, other than through the failure of the terminating party to
comply with its obligations hereunder.
17.2 Effect of Termination
If this Agreement is terminated pursuant to Clause 17.1, no Party shall
have any Liability in respect of this Agreement, except for any
Liabilities arising from (i) any material breach of any covenant
contained herein occurring prior to such termination, or (ii) any
material and intentional inaccuracy in any representation or warranty
contained herein occurring prior to such termination; provided that
Article 14 (Indemnity), Article 16 (Confidentiality) and Article 18
(Miscellaneous) shall remain in full force and effect following such
termination.
18. Miscellaneous
18.1 Notices
Any and all notices, requests, demands and other communications
required or otherwise contemplated to be made under this Agreement
shall be in writing and in English and shall be provided by one or more
of the following means and shall be deemed to have been duly given (a)
if delivered personally, when received, (b) if transmitted by
facsimile, on the first (1st) Business Day following receipt of a
transmittal confirmation, or (c) if by international courier service,
on the third (3rd) Business Day following the date of deposit with such
courier service, or such earlier delivery date as may be confirmed in
writing to the sender by such courier service. All such notices,
requests, demands and other communications shall be addressed as
follows:
If to NECY:
NEC Yamagata, Ltd.
1863 Iryuuda
Takahata-machi, Higashi Okitama-gun
Yamagata 992-0324, Japan
Attention: President
Telephone: +81-235-24-1911
Facsimile: +81-235-29-2840
If to NECEL:
NEC Electronics Corporation
1753 Shimonumabe
Nakahara-ku, Kawasaki
Kanagawa 211-8668, Japan
Attention: Vice President, Corporate Strategic Planning Unit
Telephone: +81-44-435-1410
Facsimile: +81-44-435-1870
If to ASE:
Advanced Semiconductor Engineering, Inc.
Rm. 1901, TWTC Int'l Trade Bldg.
19/F, 333, Keelung Rd., Sec. 1
Taipei 110, Taiwan R.O.C.
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Attention: Mr. John Ho
Telephone: +886-2-8780-5489
Facsimile: +886-2-2757-6121
If to the Buyer:
J&R Holding, Ltd.
Canon's Court
22 Victoria Street
Hamilton HM 12, Bermuda
Any Party may alter its notice address by notifying the other Parties
of such change of address in conformity with the provisions of this
Clause.
18.2 Governing Law
This Agreement shall be construed in accordance with and governed by
the laws of Japan, without giving effect to any choice of law rule that
would cause the application of the laws of any jurisdiction other than
Japan to the rights and duties of the Parties.
18.3 Dispute Resolution
(a) In the event that a Dispute arises hereunder, the Parties shall
engage in mutual good faith discussions to promptly resolve the
Dispute. Such discussions shall include, at a minimum, meetings
and good faith discussions between representatives of each Party
over the forty-five (45) day period commencing with initial notice
of the Dispute.
(b) If the Dispute has not been resolved by the end of such forty-five
(45) day period, then senior representatives of each Party shall
engage in meetings and good faith discussions over the succeeding
forty-five (45) day period. During such meetings and discussions,
such representatives shall discuss a variety of options for
resolving the Dispute. If the Dispute has not been resolved by the
end of such second forty-five (45) day period, such Dispute shall
be settled by binding arbitration in accordance with this Clause.
(c) Each arbitration hereunder shall be administered by the Japan
Commercial Arbitration Association in accordance with its
Commercial Arbitration Rules then in effect by three independent
and impartial arbitrators. Two arbitrators shall be selected by
the respective Parties, one by the claimant(s) and one by the
respondent(s). The third arbitrator shall be appointed by the two
Party-appointed arbitrators or by the Japan Commercial Arbitration
Association if such two arbitrators cannot agree. The place of the
arbitration shall be Tokyo, Japan. The language(s) of the
arbitration shall be English, in which all of the arbitrators
shall be fluent.
(d) Each Party may demand arbitration by filing a written demand with
the other Party within one hundred eighty (180) calendar days
after the expiration of the second forty-five (45) day period
described above. The arbitrators shall have the authority to grant
any equitable and legal remedies that would be available in any
judicial proceeding intended to resolve a Dispute, including the
termination of this Agreement in accordance with its terms.
Notwithstanding the foregoing, either Party shall be entitled to
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seek preliminary injunctive relief from any court of competent jurisdiction, pending the final decision or award of the arbitrators. The award rendered in an arbitration hereunder shall be final and non-appealable. Judgment on the award rendered may be entered in any court having jurisdiction thereof.
18.4 Consequential and Other Damages
In no event will a Party be liable under any contract, negligence,
strict liability or other theory for any indirect, incidental,
consequential, punitive or other special damages (including without
limitation lost profits).
18.5 Amendment
This Agreement may not be amended, supplemented or modified except by
an agreement in writing signed by each of the Parties.
18.6 Remedies
Except as expressly provided herein, all rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof
at law or in equity shall be cumulative and not alternative, and the
exercise or beginning of the exercise of any thereof by a Party shall
not preclude the simultaneous or later exercise of any other such
right, power or remedy by such Party.
18.7 Waiver
(a) A Party may waive compliance by another Party with any term or
provision of this Agreement; provided, however, that such waiver
shall not operate as a waiver of, or estoppel with respect to, any
other or subsequent failure. No waiver shall be effective unless
it is in writing and is signed by the Party asserted to have
granted such waiver.
(b) Neither the failure nor any delay on the part of a Party to
exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, remedy, power or privilege
preclude any other or further exercise of the same or of any other
right, remedy, power or privilege, nor shall any waiver of any
right, remedy, power or privilege with respect to any occurrence
be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence.
18.8 Assignments Prohibited; Successors and Assigns
No Party shall assign, or suffer or permit an assignment of, its rights
or obligations under or its interest in this Agreement without the
prior written consent of the other Parties. Any purported assignment or
other disposition by a Party, except as permitted herein, shall be null
and void. Subject to the foregoing, this Agreement shall be binding
upon and shall inure to the benefit of the Parties and their respective
successors and permitted assigns.
18.9 No Third-Party Beneficiaries
Subject to the rights of the Seller Indemnified Parties and the Buyer
Indemnified Parties under Article 14, the terms and provisions of this
Agreement are intended solely for the benefit of each Party hereto and
its respective successors and permitted assigns, and the Parties do not
intend to confer third-party beneficiary rights upon any other Person.
18.10 Severability
If any provisions of this Agreement shall be held to be illegal,
invalid or unenforceable, the Parties agree that such provisions will
be enforced to the maximum extent permissible so as to effect the
intent of the Parties, and the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be
affected or impaired thereby. If
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necessary to effect the intent of the Parties, the Parties will negotiate
in good faith to amend this Agreement to replace the unenforceable
language with enforceable language which as closely as possible reflects
such intent.
