As
filed with the Securities and Exchange
Commission on June 25, 2007
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
20-F
OR
| o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| x |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
|
For
the fiscal year ended December 31,
2006
|
OR
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
OR
|
o
|
SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
|
|
Commission
file number: 001-16125
(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:
|
Title
of Each Class
Common
Shares, par value NT$10.00 each
|
Name
of Each Exchange on which Registered
The
New York Stock Exchange*
|
*Traded
in
the form of American Depositary Receipts evidencing American
Depositary
Shares, each representing five Common Shares
(Title
of
Class)
Securities
registered or to be registered pursuant to Section 12(g) of the
Act:
None
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:
4,592,508,620
Common Shares, par value NT$10 each**
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
Yes
Ö
No
___
If
this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d)
of
the Securities Exchange Act of 1934.
Yes___
No
Ö
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports) and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
Ö
No
___
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer
Ö
Accelerated
filer ____
Non-accelerated
filer ____
Indicate
by check mark which financial statement item the Registrant has elected to
follow.
Item
17
___ Item 18
Ö
If
this is
an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes
___
No
Ö
**
As a
result of the exercise of employee stock options and the conversion of our
convertible bonds due September 2008 subsequent to December 31, 2006, as of
May
31, 2007, we had 4,645,295,431 shares outstanding.
Page
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1
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1
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3
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Item
1.
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3
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Item
2.
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3
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Item
3.
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3
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3
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7
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7
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7
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Item
4.
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20
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20
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22
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41
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44
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Item
4A.
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46
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Item
5.
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46
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46
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61
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65
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66
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67
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Item
6.
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67
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67
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70
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72
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72
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Item
7.
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73
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73
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74
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75
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Item
8.
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75
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75
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76
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76
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77
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Item
9.
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77
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77
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79
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79
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79
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79
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79
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Item
10.
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79
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79
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79
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85
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|||
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86
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86
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90
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90
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90
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90
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Item
11.
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90
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Item
12.
|
93
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PART
II
|
93
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||
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Item
13.
|
93
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||
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Item
14.
|
93
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||
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Item
15.
|
93
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Item
16.
|
95
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||
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Item
16A.
|
95
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||
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Item
16B.
|
95
|
||
|
Item
16C.
|
95
|
||
|
Item
16D.
|
96
|
||
|
Item
16E.
|
96
|
||
|
PART
III
|
96
|
||
|
Item
17.
|
96
|
||
|
Item
18.
|
96
|
||
| Item 19. |
97
|
||
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) “Universal Scientific” are to Universal
Scientific Industrial Co., Ltd., a company incorporated under the laws of the
ROC, (vii) “ASE Material” are to ASE Material Inc., a company previously
incorporated under the laws of the ROC that merged into ASE Inc. on August
1,
2004, (viii) “ASE Korea” are to ASE (Korea) Inc., a company incorporated under
the laws of the Republic of Korea, (ix) “ASE Chung Li” are to ASE (Chung Li)
Inc., a company previously incorporated under the laws of the ROC that merged
into ASE Inc. on August 1, 2004, (x) “ASE Shanghai” are to ASE (Shanghai) Inc.,
a company incorporated under the laws of the PRC, (xi) “Hung Ching” are to Hung
Ching Development & Construction Co. Ltd., a company incorporated under the
laws of the ROC, (xii) “ASE Electronics” are to ASE Electronics Inc., a company
incorporated under the laws of the ROC, (xiii) “Power ASE” are to Power ASE
Technology, Inc., a company incorporated under the laws of the ROC, (xiv) “GAPT”
are to Global Advanced Packaging Technology Limited, a company incorporated
under the laws of the PRC, (xv) “ASE Japan” are to ASE Japan Co. Ltd., a company
incorporated under the laws of Japan, (xvi) the “Securities Act” are to the U.S.
Securities Act of 1933, as amended, and (xvii) 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. All references to the “PRC” are to the People’s
Republic of China and exclude Taiwan, Macau and Hong Kong.
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 the currency of the United States; references to
“New Taiwan dollars”, “NT dollars” and “NT$” are to the currency of the ROC;
references to “RMB” are to the currency of the PRC; references to “JP¥” are to
the currency of Japan; references to “EUR” are to the currency of the European
Union; and references to “KRW” are to the currency of the Republic of
Korea. 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 29, 2006, which was
NT$32.59=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 May 31, 2007, the noon buying
rate was NT$33.09=US$1.00.
This
annual report on Form 20-F contains “forward-looking statements” within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, 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. 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; international business
activities; our business strategy; our future expansion plans and
capital
expenditures; the strained relationship between the ROC and the PRC; general
economic and political conditions; possible disruptions in commercial activities
caused by natural or human-induced disasters; 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”.
Not
applicable.
Not
applicable.
The
selected consolidated income statement data and cash flow data for the years
ended December 31, 2004, 2005 and 2006, and the selected consolidated balance
sheet data as of December 31, 2005 and 2006, 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. The selected consolidated
income statement data and cash flow data for the years ended December 31, 2002
and 2003 and the selected consolidated balance sheet data as of December 31,
2002, 2003 and 2004 set forth below are derived from our audited consolidated
financial statements not included in this annual report. Our consolidated
financial statements have been prepared and presented in accordance with
accounting principles generally accepted in the ROC, or ROC GAAP, which differ
in some material respects from accounting principles generally accepted in
the
United States of America, or U.S. GAAP. See note 31 to our consolidated
financial statements for a description of the significant 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,
|
||||||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
||||||||||||||||||||
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||||||||
|
(in
millions, except earnings per share and per ADS
data)
|
||||||||||||||||||||||||
|
ROC
GAAP:
|
||||||||||||||||||||||||
|
Income
Statement Data:
|
||||||||||||||||||||||||
|
Net
revenues
|
45,586.8
|
55,728.4
|
75,237.7
|
84,035.8
|
100,423.6
|
3,081.4
|
||||||||||||||||||
|
Cost
of revenues
|
(38,492.2 | ) | (45,118.0 | ) | (59,641.1 | ) | (69,518.0 | ) | (71,643.3 | ) | (2,198.3 | ) | ||||||||||||
|
Gross
profit
|
7,094.6
|
10,610.4
|
15,596.6
|
14,517.8
|
28,780.3
|
883.1
|
||||||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||||||
|
Selling
|
(909.4 | ) | (1,204.9 | ) | (1,341.1 | ) | (1,100.0 | ) | (1,320.6 | ) | (40.5 | ) | ||||||||||||
|
General
and administrative
|
(2,780.2 | ) | (3,170.1 | ) | (3,840.0 | ) | (4,284.3 | ) | (4,381.3 | ) | (134.4 | ) | ||||||||||||
|
Goodwill
amortization
|
(815.6 | ) | (819.3 | ) | (877.6 | ) | (528.9 | ) |
—
|
—
|
||||||||||||||
|
Research
and development
|
(2,049.0 | ) | (2,342.9 | ) | (2,581.1 | ) | (2,785.4 | ) | (2,632.0 | ) | (80.8 | ) | ||||||||||||
|
Total
operating expenses
|
(6,554.2 | ) | (7,537.2 | ) | (8,639.8 | ) | (8,698.6 | ) | (8,333.9 | ) | (255.7 | ) | ||||||||||||
|
Income
from operations
|
540.4
|
3,073.2
|
6,956.8
|
5,819.2
|
20,446.4
|
627.4
|
||||||||||||||||||
|
Non-operating
income (expense):
|
||||||||||||||||||||||||
|
Equity
in earnings (losses) of equity method investees, net
|
(162.4 | ) | (20.1 | ) | (174.4 | ) |
180.8
|
315.7
|
9.7
|
|||||||||||||||
|
Goodwill
amortization
|
(247.9 | ) | (220.6 | ) | (220.6 | ) | (106.5 | ) |
—
|
—
|
||||||||||||||
|
Gain
on sale of investment, net
|
101.3
|
618.9
|
57.1
|
71.7
|
56.7
|
1.7
|
||||||||||||||||||
|
Foreign
exchange gain (loss), net
(1)
|
(397.9 | ) | (386.8 | ) |
222.4
|
154.3
|
92.8
|
2.8
|
||||||||||||||||
|
Realized
loss on long-term investments
|
—
|
(354.8 | ) |
—
|
—
|
—
|
—
|
|||||||||||||||||
|
Interest
expense, net
|
(1,578.6 | ) | (1,304.4 | ) | (894.4 | ) | (1,397.7 | ) | (1,213.9 | ) | (37.2 | ) | ||||||||||||
|
Impairment
of long-lived assets
|
(1,225.6 | ) |
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||
|
Impairment
of goodwill
|
—
|
—
|
(1,950.1 | ) |
—
|
—
|
—
|
|||||||||||||||||
|
Gain
on insurance settlement and impairment recovery
|
—
|
—
|
—
|
—
|
4,574.5
|
140.4
|
||||||||||||||||||
|
Loss
on fire damage
|
—
|
—
|
—
|
(8,838.1 | ) |
—
|
—
|
|||||||||||||||||
|
Other
investment loss
|
—
|
—
|
(512.0 | ) (2) |
—
|
—
|
—
|
|||||||||||||||||
|
Others,
net
(1)
|
261.0
|
(115.0 | ) | (521.9 | ) | (1,557.5 | ) | (2,020.8 | ) | (62.0 | ) | |||||||||||||
|
Income
(loss) before income tax
|
(2,709.7 | ) |
1,290.4
|
2,962.9
|
(5,673.8 | ) |
22,251.4
|
682.8
|
||||||||||||||||
|
Income
tax benefit (expense)
|
1,140.3
|
1,278.7
|
1,397.0
|
118.6
|
(2,084.8 | ) | (64.0 | ) | ||||||||||||||||
|
As
of and for the Year Ended December 31,
|
||||||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
||||||||||||||||||||
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||||||||
|
(in
millions, except earnings per share and per ADS
data)
|
||||||||||||||||||||||||
|
Income
(loss) from continuing operations
|
(1,569.4 | ) |
2,569.1
|
4,359.9
|
(5,555.2 | ) |
20,166.6
|
618.8
|
||||||||||||||||
|
Discontinued
operations
(3)
|
—
|
196.8
|
568.2
|
353.7
|
—
|
—
|
||||||||||||||||||
|
Extraordinary
loss, net of income tax benefit
|
( 34.6 | ) | (75.7 | ) |
—
|
—
|
—
|
—
|
||||||||||||||||
|
Cumulative
effect of change in accounting principle
|
—
|
—
|
(26.8 | ) (4) |
—
|
(342.5 | ) (5) | (10.5 | ) (5) | |||||||||||||||
|
Minority
interest in net loss (income) of subsidiaries
|
1,733.0
|
52.6
|
(691.6 | ) |
510.3
|
(2,407.9 | ) | (73.9 | ) | |||||||||||||||
|
Net
income (loss) attributable to shareholders of parent
company
|
129.0
|
2,742.8
|
4,209.7
|
(4,691.2 | ) |
17,416.2
|
534.4
|
|||||||||||||||||
|
Income
(loss) from continuing operations per common share
|
0.04
|
0.64
|
0.87
|
(1.15 | ) |
4.03
|
0.12
|
|||||||||||||||||
|
Earnings
(loss) per common share
(6)
:
|
||||||||||||||||||||||||
|
Basic
|
0.03
|
0.67
|
0.99
|
(1.07 | ) |
3.95
|
0.12
|
|||||||||||||||||
|
Diluted
|
0.03
|
0.66
|
0.96
|
(1.07 | ) |
3.77
|
0.12
|
|||||||||||||||||
|
Dividends
per common share
(7)
|
—
|
1.00
|
0.57
|
1.00
|
—
|
—
|
||||||||||||||||||
|
Earnings
(loss) per equivalent ADS
(6)
:
|
||||||||||||||||||||||||
|
Basic
|
0.16
|
3.33
|
4.94
|
(5.37 | ) |
19.77
|
0.61
|
|||||||||||||||||
|
Diluted
|
0.16
|
3.30
|
4.81
|
(5.37 | ) |
18.85
|
0.58
|
|||||||||||||||||
|
Number
of common shares
(8)
:
|
||||||||||||||||||||||||
|
Basic
|
3,992.5
|
4,115.7
|
4,264.8
|
4,370.5
|
4,404.8
|
4,404.8
|
||||||||||||||||||
|
Diluted
|
3,992.5
|
4,153.7
|
4,545.9
|
4,370.5
|
4,664.6
|
4,664.6
|
||||||||||||||||||
|
Number
of equivalent ADSs:
|
||||||||||||||||||||||||
|
Basic
|
798.5
|
823.1
|
853.0
|
874.1
|
881.0
|
881.0
|
||||||||||||||||||
|
Diluted
|
798.5
|
830.7
|
909.2
|
874.1
|
932.2
|
932.2
|
||||||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||||||||||
|
Current
assets:
|
||||||||||||||||||||||||
|
Cash
|
9,829.5
|
8,562.4
|
5,975.1
|
13,263.8
|
15,730.1
|
482.7
|
||||||||||||||||||
|
Financial
assets—current
(1)(9)
|
2,590.4
|
3,017.8
|
3,194.2
|
4,358.7
|
10,904.3
|
334.6
|
||||||||||||||||||
|
Notes
and accounts receivable, net
|
8,998.5
|
12,909.7
|
13,676.2
|
15,585.6
|
11,454.9
|
351.5
|
||||||||||||||||||
|
Inventories
|
3,131.7
|
4,691.8
|
9,437.3
|
7,757.1
|
5,674.0
|
174.1
|
||||||||||||||||||
|
Others
|
2,481.7
|
2,276.2
|
3,612.1
|
6,578.8
|
4,999.5
|
153.4
|
||||||||||||||||||
|
Total
|
27,031.8
|
31,457.9
|
35,894.9
|
47,544.0
|
48,762.8
|
1,496.3
|
||||||||||||||||||
|
Long-term
investments
|
6,566.7
|
6,342.8
|
4,907.4
|
4,898.1
|
5,734.5
|
176.0
|
||||||||||||||||||
|
Property,
plant and equipment, net
|
63,088.9
|
67,339.9
|
82,339.9
|
68,040.8
|
73,543.8
|
2,256.6
|
||||||||||||||||||
|
Intangible
assets
|
5,541.8
|
4,596.2
|
3,959.8
|
3,589.1
|
3,435.7
|
105.4
|
||||||||||||||||||
|
Other
assets
|
2,675.8
|
4,587.4
|
6,848.9
|
7,053.5
|
5,564.1
|
170.7
|
||||||||||||||||||
|
Total
assets
|
104,905.0
|
114,324.2
|
133,950.9
|
131,125.5
|
137,040.9
|
4,205.0
|
||||||||||||||||||
|
Short-term
borrowings
(10)
|
13,453.8
|
14,090.2
|
6,852.8
|
10,523.1
|
8,499.1
|
260.8
|
||||||||||||||||||
|
Long-term
debts
(11)
|
30,553.7
|
30,840.1
|
46,529.6
|
42,862.1
|
29,398.3
|
902.1
|
||||||||||||||||||
|
Other
liabilities
(12)
|
11,388.5
|
24,271.3
|
20,851.9
|
22,890.0
|
22,016.9
|
675.5
|
||||||||||||||||||
|
Total
liabilities
|
55,396.0
|
59,124.0
|
74,234.3
|
76,275.2
|
59,914.1
|
1,838.4
|
||||||||||||||||||
|
Capital
stock
|
32,548.0
|
35,802.8
|
41,000.0
|
45,573.7
|
45,925.1
|
1,409.2
|
||||||||||||||||||
|
Minority
interest in consolidated subsidiaries
|
10,078.3
|
10,077.6
|
8,404.8
|
7,902.0
|
11,106.9
|
340.8
|
||||||||||||||||||
|
Total
shareholders’ equity
|
49,509.0
|
55,200.2
|
59,716.6
|
54,850.3
|
77,126.8
|
2,366.6
|
||||||||||||||||||
|
Cash
Flow Data:
|
||||||||||||||||||||||||
|
Net
cash outflow from acquisition of property, plant and
equipment
|
(12,657.9 | ) | (17,332.0 | ) | (28,521.4 | ) | (15,611.5 | ) | (17,764.2 | ) | (545.1 | ) | ||||||||||||
|
Depreciation
and amortization
|
12,286.3
|
12,766.6
|
14,786.3
|
15,032.8
|
14,488.2
|
444.6
|
||||||||||||||||||
|
Net
cash inflow from operating activities
|
11,313.8
|
13,224.3
|
19,206.7
|
18,751.1
|
37,290.0
|
1,144.2
|
||||||||||||||||||
|
Net
cash inflow from sale of ASE Inc.
common
shares
|
—
|
2,850.5
|
—
|
—
|
—
|
—
|
||||||||||||||||||
|
Net
cash outflow from investing activities
|
(13,719.7 | ) | (18,370.5 | ) | (31,048.9 | ) | (11,632.0 | ) | (22,104.5 | ) | (678.3 | ) | ||||||||||||
|
Net
cash inflow (outflow) from financing activities
|
530.5
|
4,090.8
|
9,164.2
|
(91.8 | ) | (12,561.1 | ) | (385.4 | ) | |||||||||||||||
|
Segment
Data:
|
||||||||||||||||||||||||
|
Net
revenues:
|
||||||||||||||||||||||||
|
Packaging
|
35,515.4
|
43,443.5
|
58,261.8
|
66,022.9
|
76,820.5
|
2,357.2
|
||||||||||||||||||
|
Testing
|
10,060.6
|
12,142.4
|
16,473.9
|
17,122.0
|
21,429.6
|
657.6
|
||||||||||||||||||
|
As
of and for the Year Ended December 31,
|
||||||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
||||||||||||||||||||
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||||||||
|
(in
millions, except earnings per share and per ADS
data)
|
||||||||||||||||||||||||
|
Others
|
10.8
|
142.5
|
502.0
|
890.9
|
2,173.5
|
66.6
|
||||||||||||||||||
|
Gross
profit:
|
||||||||||||||||||||||||
|
Packaging
|
6,255.4
|
7,749.4
|
11,146.0
|
10,128.7
|
19,280.8
|
591.6
|
||||||||||||||||||
|
Testing
|
841.2
|
2,855.3
|
4,332.7
|
4,433.1
|
8,728.2
|
267.8
|
||||||||||||||||||
|
Others
|
(2.0 | ) |
5.7
|
117.9
|
(44.0 | ) |
771.4
|
23.7
|
|
As
of and for the Year Ended December 31,
|
||||||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
||||||||||||||||||||
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||||||||
|
(in
millions, except earnings per share and per ADS
data)
|
||||||||||||||||||||||||
|
U.S.
GAAP:
|
||||||||||||||||||||||||
|
Income
Statement Data:
|
||||||||||||||||||||||||
|
Net
revenues
|
45,586.8
|
55,728.4
|
75,237.7
|
84,035.8
|
100,423.6
|
3,081.4
|
||||||||||||||||||
|
Cost
of revenues
|
(39,308.2 | ) | (46,399.0 | ) | (60,030.0 | ) | (70,544.4 | ) | (73,366.9 | ) | (2,251.2 | ) | ||||||||||||
|
Gross
profit
|
6,278.6
|
9,329.4
|
15,207.7
|
13,491.4
|
27,056.7
|
830.2
|
||||||||||||||||||
|
Total
operating expenses
|
(9,294.2 | ) | (7,079.3 | ) | (7,227.6 | ) | (21,882.8 | ) (13) | (10,113.8 | ) | (310.3 | ) | ||||||||||||
|
Income
(loss) from operations
|
(3,015.6 | ) |
2,250.1
|
7,980.1
|
(8,391.4 | ) (13) |
16,942.9
|
519.9
|
||||||||||||||||
|
Non-operating
income (expense)
|
(2,747.7 | ) | (1,238.4 | ) | (5,127.2 | ) | 1,958.5 | (13) |
1,448.4
|
44.4
|
||||||||||||||
|
Income
tax benefit (expense)
|
1,162.6
|
1,289.7
|
1,506.1
|
190.3
|
(1,980.7 | ) | (60.8 | ) | ||||||||||||||||
|
Discontinued
operations
(3)
|
—
|
196.8
|
568.2
|
353.7
|
—
|
—
|
||||||||||||||||||
|
Extraordinary
loss
|
(46.1 | ) | (75.7 | ) |
—
|
—
|
—
|
—
|
||||||||||||||||
|
Cumulative
effect of change in accounting principle
|
—
|
—
|
(26.8 | ) (4) |
—
|
(296.5 | ) (14) | (9.1 | ) (14) | |||||||||||||||
|
Minority
interest in net loss (income) of subsidiaries
|
1,572.5
|
(70.5 | ) | (603.3 | ) |
358.4
|
(1,991.4 | ) | (61.1 | ) | ||||||||||||||
|
Net
income (loss)
|
(3,074.3 | ) |
2,352.0
|
4,297.1
|
(5,530.5 | ) |
14,122.7
|
433.3
|
||||||||||||||||
|
Earnings
(loss) per common share
(6)
:
|
||||||||||||||||||||||||
|
Basic
|
(0.78 | ) |
0.58
|
1.02
|
(1.27 | ) |
3.21
|
0.10
|
||||||||||||||||
|
Diluted
|
(0.78 | ) |
0.57
|
0.95
|
(1.27 | ) |
3.07
|
0.09
|
||||||||||||||||
|
Earnings
(loss) per equivalent ADS
(6)
:
|
||||||||||||||||||||||||
|
Basic
|
(3.89 | ) |
2.89
|
5.08
|
(6.35 | ) |
16.03
|
0.49
|
||||||||||||||||
|
Diluted
|
(3.89 | ) |
2.86
|
4.76
|
(6.35 | ) |
15.33
|
0.47
|
||||||||||||||||
|
Number
of common shares
(15)
:
|
||||||||||||||||||||||||
|
Basic
|
3,954.0
|
4,076.0
|
4,230.0
|
4,352.7
|
4,404.8
|
4,404.8
|
||||||||||||||||||
|
Diluted
|
3,954.0
|
4,113.7
|
4,509.1
|
4,352.7
|
4,661.2
|
4,661.2
|
||||||||||||||||||
|
Number
of equivalent ADSs:
|
||||||||||||||||||||||||
|
Basic
|
790.8
|
815.2
|
845.9
|
870.5
|
881.0
|
881.0
|
||||||||||||||||||
|
Diluted
|
790.8
|
822.7
|
901.8
|
870.5
|
932.2
|
932.2
|
||||||||||||||||||
|
Balance
Sheet Data:
|
||||||||||||||||||||||||
|
Current
assets
|
||||||||||||||||||||||||
|
Cash
|
9,829.5
|
8,562.4
|
5,975.1
|
13,263.8
|
15,730.1
|
482.7
|
||||||||||||||||||
|
Financial
assets—current
(1)
|
2,592.4
|
3,022.9
|
3,198.4
|
4,375.0
|
10,904.3
|
334.6
|
||||||||||||||||||
|
Notes
and accounts receivable, net
|
8,998.5
|
12,909.8
|
13,676.2
|
15,585.6
|
11,454.9
|
351.5
|
||||||||||||||||||
|
Inventories
|
3,131.7
|
4,691.8
|
9,437.3
|
7,757.1
|
5,674.0
|
174.1
|
||||||||||||||||||
|
Others
|
2,481.7
|
2,276.2
|
3,612.1
|
6,578.8
|
4,999.5
|
153.4
|
||||||||||||||||||
|
Total
|
27,033.8
|
31,463.1
|
35,899.1
|
47,560.3
|
48,762.8
|
1,496.3
|
||||||||||||||||||
|
Long-term
investments
|
5,609.3
|
5,571.4
|
3,377.6
|
3,469.2
|
4,266.9
|
130.9
|
||||||||||||||||||
|
Property,
plant and equipment, net
|
62,797.4
|
66,947.6
|
81,849.1
|
67,547.9
|
70,842.9
|
2,173.8
|
||||||||||||||||||
|
Intangible
assets
|
3,227.0
|
3,100.8
|
3,954.4
|
4,112.6
|
3,959.1
|
121.5
|
||||||||||||||||||
|
Other
assets
|
2,715.3
|
4,637.8
|
7,008.5
|
7,284.7
|
5,899.4
|
180.9
|
||||||||||||||||||
|
Total
assets
|
101,382.8
|
111,720.7
|
132,088.7
|
129,974.7
|
133,731.1
|
4,103.4
|
||||||||||||||||||
|
Short-term
borrowings
(10)
|
13,453.8
|
14,090.2
|
6,852.8
|
10,523.1
|
8,499.1
|
260.8
|
||||||||||||||||||
|
Long-term
debts
(11)
|
30,553.7
|
30,840.1
|
46,529.6
|
42,862.1
|
29,398.3
|
902.1
|
||||||||||||||||||
|
Other
liabilities
(12)
|
11,425.4
|
14,351.8
|
21,465.2
|
23,397.2
|
24,228.3
|
743.4
|
||||||||||||||||||
|
Total
liabilities
|
55,432.9
|
59,282.1
|
74,847.6
|
76,782.4
|
62,125.7
|
1,906.3
|
||||||||||||||||||
|
Minority
interest
|
10,222.8
|
10,345.1
|
8,584.0
|
8,233.0
|
11,021.3
|
338.2
|
||||||||||||||||||
|
Capital
stock
|
32,548.0
|
35,802.0
|
41,000.0
|
45,573.7
|
45,925.1
|
1,409.2
|
||||||||||||||||||
|
Total
shareholders’ equity
|
35,727.2
|
42,093.5
|
48,657.1
|
44,959.3
|
60,584.1
|
1,858.9
|
||||||||||||||||||
|
(1)
|
As
a
result of our adoption of the ROC Statement of Financial Accounting
Standards, or ROC SFAS, No. 34 “Financial Instruments: Recognition
and Measurement”, and ROC SFAS No. 36, “Financial Instruments:
Disclosure and Presentation”, the balances in 2004 and 2005 were
reclassified to be consistent with the classification used in our
consolidated financial statements for 2006. Balances in 2002 and
2003 were
not reclassified accordingly. See note 3 to our consolidated financial
statements included in this annual
report.
|
|
(2)
|
Represents
an impairment charge of NT$512.0 million relating to our long-term
investment in our unconsolidated affiliate Universal
Scientific.
|
|
(3)
|
Amount
for 2005 includes income from discontinued operations of NT$121.0
million
and gain on disposal of discontinued operations of NT$232.7 million,
net
of income tax expense. In October 2005, ASE Test disposed of its
camera
module assembly operations in Malaysia. Such operations were
formerly classified as part of its packaging operations. Information
in
this annual report from our consolidated statements of income for
the
years ended December 31, 2003, 2004 and 2005 has been adjusted to
reflect
the reclassification of ASE Test’s camera module assembly operations as
discontinued operations. Information from our consolidated statements
of
cash flows was appropriately not adjusted. Because ASE Test
commenced its camera module assembly operations in 2003, no
reclassification for periods prior to 2003 is required. See
“Item 5. Operating and Financial Review and Prospects—Operating Results
and Trend Information—Discontinued
Operations”.
|
|
(4)
|
Represents
the cumulative effect of our introduction of enterprise resource
planning,
or ERP, in order to increase our ability to effectively monitor our
entire
organization’s resource allocation, we switched from using the
weighted-average method to using the moving-average method to price
our
raw materials and supplies.
|
|
(5)
|
Represents
the cumulative effect of our adoption of ROC SFAS No. 34 “Financial
Instrument: Recognition and Measurement” and ROC SFAS, No. 36 “Financial
Instruments: Disclosure and Presentation”. See note 3 to
our consolidated financial statements included in this annual
report.
|
|
(6)
|
The
denominators for diluted earnings per common share and diluted earnings
per equivalent ADS are calculated to account for the potential exercise
of
options and conversion of our convertible bonds into our common shares
and
American depositary shares, or
ADSs.
|
|
(7)
|
Dividends
per common share issued as a stock
dividend.
|
|
(8)
|
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.
|
|
(9)
|
Includes
financial assets at fair value through profit or loss and
available-for-sale financial
assets.
|
|
(10)
|
Includes
current portions of bonds payable, long-term bank loans and capital
lease
obligations.
|
|
(11)
|
Excludes
current portions of bonds payable, long-term bank loans and capital
lease
obligations.
|
|
(12)
|
Includes
current liabilities other than short-term
borrowings.
|
|
(13)
|
Loss
from the fire of NT$13,479.1 million at our facilities in Chung Li,
Taiwan
in May 2005, originally classified as non-operating income (expense)
under
U.S. GAAP, was reclassified as income (loss) from operations under
U.S.
GAAP.
|
|
(14)
|
Represents
the cumulative effect of our adoption of U.S. SFAS No. 123R “Share-Based
Payment”. See note 3 to our consolidated financial statements included in
this annual report.
|
|
(15)
|
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 and as amended and supplemented
from time to time among us, Citibank N.A., as depositary, and the holders and
beneficial owners from time to time of the ADSs, which we 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.
|
|
Source:
Federal Reserve Statistical Release, Board of Governors of the Federal
Reserve System.
|
On
May 31,
2007, the noon buying rate was NT$33.09=US$1.00.
Not
applicable.
Not
applicable.
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, in the fourth quarter of 2000, a worldwide
downturn resulted in a significant deterioration in the average selling prices
of, as well as demand for, our services in 2001, and adversely affected our
operating results in 2001. Although the modest recovery in the semiconductor
industry, evident in 2002 and 2003, strengthened in 2004 and 2005, and continued
in 2006, 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 or adjust
our product mix 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 2004, approximately 37.6%, 32.3% and 26.7% of our
net
revenues were attributed to the packaging and testing of semiconductors used
in
communications, personal computer, and consumer electronics applications,
respectively. In 2005, approximately 37.0%, 29.3% and 30.9% of our net revenues
were attributed to the packaging and testing of semiconductors used in
communications, personal computer, and consumer electronics applications,
respectively. In 2006, approximately 37.2%, 24.7% and
37.3%
of
our net revenues were attributed 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 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
packaging and testing markets are:
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the
ability to provide total solutions to our
customers;
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technological
expertise;
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range
of package types and testing platforms
available;
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the
ability to design and produce advanced and cost-competitive interconnect
materials;
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the
ability to work closely with our customers at the product development
stage;
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responsiveness
and flexibility;
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production
cycle time;
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capacity;
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production
yield; and
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price.
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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
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:
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changes
in general economic and business conditions, particularly given the
cyclical nature of the semiconductor industry and the markets served
by
our customers;
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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;
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changes
in prices for our packaging and testing
services;
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volume
of orders relative to our packaging and testing
capacity;
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timing
of capital expenditures in anticipation of future
orders;
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our
ability to design and produce advanced and cost-competitive interconnect
materials;
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changes
in costs and availability of raw materials, equipment and labor;
and
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earthquakes,
drought, epidemics and other natural disasters, as well as industrial
and
other incidents such as fires and power
outages.
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Due
to the
factors listed above, 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 have enhanced
our interconnect materials capabilities through our operations originally
conducted through ASE Material and now conducted through our wholly-owned
subsidiary ASE Electronics and the operations of ASE Shanghai. For
more information on our interconnect materials operations, see “Item 4.
Information on the Company – Business Overview – Principal Products and Services
– Packaging Services – Interconnect Materials”. 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.
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 in connection with our previous acquisitions
of
packaging and testing 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 significantly affect 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, 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 for the packaging and testing of semiconductors in
order
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 fund our research and development activities in order to remain
competitive. We believe that our existing cash, marketable securities, 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:
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our
future financial condition, results of operations and cash
flows;
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general
market conditions for financing activities by semiconductor companies;
and
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economic,
political and other conditions in Taiwan and
elsewhere.
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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 our other agreements. In the event of default, we may
not
be able to cure the default or obtain a waiver on a timely basis. An event
of
default under any agreement governing our existing or future debt, if not cured
or waived, could have a material adverse effect on our liquidity, financial
condition and results of operations.
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. For example, we failed to comply with certain
debt ratios in some of our loan agreements as a result of additional borrowings
to fund increased capital expenditures in 2004 without an increase in net income
and as a result of the fire at our facilities in Chung Li, Taiwan in May 2005.
By July 2005, we had either obtained waivers for, or refinanced on a long-term
basis, all of the relevant loans, and are not in default under any 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 fail to maintain an effective system of internal controls, we may not be
able
to accurately report our financial results or prevent
fraud.
The
United
States Securities and Exchange Commission, or the SEC, as required by Section
404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public
company to include a management report on such company’s internal controls over
financial reporting in its annual report, which contains management’s assessment
of the effectiveness of the company’s internal controls over financial
reporting. These requirements were applicable to us beginning with this annual
report on Form 20-F. In addition, an independent registered public accounting
firm must attest to and report on management’s assessment of the effectiveness
of the company’s internal controls over financial reporting. Our management may
conclude that our internal controls over our financial reporting are not
effective. Moreover, even if our management concludes that our internal controls
over financial reporting are effective, our independent registered public
accounting firm may still decline to attest to our management’s assessment or
may issue a report that is qualified if it identifies a material weakness in
our
controls related to how they are documented, designed, operated or reviewed.
Furthermore, during the course of the evaluation, documentation and attestation,
we may identify deficiencies that we may not be able to remedy in time to meet
the deadline imposed by the Sarbanes-Oxley Act for compliance with the
requirements of Section 404. If we fail to achieve and maintain the adequacy
of
our internal controls, we may not be able to conclude that we have effective
internal controls, on an ongoing basis, over financial reporting in accordance
with the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly
those related to revenue recognition, are necessary for us to produce reliable
financial reports and are important to help prevent fraud. As a result, our
failure to achieve and
maintain
effective internal controls over financial reporting could result in the loss
of
investor confidence in the reliability of our financial statements, which in
turn could harm our business and negatively impact the trading price of our
ADSs. Furthermore, we incur considerable costs and use significant management
time and other resources in an effort to comply with Section 404 and other
requirements of the Sarbanes-Oxley Act.
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 businesses are capital intensive and require
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, Verigy Ltd., Teradyne, Inc.,
Credence Systems Corporation and LTX Corporation. From time to time we have
also
leased certain equipment and have in the past three years increased the amount
of equipment we lease. 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 require 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. See “Item 4. Information on
the Company—Business Overview—Equipment”.
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, with a portion denominated in NT dollars and Japanese
yen.
Our cost 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, Korean won, Japanese yen, Malaysian ringgit and PRC
renminbi. 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 gain of
NT$222.4 million in 2004, a gain of NT$154.3 million in 2005, and a gain of
NT$92.8 million (US$2.8 million) in 2006. See “Item 11. Quantitative
and Qualitative Disclosures about Market Risk—Market Risk—Foreign Currency
Exchange Rate Risk”.
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, 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 due in part to the concentration of market share in the
semiconductor industry. Our five largest customers together accounted for
approximately 32.8%, 30.6%, and 26.0% of our net revenues in 2004, 2005 and
2006, respectively. No customer accounted for more than 10% of our net revenues
in 2004, 2005 and 2006. The demand for our services from a customer is directly
dependent upon that customer’s level of business activity, which could vary
significantly from year to year. Our key customers typically operate in the
cyclical semiconductor business and, in the past, have varied, 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 past 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
adversely affect our revenues and
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, currently 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.
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 Phoenix Precision Technology
Corporation, Kinsus Interconnect Technology Corporation, SMI Electronic Devices
Inc., Nanya Printed Circuit Board Corporation and Daeduck Electronics Technology
Co. Ltd. Our operations originally conducted through ASE Material and now
conducted through our wholly-owned subsidiary ASE Electronics and the operations
of ASE Shanghai have improved our ability to obtain advanced substrates on
a
timely basis and at a reasonable cost. However, we do not expect that our
internal interconnect materials operations to be able to meet all of our
interconnect materials requirements. Consequently, we will remain dependent
on
market supply and demand for our raw materials. We cannot guarantee
that we will not experience shortages in the near future or that we will be
able
to obtain adequate supplies of raw materials in a timely manner or at a
reasonable price. Our revenues and net income could decline if we are unable
to
obtain adequate supplies of high quality raw materials in a timely manner or
if
there are significant increases in the costs of raw materials that we cannot
pass on to our customers.
Any
environmental claims or failure to comply with any present or future
environmental regulations, as well as any fire or other industrial accident,
may
require us to spend additional funds and may materially and adversely affect
our
financial condition and results of operations.
We
are
subject to various 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 that we may not be able to pass on to our
customers. See “Item 4. Information on the Company—Business Overview—Raw
Materials and Suppliers—Packaging”. Additionally, 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:
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our
management and policies;
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the
timing and distribution of dividends;
and
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the
election of our directors and
supervisors.
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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
may be subject to intellectual property rights disputes, which could materially
adversely affect our business.
Our
ability to compete successfully and achieve future growth depends, in part,
on
our ability to develop and protect our proprietary technologies and to secure
on
commercially acceptable terms certain technologies that we do not own. We cannot
assure you that we will be able to independently develop, obtain patents for,
protect or secure from any third party, the technologies required for our
packaging and testing services.
Our
ability to compete successfully also depends, in part, on our ability to operate
without infringing the proprietary rights of others. The semiconductor industry
is characterized by frequent litigation regarding patent and other intellectual
property rights. In January 2006, Tessera Inc. filed a suit against us and
others alleging patent infringement. See “Item 8. Financial Information—Legal
Proceedings”. Any litigation, whether as plaintiff or defendant and regardless
of the outcome, is costly and diverts company resources.