18.11 Interpretation
The table of contents and any article, section, subsection, or clause
headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement. Any reference made in this Agreement to a statute or
statutory provision shall mean such statute or statutory provision as
it has been amended through the date as of which the particular portion
of the Agreement is to take effect, or to any successor statute or
statutory provision relating to the same subject as the statutory
provision so referred to in this Agreement, and to any then applicable
rules or regulations promulgated thereunder. Whenever the words
"include," "includes" or "including" are used in this Agreement, they
shall be deemed, as the context indicates, to be followed by the words
"but (is/are) not limited to." The words "herein," "hereof,"
"hereunder" and words of like import shall refer to this Agreement as a
whole (including its Schedules and Exhibits), unless the context
clearly indicates to the contrary (for example, that a particular
section, schedule or exhibit is the intended reference). Where specific
language is used to clarify or illustrate by example a general
statement contained herein, such specific language shall not be deemed
to modify, limit or restrict the construction of the general statement
which is being clarified or illustrated.
18.12 Number of Days
In computing the number of days for purposes of this Agreement, all
days shall be counted, including Saturdays, Sundays and holidays;
provided, however, that if the final day of any time period falls on a
day that is not a Business Day, then the final day shall be deemed to
be the next Business Day respectively.
18.13 Construction
This Agreement has been negotiated by the Parties and their respective
counsel and shall be fairly interpreted in accordance with its terms
and without any strict construction in favor of or against any of the
Parties.
18.14 Expenses of the Parties
Each Party shall bear the expenses incurred by such Party in connection
with the negotiation and execution of this Agreement.
18.15 Independent Contractor
Each Party is acting as an independent contractor and not as an agent
of the other Parties hereto, and nothing in this Agreement shall be
construed as creating a partnership, joint venture or similar
relationship of any kind among the Parties hereto. No Party shall hold
itself out as having authority to create binding obligations for the
Parties.
18.16 Language
This Agreement is in the English language only, which language shall be
controlling in all respects, and all versions hereof in any other
language shall be for accommodation only and shall not be binding upon
the Parties.
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18.17 Entire Agreement
This Agreement and the Transaction Documents contain the entire
understanding among the Parties hereto with respect to the subject
matter hereof and supersede all prior and contemporaneous agreements
and understandings, inducements or conditions, express or implied, oral
or written, among the Parties. The Parties intend that this Agreement
and the Transaction Documents shall be the several, complete and
exclusive embodiment of their agreement with respect to the subject
matter hereof, and that any evidence, oral or written, of a prior or
contemporaneous agreement that alters or modifies this Agreement or the
Transaction Documents shall not be admissible in any Proceeding
concerning this Agreement or the Transaction Documents. The express
terms hereof control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms hereof.
18.18 Counterparts
This Agreement may be executed (including, without limitation, by
facsimile signature) in one or more counterparts, with the same effect
as if the Parties had signed the same document. Each counterpart so
executed shall be deemed to be an original, and all such counterparts
shall be construed together and shall constitute one agreement.
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IN WITNESS WHEREOF, each of the Parties hereto has caused this Share Sale and Purchase Agreement to be executed by its duly authorized officers as of the day and year first above written.
NECY: NEC Yamagata, Ltd.
By: /s/ Hiroshi Aoyama
-------------------------------
Name: Hiroshi Aoyama
Title: President
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NECEL: NEC Electronics Corporation
By: /s/ Kyoji Yamamoto
-------------------------------
Name: Kyoji Yamamoto
Title: Executive Vice President
and Member of the Board
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ASE: Advanced Semiconductor Engineering, Inc.
By: /s/ Jason Chang
-------------------------------
Name: Jason Chang
Title: Chairman & CEO
Buyer: J&R Holding Ltd.
By: /s/ Jason Chang
-------------------------------
Name: Jason Chang
Title: Chairman
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LIST OF SCHEDULES AND EXHIBITS
Schedule 1.1(i) Lease Agreement Terms Schedule 1.1(ii) Additional Transaction Documents Schedule 7.3(g) Directors and Auditors of the Company Schedule 8.2 Seller Party Warranties Schedule 8.3 Buyer Party Warranties Exhibit 1.1(i) Services Agreement Exhibit 4(c) Company's Articles of Incorporation |
Seller Disclosure Schedule
Attachment 10(a)(1) to Seller Disclosure Schedule
Attachment 10(a)(2) to Seller Disclosure Schedule
Attachment 10(a)(3) to Seller Disclosure Schedule
Attachment 10(a)(4) to Seller Disclosure Schedule
SCHEDULE 1.1(i): LEASE AGREEMENT TERMS
1. The Lease Agreements for the Facilities will be discussed and executed prior to the Completion.
2. Lease Agreement for Takahata Factory Premises
2.1 The Company will lease land and building from NECY.
2.2 Rent will be at a level consistent with the prevailing market rate.
2.3 Term will be 4 years plus the Company's option to extend for another 4-year period.
3. Lease Agreements for Facility 1 Premises and Facility 2 Premises
3.1 NECY will sublease the Facility 1 Premises and the Facility 2 Premises to the Company under the current terms; provided however, the terms and conditions of such subleases will be changed accordingly if the terms and conditions of the Prime Leases change (the Parties shall meet and discuss in good faith any such anticipated changes).
3.2 The Buyer Parties and the Seller Parties shall discuss whether there is a way to extend the lease term to 4 years, plus the Company's option to extend for another 4-year period.
4. All fixtures and improvements attached to the building will be transferred to the Company in the Company Split. These fixtures and improvements will be depreciated over the lease term. The Company will have the right to sell the fixtures and improvements back to NECY upon termination or expiration of the applicable Lease Agreement at book value net of accumulated depreciation.
5. The Lease Agreements shall contain other leasing arrangements to be mutually agreed by the Parties.
SCHEDULE 1.1(ii): ADDITIONAL TRANSACTION DOCUMENTS
At the Completion, each of the following additional Transaction Documents shall be entered into:
1. The Seller Parties and the Company shall enter into an IT Services Agreement, under which the Seller Parties shall provide certain IT services to the Company reasonably necessary to continue its operations for an agreed period after the Completion. Such IT Services Agreement shall be in form and substance (including price for such services) reasonably acceptable to the Parties and in accordance with the Services Agreement.
2. The Seller Parties and the Company shall enter into a Transitional Services Agreement, under which the Seller Parties shall provide certain transitional services to the Company reasonably necessary to continue its operations for an agreed period after the Completion. Such Transitional Services Agreement shall be in form and substance (including price for such services) reasonably acceptable to the Parties and in accordance with the Services Agreement.
SCHEDULE 7.3(g): DIRECTORS AND AUDITORS OF THE COMPANY
1. Directors
Nobukatsu Manabe
Hideto Goto
Hiroshi Aoyama
2. Auditor
Junshi Yamaguchi
SCHEDULE 8.2: SELLER PARTY WARRANTIES
1. Organization and Standing.
Each Seller Party is, and upon its establishment in the Company Split and at Completion the Company will be, a corporation duly organized and validly existing under the laws of Japan. NECY has, and upon its establishment in the Company Split and at Completion the Company will have, all requisite corporate power and authority necessary to enable it to own, lease or otherwise hold the Business Assets and to carry on the Business as presently conducted.