Any
of the
foregoing could harm our competitive position and render us unable to provide
some of our services operations.
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
interests 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
impairment charges may have a material adverse effect on our net
income.
Under
ROC
GAAP and U.S. GAAP, we are required to evaluate our long-lived assets, including
equipment and goodwill, for possible impairment at least annually or whenever
there is an indication of impairment. If certain criteria are met, we are
required to record an impairment charge.
With
respect to long-lived assets, we did not recognize any impairment charges with
regards to our equipment for the years ended December 31, 2004 and 2006, but
have recognized impairment in the past. In 2005, we recognized a loss of
NT$13,479.1 million on damage to our property, plant and equipment caused by
a
fire at our facilities in Chung Li, Taiwan. In 2006, we reversed NT$2,190.6
million (US$67.2 million) of the impairment loss recognized in 2005 under ROC
GAAP due to an increase in the estimated service potential of the relevant
assets. See note 29 to our consolidated financial statements included in this
annual report. Reversal of the amount is not allowed under U.S. GAAP. See note
31 to our consolidated financial statements included in this annual report
for a
reconciliation of the differences in the cost basis of the damaged machinery
and
associated depreciation expense. With respect to goodwill, in 2004,
we recognized an impairment charge of NT$1,950.1 million under ROC GAAP and
NT$1,337.7 million under U.S. GAAP. We did not recognize any goodwill impairment
in 2005 and 2006. As of December 31, 2006, goodwill under ROC GAAP and U.S.
GAAP
amounted to NT$2,831.3 million (US$86.9 million) and NT$3,354.7 million
(US$102.9 million), respectively. See “Item 5. Operating and
Financial Review and Prospects—Operating Results and Trend Information—Critical
Accounting Policies—Realizability of Long-Lived Assets”, “Item 5. Operating and
Financial Review and Prospects—Operating Results and Trend Information —Critical
Accounting Policies—Goodwill” and “Item 5. Operating and Financial Review and
Prospects—Operating Results and Trend Information—Operating Results and Trend
Information—Goodwill Amortization under ROC GAAP”.
We
are
unable to estimate the extent and timing of any impairment charges for
long-lived assets or goodwill for future years under ROC GAAP or under a
reconciliation with U.S. GAAP, and we cannot give any assurance that
impairment
charges will not be required in periods subsequent to December 31, 2006. Any
impairment charge may have a material adverse effect on our net
income. 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 in which our operating results and outlook are
otherwise already depressed.
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 75.8%, 73.5%, and 74.4% of our net
revenues in 2004, 2005 and 2006, 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 PRC government 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. Political uncertainty could adversely affect the prices of our
common shares and ADSs. 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 our common shares
and ADSs.
Currently,
we manufacture interconnect materials as well as provide module assembly
services from time to time in the PRC through our wholly-owned subsidiary ASE
Shanghai. We also provide wire bond packaging and testing services in
the PRC through our wholly-owned subsidiary GAPT. See “Item 4. Information on
the Company—Organizational Structure—Our Consolidated Subsidiaries”. The ROC
government currently restricts certain types of investments by ROC companies,
including ourselves, in the PRC, including certain types of investments in
facilities for the packaging and testing of semiconductors. In April 2006,
these
restrictions were amended to permit investments in facilities for certain less
advanced wire bond packaging and testing services. 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 such ROC investment laws and policies
will permit us to make further investments in the PRC in the future that we
consider beneficial to us. Our growth prospects and profitability may be
adversely affected if we are restricted from making certain additional
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,
as
well as power outages and other industrial incidents, 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 parts of Taiwan. Earthquakes have damaged production facilities and
adversely affected the operations of many companies involved in the
semiconductor and other industries. We have never experienced structural damage
to our facilities or damage to our machinery and equipment as a result of these
earthquakes. In the past, however, we have experienced interruptions to our
production schedule primarily as a result of power outages caused by
earthquakes.
Taiwan
is
also susceptible to typhoons, which may cause damage and business interruptions
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. In the third quarter of 2004, a typhoon caused a partial
interruption for approximately two weeks in our water supply at ASE Chung Li’s
substrate operations.
We
are
dependent upon water for our packaging and substrates operations and a drought
could interrupt such operations. In May 2002, Taiwan experienced a severe
drought. Although 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, the supply of electrical power in Taiwan, which
is primarily provided by Taiwan Power Company, the state-owned electric utility,
is susceptible to disruption that could be prolonged and frequent, caused by
overload as a result of high demand or other reasons.
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 any other natural disasters, or power outage
or other industrial incidents, it could result in a decline in the demand for
our packaging and testing services. If our suppliers or 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 disaster in Taiwan, or a power outage or
other industrial incident could severely disrupt the normal operation of our
business and have a material adverse effect on our financial condition and
results of operations.
Any
outbreak of avian flu or recurrence of SARS or other contagious disease may
have
an adverse effect on the economies and financial markets of certain Asian
countries and may adversely affect our results of
operations.
The
World
Health Organization, or WHO, reported in January 2005 that “during 2004, large
parts of Asia experienced unprecedented outbreaks of highly pathogenic avian
influenza, caused by the H5N1 virus”, which moved the world closer than at any
time since 1968 to an influenza pandemic “with high morbidity, excess mortality,
and social and economic disruption”. There have continued to be cases of
outbreaks of avian flu in certain regions of Asia, Europe and Africa with human
casualties reported in countries such as Azerbaijan, Cambodia, Egypt, Indonesia,
Iraq, the PRC, Thailand, Turkey and Vietnam. Additionally, 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 an outbreak of
avian flu, SARS or other contagious disease will not occur again in the future
and that any future outbreak of avian flu, SARS or other contagious disease
or
the measures taken by the governments of the ROC, Hong Kong, the PRC or other
countries against such potential 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. The perception that an
outbreak of avian flu, SARS or other contagious disease may occur again may
have
an adverse effect on the economic conditions of certain countries in
Asia.
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 in the ROC. Such agent will be required to
meet
the qualifications set by the ROC Ministry of Finance and, upon appointment,
becomes 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 register
with the Taiwan Stock Exchange and appoint a local agent in the ROC to, among
other things, open a bank account and 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
withdrawing holders of ADSs would not be able to hold or otherwise subsequently
sell the common shares on the Taiwan Stock Exchange or otherwise.
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 May 31, 2007, the Taiwan Stock Exchange Index closed
at 8,145.0. 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 Bureau of the Financial Supervisory
Commission, Executive Yuan (formerly known as the 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, 2006,
299,885,000 options had been granted. 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 Financial Supervisory Commission, Executive Yuan, 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; 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 Financial Supervisory
Commission, Executive Yuan 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. Moreover, while
shareholders who own 1% or more of our outstanding shares are entitled to submit
one proposal to be considered at our annual general meetings of shareholders,
only holders representing at least 51% of our ADSs outstanding at the relevant
record date are entitled to submit one proposal to be considered at our annual
general meetings of shareholders. Hence, only one proposal may be
submitted on behalf of all ADS holders.
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 the Republic of China (Taiwan) or any other governmental authority
or
agency of the ROC, may convert NT dollars into other currencies, including
U.S.
dollars, for:
|
·
|
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
|
|
·
|
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 the Republic of China (Taiwan) 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 the Republic of China (Taiwan)
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 the Republic of China (Taiwan), may convert from NT dollars
into other currencies, including U.S. dollars, the following:
|
·
|
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
|
|
·
|
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 the Republic of China (Taiwan) 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
the
Republic of China (Taiwan) 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.
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.
Advanced
Semiconductor Engineering, Inc. was 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 to design and produce interconnect
materials. 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 (886) 7361-7131.
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. We
acquired substantially all of the assets of ASE Chung Li and 100.0% of the
outstanding shares of ASE Korea. We 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.
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 and Santa
Clara, California. We subsequently increased our holding to 100.0% through
purchases made in April, July and November 2000 and in January
2002.
Universal
Scientific
From
February through July of 1999, we purchased 22.6% of the outstanding shares
of
Universal Scientific, 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 April
30, 2007, we held 19.5% of Universal Scientific’s outstanding equity shares.
Four 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 Electronics
Corporation, or 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, after accounting for certain purchase price adjustments,
was approximately US$25.6 million. 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.
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 merged with us on August 1,
2004. We are the surviving corporation. Upon the completion of the merger,
all
of the assets and liabilities of ASE Chung Li and ASE Material are owned and
have been assumed by us, and the operations of ASE Chung Li and ASE Material
have been integrated with our operations.
The
merger
was consummated by means of a share exchange pursuant to which the respective
shareholders of ASE Chung Li and ASE Material, other than ourselves but
including our subsidiaries J&R Holding Limited, ASE Test and ASE Test
Taiwan, received our common shares in exchange for the common shares of each
of
ASE Chung Li and ASE Material. 282,315,437 common shares were issued in
connection with the merger, representing 7.9% of our outstanding shares as
of
October 28, 2003 before giving effect to such issuance.
As
of
October 28, 2003, 57.6% of the outstanding common shares of ASE Chung Li was
held by us, 14.8% was held by J&R Holding Limited, our wholly-owned
subsidiary, and 27.6% was held by ASE Test, our indirect 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 ourselves but
including our subsidiaries J&R Holding Limited and ASE Test, were exchanged
for our 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 issued 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 had a
transaction value of approximately NT$7,101.8 million, based on NT$31.00 per
ASE
Inc. common share, which was the average of the closing prices of our common
shares on the Taiwan Stock Exchange for two days prior to and following October
28, 2003.
As
of
October 28, 2003, 57.4% of the outstanding common shares of ASE Material was
held by us and 4.0% was held by ASE Test Taiwan, with the remaining 38.6% held
by the management and employees of ASE Material, our affiliates, and others.
Pursuant to the merger agreement, all of the common shares of ASE Material
held
by these shareholders other than ourselves were exchanged for our common shares
at an exchange ratio of 0.50 ASE Inc. common share per ASE Material common
share. In connection with the merger, we issued 53,226,208 common shares to
these shareholders of ASE Material. The merger with ASE Material had a
transaction value of approximately NT$1,650.0 million, based on NT$31.00 per
ASE
Inc. common share, which was the average of the closing prices of our common
shares on the Taiwan Stock Exchange for two days prior and following October
28,
2003. See “Item 7. Major Shareholders and Related Party Transactions—Related
Party Transactions”.
In
August
2006, the operations originally conducted through ASE Material were spun off
into our wholly-owned subsidiary ASE Electronics. See “—Organizational
Structure—Our Consolidated Subsidiaries—ASE Electronics”.
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. to focus on the design and production of
interconnect materials for packaging semiconductors. Pursuant to the joint
venture agreement, we initially owned 60.0% of the equity interest in ASE-Compeq
Technologies, Inc. and Compeq owned the remaining 40.0%. In October 2005, we
purchased the remaining 40.0% of ASE-Compeq Technologies, Inc. from Compeq
and
dissolved the company in May 2006.
Acquisition
of ASE (U.S.) Inc.
In
order
to decrease our dependence upon sales agents for after-sales and customer
service in North America and Europe, in July 2004, we, through our subsidiary
J&R Holding Limited, purchased all of the outstanding shares of ASE (U.S.)
Inc. from Y.C. Hsu, ASE (U.S.) Inc.’s sole shareholder, for a purchase price of
US$4.6 million. ASE (U.S.) Inc. is now our wholly-owned subsidiary through
which
we provide after-sales and customer service in North America and Europe. See
“—Business Overview—Sales and Marketing—Sales and Customer Service
Agents”.
Joint
Venture with Powerchip Semiconductor Corp.
On
July
14, 2006, we entered into a joint venture agreement with Powerchip Semiconductor
Corp., or Powerchip, to establish Power ASE to focus on packaging and testing
of
memory semiconductors. Pursuant to the joint venture agreement, we invested
US$30.0 million for 60.0% of the equity interest in Power ASE and Powerchip
invested US$20.0 million for the remaining 40.0%.
Potential
Offer by The Carlyle Group
On
November 24, 2006, we announced the receipt of an indication of interest from
a
consortium of investors led by The Carlyle Group regarding the potential offer
for all our outstanding shares. Our Chairman and Chief Executive
Officer, Jason Chang, agreed to participate as a member of the investor
consortium subject to certain conditions. On April 17, 2007, we were notified
by
the investor consortium of its decision not to pursue the proposed
transaction.
Acquisition
of GAPT
On
January
11, 2007, we completed the acquisition of 100.0% of GAPT for a purchase price
of
US$60.0 million. Based in Shanghai, PRC, GAPT provides wire bond packaging
and
testing services for a wide range of semiconductors.
Joint
Venture with NXP Semiconductors
On
February 2, 2007, we and NXP Semiconductors (formerly known as Philips
Semiconductors), or NXP, announced the signing of a memorandum of understanding
to form a joint venture company in Suzhou, PRC focused on semiconductor testing
and packaging. The terms of the agreement are subject to final
negotiations between NXP and us and the receipt of necessary approvals from
regulatory authorities. We currently plan to acquire 60.0% of the
equity of NXP Semiconductors Suzhou Ltd., NXP’s existing testing and packaging
operations in Suzhou, with NXP retaining the remaining 40.0%.
Together
with our subsidiary ASE Test, we are the world’s largest independent provider of
semiconductor packaging and testing services based on 2006
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:
|
·
|
our
ability to provide a broad range of advanced semiconductor packaging
and
testing services on a large-scale turnkey
basis;
|
|
·
|
our
expertise in developing and providing advanced packaging, interconnect
materials and testing technologies and
solutions;
|
|
·
|
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;
|
|
·
|
our
geographic presence in key centers of outsourced semiconductor and
electronics manufacturing; and
|
|
·
|
our
long-term relationships with providers of complementary semiconductor
manufacturing services, including our strategic alliance with TSMC,
currently 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 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:
| · |
Altera
Corporation
|
·
|
NEC
Electronics Corporation
|
|
|
·
|
ATI
Technologies, Inc.
|
·
|
NVIDIA
Corporation
|
|
|
·
|
Conexant
Systems, Inc.
|
·
|
ON
Semiconductor Corp.
|
|
|
·
·
|
Cambridge
Silicon Radio Limited
Freescale
Semiconductor, Inc. (formerly
|
·
|
NXP
Semiconductors (formerly the semiconductor
operations
of Philips Semiconductors Inc.)
|
|
|
|
the
semiconductor operations of Motorola, Inc.)
|
·
|
Qualcomm
Incorporated
|
|
| · |
Microsoft
Corporation
|
·
|
RF
Micro Devices, Inc.
|
|
|
·
|
Media
Tek Inc.
|
·
|
Silicon
Integrated Systems Corp.
|
|
|
|
|
·
|
STMicroelectronics
N.V.
|
|
|
|
|
·
|
Sunplus
Technology Co., Ltd.
|
|
|
|
|
·
|
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 process and
design technologies have led to 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 end-user markets for communications, personal computers and consumer
electronics, and has experienced increased growth in other markets such as
automotive products and 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$51 billion in 1990 to approximately US$249 billion in 2006.
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, evident in 2002 and 2003, strengthened in 2004,
2005 and 2006, according to Gartner Dataquest. 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 companies. We believe that 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
industry downturn that began in the fourth quarter of 2000 and started to
improve in 2002, 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.
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 multiple 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:
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.
|
|
|
Front-End
Engineering Test
|
Throughout
and following the design process, prototype semiconductors undergo
front-end engineering testing, which involves software development,
electrical design validation and 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 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
|
|
Process
|
Description
|
|
|
|
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.
|
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, substantially all of which are
for
internal use in our packaging operations. 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 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. Our
operations originally conducted through ASE material are now conducted through
our wholly-owned subsidiary ASE Electronics.
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 through our interconnect materials
operations. 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 2006,
our
interconnect materials operations supplied approximately 39.3% of our
consolidated substrate requirements by value, and we are working to increase
the
percentage of our substrate requirements obtained from our own
operations.
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 Korea. Our 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 partially 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 have enabled
us to
continue to make investments in more advanced packaging and testing equipment
even in times of market downturn, also have enabled us to attract a greater
proportion of the demand for more advanced packaging and testing
services.
We
evaluate acquisition and joint venture 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. In 1999, we acquired 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 July 2006, we entered
into a joint venture with Powerchip, a DRAM manufacturer in Taiwan that focuses
on packaging and testing of memory semiconductors. The joint venture began
operations in December 2006. We expect this joint venture to help us develop
our
capabilities with respect to memory semiconductors and benefit from future
growth in the market for memory products. In February 2007, we and
NXP announced the signing of a memorandum of understanding to form a joint
venture company in Suzhou, PRC focused on semiconductor testing and
packaging. The terms of the agreement are subject to final
negotiations between NXP and us and the receipt of necessary approvals from
regulatory authorities. We currently plan to acquire a 60.0% interest
in NXP’s existing testing and packaging operations in Suzhou, with NXP retaining
the remaining 40.0%. We expect the joint venture to help us to expand
our capacity and efficiently serve both international and domestic PRC
markets.
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 turnkey service
provider, we are able to offer in Taiwan packaging and testing services,
including interconnect materials solutions, all within relatively close
geographic
proximity
to our customers, complementary service providers and the end users of our
customers’ products. In addition to our current operations, 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:
|
·
|
Korea
— an increasingly important center for the manufacturing of memory
and
communications devices with a concentration of integrated device
manufacturers specializing in these
products;
|
|
·
|
Malaysia
and Singapore — an emerging center for outsourced semiconductor
manufacturing in Southeast Asia with a concentration of integrated
device
manufacturers;
|
|
·
|
Silicon
Valley in California — the preeminent center for semiconductor design,
with a concentration of fabless
customers;
|
|
·
|
Japan
— an emerging market for semiconductor packaging and testing services
as
Japanese integrated device manufacturers increasingly outsource their
semiconductor manufacturing requirements;
and
|
|
·
|
PRC
— a fast-growing market for semiconductor manufacturing for domestic
consumption.
|
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, currently 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 2004, 2005 and 2006, our packaging revenues,
including revenues from module assembly, accounted for 77.4%, 78.6% and 76.5%
of
our net revenues, respectively, and our testing revenues accounted for 21.9%,
20.4% and 21.3% 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 flip-chip BGA and other
BGA types as well as other advanced packages such as wafer-bumping products.
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:
|
·
|
the
size of the package;
|
|
·
|
the
density of electrical connections the package can support;
and
|
|
·
|
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.
|
Package
Types
|
Number
of
Leads
|
Description
|
End-Use
Applications
|
|||
|
Quad
Flat Package (QFP)/ Thin Quad Flat Package (TQFP)
|
44-256
|
Designed
for advanced processors and controllers, application-specific integrated
circuits and digital signal processors.
|
Multimedia
applications, cellular phones, personal computers, automotive and
industrial products, hard disk drives, communication boards such
as
ethernet, integrated services digital network, and notebook
computers.
|
|||
|
Quad
Flat No-Lead Package (QFN)/Microchip Carrier (MCC)
|
12-84
|
QFN,
also known as MCC, uses half-encapsulation technology to expose the
rear
side of the die pad and the tiny fingers, which are used to connect
the
chip and bonding wire with printed circuit boards.
|
Cellular
phones, wireless local access network, or wireless LAN, personal
digital
assistant devices and digital cameras.
|
|||
|
Bump
Chip Carrier (BCC)
|
16-156
|
BCC
packages use plating metal pads to connect with printed circuit boards,
creating enhanced thermal and electrical performance.
|
Cellular
phones, wireless LAN, personal digital assistant devices and digital
cameras.
|
|||
|
Small
Outline Plastic Package (SOP)/Thin Small Outline Plastic Package
(TSOP)
|
8-56
|
Designed
for memory devices including static random access memory, or SRAM,
dynamic
random access memory, or DRAM, fast static RAM, also called FSRAM,
and
flash
|
Consumer
audio/video and entertainment products, cordless telephones, pagers,
fax
machines, printers, copiers, personal computer peripherals, automotive
parts, telecommunications products, recordable optical disks
|
|
Package
Types
|
Number
of
Leads
|
Description
|
End-Use
Applications
|
|||
| memory devices. | and hard disk drives. | |||||
|
Small
Outline Plastic J-Bend Package (SOJ)
|
20-44
|
Designed
for memory and low pin-count applications.
|
DRAM
memory devices, microcontrollers, digital analog conversions and
audio/video applications.
|
|||
|
Plastic
Leaded Chip Carrier (PLCC)
|
28-84
|
Designed
for applications that do not require low-profile packages with high
density of interconnects.
|
Personal
computers, scanners, electronic games and monitors.
|
|||
|
Plastic
Dual In-line Package (PDIP)
|
8-64
|
Designed
for consumer electronic products.
|
Telephones,
televisions, audio/video applications and computer
peripherals.
|
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:
|
·
|
smaller
package size;
|
|
·
|
higher
pin-count;
|
|
·
|
greater
reliability;
|
|
·
|
superior
electrical signal transmission; and
|
|
·
|
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.
The
following table sets forth our principal substrate-based packages.
|
Package
Types
|
Number
of Leads
|
Description
|
End-Use
Applications
|
|||
|
Plastic
BGA
|
5-1520
|
Designed
for semiconductors which require the enhanced performance provided
by
plastic BGA, including personal computer chipsets, graphic controllers
and
microprocessors, application-specific integrated circuits, digital
signal
processors and memory devices.
|
Wireless
products, cellular phones, global positioning systems, notebook computers,
disk drives and video cameras.
|
|||
|
Film
BGA
|
100-280
|
Substrate-based
package that has higher performance and lower profile than plastic
BGA.
|
Cellular
phones, pagers, wireless communications, digital signal processors
and
micro-controller applications and high performance disk
drives.
|
|||
|
Cavity
Down BGA
|
256-1140
|
Designed
for memory devices such as flash memory devices, SRAM, DRAM and FSRAM,
microprocessors/controllers and high-value, application-specific
integrated circuits requiring a low profile, light and small
package.
|
Cellular
and other telecommunications products, wireless and consumer systems,
personal digital assistants, or PDAs, disk drives, notebook computers
and
memory boards.
|
|||
|
Stacked-Die
BGA
|
44-591
|
Combination
of multiple dies in a single package enables package to have multiple
functions within a small surface area.
|
Cellular
phones, local area networks, graphic and processors, digital cameras
and
pagers.
|
|||
|
Flip-Chip
BGA
|
16-2401
|
Using
advanced interconnect technology, the flip-chip BGA package allows
higher
density of 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.
|
High-performance
networking, graphics and processor applications.
|
|||
|
Land
Grid Array (LGA)
|
10-72
|
Leadless
package which is essentially a BGA package without the solder
balls. Based on laminate substrate, land grid array packages
allow flexible routing and are capable of multichip module
functions.
|
High
frequency integrated circuits such as wireless communications products,
computers servers and personal computer
peripherals.
|
Module
Assembly.
We also offer module assembly services, which
combine one or more packaged semiconductors 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 cellular phones,
PDAs, wireless LAN applications, Bluetooth applications, camera modules,
automotive applications and toys. Beginning in 2003, a substantial
portion of our module assembly services was provided at ASE Test’s facilities in
Malaysia to a customer for the assembly of
camera
modules used in handsets. In 2005, this customer moved its camera
module assembly in-house and ASE Test disposed of its camera module assembly
operations in Malaysia in October 2005. We currently provide module assembly
services primarily at our facilities in Korea for radio frequency and power
amplifier modules used in wireless communications and automotive
applications.
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. Until the fourth
quarter of 2005 when we discontinued production of leadframes, we produced
both
leadframes and substrates for use in our packaging operations. In 2006, our
interconnect materials operations supplied approximately 39.3% of our
consolidated substrate requirements by value.
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 and commenced the production
of
interconnect materials at ASE Shanghai in June 2004 to develop our capabilities
in the design and production of interconnect materials for use in our packaging
operations, which we believe can help us capture growth opportunities in the
interconnect materials business as well as reduce the production cycle time
for
our customers by integrating substrate design into our packaging services.
In
2004, we merged ASE Material with and into us, and in August 2006 we spun off
the operations of ASE Material into our wholly-owned subsidiary ASE Electronics.
See “—History and Development of the Company – Merger with ASE Chung Li and ASE
Material” and “Item 7. Major Shareholders and Related Party Transactions –
Related Party Transactions”.
The
following table sets forth, for the periods indicated, the percentage of our
packaging revenues accounted for by each principal type of packaging products
or
services.
|
Year
Ended December 31,
|
||||||||||||
|
2004
|
2005
|
2006
|
||||||||||
|
(percentage
of packaging revenues)
|
||||||||||||
|
Advanced
substrate and leadframe-based packages
(1)(2)
|
79.5 | % | 79.3 | % | 82.8 | % | ||||||
|
Traditional
leadframe-based packages
(3)
|
8.7
|
6.6
|
5.2
|
|||||||||
|
Module
assembly
|
8.1
|
10.0
|
7.1
|
|||||||||
|
Other
|
3.7
|
4.1
|
4.9
|
|||||||||
|
Total
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
(1)
|
Information
in this annual report from our consolidated statements of income
for the
years ended December 31, 2003, 2004 and 2005 has been adjusted to
reflect
the reclassification of ASE Test’s camera module assembly operations as
discontinued operations. See “Item 5. Operating and
Financial Review and Prospects—Operating Results and Trend
Information—Discontinued
Operations”.
|
|
(2)
|
Includes
leadframe-based packages such as QFP/TQFP, QFN/MCC and BCC and
substrate-based packages such as various BGA package types (including
flip-chip and others) and LGA.
|
|
(3)
|
Includes
leadframe-based packages such as SOP/TSOP, SOJ, PLCC and
PDIP.
|
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.
|
·
|
Customized
Software Development.
Test engineers develop
customized software to test the semiconductor using advanced testing
equipment. Customized software, developed on specific testing platforms,
is required to test the conformity of each particular semiconductor
type
to its unique functionality and
specification.
|
|
·
|
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.
|
|
·
|
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.
|
|
·
|
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:
|
·
|
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;
|
|
·
|
Dry
Pack.
Process which involves heating
semiconductors in order to remove moisture before packaging and shipping
to customers; and
|
|
·
|
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,
|
||||||||||||
|
2004
|
2005
|
2006
|
||||||||||
|
(percentage
of testing revenues)
|
||||||||||||
|
Testing
Services:
|
||||||||||||
|
Front-end
engineering testing
|
3.6 | % | 3.7 | % | 4.7 | % | ||||||
|
Wafer
probing
|
21.5
|
16.6
|
18.7
|
|||||||||
|
Final
testing
|
74.9
|
79.7
|
76.6
|
|||||||||
|
Total
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
Seasonality
See
“Item
5. Operating and Financial Review and Prospects—Operating Results and Trend
Information—Quarterly Net Revenues, Gross Profit and Gross Margin”.
Sales
and Marketing
Sales
and Marketing Offices
We
maintain sales and marketing offices in Taiwan, the United States, Austria,
Belgium, Germany, Korea, Malaysia and Japan. Our sales and marketing offices
in
Taiwan, which are located in Hsinchu and Kaohsiung, are staffed with both our
and ASE Test Taiwan’s employees. We conduct marketing research through our
customer service personnel 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. Information on the Company—Business
Overview—Sales and Marketing—Qualification and Correlation by
Customers”.
Sales
and Customer Service Agents
Under
commission agreements, each of ASE Inc., ASE Chung Li, ASE Test Taiwan, ASE
Korea and ASE Test Malaysia appointed Gardex as the non-exclusive sales agent
for its services and products worldwide. In 2004, 2005 and 2006, we
paid NT$769.6 million, NT$231.9 million and NT$320.5 million (US$9.8 million),
respectively, in commissions to Gardex. We terminated our commission agreements
with Gardex on January 1, 2007.
Before
we
acquired ASE (U.S.) Inc. in July 2004, ASE (U.S.) Inc. was our non-exclusive
agent that provided customer service and after-sales support to our customers
in
Europe and North America. As our wholly-owned
subsidiary,
ASE (U.S.) Inc. continues to provide such services to the ASE Group. See
“—History and Development of the Company—Acquisition of ASE (U.S.)
Inc.”
Customers
Our
global
base of over 200 customers includes leading semiconductor companies across
a
wide range of end-use applications:
Our
five largest customers together
accounted for approximately 32.8%, 30.6%, and 26.0% of our net revenues in
2004,
2005 and 2006, respectively. No customer accounted for more than 10% of our
net
revenues in 2004, 2005 and 2006.
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,
|
||||||||||||
|
2004
|
2005
|
2006
|
||||||||||
|
Communications
|
37.6 | % | 37.0 | % | 37.2 | % | ||||||
|
Personal
computers
|
32.3
|
29.3
|
24.7
|
|||||||||
|
Consumer
electronics/industrial/automotive
|
26.7
|
30.9
|
37.3
|
|||||||||
|
Other
|
3.4
|
2.8
|
0.8
|
|||||||||
|
Total
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
Many
of
our customers are leaders in their respective end-use markets. For example,
we
provide Freescale Semiconductor, Inc. (formerly the semiconductor operations
of
Motorola, Inc.), an industry leader in automotive and wireless communications
semiconductor products, with a substantial portion 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
|
||
|
Cambridge
Silicon Radio Limited
Conexant
Systems, Inc.
Freescale
Semiconductor, Inc. (formerly the
semiconductor operations of Motorola, Inc.)
Media
Tek Inc.
NEC
Electronics Corporation
NXP
Semiconductors (fomerly the semiconductor operations of Philips
Semiconductors Inc.
|
ATI
Technologies, Inc.
Marvell
Technology Group Ltd.
Media
Tek Inc.
NVIDIA
Corporation
Silicon
Integrated Systems Corp.
VIA
Technologies, Inc.
Winbond
Electronics Corporation
|
Altera
Corporation
Freescale
Semiconductor, Inc. (formerly
the semiconductor operations of Motorola, Inc.)
Media
Tek Inc.
Microsoft
Corporation
Micronas
Semiconductor Holding AG
NEC
Electronics Corporation
ON
Semiconductor Corp.
|
|
Communications
|
Personal
Computers
|
Consumer
Electronics/Industrial/Automotive
|
||
|
Qualcomm
Incorporated
RF
Micro Devices, Inc.
STMicroelectronics
N.V.
|
STMicroelectronics
N.V.
Sunplus
Technology Co., Ltd.
|
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,
|
||||||||||||
|
2004
|
2005
|
2006
|
||||||||||
|
America
|
54.5 | % | 51.5 | % | 53.1 | % | ||||||
|
Taiwan
|
23.5
|
20.0
|
18.7
|
|||||||||
|
Asia
|
13.1
|
16.2
|
15.7
|
|||||||||
|
Europe
|
8.9
|
12.3
|
12.5
|
|||||||||
|
Other
|
*
|
*
|
*
|
|||||||||
|
Total
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
|
*
Indicates percentage is less than 0.1% of net
revenues.
|
The
majority of our testing revenues is accounted for by the testing of
semiconductors that were also packaged at our packaging facilities. The balance
represented testing revenues from customers who delivered packaged
semiconductors directly to our facilities for testing services alone. The
majority of our packaging revenues is accounted for by the packaging of
semiconductors which were subsequently tested at our facilities. We expect
that
more customers of our packaging facilities 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, substrates, gold wire and molding
compound represented approximately 11.9%, 43.8%, 24.3% and 6.0%, respectively,
of our total cost of packaging materials in 2006.
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 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. We cannot guarantee
that
we will not experience shortages in the near future or that we will be able
to
obtain adequate supplies of raw materials in a timely manner and at a reasonable
price. In the event of a shortage, we generally inform our customers and work
together to accommodate changes in delivery schedules.
Until
the
fourth quarter of 2005 when we discontinued production of leadframes, we
produced both leadframe and substrates for use in our packaging operations.
In
2006, our interconnect materials operations supplied approximately 39.3% of
our
consolidated substrate requirements by value. See “Item 4. Information on the
Company—Business Overview—Principal Products and Services—Interconnect
Materials”.
As
a
result of the “Directive 2002/95/EC on the restriction of the use of certain
hazardous substances in electrical and electronic equipment”, or RoHS, which
became effective on July 1, 2006, we have adjusted our purchases of raw
materials and our production processes in order to use raw materials that comply
with this legislation for part of our production. This new
legislation restricts the use in the European Union, or EU, of certain
substances the EU deems harmful to consumers, which includes certain grades
of
molding compounds, solder and other raw materials that are used in our
products. Manufacturers of electrical and electronic equipment must
comply with this legislation in order to sell their products in an EU member
state. As a result of this legislation, our customers have
increasingly requested that RoHS-compliant materials be used in our packaging
processes.
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 April 30, 2007, we operated an aggregate of 7,024 wire
bonders, of which 6,102 were fine-pitch wire bonders. As of the same date,
43 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 Verigy Ltd.,
Teradyne, Inc., Credence Systems Corporation, LTX Corporation, Seiko Epson
and
Tokyo Electron Limited. 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 April 30, 2007,
we
operated an aggregate of 1,356 testers, of which 277 were consigned by customers
and 86 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
April 30, 2007, we held 1,844 Taiwan patents and 714 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
Freescale Semiconductor Inc., Tessera Inc., Fujitsu Limited and Flip Chip
International, L.L.C. We paid royalties under our license agreements in the
amount of NT$164.0 million, NT$179.1 million and NT$282.3 million (US$8.7
million) in 2004, 2005 and 2006, respectively. The technology we license from
these companies includes solder bumping, redistribution, ultra CSP 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. For information regarding our intellectual property dispute with
Tessera, see “Item 8. Financial Information—Legal Proceedings”. The license
agreements with Freescale Semiconductor Inc. will expire on December 31, 2010.
Our license agreements with Flip Chip International, L.L.C. will expire on
February 28, 2009 and December 25, 2010. We negotiate the renewal of our license
agreement with Fujitsu Limited annually.
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 Freescale Semiconductor, 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. We also have established an environmental management
system in order to ensure that we can comply with the environmental standards
of
our customers and the countries within which they operate. See “Item 4.
Information on the Company—Business Overview—Raw Materials and
Suppliers—Packaging”. 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
Standard 209E class 1,000, 10,000 and 100,000 standards.
Our
packaging, testing and interconnect materials facilities in Taiwan, Malaysia,
Japan, the PRC, Singapore and Korea have been certified as meeting
ISO/TS16949:2002 standards. Such standards were originally created by the
International Automotive Task Force in conjunction with the International
Standards Organization, or ISO. These standards provide for continuous
improvement with an emphasis on the prevention of defects and reduction of
variation and waste in the supply chain. The ISO/TS16949:2002 certification
is
required by some semiconductor manufacturers as a threshold indicator of
company’s quality control standards.
Our
packaging, testing and interconnect materials facilities in Taiwan, Japan,
Korea, Malaysia, the PRC, California and Singapore have been certified as
meeting the ISO 9001 quality standards set by the ISO. Our packing,
testing and interconnect materials facilities in Taiwan, Japan, Korea, Malaysia,
the PRC, California and Singapore have also been certified as meeting the ISO
14001 quality standards. In addition, our packaging facilities in
Kaohsiung, Taiwan have been certified as meeting the ISO 17025:2005 quality
standards set by the ISO. ISO certifications are required by many
countries in connection with sales of industrial products.
Our
packaging, testing and interconnect materials facilities in Taiwan, Korea and
the PRC have also been certified to be in compliance with OHSAS 18001:1999,
a
set of standards designed upon collaboration with occupational health and safety
experts and now offered by many certification organizations as an indication
of
compliance with certain standards for occupational health and
safety.
ISE
Labs’
testing facilities in Fremont, California have 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, testing and interconnect materials facilities in Taiwan, Malaysia
and
Korea have been certified as a “Sony Green Partner”, which indicates our
compliance with the “Sony Green Package” standard requirements.
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. 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. Substantially all of the independent packaging
and testing companies that compete with us have established 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 at lower cost 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 their 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. For information regarding our compliance
with a recent EU Directive affecting us, see “—Raw Materials and
Suppliers—Packing”
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 public and product liabilities. 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.
The
following chart illustrates our corporate structure and our effective equity
interest in each of our principal operating subsidiaries and affiliates as
of
April 30, 2007. The following chart does not include wholly-owned intermediate
holding companies.
|
(1)
|
The
common shares of ASE Inc. are listed on the Taiwan Stock Exchange
under
the symbol “2311”. ADSs representing the shares of ASE Inc. are listed on
the New York Stock Exchange under the symbol
“ASX”.
|
|
(2)
|
The
ordinary shares of ASE Test are quoted for trading on the Nasdaq
Global
Market under the symbol “ASTSF”. ASE Test’s Taiwan depositary shares,
which represent its ordinary shares, are listed for trading on the
Taiwan
Stock Exchange under the symbol
“9101”.
|
|
(3)
|
Our
acquisition of ASE Japan was completed in May 2004. For more information
on the acquisition, see “—History and Development of the
Company—Acquisition of NEC’s Packaging and Testing Operations in Yamagata,
Japan”.
|
|
(4)
|
Our
acquisition of GAPT was completed in January 2007. For more information
on
the acquisition, see “— History and Development of the Company—Acquisition
of GAPT”.
|
|
(5)
|
ASE
Shanghai began operations in June 2004. See “—Our Consolidated
Subsidiaries—ASE Shanghai”.
|
|
(6)
|
Power
ASE began operations in December 2006. See “—Our Consolidated
Subsidiaries—Power ASE Technology,
Inc.”
|
|
(7)
|
The
common shares of Universal Scientific Industrial Co., Ltd. are listed
on
the Taiwan Stock Exchange under the symbol
“2350”.
|
|
(8)
|
The
common shares of Hung Ching are listed on the Taiwan Stock Exchange
under
the symbol “2527”.
|
Our
Consolidated Subsidiaries
ASE
Test
We
believe
ASE Test is one of the largest independent testing companies 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
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, renamed theNasdaq Global Market in
2006, 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
April 30, 2007, we held 50.8% 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 April 30,
2007:
|
·
|
ASE
Test Taiwan
.