2. Authorization; Validity; Enforceability.
(a) Each Seller Party has, and upon its establishment in the Company Split and at Completion the Company will have, all requisite corporate power and authority to enter into and perform its obligations under each Transaction Document to which it is a party.
(b) The execution, delivery and performance by each Seller Party of this Agreement and each other Transaction Document to which it is a party has been, and at Completion the execution, delivery and performance by the Company of each Transaction Document to which it is a party will be, duly authorized by all necessary corporate action on the part of the applicable entity.
(c) This Agreement has been, and at Completion each other Transaction Document to which a Seller Party or the Company is a party will be, duly executed and delivered by the applicable entity. This Agreement constitutes, and at Completion each other Transaction Document to which a Seller Party or the Company is a party will constitute, the legal, valid and binding obligation of such entity, enforceable against such entity in accordance with its terms.
3. No Conflicts.
(a) Conflicts. The execution and delivery by each Seller Party and the Company of each Transaction Document to which it is a party does not and will not, and the performance by each such entity of its obligations thereunder will not, conflict with, result in any violation of or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of any obligation (in each case by any third party) or to the loss of any benefit by any Seller Party or the Company under, or result in or require the creation, imposition or extension of any Encumbrance upon any Business Asset under (1) the Charter Documents of any Seller Party or the Company, (2) any Contract to which a Seller Party or the Company is a party or is otherwise bound, or to which any Business Asset is subject, or (3) any Law applicable to any Seller Party or the Company.
(b) Approvals. Except as set forth on Section 3(b) of the Seller Disclosure Schedule, the consummation of the Transactions will not require any Approval to be obtained or made by any Seller Party or the Company.
4. The Company.
(a) Upon the Company's establishment in the Company Split and at Completion:
(i) the Company shall have the authorized, issued and outstanding capital stock set forth in Section 4(a) of the Seller Disclosure Schedule;
(ii) all issued and outstanding shares of capital stock of the Company will have been duly authorized and validly issued, will be fully paid and nonassessable, and will have been issued in full compliance with all Japanese laws.
(iii) there will be no (i) outstanding preemptive rights, subscriptions, options, calls, warrants or other rights or Contracts to acquire any of the Company's securities, except for the Buyer's right to purchase the Shares under this Agreement; (ii) outstanding securities, instruments or obligations that are or may become convertible into or exchangeable for any of the Company's securities; or (iii) Contracts under which the Company may become obligated to sell, issue or otherwise dispose of or redeem, purchase or otherwise acquire any of its securities.
(b) Upon the Company's establishment in the Company Split and immediately prior to Completion, NECY will be the sole record and beneficial owner of the Shares, free and clear of all Encumbrances, and will transfer and deliver to the Buyer at the Completion valid title to the Shares, free and clear of all Encumbrances.
(c) Upon its establishment in the Company Split and at Completion, the
Company's Articles of Incorporation will be in the form of Exhibit
4(c). Upon its establishment in the Company Split and at
Completion, the Company shall not be in violation of any of the
provisions of its Articles of Incorporation or of any of the
resolutions of its stockholders, boards of directors or committees
thereof.
(d) Upon its establishment in the Company Split and at Completion, the Company will not have any subsidiaries.
5. Estimated Completion Date Balance Sheet.
The Estimated Completion Date Balance Sheet delivered as described in Clause 3.2(a) will be prepared in good faith in accordance with GAAP and practices consistently applied.
6. No Undisclosed Liabilities.
Upon the consummation of the Company Split and at Completion, the Company will have no off-balance sheet financing or similar financing arrangements and no Liabilities which are required to be provided for or reserved against on a balance sheet prepared in accordance with GAAP, except for such Liabilities that are reflected or reserved against on the Final Completion Date Balance Sheet.
7. Absence of Certain Changes.
Since September 30, 2003, the Business has been conducted in the ordinary course consistent with past practices, and there has been no change, event or circumstance relating to the Business which, individually or in the aggregate, has had, or is reasonably likely to have, a Material Adverse Effect.
8. Business Assets.
(a) The Business Assets constitute all of the assets necessary to permit the Company to conduct the Business after the Completion in a manner substantially equivalent to the manner as the Business is conducted as of the date hereof, in compliance with all Laws, Governmental Approvals and Contracts applicable to the Business.
(b) NECY has, and at Completion the Company will have, good and valid title to (or valid leases or licenses in respect of) all the Business Assets, in each case free and clear of all Encumbrances except Permitted Encumbrances.
(c) All tangible Business Assets (including such assets that are subject to leases and similar arrangements) are in good operating condition and repair, ordinary wear and tear excepted, and are adequate for the purpose for which they are used.
9. Facilities.
(a) NECY is the owner of the Takahata Factory and NEC Corporation is the owner of the land on which the Takahata Factory is constructed, in each case free and clear of all Encumbrances except Permitted Encumbrances. The Facilities constitute the only real property at which the Business is conducted.
(b) Each Prime Lease is the valid and binding obligation of NECY and, to the knowledge of NECY, of the landlord thereunder. NECY has performed all obligations required to be performed by NECY under each Prime Lease, and no event has occurred that would render NECY (with or without the lapse of time or the giving of notice, or both) in breach or default thereunder. To the knowledge of NECY, no event has occurred that would render the landlord under either Prime Lease (with or without the lapse of time or the giving of notice, or both) in breach or default in any respect thereunder.
(c) The Takahata Factory and, to NECY's knowledge, the Facility 1 Premises and the Facility 2 Premises are in compliance with all applicable Laws and Governmental Approvals. All structures, buildings, building systems and other improvements at the Takahata Factory and, to NECY's knowledge, at the Facility 1 Premises and the Facility 2 Premises, are in working order and repair (fair wear and tear excepted) and are suitable for the conduct of the Business thereat.
10. Material Contracts.
(a) All Contracts that will be transferred to the Company in the Company Split (i) were entered into by NECY in the ordinary course of the Business, (ii) contain terms and conditions that are commercially reasonable with respect to the Business, and (iii) do not provide for termination fee obligations or other potential Liabilities that are materially adverse to the Company. Except as disclosed on Section 10(a) of the Seller Disclosure Schedule, none of the Contracts that will be transferred to the Company in the Company Split (1) are materially important to the Business (singly or together with all related Contracts) and (2) in the event of termination or expiration, would be difficult for the Company to replace with Contracts containing terms and conditions that are not materially adverse in the aggregate as compared to the terminated or expired Contracts. Except as disclosed on Section 10(a) of the Seller Disclosure Schedule, each Contract that will be transferred to the Company in the Company Split and that provides for payment or performance by either party thereto having an aggregate value (alone or with related Contracts) exceeding or reasonably likely to exceed ten million Japanese yen (JPY 10,000,000) will expire in accordance with its terms or can be terminated by the Company without payment or penalty prior to the third anniversary of the Completion Date.