ASE Test Taiwan is ASE Test’s
99.99%-owned subsidiary. It is incorporated in Taiwan and is engaged
in
the testing of integrated circuits;
|
|
·
|
ASE
Test Malaysia
.
ASE Test Malaysia is ASE
Test’s wholly-owned subsidiary. It is incorporated in Malaysia and is
engaged in the packaging and testing of integrated
circuits. ASE Test Malaysia disposed of its camera module
assembly operations in October 2005. See “Item
5. Operating and Financial Review and Prospects—Operating
Results and Trend Information—Discontinued
Operations”.
|
|
·
|
ISE
Labs
.
ISE Labs is ASE Test’s wholly-owned
subsidiary. It is incorporated in the United States and is engaged
in the
testing of integrated circuits. See “
¾
History
and
Development of the Company
¾
ISE
Labs”;
and
|
|
·
|
ASE
Korea
.
ASE Test owns 30.0% of ASE Korea.
We
own the remaining 70.0%. It is incorporated in Korea and is engaged
in the
packaging and testing of semiconductors. See “
¾
History
and
Development of the Company
¾
ASE
Chung Li
and ASE Korea”.
|
In
2004,
ASE Test recorded net revenues of US$427.8 million, operating income of US$10.0
million and net income of US$25.1 million. In 2005, ASE Test recorded net
revenues of US$420.9 million, operating income of US$14.0 million and net loss
of US$35.5 million. In 2006, ASE Test recorded net revenues of US$517.7 million,
operating income of US$132.3 million and net income of US$150.8
million.
ASE
Electronics
ASE
Material was established in 1997 as an ROC company for the design and production
of interconnect materials, such as leadframes and substrates, used in the
packaging of semiconductors. We initially held a majority stake in ASE Material,
but acquired the remaining equity by means of a merger in 2004. See “Item 4.
Information on the Company—History and Development of the Company—Merger with
ASE Chung Li and ASE Material”. At our annual general meeting on June 21, 2006,
our shareholders approved the spin-off of the operations originally conducted
through ASE Material into our wholly-owned subsidiary ASE
Electronics. The spin-off was
consummated
on August 1, 2006. ASE Electronics currently supplies our packaging operations
with a substantial portion of our substrate requirements. The
facilities of ASE Electronics are located in the Nantze Export Processing Zone
near our packaging and testing facilities in Kaohsiung, and in Chung Li,
Taiwan.
ASE
Korea
In
July
1999, we and our subsidiary, ASE Test, jointly acquired Motorola’s Semiconductor
business in Paju, South Korea for the testing and packaging of semiconductors,
thereby forming ASE Korea. We own 70.0% of ASE Korea and ASE Test
owns the remaining 30.0%. See “
¾
History and
Development of the Company
¾
ASE Chung
Li and ASE
Korea”.
ASE
Japan
ASE
Japan
is our wholly-owned subsidiary. It is incorporated in Japan and is engaged
in
the packaging and testing of semiconductors.
ASE
Shanghai
ASE
Shanghai was established in 2001 as a wholly-owned subsidiary of ASE Inc. and
began operations in June 2004. ASE Shanghai primarily manufactures and supplies
interconnect materials for our packaging operations and also provides module
assembly services to third parties on a contract basis.
ASE-Compeq
Technologies, Inc.
In
October
2003, we established ASE-Compeq Technologies, Inc., a joint venture with Compeq
in which we initially owned 60.0% of the equity interest, to focus on the design
and production of interconnect materials for packaging semiconductors. In
October 2005, we bought the remaining 40.0% of ASE-Compeq Technologies, Inc.
from Compeq and dissolved the company in May 2006.
Power
ASE Technology, Inc.
In
July
2006, we established a Power ASE a joint venture with Powerchip, focusing on
the
packaging and testing of memory semiconductors. Power ASE began operations
in
December 2006. We own 60.0% of Power ASE and Powerchip owns the remaining
40.0%.
GAPT
We
acquired 100% of GAPT in January 2007. GAPT is a PRC company based in Shanghai.
GAPT provides wire bond packaging and testing services for a wide range of
semiconductors.
Our
Unconsolidated Affiliates
As
of
April 30, 2007, we held approximately 19.5% of the outstanding shares of
Universal Scientific and 26.2% 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:
|
·
|
electronic
components such as thick film mixed-signal devices, thick film resistors,
high frequency devices and automotive and power electronic
devices;
|
|
·
|
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
|
|
·
|
system
assemblies such as portable computers, desktop personal computers,
network
computers and servers.
|
We
are the
largest shareholder in Universal Scientific and four 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 2004, Universal Scientific recorded net revenues of NT$53,231.5 million,
operating income of NT$1,327.0 million and net income of NT$1,044.3 million.
In
2005, Universal Scientific recorded net revenues of NT$52,253.6 million,
operating income of NT$994.6 million and net income of NT$682.1 million. In
2006, Universal Scientific recorded net revenues of NT$53,211.5 million
(US$1,632.8 million), operating income of NT$1,830.4 million (US$56.2 million)
and net income of NT$1,377.0 million (US$42.3 million). The shares of Universal
Scientific are listed on the Taiwan Stock Exchange under the symbol “2350”. As
of April 30, 2007, Universal Scientific had a market capitalization of
NT$19,218.5 million (US$589.7 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
2004,
Hung Ching recorded net revenues of NT$845.1 million, operating loss of NT$374.4
million and net loss of NT$1,150.0 million. In 2005, Hung Ching recorded net
revenues of NT$1,737.6 million, operating income of NT$119.6 million and net
income of NT$91.6 million. In 2006, Hung Ching recorded net revenues of
NT$1,663.5 million (US$51.0 million), operating income of NT$245.6 million
(US$7.5 million) and net income of NT$204.6 million (US$6.3
million).
The shares of Hung Ching are listed on
the Taiwan Stock Exchange under the symbol “2527”. As of April 30, 2007, Hung
Ching had a market capitalization of NT$4,044.2 million (US$124.1
million).
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. 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 April 30,
2007.
|
Facility
|
Location
|
Commencement
of Operation
|
Primary
Use
|
Approximate
Floor Space (in sq. ft.)
|
Owned
or Leased
|
|||||
|
ASE
Inc.
|
Kaohsiung,
Taiwan
|
March
1984
|
Our
primary packaging facility, which offers complete semiconductor
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.
|
3,085,000
|
Land:
leased Buildings: owned and leased
|
|||||
|
Chung
Li, Taiwan
|
Acquired
in August 1999
|
An
integrated packaging and testing facility that specializes in
semiconductors for communications and consumer
applications.
|
1,479,000
|
Land
and Buildings: owned
|
|
Facility
|
Location
|
Commencement
of Operation
|
Primary
Use
|
Approximate
Floor Space (in sq. ft.)
|
Owned
or Leased
|
|||||
|
ASE
Test Taiwan
|
Kaohsiung,
Taiwan
|
December
1987
|
Our
primary testing facilities, which offer complete semiconductor
manufacturing solutions in conjunction with ASE Inc.’s facility in
Kaohsiung and foundries located in Taiwan. Focuses primarily on advanced
logic/mixed-signal testing for integrated device manufacturers, fabless
design companies and system companies.
|
1,045,000
|
Land:
leased
Buildings:
owned and leased
|
|||||
|
Chung
Li, Taiwan
|
October
2001
|
Our
primary wafer probing testing facilities.
|
16,000
|
Land
and building: leased
|
||||||
|
ASE
Test Malaysia
|
Penang,
Malaysia
|
February
1991
|
An
integrated packaging and testing facility that focuses primarily
on the
requirements of integrated device manufacturers.
|
729,000
|
Land:
leased
Buildings:
owned
|
|||||
|
ASE
Korea
|
Paju,
Korea
|
March
1967
|
An
integrated packaging and testing facility that specializes in
semiconductors for radio frequency, sensor and automotive
applications.
|
799,000
|
Land
and buildings: owned, subject to mortgage
|
|||||
|
ISE
Labs
|
Silicon
Valley,
California,
Austin,
Texas
Singapore
|
November
1983
|
Front-end
engineering and final testing facilities located in northern California
in
close proximity to some of the world’s largest fabless design companies.
Testing facilities located in close proximity to integrated device
manufacturers and fabless companies in Texas and Southeast
Asia.
|
234,000
|
Land
and buildings: leased
|
|||||
|
ASE
Shanghai
|
Shanghai,
PRC
|
June
2004
|
Design
and production of semiconductor packaging materials and provision
of
module assembly services on a contract basis.
|
1,071,000
|
Land:
leased
Buildings:
owned
|
|||||
|
ASE
Japan
|
Takahata,
Japan
|
Acquired
in June 2004
|
An
integrated packaging and testing facility that specializes in
semiconductors for cellular phone, household appliance and automotive
applications.
|
298,000
|
Land
and buildings: leased
|
|||||
|
ASE
Electronics
|
Kaohsiung,
Taiwan
|
August
2006
|
Facilities
for the design and production of interconnect materials such as leadframes
and substrates used in packaging of semiconductors.
|
315,000
|
Buildings:
leased
|
|||||
|
Chung
Li, Taiwan
|
August
2006
|
Facilities
for the design and production of interconnect materials such as substrates
used in packaging of semiconductors.
|
476,000
|
Land
and Buildings: leased
|
||||||
|
GAPT
|
Shanghai,
PRC
|
Acquired
in January 2007
|
An
integrated packaging and testing facility that specializes in
semiconductors for communications and consumer
applications.
|
485,000
|
Land:
leased
Buildings:
owned
|
|||||
|
Power
ASE
|
Chung
Li, Taiwan
|
December
2006
|
An
integrated packaging and testing facility that specializes in memory
semiconductors for personal computers applications
|
221,000
|
Buildings:
leased
|
|||||
Our
leased
property in Kaohsiung consists primarily of approximately twenty leases of
land
in the Kaohsiung Nantze Export Processing Zone between ASE Inc. and ASE Test
Taiwan, as the lessees, and the Export Processing Zones Administration, or
the
EPZA, under the Ministry of Economic Affairs. The leases have ten year terms
that expire between the end of July 2007 and December 2016. No sublease or
lending of the land is allowed. The EPZA has the right to adjust the rental
price in the event the government revalues the land. The leases are
typically renewable with three months notice prior to the termination
date.
In
May
2005, our facilities in Chung Li, Taiwan suffered damage from a
fire. We have completed the construction of two new buildings in
Chung Li, Taiwan with Hung Ching. The new buildings have floor space of
approximately 1,313,000 square feet and house a part of our testing, packaging
and interconnect materials operations. Construction commenced in September
2003
and was completed in May 2005. On May 23, 2006, we purchased the two new
buildings for NT$1,311.4 million (US$40.2 million).
Sale
of Camera Module Assembly Operations
Beginning
in 2003, ASE Test, our consolidated subsidiary, provided module assembly
services at its facilities in Malaysia to a customer for the assembly of camera
modules used in handsets. Revenues from such services decreased substantially
in
2005 as this customer moved its camera module assembly in-house and ASE Test
disposed of its camera module assembly operations in Malaysia in October
2005. See “Item 5. Operating and Financial Review and
Prospects—Operating Results and Trend Information— Discontinued
Operations”.
For
information on the aggregate capacity of our facilities in terms of the number
of bonders and testers we operate, see “—Business
Overview—Equipment”.
None.
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 “Special Note
Regarding Forward-Looking Statements”.
Information in this annual report
from our consolidated statements of income for the years ended December 31,
2003, 2004 and 2005 has been adjusted to reflect the reclassification of ASE
Test’s camera module assembly operations as discontinued
operations. Information from our consolidated statements of cash
flows was appropriately not adjusted. See “—Discontinued
Operations”.
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$75,237.7 million in 2004 and NT$84,035.8 million in 2005 to NT$100,423.6
million (US$3,081.4 million) in 2006. The increase in our net revenues in 2004
,
2005 and 2006 reflected a modest recovery in the semiconductor industry and
increased outsourcing of the packaging of advanced package types such as BGA.
In
2003, 2004, 2005, and 2006 we experienced a gradual improvement in our net
revenues compared to 2002 across each of the end-use applications of
the
semiconductors that we packaged and tested. In addition to our overall increase
in production volume, our improvement was also concentrated in the packaging
of
more advanced package types and the testing of more complex, high-performance
semiconductors.
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.
In
the
case of semiconductor packaging, the cost of the silicon die, by most accounts
the most costly component of the packaged semiconductor, is typically not
reflected in our costs (or revenues) since it is typically supplied by our
customers on a consignment basis. In the case of module assembly, we typically
procure the substantial majority of the components and raw materials to be
assembled, including packaged semiconductors, which are reflected both in our
costs and our revenues. Compared to semiconductor packaging, module assembly
typically generates higher revenues and incurs higher costs for a given amount
of gross profit, and affects our margins accordingly.
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, 2003, 2004, 2005 and 2006, our average selling
prices for packaging and testing services stabilized in 2002, 2003, 2004, 2005
and 2006 as compared to 2001.
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. In 2004, 2005 and 2006,
packaging revenues, including revenues from module assembly, accounted for
77.4%, 78.6%, and 76.5% while testing revenues accounted for 21.9%, 20.4%,
and
21.3%, respectively, of our net revenues.
We
believe
that, over the long term, the market for outsourced semiconductor testing
services has more potential for growth than the market for outsourced
semiconductor packaging services 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 expenditure needed for increasingly sophisticated testing equipment,
as
compared to less expensive packaging equipment, is 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 several
years
by a change in our revenue mix. In particular, revenues derived from
packaging more advanced package types, such as flip-chip BGA, higher density
packages with finer lead-to-lead spacing, or pitch, and testing of more complex,
high-performance semiconductors 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 capacity
utilization rates of the machinery and equipment installed at our production
facilities typically depend on factors such as the volume and variety of
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, and the
experience and schedule of work shifts of operators.
The
current generation of advanced testers typically cost between US$1.0 million
and
US$3.0 million each, while wire bonders used in packaging typically cost between
US$50,000 and US$120,000 each. In 2004, 2005 and 2006, our depreciation and
amortization as a percentage of net revenues was 18.1%, 16.5% and 13.3%,
respectively. The decrease in depreciation and amortization as a percentage
of
net revenues in 2006 compared to 2005 was primarily a result of an increase
in
revenues, higher capacity utilization rates and an increased use of equipment
that was leased instead of purchased. See “Item 4. Information on the
Company—Business Overview—Equipment”.
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, 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 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.
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 allow us to better manage our capacity utilization rates and cash flow.
Since testers operated under operating leases can be replaced with more advanced
testers upon the expiration of the lease, we believe that these operating leases
have enabled us to improve our capacity utilization rates by allowing us to
better align our capacity with changes in equipment technology. For
more information about our testers, including the number of testers under lease,
see “Item 4. Information on the Company—Business
Overview—Equipment—Testing”.
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 2004,
2005 and 2006, raw material cost as a percentage of our net revenues was 28.1%,
32.6% and 29.2%, 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. Our operations originally conducted through ASE Material and
now conducted through our wholly-owned subsidiary ASE Electronics and the
operations of ASE Shanghai have enhanced our interconnect materials
capabilities. For more information on our interconnect materials
operations, see “Item 4. Information on the Company—Business Overview—Principal
Products and Services—Packaging Services—Interconnect Materials”. As a result of
new restrictions in the European Union governing the use of hazardous
substances, we expect that our customers will increasingly request that the
materials used in our packaging processes be compliant with new European Union
regulations.
See “Item 4. Information on the
Company—Business Overview—Raw Materials and Suppliers—Packaging”.
Goodwill
Amortization under ROC GAAP
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 prior to 2006. Under ROC GAAP,
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 result in goodwill in an amount equal to the difference between
the purchase price and the investors’ proportionate equity in the equity method
investees, or the fair value of net assets of the consolidated subsidiaries.
Pursuant to ROC SFAS No. 25 “Business Combinations—Accounting Treatment under
Purchase Method”, which became effective in 2006, goodwill is no longer
amortized. Prior to 2006, goodwill was amortized over ten years. This
change in accounting principle resulted in an increase in net income before
cumulative effect of changes in accounting principles of NT$619.4 million
(US$19.0 million) for the year ended December 31, 2006. See note 3 to our
consolidated financial statements included in this annual report. Goodwill
amortization from the purchases of shares of consolidated subsidiaries was
recognized under general and administrative expense. Goodwill amortization
from
the purchases of shares of companies accounted for using the equity method
was
recognized as a debit reduction to investment income. Transactions which created
significant goodwill were (1) our merger with ASE Chung Li and ASE Material,
(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, (4) the open market
purchase of shares of Universal Scientific between 1999 and 2000 and (5) the
purchase of additional ordinary shares of ASE Test in the open market in 2002
and 2004. See “Item 7. Major Shareholders and Related Party Transactions—Related
Party Transactions” and notes 1, 3 and 12 to our consolidated financial
statements included in this annual report.
Merger
of ASE Chung Li and ASE Material
On
August
1, 2004, ASE Chung Li and ASE Material merged with and into us pursuant to
a
merger agreement dated October 28, 2003. We are the surviving
corporation. The merger was consummated by means of a share exchange pursuant
to
which the respective shareholders, other than ourselves, of ASE Chung Li and
ASE
Material received our common shares in exchange for the common shares of each
of
ASE Chung Li and ASE Material. The share exchange pursuant to the merger
agreement between ourselves and entities under our control was treated as a
transaction between entities under common control, and all assets and
liabilities exchanged were transferred at their carrying amounts. With respect
to the share exchange between ourselves and the outstanding minority interests,
the purchase method of accounting was applied as the exchange represented the
acquisition of non-controlling equity interests in a subsidiary. Because the
“fair value” of our common shares (based on NT$31.00 per ASE Inc. common share,
which was the average of the closing prices of our common shares on the Taiwan
Stock Exchange for two days prior to and following October 28, 2003) exchanged
for the non-controlling equity interests exceeded the “fair value” of the
acquired net assets (based on the appraised value on the effective date of
the
merger), the merger generated goodwill of NT$1,608.7 million. For more
information on the merger, see “Item 4. Information on the Company — History and
Development of the Company — Merger with ASE Chung Li and ASE Material” and
“Item 7. Major Shareholders and Related Party Transactions—Related Party
Transactions”.
Discontinued
Operations
Beginning
in 2003, ASE Test, our consolidated subsidiary, provided module assembly
services at its facilities in Malaysia to a customer for the assembly of camera
modules used in handsets. Revenues from such services decreased substantially
in
2005 as this customer moved its camera module assembly in-house and ASE Test
disposed of its camera module assembly operations in Malaysia in October 2005.
Such operations were formerly classified as part of our packaging operations.
In
the years ended December 31, 2004 and 2005, net revenues from the camera module
operations were NT$6,475.0 million and NT$2,095.8 million,
respectively. In the years ended December 31, 2004 and 2005, gross
profit from the camera module operations was NT$668.9 million and NT$210.3
million, respectively. In the years ended December 31, 2004 and 2005, income
from the camera module assembly operations was NT$568.2 million and NT$353.7
million, respectively. In 2005, this income consisted of both income from
operations of NT$121.0 million and gain on disposal of NT$232.7 million.
Information in this annual report from our consolidated statements of income
for
the years ended December 31, 2003, 2004 and 2005 has been adjusted to reflect
the reclassification of ASE Test’s camera module assembly operations as
discontinued operations. Information from our consolidated statements
of cash flows was appropriately not adjusted. Because ASE Test
commenced
its camera module assembly operations in 2003, no reclassification for periods
prior to 2003 is required. See “Item 4. Information on the
Company—Business Overview— Principal Products and
Services—Packaging”.
Recent
ROC GAAP Accounting Pronouncements
In
March
2007, the ROC Accounting Research and Development Foundation, or ARDF, required
ROC companies to recognize compensation expenses for bonuses paid to employees,
directors and supervisors beginning January 1, 2008. Such bonuses are
currently recorded as appropriation of earnings under ROC GAAP. On March 30,
2007, the ROC Financial Supervisory Commission, Executive Yuan also issued
an
interpretation which requires that bonuses granted to employees, directors
and
supervisors in the form of shares be valued at fair market value for purposes
of
compensation expenses. We will evaluate the effect of the requirement
on our financial position and overall trends in results of
operations.
For
information on other recent ROC GAAP accounting pronouncements, see note 2
to
our consolidated financial statements included in this annual
report.
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 property, plant and equipment,
realizability of long-lived 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 and testing
services are recognized upon completion of the services or shipment. We do
not
take ownership of:
|
·
|
bare
semiconductor wafers received from customers that we package into
finished
semiconductors; and
|
|
·
|
packaged
semiconductors received from customers that we test for 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
semiconductor materials is not included in our consolidated financial
statements. Other criteria that we use to determine when to recognize revenue
are:
|
·
|
existence
of persuasive evidence of an
arrangement;
|
|
·
|
the
selling price is fixed or determinable;
and
|
|
·
|
collectibility
is reasonably assured.
|
These
policies are consistent with provisions in the Staff Accounting Bulletin No.
104
issued by the 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 2% and 3%, on a consolidated basis,
of our accounts receivable. 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. In January 2004, we implemented
enterprise resource planning, or ERP, in order to increase our ability to
effectively monitor our resource allocation throughout our company. As a result,
we switched from using the weighted-average method to using the moving-average
method to price our raw materials and supplies. As a result of the change,
our
net income for 2004 decreased NT$26.8 million and our earnings per share
decreased NT$0.01. See also note 3 to our consolidated financial statements
included in this annual report. 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.
Valuation
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 income tax assets. We record a
valuation allowance to the extent that we believe it is more likely than not
that deferred income tax assets will 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 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.
Realizability
of Long-Lived Assets
. We are required to evaluate our equipment
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.
On
December 31, 2004, we adopted ROC SFAS No. 35, “Accounting for Impairment of
Assets” to account for the impairment of our long-lived assets under ROC
GAAP. In accordance with ROC SFAS No. 35, 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. If the recoverable amount increases in a future period, the amount
previously recognized as impairment will be reversed and recognized as a
gain. However, the adjusted amount may not exceed the carrying amount
that would have been determined, net of depreciation, had no impairment loss
had
been recognized. Prior to 2004, there was no requirement related to the
evaluation of recoverability of long-lived assets’ impairment under ROC GAAP,
and we applied U.S. Statement of Financial Accounting Standards, or U.S. SFAS,
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” when
accounting for impairment of long-lived assets for 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.
In
2004
and 2006, we did not take any impairment charges against long-lived assets.
In
2005, we recognized a loss of NT$13,479.1 million on damage to our property,
plant and equipment caused by a fire at our facilities in Chung Li, Taiwan.
In
2006, we reversed NT$2,190.6 million (US$67.2 million) of the impairment loss
recognized in 2005 under ROC GAAP due to an increase in the estimated service
potential of the relevant assets. See note 29 to our consolidated financial
statements included in this annual report. Reversal of the amount is prohibited
under U.S. GAAP. See note 31 to our consolidated financial statements
included in this annual report for a reconciliation of the differences in the
cost basis of the damaged machinery and associated depreciation
expense.
Goodwill
.
Pursuant to a change in ROC GAAP, in 2004, we adopted ROC SFAS No. 35,
“Accounting for Asset Impairment”. Under ROC SFAS No. 35, goodwill is evaluated
at least annually for impairment by comparing the recorded amount of the
cash-generating unit to which the goodwill has been allocated to its recoverable
amount. Recoverable amount is defined as the higher of a
cash-generating unit’s fair value less costs to sell or its “value in use”,
which is defined as the present value of the expected future cash flows
generated by the assets. An impairment charge is incurred to the
extent the recorded amount exceeds the recoverable amount. As a result of our
annual impairment review in 2004, under ROC GAAP, we recognized an impairment
charge of NT$1,950.1 million for goodwill relating to our shares of ASE Test
and
ISE Labs. We recognized an impairment charge on goodwill that arose from our
purchase of shares of ISE Labs due primarily to a downward revision in the
forecasted revenues of ISE Labs based on internal company estimates and industry
trend data that suggested the outlook for the semiconductor industry, and ISE
Labs in particular, was less favorable than in prior years, including the year
in which we acquired our interest in ISE Labs. We also recognized an
impairment charge on goodwill that arose from our acquisition in 1998 of
additional shares in our subsidiary ASE Test due to numerous changes that have
occurred in both the industry and the business since
1998. Specifically, we acquired these ASE Test shares at a time of
significant growth in the semiconductor industry, including the packaging and
testing businesses. Additionally, the late 1990’s was a period in
which companies in the technology sector were receiving relatively high
valuations, primarily in response to the market’s expectations of future growth
in the sector. Following the significant upheaval in the technology
sector in 2000, we believe that technology companies, such as ASE Test, were
receiving lower valuations in 2004 than they did in
1999. Additionally, during the intervening period between 1998 when
we acquired additional shares in ASE Test and our assessment of impairment
under
ROC GAAP in 2004, the semiconductor industry experienced a worldwide downturn,
and the packaging and testing businesses became increasingly competitive,
exerting significant pressure on ASE Test’s margins. Prior to the adoption of
ROC SFAS No. 35, we were not required to evaluate goodwill for impairment under
ROC GAAP.
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. Under U.S.
GAAP, we realized an impairment charge as of December 31, 2002 related to the
goodwill from the acquisition of ASE Test. In 2004, as a result of
our annual impairment review under U.S. GAAP, we recognized an impairment charge
of NT$1,337.7 million for goodwill relating to our purchase of shares of ISE
Labs. See “—U.S. GAAP Reconciliation”. Under U.S. GAAP, we
continue to carry significant goodwill resulting from the acquisition of ASE
Korea, the purchase of shares of ISE Labs and the merger of ASE Chung Li and
ASE
Material, which generated goodwill of NT$1,608.7 million.
If
events
and circumstances warrant in the future, the value of our goodwill could be
further impaired under ROC GAAP or U.S. GAAP.
Valuation
of Long-term Investments
. 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.
After
determining that other-than-temporary impairment had occurred in our long-term
investments as of December 31, 2004, an impairment charge of NT$512.0 million
was recorded under ROC GAAP based on the difference between the book value
and
the calculated recoverable amount of Universal Scientific using appraised values
and other appropriate information. In 2004, we incurred an impairment charge
of
NT$1,707.0 million under
U.S.
GAAP
relating to our shares of Universal Scientific. See “—U.S. GAAP Reconciliation”
and note 31 to our consolidated financial statements included in this annual
report.
ROC
Labor Pension Act
In
accordance with the ROC Labor Pension Act, effective July 1, 2005, all ROC
companies, including us, are required to contribute at least 6% of participating
employees’ monthly salary to “portable” pension fund accounts under the new law.
Under the prior applicable pension law, the required contribution amount was
no
less than 2%. Employees hired prior to the effectiveness of the ROC
Labor Pension Act, were given the choice to continue with the existing defined
benefit pension plan or participate in the new portable defined contribution
pension plans available under the new law. Most of our employees have
decided to participate in the portable pension plans, resulting in an increase
in our pension costs. Employees hired after the effectiveness of the
new law are required to participate in the new portable pension
plans.
Results
of Operations
Information
in this annual report from our consolidated statements of income for the years
ended December 31, 2003, 2004 and 2005 has been adjusted to reflect the
reclassification of ASE Test’s camera module assembly operations as discontinued
operations. See “—Discontinued 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,
|
|||||||||||||
|
2004
|
2005
|
2006
|
|||||||||||
|
(percentage
of net revenues)
|
|||||||||||||
|
ROC
GAAP:
|
|||||||||||||
|
Net
revenues
|
100.0 | % | 100.0 | % | 100.0 | % | |||||||
|
Packaging
|
77.4
|
78.6
|
76.5
|
||||||||||
|
Testing
|
21.9
|
20.4
|
21.3
|
||||||||||
|
Others
|
0.7
|
1.0
|
2.2
|
||||||||||
|
Cost
of revenues
|
(79.3 | ) | (82.7 | ) | (71.3 | ) | |||||||
|
Gross
profit
|
20.7
|
17.3
|
28.7
|
||||||||||
|
Operating
expenses
|
(11.5 | ) | (10.4 | ) | (8.3 | ) | |||||||
|
Income
from operations
|
9.2
|
6.9
|
20.4
|
||||||||||
|
Non-operating
income (expense)
|
(5.3 | ) | (13.7 | ) |
1.8
|
||||||||
|
Income
(loss) before income tax
|
3.9
|
(6.8 | ) |
22.2
|
|||||||||
|
Income
tax benefit (expense)
|
1.9
|
0.2
|
(2.1 | ) | |||||||||
|
Income
(loss) from continuing operations
|
5.8
|
(6.6 | ) |
20.1
|
|||||||||
|
Discontinued
operations
|
0.7
|
0.4
|
—
|
||||||||||
|
Cumulative
effect of change in accounting principle
|
* | (1) |
—
|
(0.4 | ) (2) | ||||||||
|
Minority
interest in net (income) loss of subsidiaries
|
(0.9 | ) |
0.6
|
(2.4 | ) | ||||||||
|
Net
income (loss) of parent company’s shareholders
|
5.6 | % | (5.6 | )% | 17.3 | % | |||||||
|
*
|
Indicates
percentage is less than 0.1% of net
revenues.
|
|
(1)
|
Represents
the cumulative effect of our introduction of enterprise resource
planning,
or ERP, in order to increase our ability to effectively monitor our
entire
organization’s resource allocation, we switched from using the
weighted-average method to using the moving-average method to price
our
raw materials and supplies in 2004.
|
|
(2)
|
Represents
the cumulative effect of our adoption of ROC SFAS No. 34 and ROC
SFAS No.
36. See note 3 to our consolidated financial statements included
in this
annual report.
|
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 revenues.
|
Year
Ended December 31,
|
||||||||||||
|
2004
|
2005
|
2006
|
||||||||||
|
(percentage
of net revenues)
|
||||||||||||
|
ROC
GAAP:
|
||||||||||||
|
Gross
margin
|
||||||||||||
|
Packaging
|
19.1 | % | 15.3 | % | 25.1 | % | ||||||
|
Testing
|
26.3 | % | 25.9 | % | 40.7 | % | ||||||
|
Overall
|
20.7 | % | 17.3 | % | 28.7 | % | ||||||
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,
|
||||||||||||
|
2004
|
2005
|
2006
|
||||||||||
|
(percentage
of net revenues)
|
||||||||||||
|
ROC
GAAP:
|
||||||||||||
|
Cost
of revenues
|
||||||||||||
|
Raw
materials
|
28.1 | % | 32.6 | % | 29.2 | % | ||||||
|
Labor
|
16.3
|
15.7
|
14.2
|
|||||||||
|
Depreciation
and amortization
|
18.1
|
16.5
|
13.3
|
|||||||||
|
Others
|
15.6
|
17.9
|
14.6
|
|||||||||
|
Total
cost of revenues
|
79.3 | % | 82.7 | % | 71.3 | % | ||||||
|
Operating
expenses
|
||||||||||||
|
Selling
|
1.8 | % | 1.3 | % | 1.3 | % | ||||||
|
General
and
administrative
|
5.1 | (1) | 5.2 | (1) |
4.4
|
|||||||
|
Goodwill
amortization
(2)
|
1.2
|
0.6
|
—
|
|||||||||
|
Research
and
development
|
3.4
|
3.3
|
2.6
|
|||||||||
|
Total
operating
expenses
|
11.5 | % | 10.4 | % | 8.3 | % | ||||||
|
(1)
|
Excludes
goodwill amortization for purposes of this table
only.
|
|
(2)
|
Included
in general and administrative expense in the consolidated financial
statements. Effective as of January 1, 2006, goodwill is no longer
amortized and instead tested for impairment annually pursuant to
ROC SFAS
No. 25 “Business Combinations—Accounting Treatment under Purchase
Method”. See “—Goodwill Amortization Under ROC
GAAP”.
|
Year
Ended December 31, 2006 Compared to Year Ended December 31,
2005
Net
Revenues.
Net revenues increased 19.5% to NT$100,423.6 million
(US$3,081.4 million) in 2006 from NT$84,035.8 million in
2005. Packaging revenues increased 16.4% to NT$76,820.5 million
(US$2,357.2 million) in 2006 from NT$66,022.9 million in
2005. Testing revenues increased 25.2% from NT$21,429.6 million
(US$657.6 million) in 2006 to NT$17,122.0 million in 2005. The
increase in packaging revenues was primarily due to an increase in packaging
volume. The increase in testing revenues was
due to an
increase in average selling prices for testing services. The increase
in packaging volume resulted primarily from an improvement in market conditions
in the semiconductor industry and the increase in outsourcing of the packaging
of semiconductor devices. The increase in average selling prices for
testing services reflects the fact that we are increasingly employing advanced
testing equipment, which is charged out at a higher rate, and the fact that
testing of complex, high-performance logic/mixed-signal semiconductors, which
typically take longer to test, accounted for a greater portion of our testing
volumes.
We also made
certain changes to our pricing in the second half of 2005 and in 2006 that
improved our average selling prices for testing services. In response
to tight capacity in the testing markets generally, we increased the prices
for
certain of our testing services in the second half of 2005 and further in 2006,
including charging our customers for certain ancillary services that we
previously provided without charge. The increase in average selling prices
for
testing services was partially offset by the general trend in the semiconductor
industry of declining prices for each input/output lead on a semiconductor
device.
Gross
Profit.
Gross profit increased 98.2% to NT$28,780.3 million
(US$883.1 million) in 2006 from NT$14,517.8 million in 2005. Our
gross profit as a percentage of net revenues, or gross margin, increased to
28.7% in 2006 from 17.3% in 2005. This increase was due to an
increase in revenues and, to a lesser extent, a decrease in cost of goods sold
as a percentage of revenues, in particular raw material costs and
depreciation. Our gross margin for packaging increased to 25.1% in
2006 from 15.3% in 2005. This increase was due to an increase in
revenues and, to a lesser extent, a decrease in cost of goods sold as a
percentage of revenues, in particular raw material costs. Our gross
margin for testing increased to 40.7% in 2006 from 25.9% in 2005. This increase
was primarily due to an increase in revenues and, to a lesser extent, a decrease
in cost of goods sold as a percentage of revenues, in particular
depreciation. Raw material costs in 2006 were NT$29,296.2 million
(US$898.9 million), compared to NT$27,430.2 million in 2005. As a
percentage of net revenues, raw material costs decreased to 29.2% in 2006 from
32.6% in 2005, primarily because of a change in our product mix toward packages
requiring less expensive raw materials and a decrease in the price of the raw
materials we use in our packaging operations. Depreciation and
amortization in 2006 was NT$13,313.0 million (US$408.5 million), compared to
NT$13,830.2 million in 2005. As a percentage of net revenues,
depreciation and amortization decreased to 13.3% in 2006 from 16.5% in 2005,
primarily as a result of a net decrease in testing and packaging equipment
in
2006, largely as a result of the fire at our facilities in Chung Li, Taiwan
in
May 2005, and due to improved equipment utilization.
Operating
Income.
We had an operating income of NT$20,446.4 million
(US$627.4 million) in 2006, compared to NT$5,819.2 million in 2005. Operating
expenses decreased 4.2% to NT$8,333.9 million (US$255.7 million) in 2006,
compared to NT$8,698.6 million in 2005. The decrease in operating
expenses was primarily due to decreases in general and administrative expense
and research and development expense, partially offset by an increase in selling
expense. General and administrative expense decreased 9.0% to
NT$4,381.3 million (US$134.4 million) in 2006 from NT$4,813.2 million in 2005.
This decrease was primarily the result of a decrease in goodwill amortization,
partially offset by increases in depreciation and amortization and professional
fees. We recognized no goodwill amortization in 2006, compared to
NT$528.9 million, or 0.6% of our net revenues, in 2005. In accordance
with ROC SFAS No. 25, beginning in 2006, goodwill is no longer amortized and
is
instead tested for impairment annually. See “—Goodwill Amortization
Under ROC GAAP”. General and administrative expense represented 4.4%
of our net revenues in 2006, compared to 5.7% in 2005. Research and
development expense decreased 5.5% to NT$2,632.0 million (US$80.8 million)
in
2006 from NT$2,785.4 million in 2005. This decrease was primarily due
to a decrease in the costs for reconfiguring and upgrading our testing equipment
as a result of our obtaining a lower price for these services from our service
providers. Research and development expense accounted for 2.6% of our
net revenues in 2006, compared to 3.3% in 2005. Selling expense
increased 20.1% to NT$1,320.6 million (US$40.5 million) in 2006 from NT$1,100.0
million in 2005. This increase was primarily due to an increase in commission
and sales fees. Selling expense as a percentage of net revenues
remained the same between 2006 and 2005 at 1.3%. Our operating income
as a percentage of net revenues, or operating margin, increased to 20.4% in
2006
from 6.9% in 2005, primarily as a result of the increase in our gross
margin.
Non-Operating
Income (Expense).