(b) Each Contract that will be transferred to the Company in the Company Split and that (alone or with related Contracts) is material to the Business (collectively, the "Material Contracts") is the valid and binding obligation of NECY (and
immediately prior to the Completion, of the Company) and, to the knowledge of NECY, of each other party thereto. NECY has performed (and immediately prior to the Completion, the Company shall have performed) all obligations required to be performed by it under the Material Contracts, and no event has occurred that would render it (with or without the lapse of time or the giving of notice, or both) in breach or default thereunder. To the knowledge of NECY, no event has occurred that would render any other party to a Material Contract (with or without the lapse of time or the giving of notice, or both) in breach or default in any respect thereunder.
11. Intellectual Property.
To NECY's knowledge, the conduct of the Business as conducted immediately prior to the Completion does not infringe, constitute a misappropriation or use or disclose in an unauthorized manner any intellectual property right of any Person. NECY has not received any written notice or proposal for licensing or similar arrangement alleging any such actual or potential infringement, misappropriation or unauthorized use or disclosure. To NECY's knowledge, NECY has not received any written proposal indicating that a license under the intellectual property rights of any third party is necessary in order to conduct the Business as it is conducted immediately prior to the Completion.
12. Customers and Suppliers.
The Seller Parties have not received written notice to the effect that the benefits of any material relationship of NECY or its Affiliates with customers or suppliers with respect to the Business will not continue to be available to the Company after the Completion Date.
13. Employment.
(a) The list of Proposed Transferred Employees shall upon delivery in accordance with Clause 3.2(d) correctly reflect the grade, salaries, wages and other compensation, participation in Seller Benefit Plans, dates of employment or service, and positions of the Proposed Transferred Employees. None of the Transferred Employees has been granted the right to continued employment or engagement by NECY, any of its Affiliates or the Company, or to any compensation following or in connection with termination of employment or engagement with NECY, any of its Affiliates or the Company, subject to any rights to receive such compensation pursuant to applicable Law.
(b) Neither the execution and delivery of the Transaction Documents nor the consummation of the Transactions contemplated thereby will result in or give rise to (i) any Liability of the Company to make any severance, retention, termination, "golden parachute" or other payment to any Transferred Employee, or (ii) the acceleration of any other rights or benefits to any Transferred Employee (including vesting and payments with respect to equity incentives and other rights under Seller Benefit Plans), in each case whether pursuant to a Seller Benefit Plan, Contract, Law or otherwise.
(c) There are no claims or Proceedings against or affecting NECY pending, or to NECY's knowledge, threatened by or pertaining to any Transferred Employee. NECY has complied with all Laws related to the employment or engagement of the Transferred Employees, including Laws related to wages, hours, leaves of absence, equal opportunity, occupational health and safety, workers' compensation, severance, employee handbooks or manuals, collective bargaining, unfair labor practices and the payment of social security and other Taxes and withholding obligations relating thereto.
(d) Except as set forth in Section 13(d) of the Seller Disclosure Schedule, none of NECY or its Affiliates is a party to or is otherwise subject to any obligations relating to any collective bargaining Contract with respect to the Transferred Employees. There is no labor strike, slowdown or stoppage with respect to the Transferred Employees pending or, to NECY's knowledge, threatened against NECY.
(e) NECY has no knowledge that any of the Key Employees and not more than an immaterial number of the Transferred Employees have objected to the proposed Transactions or indicated their intent to terminate their employment or service with NECY or the Company.
14. Benefit Plans.
Each Seller Benefit Plan that the Company will succeed to and assume upon the consummation of the Company Split as described in Clause 11.1 complies by its terms and in operation with the requirements provided by applicable Laws, except for matters that, individually or in the aggregate, would not have a Material Adverse Effect. Such Seller Benefit Plans contain terms that in the aggregate are materially consistent with customary and reasonable Benefit Plan practices in Japan.
15. Compliance with Laws.
The Seller Parties are and have been in compliance with all Laws that are applicable to the Business or the Business Assets, and no event has occurred, and no condition or circumstance exists, that might (with or without notice or lapse of time) constitute, or result directly or indirectly in, a default under, a material breach or violation of, or a material failure to comply with, any such Law. The Seller Parties have not received any notice from any Person regarding any actual, alleged or potential material violation of any Law applicable to the Business or the Business Assets.
16. Governmental Approvals.
The Seller Parties and their applicable Affiliates have obtained and are in compliance with all Governmental Approvals that are necessary in connection with the Business and the Business Assets, and all such Governmental Approvals are in full force and effect. Each such Governmental Approval will remain in full force and effect in favor of the Company upon consummation of the Company Split and upon Completion without notice to or approval by any Person, without additional payment and without any modification of rights and privileges thereunder, except for post-Completion notice filings or Approvals that will be made or obtained as a matter of routine and the failure to make any such filings or obtain any such Approvals will not have a Material Adverse Effect. There is no pending or, to NECY's knowledge, threatened Proceeding with respect to the suspension, termination, revocation, cancellation, limitation or impairment of any such Governmental Approval. No fines or penalties are due and payable in respect of any such Governmental Approval or any violation thereof.
17. Environmental Matters.
To the knowledge of NECY:
(a) The Business has been and is being conducted in compliance with applicable Environmental Laws, including with respect to the storage, release or disposal of Hazardous Materials.
(b) The Seller Parties and their Affiliates have timely filed all material reports, obtained all material Approvals and generated and maintained all material data, documentation and records required under any applicable Environmental Laws relating to the Business and their respective properties relating thereto.
(c) None of the Seller Parties or their Affiliates has received any notice from any Governmental Authority advising it that it is or may be responsible for any Environmental Liabilities relating to the Business.
18. Proceedings and Orders.
There is no Proceeding pending or, to the knowledge of NECY, threatened against or affecting the Business, any Business Assets, or any Seller Party or their respective Affiliates with respect thereto. No insurance company has asserted in writing that any such Proceeding is not covered by the applicable policy related thereto.
19. Taxes.
(a) Each Tax Return required to be filed by any Seller Party relating in whole or in part to the Business ("Business Tax Returns"), to the extent required by applicable Law to be filed before the date hereof, has been filed, and each filed Business Tax Return is true, correct and complete. All Taxes shown to be payable on such Business Tax Returns or on subsequent assessments with respect thereto have been paid in full on a timely basis, and no other Taxes are payable relating in whole or in part to the Business, whether or not shown on such Business Tax Returns, for any period ending prior to or including the Completion Date. No Affiliate of the Seller Parties has been required to file Tax Returns relating to the Business.
(b) NECY has delivered or made available to ASE correct and complete copies of all Business Tax Returns filed by the Seller Parties or their Affiliates for all periods ending on or after March 31, 1999, and copies of all Tax examination reports and notices of deficiency or assessment with respect to any Business Tax Returns received by any Seller Party or its Affiliates after March 31, 1999.
(c) (i) No Seller Party or any of its Affiliates has (and upon the consummation of the Company Split, the Company will not have) any Liability for Taxes relating to the Business by Contract with any other Person (including any tax sharing or tax indemnity agreement); and (ii) there are no Encumbrances for Taxes on the Business Assets, other than statutory Encumbrances for Taxes not yet due.
(d) No Business Tax Return filed or required to be filed within seven
(7) years prior to the date hereof has been audited or is
currently the subject of audit or any Tax-related Proceeding by
any Governmental Authority and, to NECY's knowledge, no such audit
or Proceeding is threatened. None of the Seller Parties or their
Affiliates has waived any statute of limitations in respect of any
Tax related to the Business, which waiver remains in effect.
(e) No Seller Party or its Affiliates is a party to or the subject of any closing agreement, private letter ruling, technical advice memoranda or advance pricing agreement in respect of any Tax related to the Business with any Governmental Authority.
20. Accuracy of Information.
All information provided by the Seller Parties or their respective agents and representatives to ASE or its agents and representatives in connection with this Agreement is true and correct in all material respects as of the respective dates of such information and does not omit any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading as of the respective dates of such information; provided that no representation or warranty is made by the Seller Parties as to any financial forecasts or projections furnished to ASE or its agents or representatives, except that such financial forecasts and projections have been prepared in good faith based on assumptions that are believed by the Seller Parties to have been reasonable at the time or times made.
SCHEDULE 8.3: BUYER PARTY WARRANTIES
1. Organization and Standing.
Each Buyer Party is a corporation duly organized and validly existing under the Laws of the jurisdiction in which it is incorporated.
2. Buyer
(a) ASE is the sole record and beneficial owner of all issued and outstanding shares of capital stock of Buyer, free and clear of all Encumbrances.
(b) There are no (i) outstanding preemptive rights, subscriptions, options, calls, warrants or other rights or Contracts to acquire any of Buyer's securities; (ii) outstanding securities, instruments or obligations that are owned by a Person other than ASE and that are or may become convertible into or exchangeable for any of Buyer's securities; or (iii) Contracts under which the Buyer may become obligated to sell, issue or otherwise dispose of or redeem, purchase or otherwise acquire any of its securities to a Person other than ASE.
3. Authorization; Validity; Enforceability.
(a) Each Buyer Party has all requisite organizational power and authority to enter into and perform its obligations under each Transaction Document to which it is a party.
(b) The execution, delivery and performance by each Buyer Party of this Agreement and each other Transaction Document to which it is a party has been duly authorized by all necessary organizational action on the part of such Buyer Party.
(c) This Agreement has been, and at Completion each other Transaction Document to which a Buyer Party is a party will be, duly executed and delivered by such Buyer Party. This Agreement constitutes, and at Completion each other Transaction Document to which a Buyer Party is a party will constitute, the legal, valid and binding obligation of such Buyer Party, enforceable against such entity in accordance with its terms.
4. No Conflicts.
(a) Conflicts. The execution and delivery by each Buyer Party of each Transaction Document to which it is a party does not and will not, and the performance by each Buyer Party of its obligations thereunder will not, conflict with, result in any violation of or default (with or without notice or lapse of time or both) under, give rise to a right of termination, cancellation or acceleration of any obligation (in each case by any third party) or to the loss of any benefit by any Buyer Party under, (1) the Charter Documents of any Buyer Party, (2) any Contract to which a Buyer Party is a party or is otherwise bound, or (3) any Law applicable to any Buyer Party, except in each case for any matters that would not have a material adverse effect on the ability of the Buyer Parties to enter into and perform their obligations under the Transaction Documents.
(b) Approvals. Except for the foreign exchange report to be submitted in connection with the purchase of the Shares to the Ministry of Economy, Trade and Industry (METI) and the Ministry of Finance, the consummation of the Transactions will not require any Approval to be obtained or made by either Buyer Party.
EXHIBIT 1.1(i): SERVICES AGREEMENT
EXHIBIT 4(c): COMPANY'S ARTICLES OF INCORPORATION
(Translation)
ARTICLES OF INCORPORATION
OF
ASE JAPAN CO., LTD.
CHAPTER I
GENERAL PROVISIONS
Article 1. (Trade Name)
The name of the Company shall be ASE Japan Kabushiki Kaisha and shall be called ASE Japan Co., Ltd. in English.
Article 2. (Purpose)
The purposes for which the Company is established are:
(a) Manufacture and sale of electronic components; and
(b) Any and all other business incidental to the foregoing item.
Article 3. (Location of Head Office)
The head office of the Company shall be located in Yokohama, Kanagawa, Japan.
Article 4. (Method of Giving Public Notice)
Public notices of the Company shall be given in the Official Gazette.
CHAPTER II
SHARES
Article 5. (Total Number of Shares Authorized to be Issued)
The total number of shares authorized to be issued by the Company shall be twenty eight thousand (28,000) shares.
Article 6. (Share Certificates)
Share certificates shall be issued by the Company in denomination of one share, ten (10) shares, one hundred (100) shares and one thousand (1,000) shares. Provided, however, that in case where it is necessary, the Company shall issue the share certificate representing other number of shares.
Article 7. (Restriction on Transfer of Shares)
Any transfer of shares of the Company shall be subject to approval of the Board of Directors.
Article 8. (Share Handling Regulations)
The registration of transfer of shares, registration of pledge, indication of trust property, reissuance of share certificates and other matters relating to handling of shares and required fee in connection therewith shall be governed by the Share Handling Regulations determined by the Board of Directors.
Article 9. (Record Date)
The Company will treat the shareholders entered in the Shareholder Register as of the end of each fiscal year to be the shareholders who are entitled to exercise the rights of shareholders at the Ordinary General Meeting of Shareholders for that fiscal year. (2) In addition to the preceding paragraph, the Company may determine the record date with prior public notice by resolution of the Board of Directors whenever necessary.
CHAPTER III
GENERAL MEETING OF SHAREHOLDERS
Article 10. (Place of General Meetings of Shareholders)
General meetings of shareholders shall be held in the area where the head office is located, Takahata-machi, Higashiokitama-gun, Yamagata or adjacent area thereof.
Article 11. (Convocation)
The ordinary general meeting of shareholders of the Company shall be convened within three (3) months from the following day of the last day of the fiscal year, and extraordinary general meetings of shareholders may be convened whenever necessary.
(2) Except as otherwise stipulated in provision of law, the general meetings of shareholders of the Company shall be convened by the Representative Director in accordance with a resolution of the Board of Directors. If there are two or more Representative Directors, it shall be in an order previously determined by the Board of Directors.
Article 12. (Chairman)
The President shall act as Chairman at the general meetings of shareholders. In the event that the President is prevented from presiding at the meeting, another Director shall take his place in an order previously determined by the Board of Directors.
Article 13. (Method of Resolutions)
Resolutions of a general meeting of shareholders shall be adopted by at least a majority of the voting rights of the shareholders present at the meeting.