We incurred a net non-operating income of
NT$1,805.0 million (US$55.4 million) in 2006, compared to a net non-operating
expense of NT$11,493.0 million in 2005. This overall increase was
primarily a result of an our recognition in 2005 of NT$8,838.1 million for
loss
on fire damage in connection with a fire at our facilities in Chung Li, Taiwan
in May 2005 and our recognition of NT$4,574.5 million (US$140.4 million) for
gain on insurance settlement and impairment recovery in 2006. For
more information, see note 29 to our consolidated financial statements included
in this annual report.
Net
Income.
We had a net income of NT$17,416.2 million (US$534.4
million) in 2006, compared to a net loss of NT$4,691.2 million in 2005. Our
net
income per ADS was NT$18.85 (US$0.58) in 2006, compared to a loss per ADS of
NT$5.37 in 2005 (retroactively adjusted to account for stock dividends issued
in
2005). We had an income tax expense of NT$2,084.8 million (US$64.0 million)
in
2006, compared to an income tax benefit of NT$118.6 million in 2005, primarily
due to an increase in taxable income
and the ROC
Alternative Minimum Tax Act, which became effective on January 1,
2006.
Year
Ended December 31, 2005 Compared to Year Ended December 31,
2004
Net
Revenues.
Net revenues increased 11.7% to NT$84,035.8 million in
2005 from NT$75,237.7 million in 2004. Packaging revenues increased 13.3% to
NT$66,022.9 million in 2005 from NT$58,261.8 million in 2004. Testing revenues
increased 3.9% to NT$17,122.0 million in 2005 from NT$16,473.9 million in 2004.
The increase
in
packaging revenues was due to an increase in packaging volume and, to a lesser
extent, an increase in average selling prices for packaging services. The
increase in testing revenues was due to an increase in average selling prices
for testing services, partially offset by a decrease in testing volume. The
increase in packaging volume resulted primarily from the recovery in the
semiconductor industry and the increase in outsourcing of the packaging of
semiconductor devices, partially offset by the interruption of our operations
at
our Chung Li facility as a result of the fire in May 2005. The decrease in
testing volume resulted primarily from the fire in May 2005. The
increase in average selling prices for packaging services reflects the fact
that
advanced package types accounted for a greater portion of our packaging volumes,
even though the percentage of net revenues accounted for by advanced package
types remained relatively unchanged. The increase in average selling
prices for testing services reflects the fact that we are increasingly employing
advanced testing equipment, which is charged out at a higher rate, and the
fact
that testing of complex, high-performance logic/mixed-signal semiconductors,
which typically take longer to test, accounted for a greater portion of our
testing volumes. We also made certain changes to our pricing in the second
half
of 2005 that contributed to the increase in the average selling price for
certain of our packaging and testing services. In response to tight
capacity in the packaging and testing markets generally and decreased capacity
that resulted from the fire in May 2005, we increased the prices for certain
of
our packaging and testing services, including charging our customers for certain
ancillary services that we previously provided without charge. In
addition, we also reduced our customer base in order to allow us to focus on
higher-margin customers. The increases in average selling prices for packaging
and testing were partially offset by the general trend in the semiconductor
industry of declining prices for each input/output lead on a semiconductor
device.
Gross
Profit.
Gross profit decreased 6.9% to NT$14,517.8 million in 2005
from NT$15,596.6 million in 2004. Our gross profit as a percentage of net
revenues, or gross margin, decreased to 17.3% in 2005 compared to 20.7% in
2004.
This decrease was primarily a result of an increase in raw material costs and,
to a lesser extent, cost of components for use in modules, partially offset
by a
decrease in depreciation and amortization, all as a percentage of net revenues.
Our gross margin for packaging decreased to 15.3% in 2005 from 19.1% in 2004.
This decrease was primarily due to an increase in raw material costs and cost
of
components for use in modules, partially offset by a decrease in depreciation
and amortization, all as a percentage of net packaging revenues. Our gross
margin for testing decreased to 25.9% in 2005 from 26.3% in 2004. This decrease
was primarily due to an increase in rental expense because we leased more
testing equipment, partially offset by a decrease in depreciation and
amortization, each as a percentage of net testing revenues. Raw material costs
in 2005 was NT$27,430.2 million, compared to NT$21,139.8 million in 2004. As
a
percentage of net revenues, raw material costs increased to 32.6% in 2005 from
28.1% in 2004 primarily because advanced package types, which require more
expensive raw materials, accounted for a greater portion of our packaging
volumes in 2005. Depreciation and amortization in 2005 was
NT$13,830.2 million, compared to NT$13,627.9 million in 2004. The increase
in
depreciation resulting from the acquisition of property, plant and equipment
in
2005 was partially offset by the write-off of buildings and equipment due to
fire damage in May 2005. As a result, there was only a slight increase in the
overall depreciable basis of our property, plant and equipment in 2005. As
a
percentage of net revenues, however, depreciation and amortization decreased
to
16.5% in 2005 from 18.1% in 2004, reflecting an increase in revenues, higher
capacity utilization rates and increased use of equipment that was leased
instead of purchased.
Operating
Income.
We had an operating income of NT$5,819.2 million in 2005,
compared to NT$6,956.8 million in 2004. Operating expenses increased 0.7% to
NT$8,698.6 million in 2005, compared to NT$8,639.8 million in 2004. The increase
in operating expenses was primarily due to higher research and development
expenses and general and administrative expenses, partially offset by a decrease
in selling expenses. Research and development expense increased 7.9% to
NT$2,785.4 million in 2005 from NT$2,581.1 million in 2004. This increase was
primarily a result of an increase in our salaries and bonuses expense. Research
and development expense accounted for 3.3% of our net revenues in 2005, compared
to 3.4% in 2004. General and administrative expense, excluding goodwill
amortization, increased 11.6% to NT$4,284.3 million in 2005 from NT$3,840.0
million in 2004. This increase was primarily the result of an increase in our
salaries and bonuses expense. General and administrative expense, excluding
goodwill amortization, represented 5.2% of our net revenues in 2005, compared
to
5.1% in 2004. Goodwill amortization was NT$528.9 million in 2005 compared to
NT$877.6 million in 2004. Goodwill amortization represented 0.6% of our net
revenues in 2005, compared to 1.2% in 2004. Selling expense decreased 18.0%
to
NT$1,100.0 million in 2005 from NT$1,341.1 million in 2004. This decrease was
primarily due to decreased commission and fee payments to our sales and customer
service agents following our acquisition in July 2004 of ASE (U.S.) Inc., which
was previously our agent providing customer service and after-
sales
support to our customers in Europe and North America. See “Item 4. Information
on the Company—Business Overview—Sales and Marketing—Sales and Customer Service
Agents”. Selling expense represented 1.3% of our net revenues in 2005, compared
to 1.8% in 2004. Our operating income as a percentage of net revenues, or
operating margin, decreased to 6.9% in 2005 from 9.2% in 2004, primarily as
a
result of the decrease in our gross margin.
Non-Operating
Income (Expense).
We incurred a net non-operating expense of
NT$11,493.0 million in 2005, compared to a net non-operating expense of
NT$3,993.9 million in 2004. This overall increase was primarily a result of
loss
on fire damage and, to a lesser extent, an increase in net interest expense,
partially offset by a decrease in impairment loss and, to a lesser extent,
an
increase in earnings of equity method investees and net foreign exchange
gain. We incurred loss on fire damage of NT$8,838.1 million as a
result of a fire that broke out in May 2005 at the principal building of our
substrates facility in Chung Li, Taiwan, which amount included estimated losses
of NT$13,479.1 million, less insurance recoveries of NT$4,641.0
million. See note 29 to our consolidated financial statements
included in this annual report. Net interest expense increased 56.3% to
NT$1,397.7 million in 2005 from NT$894.4 million in 2004, primarily due to
increased outstanding balances and higher interest rates on our bank loans.
In
2004, we recognized an impairment loss of NT$1,950.1 million on goodwill
relating to our purchase of shares of ISE Labs and ASE Test; whereas in 2005
we
did not recognize any impairment loss. We recognized equity in
earnings of equity method investees of NT$74.3 million in 2005 compared to
equity in losses of equity method investees of NT$395.0 million in
2004. We recorded a net foreign exchange gain of NT$154.3 million in
2005 compared to a net foreign exchange gain of NT$222.4 million in 2004. The
net foreign exchange gain in 2005 was primarily due to the appreciation of
the
US dollar, which had a positive impact on our U.S. dollar-denominated
assets.
Net
Income.
We had a net loss of NT$4,691.2 million in 2005, compared
to a net income of NT$4,209.7 million in 2004. Our net loss per ADS was NT$5.37
in 2005, compared to a net income per ADS of NT$4.81 in 2004 (retroactively
adjusted to account for stock dividends issued in 2005 and 2004). We had an
income tax benefit of NT$118.6 million in 2005, compared to an income tax
benefit of NT$1,397.0 million in 2004, primarily as a result of a decrease
in
capital expenditure relating to our facilities in Taiwan.
Quarterly
Net Revenues, Gross Profit and Gross Margin
Information
in this annual report from our consolidated statements of income for the years
ended December 31, 2003, 2004 and 2005 has been adjusted to reflect the
reclassification of ASE Test’s camera module assembly operations as discontinued
operations. See “—Discontinued Operations”.
The
following table sets forth our unaudited consolidated net revenues, gross profit
and gross margin for the quarterly periods indicated. The unaudited quarterly
results reflect all adjustments, consisting of normal recurring adjustments,
that, in the opinion of management, are necessary for a fair presentation of
the
amounts, on a basis consistent with the audited consolidated financial
statements included elsewhere in this annual report. You should read the
following table in conjunction with the audited consolidated financial
statements and related notes included elsewhere in this annual report. Our
net
revenues, gross profit and gross margin for any quarter are not necessarily
indicative of the results for any future period. Our quarterly net revenues,
gross profit and gross margin may fluctuate significantly.
|
Quarter
Ended
|
||||||||||||||||||||||||||||||||
|
Jun.
30,
2005
|
Sept.
30,
2005
|
Dec.
31,
2005
|
Mar.
31,
2006
|
Jun.
30,
2006
|
Sep.
30,
2006
|
Dec.
31,
2006
|
Mar.
31,
2007
|
|||||||||||||||||||||||||
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
|||||||||||||||||||||||||
|
(in
millions)
|
||||||||||||||||||||||||||||||||
|
Consolidated
Net Revenues
|
||||||||||||||||||||||||||||||||
|
Packaging
|
14,144.5
|
17,160.5
|
20,783.9
|
19,306.2
|
19,955.0
|
20,373.7
|
17,185.6
|
16,282.6
|
||||||||||||||||||||||||
|
Testing
|
3,752.2
|
4,410.4
|
5,266.6
|
5,122.7
|
5,699.9
|
5,810.1
|
4,796.9
|
4,324.1
|
||||||||||||||||||||||||
|
Others
|
91.1
|
250.9
|
353.0
|
408.3
|
631.9
|
542.2
|
591.1
|
486.0
|
||||||||||||||||||||||||
|
Total
|
17,987.8
|
21,821.8
|
26,403.5
|
24,837.2
|
26,286.8
|
26,726.0
|
22,573.6
|
21,092.7
|
||||||||||||||||||||||||
|
Consolidated
Gross Profit
|
||||||||||||||||||||||||||||||||
|
Packaging
|
1,531.3
|
2,808.6
|
4,333.5
|
4,496.5
|
4,853.3
|
5,510.3
|
4,420.7
|
3,590.8
|
||||||||||||||||||||||||
|
Testing
|
615.4
|
1,313.1
|
2,127.1
|
1,983.0
|
2,451.0
|
2,557.3
|
1,736.9
|
1,246.4
|
||||||||||||||||||||||||
|
Others
|
(92.1 | ) | (34.2 | ) |
94.4
|
155.9
|
195.4
|
179.9
|
240.2
|
159.6
|
||||||||||||||||||||||
|
Quarter
Ended
|
||||||||||||||||||||||||||||||||
|
Jun.
30,
2005
|
Sept.
30,
2005
|
Dec.
31,
2005
|
Mar.
31,
2006
|
Jun.
30,
2006
|
Sep.
30,
2006
|
Dec.
31,
2006
|
Mar.
31,
2007
|
|||||||||||||||||||||||||
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
|||||||||||||||||||||||||
|
(in
millions)
|
||||||||||||||||||||||||||||||||
|
Total
|
2,054.6
|
4,087.5
|
6,555.0
|
6,635.4
|
7,499.7
|
8,247.5
|
6,397.8
|
4,996.8
|
||||||||||||||||||||||||
|
Consolidated
Gross Margin
|
||||||||||||||||||||||||||||||||
|
Packaging
|
10.8 | % | 16.4 | % | 20.9 | % | 23.3 | % | 24.3 | % | 27.0 | % | 25.7 | % | 22.1 | % | ||||||||||||||||
|
Testing
|
16.4 | % | 29.8 | % | 40.4 | % | 38.7 | % | 43.0 | % | 44.0 | % | 36.2 | % | 28.8 | % | ||||||||||||||||
|
Overall
|
11.4 | % | 18.7 | % | 24.8 | % | 26.7 | % | 28.5 | % | 30.9 | % | 28.3 | % | 23.7 | % | ||||||||||||||||
Our
results of operations are 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 elsewhere in Asia. 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”.
Exchange
Rate Fluctuations
For
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%. Under
the
ROC Statute of Upgrading Industries, which gives certain preferential tax
treatment to companies that qualify as operating in a “newly-emerging important
and strategic industry” or “manufacturing industry”, we may apply for tax
holidays covering the portion of our income allocable to eligible machinery
and
equipment 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 21 to our consolidated financial statements
included in this annual report. We have five five-year tax exemptions on income
derived from a portion of our operations in Kaohsiung, Taiwan. One such
exemption will expire at the end of 2007 and another will expire on September
30, 2009. We are in the process of applying for the use of the remaining three
exemptions in connection with our operations in Kaohsiung, Taiwan. We also
received three five-year tax exemptions for a cash injection from our
shareholders in connection with our operations in Chung Li, Taiwan. One such
exemption will expire at the end of 2007 and another will expire at the end
of
2011. We are in the process of applying for the use of the exemption
in connection with our operations in Chung Li, Taiwan.
ASE
Test
Taiwan has one five-year tax exemption that will expire at the end of 2010
on
income derived from a portion of its testing operations. ASE Test Taiwan also
plans to apply for one more five-year exemptions upon the completion of related
capacity expansions.
Under
the
ROC Statute for Upgrading Industries, we are also entitled to tax credit to
be
applied to the purchase of qualifying manufacturing equipment. The
tax credits were set at 11% and 7% for 2005 and 2006, respectively, and are
expected to remain at 7% in 2007. We are also entitled to tax credits set at
30%
of the amount spent on qualifying research and development expenses and employee
training expenses. These tax credits generally expire five years following
their
respective grants and are available to reduce 50% of our income taxes payable
in
the first four years and 100% of such taxes payable in the fifth year, subject
to the application of the Alternative Minimum Tax Act, or AMT Act, discussed
below.
ASE
Test
Malaysia obtained “pioneer” tax status and was granted a five-year tax exemption
which expired on June 30, 2004. This tax exemption resulted in tax savings
for
us of approximately NT$642.3 million and NT$481.2 million in 2004 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, which was deemed to have been cancelled on September 21, 2002. ASE
Test
Malaysia’s current reinvestment allowance applies to certain qualifying
facilities
and
machinery and allows it to reduce its tax payments on income from operations
that use such facilities and machinery. The term of this reinvestment allowance
is 2003 through 2017.
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, commodity taxes
and
sales taxes on imported machinery, equipment, raw materials and components
which
are directly used for manufacturing finished goods. Finished 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 in Taiwan
and
customs duties and sales taxes in Malaysia.
Our
effective income tax rate was 0% in 2004 and 2005 primarily as a result of
tax
credits generated from qualifying equipment purchases made at our facilities
in
Kaohsiung, Taiwan.
In 2006, our effective income tax rate
increased to 9% primarily due to the increase of taxable income and the AMT
Act,
described as below, effective on January 1, 2006.
We
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, 2004, 2005 and 2006.
Under
the
ROC Income Tax Law, all earnings generated in a year which are not distributed
to shareholders as dividends in the following year will be assessed a 10%
undistributed earnings tax. As a result, if we do not distribute all of our
annual earnings as either cash or stock dividends in the following year, these
undistributed earnings will be subject to the 10% undistributed earnings
tax.
The
ROC
government enacted the AMT Act, which became effective on January 1, 2006.
The
alternative minimum tax, or AMT, imposed under the AMT Act is a supplemental
tax
which is payable if the income tax payable pursuant to the ROC Income Tax Act
is
below the minimum amount prescribed under the AMT Act. The taxable income for
calculating the AMT includes most income that is exempted from income tax under
various legislations, such as tax holidays and investment tax credits. The
AMT
rate for business entities is 10%. However, the AMT Act grandfathered certain
tax exemptions granted prior to the enactment of the AMT Act.
Inflation
We
do not
believe that inflation in Taiwan or elsewhere has had a material impact on
our
results of operations.
U.S.
GAAP Reconciliation
Our
consolidated financial statements are prepared in accordance with ROC GAAP,
which differ in certain material 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,
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
(in
millions)
|
||||||||||||||||
|
Net
income (loss):
|
||||||||||||||||
|
ROC
GAAP
|
4,209.7
|
(4,691.2 | ) |
17,416.2
|
534.4
|
|||||||||||
|
U.S.
GAAP
|
4,297.1
|
(5,530.5 | ) |
14,122.7
|
433.3
|
|||||||||||
|
Total
shareholders’ equity:
|
||||||||||||||||
|
ROC
GAAP
|
59,716.6
|
54,850.2
|
77,126.8
|
2,366.6
|
||||||||||||
|
U.S.
GAAP
|
48,657.1
|
44,959.3
|
60,584.1
|
1,858.9
|
||||||||||||
Note
31 to
our consolidated financial statements included in this annual report 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. Significant differences between ROC GAAP and
U.S. GAAP, which primarily affect our net income as reported under ROC GAAP,
include impairment loss reversal, impairment of goodwill and long-term
investments and compensation expense pertaining to bonuses to employees,
directors and supervisors.
On
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. U.S. SFAS No. 142 also required companies to discontinue
amortizing goodwill and other indefinite-lived assets beginning January 1,
2002. This resulted in a decrease in amortization of approximately
NT$877.6 million and NT$528.9 million in 2004 and 2005, respectively, which
continued to be recorded for ROC GAAP purposes through 2005, after which
goodwill amortization is no longer required under ROC GAAP. Under U.S. GAAP,
we
realized an impairment charge as of December 31, 2002 related to the goodwill
from the acquisition of ASE Test. For the year ended December 31,
2004, we took an impairment charge under U.S. GAAP of NT$1,337.7 million
relating to our purchase of shares of ISE Labs. We did not record any
impairment charge for goodwill in 2005 or 2006.