Article 14. (Voting by Proxy)
A shareholder is entitled to exercise his voting rights by proxy; provided, however, that the person designated to exercise such rights pursuant to such proxy shall submit to the Company before the holding of a general meeting of shareholders a document attesting to his power of representation.
Article 15. (Minutes)
A summary of the proceedings at a general meeting of shareholders and the results thereof shall be recorded in the minutes and the chairman and Directors present thereat shall affix their names thereto.
(2) These minutes stipulated in the preceding paragraph shall be kept at the head office of the Company for ten (10) years and at the branch office of the Company for five (5) years.
CHAPTER IV
DIRECTORS AND BOARD OF DIRECTORS
Article 16. (Number of Directors)
The Company shall have a maximum of ten (10) Directors.
Article 17. (Resolution of Election of Directors)
The Directors shall be elected by at least a majority of the voting rights of the shareholders present at a general meeting of shareholders at which shareholders representing one-third (1/3) or more of the total voting rights shall be present.
(2) Cumulative voting shall not be applicable for the resolution described in the preceding paragraph.
Article 18. (Term of Office of Directors)
The term of office of a Director shall expire upon the conclusion of the ordinary general meeting of shareholders held in respect of the last fiscal year ending within two (2) years after his assumption of office.
(2) The term of office of a Director elected to fill a vacancy or to meet an increase in the number of Directors shall expire at such time as the term of office of the other Directors then in office is to expire.
Article 19. (Representative Directors, etc.)
The Representative Directors of the Company shall be elected from among the Directors by resolutions of the Board of Directors.
(2) The Board of Directors may, by its resolution, elect one President and a few Senior Managing Director, Managing Director or other Directors with special titles.
Article 20. (Meeting of the Board of Directors)
The Board of Directors shall decide the management of the business of the Company according to the law or these Articles of Incorporation.
(2) Matters concerning the Board of Directors shall be governed by the Regulations of the Board of Directors to be adopted by the Board of Directors.
(3) To convene a meeting of the Board of Directors, a notice shall be issued to each Director and Statutory Auditor at least three (3) days prior to the date of meeting; provided, however, that such term of notice may be shortened or dispensed with in case of emergency.
Article 21. (Remuneration and Retirement Allowances)
Remuneration and retirement allowances to Directors shall be determined by resolutions of a general meeting of shareholders.
CHAPTER V
STATUTORY AUDITORS
Article 22. (Number of Statutory Auditor)
The Company shall have a maximum of five (5) Statutory Auditors.
Article 23. (Resolution of Statutory Auditors)
The Statutory Auditors shall be elected by at least a majority of the voting rights of the shareholders present at a general meeting of shareholders at which shareholders representing one-third (1/3) or more of the total voting rights shall be present.
Article 24. (Term of Office of Statutory Auditor)
The term of office of a Statutory Auditor shall expire upon the conclusion of the ordinary general meeting of shareholders held in respect of the last fiscal year ending within four (4) years after his assumption of office.
(2) The term of office of a Statutory Auditor elected to fill a vacancy shall expire at such time as the term of office of his predecessor is to expire.
Article 25. (Remuneration and Retirement Allowances)
Remuneration and retirement allowances to Statutory Auditors shall be determined by resolutions of a general meeting of shareholders.
CHAPTER VI
ACCOUNTS
Article 26. (Fiscal Year)
The fiscal year of the Company shall be a period from April 1 to March 31 of the following year and the accounts of each fiscal year shall be settled on the last day of such fiscal year.
Article 27. (Payment of Dividends)
Dividends shall be paid to the shareholders or pledgees registered in the register of shareholders as of the last day of each fiscal year.
Article 28. (Prescription Period for Payment of Dividends)
In the event that dividends have not been collected within three (3) years from the date of commencement of payment thereof, the Company shall be relieved of its obligation to pay such dividends.
CHAPTER VII
SUPPLEMENTAL PROVISIONS
Article 29. (Shares Issued to be Issued upon Incorporation)
The total number of shares issued by the Company upon incorporation shall be seven thousand and two hundred (7,200) shares.
Article 30. (Initial Term of Office)
Notwithstanding the provision of Article 18 of the Articles of Incorporation, the term of office of the initial Directors and Statutory Auditors of the Company shall expire at the close of the ordinary general meeting of shareholders to be held with respect to the last fiscal year ending within one (1) year after their assumption of offices.
Article 31. (Initial Fiscal Year)
The initial fiscal year of the Company shall be from the date of its incorporation to March 31, 2005.
TABLE OF CONTENTS
1. DEFINITIONS AND INTERPRETATION........................................1
2. SALE OF SHARES........................................................8
3. COMPANY SPLIT.........................................................8
4. COMPANY BOOK VALUE....................................................9
5. PURCHASE PRICE ADJUSTMENT.............................................9
6. CONDITIONS PRECEDENT TO THE COMPLETION...............................10
7. COMPLETION...........................................................13
8. REPRESENTATIONS AND WARRANTIES.......................................14
9. COVENANTS BY ASE.....................................................14
10. EMPLOYEE ARRANGEMENTS................................................16
11. BENEFIT PLAN ARRANGEMENTS............................................17
12. COVENANTS BY THE SELLER PARTIES......................................17
13. COMMERCIALLY REASONABLE EFFORTS......................................18
14. INDEMNITY............................................................18
15. EXTERNAL CLAIMS......................................................21
16. CONFIDENTIALITY......................................................22
17. TERMINATION..........................................................23
18. MISCELLANEOUS........................................................24
EXHIBIT 8
ADVANCED SEMICONDUCTOR ENGINEERING, INC.
LIST OF SUBSIDIARIES
A. ASE Holding Limited, a corporation organized under the laws of Bermuda, and its subsidiaries:
(1) ASEP Realty Corporation, a corporation organized under the laws of the Philippines;
(2) ASE Holding Electronics (Philippines) Inc., a corporation organized under the laws of the Philippines; and
(3) ASE Investment (Labuan) Inc., a holding company organized under the laws of Malaysia, and its wholly-owned subsidiary, ASE (Korea) Inc., a corporation organized under the laws of Korea.
B. ASE Marketing Services Ltd., a corporation organized under the laws of Hong Kong.
C. ASE Marketing and Service Japan Co., Ltd., a corporation organized under the laws of Japan.
D. ASE-Compeq Technologies, Inc., a corporation organized under the laws of the Republic of China.
E. ASE Network Inc., a corporation organized under the laws of the Republic of China.
F. ASE (Chung Li) Inc., a corporation organized under the laws of the Republic of China, and its wholly-owned subsidiary, Omniquest Industrial Limited, a corporation organized under the laws of the British Virgin Islands. Omniquest Industrial Limited has a wholly-owned subsidiary, ASE (Shanghai) Ltd., in the People's Republic of China.
G. ASE Material Inc., a corporation organized under the laws of the Republic of China.
H. ASE Technologies, Inc., a corporation organized under the laws of the Republic of China.
I. J&R Holding Limited, a corporation organized under the laws of Bermuda, and its subsidiaries:
(1) ASE Test Limited, a corporation organized under the laws of Singapore, has four wholly-owned subsidiaries:
(a) ASE Test Inc., a corporation organized under the laws of the Republic of China;
(b) ASE Test Holdings Ltd., a corporation organized under the laws of Cayman Islands and its wholly-owned subsidiary, ISE Labs, Inc., a corporation organized under the laws of the state of California, U.S.A.;
(c) ASE Test Finance Limited, a corporation organized under the laws of Mauritius; and
(d) ASE Holdings (Singapore) Pte., Ltd., a corporation organized under the laws of Singapore and its wholly-owned subsidiary, ASE Electronics (M) Sdn Bhd, Inc., a corporation organized under the laws of Malaysia.
(2) J&R Industrial Inc., a corporation organized under the laws of the Republic of China;
(3) Grand Innovation Co., Ltd., a corporation organized under the laws of the British Virgin Islands; and
(4) ASE Japan Co., Ltd., a corporation organized under the laws of Japan.
J. Advanced Semiconductor Engineering, Inc. has a controlling interest in the following companies:
(1) Universal Scientific Industrial Co., Ltd., a corporation organized under the laws of the Republic of China.
(2) Hung Ching Development & Construction Co. Ltd., a corporation organized under the laws of the Republic of China.
(3) Integrated Programmable Communications Inc., a corporation organized under the laws of the state of California, U.S.A.
(4) Inprocomm, Inc., a corporation organized under the law of the Republic of China.
(5) Hung Ching Kwan Co., a corporation organized under the laws of the Republic of China.
Exhibit 12(a)
Certification
I, Jason C.S. Chang, Chief Executive Officer of Advanced Semiconductor Engineering, Inc. ("ASE Inc."), certify that:
1. I have reviewed this annual report on Form 20-F of ASE Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [Reserved]
(c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
5. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
Date: June 30, 2004
/s/ Jason C.S. Chang
----------------------------------------
Jason C.S. Chang
Chief Executive Officer
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Exhibit 12(b)
Certification
I, Joseph Tung, Chief Financial Officer of Advanced Semiconductor Engineering, Inc. ("ASE Inc."), certify that:
1. I have reviewed this annual report on Form 20-F of ASE Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) [Reserved]
(c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and
5. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.
Date: June 30, 2004
/s/ Joseph Tung
----------------------------------------
Joseph Tung
Chief Financial Officer
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Exhibit 13
906 Certification
The certification set forth below is being submitted in connection with the Annual Report on Form 20-F for the year ended December 31, 2003 (the "Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Jason C.S. Chang, the Chief Executive Officer, and Joseph Tung, the Chief Financial Officer, of Advanced Semiconductor Engineering, Inc., each certifies that, to the best of his knowledge:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Advanced Semiconductor Engineering, Inc.
Date: June 30, 2004 /s/ Jason C.S. Chang
------------------- ----------------------------------------
Name: Jason C.S. Chang
Title: Chief Executive Officer
/s/ Joseph Tung
----------------------------------------
Name: Joseph Tung
Title: Chief Financial Officer
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Exhibit 14
(English Translation Summary)
Ministry of Economic Affairs Export Processing Zones Administration (EPZA) Nantze Export Processing Zone
Land Lease Agreements
I. See Annex I for a description of lease details.
II. General Provisions:
The land in the Kaohsiung Nantze Export Processing Zone is leased from the Ministry of Economic Affairs, Export Processing Zones Administration.
The term under all lease agreements between EPZA and ASE Inc., ASE Test, Inc. and ASE Material is 10 years. The usage of leased land is limited to office, factory, warehouse, and operational space. No sublease or lending of the land is allowed. The usage, rental payment schedule, default penalty, public construction fee, deposit, minimum dimension and other construction requirements are stipulated by the regulations of the Ministry of Economic Affairs. The EPZA may adjust the rental when the government reevaluates the land price.
The lease agreements are renewable by 3 months prior written application with the EPZA. After the termination of the lease agreement, ASE Inc. should return the buildings on the land and the buildings will be sold to any other enterprises as approved by the EPZA within 6 months.
The regulation of Ministry of Economics Affairs in connection with the lease in the Nantze Export Processing Zone may change from time to time. There can be no assurance that current regulations will continue in effect or that future changes will not have an adverse effect upon the availability of the lease above.
Annex I
The following land lease agreements are entered into between ASE Inc. and the EPZA.
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Public
Unit Price Rental Facility
Land Lease Total Area (NT$/m(2)/ (NT$/per Construction Lease Date
Agreement Property (m(2)) per month) month) Fee Period of Lease
------------------------------------------------------------------------------------------------------------------------------------
(83) Nan-Di-Tse Nantze Export Processing Zone, Hoping 3,238 11.50 37,237 0 1994.8.1~ 1994.7.29
No. 38 Section, Sub-Section II, District 3, 2004.7.31
Lot Nos. 625, 626, 627 and 629
(Property No. CL088)
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(84) Nan-Di-Tse Nantze Export Processing Zone, Hoping 1,710 11.50 19,665 0 1995.7.1~ 1995.6.27
No. 24 Section, Sub-Section II, District 4, 2005.6.30
Lot No. 600 (Property No. AL039)
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(84) Nan-Di-Tse Nantze Export Processing Zone, Hoping 2,534 11.50 29,141 0 1996.1.1~ 1995.12.4
No. 37 Section, Sub-Section II, District 3, 2005.10.31
Lot No. 667 (Property No. CL008)
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------------------------------------------------------------------------------------------------------------------------------------
Public
Unit Price Rental Facility
Land Lease Total Area (NT$/m(2)/ (NT$/per Construction Lease Date
Agreement Property (m(2)) per month) month) Fee Period of Lease
------------------------------------------------------------------------------------------------------------------------------------
(86) Nan-Di-Tse Nantze Export Processing Zone, Hoping 6,946 11.50 79,879 0 1997.8.1~
No. 35 Section, Sub-Section II, District 3, 2007.7.31
Lot Nos. 634 and 635 (Property No.
CL009)
------------------------------------------------------------------------------------------------------------------------------------
(86) Nan-Di-Tse Nantze Export Processing Zone, Hoping 2,655 11.50 30,532 0 1997.10.1~ 1997.9.30
No. 45 Section, Sub-Section II District 3, 2007.9.30
Lot Nos. 625, 626, 627 and 629
(Property No. CL071)
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(86) Nan-Di-Tse Nantze Export Processing Zone, Hoping 1,362 11.50 15,663 0 1997.10.1~ 1997.9.30
No. 44 Section, Sub-Section II, District 4, 2007.9.30
Lot No. 607 (Property No. AL112)
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(87) Nan-Di-Tse Nantze Export Processing Zone, Hoping 2,842 11.50 32,683 0 1998.4.1~ 1998.3.31
No. 110 Section, Sub-Section II, Lot No. 722 2008.3.31
(Property No. CL041)
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(88) Nan-Er- Nantze Export Processing Zone, Hoping 13,011 11.50 149,626 36,300 1999.9.1~ 1999.8.30
Jian-Tse Section, Sub-Section II, District 5, 2009.8.31
No. 18 Lot No. 117 (Property No. CL098)
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------------------------------------------------------------------------------------------------------------------------------------
Public
Unit Price Rental Facility
Land Lease Total Area (NT$/m(2)/ (NT$/per Construction Lease Date
Agreement Property (m(2)) per month) month) Fee Period of Lease
------------------------------------------------------------------------------------------------------------------------------------
(88) Nan-Er- Nantze Export Processing Zone, Hoping 11,348 11.50 130,502 0 1999.10.1~ 1999.10.5
Jian-Tse Section, Sub-Section II, District 1, 2009.9.30
No. 19 Lot Nos. 713 and 717 (Property No.
CL051)
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(89) Nan-Er- Nantze Export Processing Zone, Hoping 2,307 11.50 26,530 0 2000.07.01~ 2000.06.26
Jian-Tse Section, Sub-Section II, Lot No. 626 2010.06.30
No. 15 (Property No. CL046)
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(89) Nan-Er- Nantze Export Processing Zone, Hoping 765 11.50 8,797 0 2000.7.1~ 2000.7.10
Jian-Tse Section, Sub-Section II, Lot No. 627 2010.6.30
No. 019 (Property No. CL053)
------------------------------------------------------------------------------------------------------------------------------------
(89) Nan-Shu-Tzu Nantze Export Processing Zone, Hoping 2000.10.01~ 2000.09.30
No. 002 Section, Sub-Section II, 2010.09.30
Lot No. 442 1,339 33.30 44,588 0
Lot No. 443 176 33.30 5,860
Lot No. 444 1,976 34.80 68,764
Lot No. 557-1 1 48.70 48
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------------------------------------------------------------------------------------------------------------------------------------
Public
Unit Price Rental Facility
Land Lease Total Area (NT$/m(2)/ (NT$/per Construction Lease Date
Agreement Property (m(2)) per month) month) Fee Period of Lease
------------------------------------------------------------------------------------------------------------------------------------
(90) Nan-Er- Nantze Export Processing Zone, Hoping 1,093 11.50 12,570 0 2000.03.16~ 2001.03.16
Jian-Tse Section, Sub-Section II, Lot No. 723 2011.03.15
No. 006 (Property No. CL104)
Nantze Export Processing Zone, Hoping
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(91) Nan-Er- Section, Sub-Section II, Lot. No. 727 9,066 11.50 104,259 25,294 2002.1.1 ~ 2002.1.1
Jian-Tse (Property No. CL098) 2012.12.31
No.004
------------------------------------------------------------------------------------------------------------------------------------
(93) Nan-Er- Nantze Export Processing Zone, Hoping 9,240 11.50 106,260 0 2004.2.1 ~ 2004.2.1
Jian-Tse Section, Sub-Section II, Lot. No. 685 2013.2.31
No. 003 (Property No. CL074)
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(93) Nan-Er- Nantze Export Processing Zone, Hoping 10,280 11.50 118,220 0 2004.4.6 ~ 2004.4.5
Jian-Tse Section, Sub-Section II, Lot. Nos. 630, 2014.4.5
No. 010 631, 632, and 633 (Property No. CL060)
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(93) Nan-Er- Nantze Export Processing Zone, Hoping 4,710 11.50 54,165 1.682 2004.6.1 ~ 2004.6.1
Jian-Tse Section, Sub-Section II, Lot. Nos. 671 2014.5.31
No. 015 and 673 (Property No. CL106)
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The following land lease agreements are entered into between ASE Test, Inc. and the EPZA
------------------------------------------------------------------------------------------------------------------------------------
Public
Unit Price Rental Facility
Land Lease Total Area (NT$/m(2)/ (NT$/per Construction Lease Date
Agreement Property (m(2)) per month) month) Fee Period of Lease
------------------------------------------------------------------------------------------------------------------------------------
(85) Nan-Di-Tse Nantze Export Processing Zone, Hoping 4,751 11.50 54,636 0 1996.3.1 ~ 1996.3.14
No. 005 Section, Sub-Section II, District 5, 2006. 2.28
Lot. No. 720 (Property No. CL092)
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(86) Nan-Di-Tse Nantze Export Processing Zone, Hoping 4,030 11.50 46,345 0 1997.1.1 ~ 1997.1.3
No. 005 Section, Sub-Section II, District 5, 2006.12.31
Lot. No. 720 (Property No. CL026)
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(91) Nan-Er- Nantze Export Processing Zone, Hoping 3,945 11.50 45,368 11,006 2002.1.1 ~ 2002.1.1
Jian-Tse Section, Sub-Section II, Lot. No. 727 2012.12.31
No. 005 (Property No. CL105)
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(93) Nan-Er- Nantze Export Processing Zone, Hoping 12,837 11.50 147,626 0 2004.4.1 ~ 2004.4.1
Jian-Tse Section, Sub-Section II, Lot. No. 726 2014.3.31
No. 011 (Property No. CL061)
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(89) Nan-Er- Nantze Export Processing Zone, Hoping 4,391 11.50 50,496 0 2000.4.16 ~ 2000.4.17
Jian-Tse Section, Sub-Section II, District 5, 2010.4.15
No. 012 Lot. No. 721 (Property No. CL050)
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(89) Nan-Er- Nantze Export Processing Zone, Hoping 2,842 11.50 32,683 0 2000.5.1 ~ 2000.5.1
Jian-Tse Section, Sub-Section II, District 5, 2010.4.30
No. 013 Lot. No. 722 (Property No. CL041)
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The following land lease agreements are entered into between ASE Material Inc. and the EPZA
------------------------------------------------------------------------------------------------------------------------------------
Public
Unit Price Rental Facility
Land Lease Total Area (NT$/m(2)/ (NT$/per Construction Lease Date
Agreement Property (m(2)) per month) month) Fee Period of Lease
------------------------------------------------------------------------------------------------------------------------------------
(89) Nan-Er- Nantze Export Processing Zone, Hoping 1,588 11.50 18,262 0 2000.10.1 ~ 2000.10.1.
Jian-Tse Section, Sub-Section II, Lot. No. 600 2010.9.30
No. 039 (Property No. AL069)
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(89) Nan-Er- Nantze Export Processing Zone, Hoping 1,467 11.50 16,870 0 2000.10.1 ~ 2000.10.1.
Jian-Tse Section, Sub-Section II, Lot. No. 600 2010.9.30
No. 038 (Property No. AL096)
------------------------------------------------------------------------------------------------------------------------------------
(88) Nan-Er- Nantze Export Processing Zone, Hoping 11,348 11.50 130,502 0 1999.10.1 ~ 1999.10.5.
Jian-Tse Section, Sub-Section II, District 1, 2009.9.30
No. 019 Lot. Nos 713 and 717 (Property No.
CL051)
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