On
December 31, 2004, we adopted ROC SFAS No. 35, “Accounting for Asset
Impairment”. Under ROC SFAS No. 35, goodwill is evaluated at least annually to
determine if it is impaired. As a result of our annual impairment review, under
ROC GAAP, we recognized an impairment charge of NT$1,950.1 million for goodwill
relating to our purchase of shares of ASE Test and ISE Labs in 2004. We did
not
record any impairment charge for goodwill in 2005 and 2006. See note 12 to
our
consolidated financial statements included in this annual report.
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. For the year ended December 31,
2004,
under U.S. GAAP, we took an impairment charge of NT$1,707.0 million relating
to
our investment in Universal Scientific. We did not record any impairment charge
for long-term investments in 2005 and 2006.
Under
U.S.
GAAP, effective January 1, 2002, long-lived assets (excluding goodwill and
other
indefinite 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.
O
n
December 31, 2004,
we
adopted ROC SFAS No. 35 to account for
impa
irment of long-lived
assets for ROC GAAP purposes. Similar to U.S. SFAS No. 144 in
principal, ROC SFAS No. 35 requires
us
to analyze for impairment when there is
an indication
that the
carrying amount of an asset may no be recoverable
. However, ROC SFAS
No.
35 differs from U.S.
SFAS No. 144 in the following aspects
: (
1
)
the determination of impairment is
based on discounted cashflows and (2) previously recorded impairment can be
reversed up to the net book value of the long-lived assets as if no
impairmen
t loss was
recorded.
Prior
to
January 1, 2005, we followed U.S. GAAP in accounting for impairment of
long-lived assets for ROC GAAP purpose.
In
2005,
we recognized a loss of NT$13,479.1 million on damage to our property, plant
and
equipment caused by a fire at our facilities in Chung Li, Taiwan. In 2006,
we
reversed NT$2,190.6 million (US$67.2 million) of the impairment loss recognized
in 2005 under ROC GAAP due to an increase in the estimated service potential
of
the relevant assets. See note 29 to our consolidated financial statements
included in this annual report. Reversal of the amount is prohibited under
U.S.
GAAP. See note 31 to our consolidated financial statements included
in this annual report for a reconciliation of the differences in the cost basis
of the damaged machinery and associated depreciation expense.
We
typically pay all or a portion of employee bonuses in the form of common shares.
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. We paid employee bonuses in 2004 and 2005 in the form of common
shares with respect to the results of the preceding fiscal year. 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, and 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 the following year.
Recent
U.S. GAAP Accounting Pronouncements
In
September 2006, the FASB issued U.S. SFAS No.157, “Fair Value Measurements”,
which defines fair value, establishes a framework for measuring fair value
in
generally accepted accounting principles, and expands disclosures about fair
value measurements. U.S. SFAS No. 157 does not require any new
fair value measurements, but brings up guidance on how to measure fair value
by
providing a fair value hierarchy used to classify the source of the information.
This statement is effective beginning January 1, 2008. We are currently
assessing the potential impact that the adoption of U.S. SFAS No.157 will have
on our results of operations and financial position, and we are not yet in
a
position to determine such effects.
In
September 2006, the
FASB issued U.S. SFAS No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans—An Amendment of FASB Statements
No. 87, 88, 106, and 132R” (U.S. SFAS No. 158). Provisions with
respect to the recognition of an asset and liability related to the funded
status and the changes in the funded status be reflected in comprehensive income
are effective for fiscal years ended after December 15, 2006 and the change
in measurement date provisions is effective for fiscal years ended after
December 15, 2008. U.S. SFAS No. 158 also requires the measurement date of
the plan’s funded status be the same as our fiscal year-end. We adopted all
requirements of U.S. SFAS No. 158 in the fiscal year ended
December 31, 2006. Upon the adoption of U.S. SFAS No. 158, we recognized a
decrease to accumulated other comprehensive income of NT$460,022 thousand (net
of tax effect) as of December 31, 2006.
In
July
2006, the FASB issued FASB Interpretation No.48, “Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”).
FIN 48 clarifies the accounting for uncertainty in income taxes by
prescribing the recognition threshold a tax position is required to meet before
being recognized in the financial statements. It also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN48 is effective for fiscal years
beginning after December15, 2006 and is required to be adopted in fiscal year
2007. The cumulative effects, if any, of applying FIN 48 will be recorded
as an adjustment to retained earnings as of the beginning of the period of
adoption. We are currently evaluating the effect that the adoption of
FIN 48 will have on our results of operations and financial position and we
are not yet in a position to determine such effects.
For
information on other recent U.S. GAAP accounting pronouncements, see note 32
to
our consolidated financial statements included in this annual
report.
Information
in this annual report from our consolidated statements of income for the years
ended December 31, 2003, 2004 and 2005 has been adjusted to reflect the
reclassification of ASE Test’s camera module assembly operations as discontinued
operations. Information from our consolidated statements of cash
flows was appropriately not adjusted. See “—Discontinued
Operations”.
We
have
historically been able to satisfy our working capital needs from our 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.
Net
cash
provided by operating activities amounted to NT$37,290.0 million (US$1,144.2
million) in 2006, partially as a result of adjusting for non-cash depreciation
and amortization, and, to a lesser extent, for gain on insurance settlement
and
impairment recovery of NT$9,913.8 million (US$304.2 million). Net cash provided
by operating activities amounted to NT$18,751.0 million in 2005, partially
as a
result of adjusting for non-cash depreciation and amortization, including
amortization of goodwill, and loss on fire damage of NT$23,774.5 million. Net
cash provided by operating activities amounted to NT$19,206.7 million in 2004,
partially as a result of adjusting for non-cash depreciation and amortization,
including amortization of goodwill, and to a lesser extent, as a result of
adjusting for the impairment of goodwill and other investment loss of
NT$18,126.0 million. The increase in net cash generated by operating activities
in 2006 compared to 2005 was primarily due to a significant increase in net
income to NT$17,416.2 million (US$534.4. million) in 2006 from a net loss of
NT$4,691.2 million in 2005 and net decreases in financial assets for trading
and
notes and accounts receivable of NT$10,773.9 million (US$330.6 million),
partially offset by a non-cash gain on insurance settlement and impairment
recovery of NT$4,574.5 million (US$140.4 million) in 2006 compared to a non-cash
loss on fire damage of NT$8,212.8 million in 2005. The increase in net cash
generated by operating activities in 2005 compared to 2004 was primarily due
to
non-cash loss on fire damage of NT$8,212.8 million in 2005 and a net decrease
in
inventories of NT$4,778.7 million in 2005.
Net
cash
used in investing activities amounted to NT$22,104.5 million (US$678.3 million)
in 2006, primarily due to the acquisition of property, plant and equipment,
such
as machinery and equipment for our packaging, testing and interconnect materials
operations, of NT$17,764.2 million (US$545.1 million) and, to a lesser extent,
the net increase acquisition of available-for-sale financial assets of
NT$9,134.1 million (US$280.3 million), partially offset by proceeds from
insurance claims of NT$5,768.0 million (US$177.0 million). Net cash used in
investing activities amounted to NT$11,632.0 million in 2005, primarily due
to
the acquisition of property, plant and equipment, such as machinery and
equipment for our packaging, testing and interconnect materials operations,
of
NT$15,611.5 million, partially offset by insurance proceeds in connection with
the fire damage incurred at our facilities in Chung Li, Taiwan in May 2005.
Net
cash used in investing activities amounted to NT$31,048.9 million in 2004,
primarily as a result of the acquisition of property, plant and equipment,
such
as machinery and equipment for our packaging, testing and interconnect materials
operations, of NT$28,521.4 million.
Net
cash
used in financing activities in 2006 amounted to NT$12,561.1 million (US$385.4
million). This amount reflected primarily a decrease in long-term debts of
NT$13,745.7 million (US$421.8 million). Net cash used in financing activities
in
2005 amounted to NT$91.8 million. This amount reflected primarily a decrease
in
long-term debts of NT$3,221.9 million, which was partially offset by an increase
in short-term borrowings of NT3,638.4 million. Net cash provided by financing
activities in 2004 was NT$9,164.2 million. This amount reflected primarily
an
increase in long-term debts of NT$5,995.1 million, our issuance of domestic
secured bonds of NT$2,733.1 million and an increase in short-term borrowings
of
NT$2,696.0 million, which was partially offset by investments payable of
NT$2,310.0 million.
As
of
December 31, 2006, our primary source of liquidity was NT$15,730.1 million
(US$482.7 million) of cash and NT$10,904.3 million (US$334.6 million) of
financial assets—current. Our financial assets—current primarily consisted of
investments in open-ended mutual funds. As of December 31, 2006, we had total
unused short-term credit lines of NT$36,714.6 million (US$1,126.6 million),
and
total unused long-term credit lines of NT$4,845.8
million
(US$148.7 million). As of December 31, 2006, we had working capital of
NT$20,752.6 million (US$636.8 million).
As
of
December 31, 2006, we had total borrowings of NT$37,897.4 million (US$1,162.9
million), NT$2,868.1 million (US$88.0 million) of which were short-term
borrowings and NT$35,029.3 million (US$1,074.8 million) of which were long-term
borrowings. The interest rate for borrowings under our short-term borrowings
ranged from 1.80% to 7.33% per year as of December 31, 2006. 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, bonds payable and capital lease obligations.
As
of December 31, 2006, we had outstanding long-term borrowings, less current
portion, of NT$29,398.3 million (US$902.1 million). As of December 31, 2006,
the
current portion of our long-term borrowings was NT$5,631.0 million (US$172.8
million). Our long-term borrowings carried variable interest rates which ranged
between 0.0% and 6.8% per year as of December 31, 2006.
We
have
pledged a portion of our assets, with a carrying value of NT$5,143.4 million
(US$157.8 million) as of December 31, 2006, to secure our obligations under
our
short-term and long-term facilities.
In
November 2005, we and ASE Test Taiwan entered into a US$100.0 million three-year
revolving receivables acquisition and servicing agreement with ABN Amro Bank
N.V. whereby we and ASE Test, Inc. agree to sell and ABN Amro Bank N.V. agrees
to buy certain eligible receivables. The credit line under this facility was
increased to US$200 million in June 2006. The total accounts receivable sold
under this facility as of December 31, 2005 and 2006 was NT$3,915.0 million
and
NT$4,608.2 million (US$141.4 million), respectively. See “—Off-Balance Sheet
Arrangements”.
In
August
2005, ASE Test Finance Limited entered into a US$78.0 million five-year
syndicated credit facility for which Citibank, N.A., Taipei Offshore Banking
Branch and Citigroup Global Markets Asia Limited acted as arrangers and
Citibank, N.A., Taipei Offshore Banking Branch acted as agent. We and ASE Test
act as the guarantors for ASE Test Finance Limited. The proceeds were used
for
the repayment of loans incurred by ASE Test and ASE Test Finance Limited. The
facility bears interest at LIBOR plus 0.875% per annum.
In
March
2005, ASE Shanghai entered into a US$119.0 million five-year syndicated credit
facility for which the Hongkong and Shanghai Banking Corporation Limited,
Shanghai Branch acted as arranger and agent. We agreed to act as guarantor
for
ASE Shanghai. We used US$79 million to refinance exiting credit facilities
to
fund our capital expenditure requirements. The facility bears interest at LIBOR
plus 0.75% per annum.
In
connection with our leasing of testing equipment, in August 2004, we, along
with
ASE Test Taiwan, entered into an agreement with a syndicate of banks arranged
by
Citibank, N.A., Taipei Branch whereby such syndicate agreed to purchase up
to
US$90.0 million of qualifying lease receivables from eligible leasing companies
for twelve months from the date of the agreement. As evidence of the obligations
entered into under the transaction, we and ASE Test Taiwan issued promissory
notes to such leasing companies indorsed to Citibank, N.A., Taipei
Branch. The leasing companies also executed a mortgage agreement
granting Citibank N.A., Taipei Branch a mortgage on the leased
equipment. This agreement expired in August 2005.
In
connection with ASE Chung Li’s merger into us in August 2004, we assumed the
remaining NT$914.2 million of a NT$4.0 billion syndicated bank loan that ASE
Chung Li originally entered into in November 2000. This loan was
repaid in May 2005.
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 zero
coupon convertible bonds due 2008. The convertible bonds are convertible into
our common shares and ADSs. In April 2005, we repurchased in the market US$15
million of the convertible bonds. As of April 30, 2007, these
convertible bonds are convertible
into
our
common shares at a conversion price of NT$31.98 per common share. As of April
30, 2007, US$11.8 million of the convertible bonds had been
converted.
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 was originally due in February 2005 but was
repaid in full in July 2004. In connection with the repayment of the
loan to J&R Holding Limited in June 2004, ASE Test entered into a two year
revolving loan facility agreement for US$30.0 million which was guaranteed
by
ASE Test Taiwan. Also in connection with the repayment of the loan to
J&R Holding Limited, ASE Test Finance Limited entered into a credit facility
for US$30.0 million which was guaranteed by ASE Test. Both of these
loans were repaid in September 2005.
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.
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. For example, we failed to comply with certain
debt ratios in some of our loan agreements as a result of additional borrowings
to fund increased capital expenditures in 2004 without an increase in net income
and as a result of the fire at our facilities in Chung Li, Taiwan in May 2005.
By July 2005, we had either obtained waivers for, or refinanced on a long-term
basis, all of the relevant loans, and as such are not in default under any
of
our existing debt.
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 our existing debt
agreements 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
and affiliates. As of December 31, 2006, we endorsed and guaranteed the
promissory notes of our subsidiaries and affiliates in the amount of NT$12,410.5
million (US$380.8 million). Other than such guarantees, we have no other
contingent obligations.
We
have
made, and expect to continue to make, substantial capital expenditures in
connection with the expansion of our production capacity. The table below sets
forth our principal capital expenditures incurred for the periods
indicated.
|
Year
Ended December 31,
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
(in
millions)
|
||||||||||||||||
|
Machinery
and equipment
|
26,063.0
|
11,883.3
|
13,491.2
|
414.0
|
||||||||||||
|
Building
and improvements
|
4,525.3
|
1,074.1
|
4,239.7
|
130.1
|
||||||||||||
We
have
budgeted capital expenditures of approximately NT$20,117.6 million (US$617.3
million) for 2007, 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, marketable securities, 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. We currently hold
cash primarily in U.S. dollars, New Taiwan dollars, Malaysian ringgit, PRC
renminbi, Japanese yen and Korean won. As of December 31, 2006, we
had contractual obligations of NT$32,827.1 million (US$1,007.3 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.
On February 2, 2007, we and NXP announced the signing of a memorandum of
understanding to form a joint venture company in Suzhou, PRC focused on
semiconductor testing and packaging. The terms of the agreement are
subject to final negotiations between NXP and us and the receipt of necessary
approvals from regulatory authorities. We currently plan to acquire
60.0% of the equity of NXP Semiconductors Suzhou Ltd., NXP’s existing testing
and packaging operations in Suzhou, with NXP retaining the remaining 40.0%.
Other than our potential joint venture with NXP or as disclosed elsewhere in
this annual report, we currently have no commitments to make any material
investment, acquisition or divestment.
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 and interest rate swaption
transactions to hedge our interest rate exposure. As of December 31, 2006,
we
had NT$2,750.0 million (US$84.4 million) outstanding in interest rate swap
contracts. See “Item 11. Quantitative and Qualitative Disclosures about Market
Risk—Market Risk—Interest Rate Risk”. 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, 2006, we had no outstanding foreign
currency option contracts and US$105.3 million outstanding in forward contracts.
In October 2003, we entered into cross-currency swap contracts to hedge against
exchange rate fluctuations in connection with our US$200.0 million zero coupon
convertible bonds due 2008, of which US$15.0 million were repurchased in the
market in April 2005. As of December 31, 2006, we had US$142.0 million
outstanding in cross-currency swap contracts. See “Item 11. Quantitative and
Qualitative Disclosures about Market Risk” and note 23 to our consolidated
financial statements included in this annual report.
For
2004,
2005 and 2006, our research and development expenditures totaled approximately,
NT$2,581.1 million, NT$2,785.4 million, and NT$2,632.0 million (US$80.8
million), respectively. These expenditures represented approximately 3.4%,
3.3%
and 2.6% of net revenues in 2004, 2005 and 2006, respectively. We have
historically expensed all research and development costs as incurred and none
is
currently capitalized. As of April 30, 2007, we employed 1,984 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 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.
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 our successful
development of substrate production capability has, among other things, enabled
us to capture an increasingly important value-added component of the packaging
process, helped ensure a stable and cost-effective supply of substrates for
our
BGA packaging operations and shortened edproduction time. See “Item
7. Major Shareholders and Related Party Transactions—Related Party
Transactions”.
Testing
Our
research and development efforts in the area of testing have focused primarily
on improving the efficiency and technology of our testing processes. These
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.
We
and ASE
Test Taiwan entered into a US$100.0 million, three-year revolving accounts
receivable securitization agreement with a bank in November 2005. The
credit line under this facility was increased to US$200.0 million in June 2006.
The agreement serves to increase our financing flexibility and to meet working
capital requirements. Under the agreement, we and ASE Test Taiwan sold accounts
receivable that meet certain eligibility requirements to the bank, which issued
securities to third parties backed by the accounts receivable transferred to
the
bank. Proceeds received from the bank equaled the net carrying value of the
sold
accounts receivable, less a deferred purchase price receivable at 20% of such
receivables, a guarantee deposit, a program fee and other related expenses.
At
the time of the sale, we and ASE Test Taiwan lost control over the accounts
receivable. After the transfer of the accounts receivable, we and ASE Test
Taiwan continue to service, administer and collect the accounts receivable
on
behalf of the bank. We and ASE Test Taiwan collect on the initial accounts
receivable sold and transfer new accounts receivable meeting the eligibility
requirements with a similar value to replace the collected accounts receivable.
This securitization of accounts receivable resulted in an increase in our cash
inflow of NT$3,875.9 million and NT$4,538.3 million (US$139.3 million) for
2005
and 2006, respectively.
The
eligibility criteria for the accounts receivable are primarily based on the
accounts receivable customers’ respective credit ratings. Therefore, a change in
a customer’s credit rating may cause some accounts receivable to become
ineligible, requiring us and ASE Test Taiwan to replace such ineligible accounts
receivable with new eligible accounts receivable or with cash, which may also
affect our and ASE Test Taiwan’s ability to transfer additional eligible
accounts receivable into the facility, and may increase our and ASE Test
Taiwan’s cash outflow by the amount of the ineligible accounts
receivable.
We
and ASE
Test Taiwan de-recognized accounts receivable at 80% of the carrying value,
representing the portion of the sold accounts receivable on which we and ASE
Test Taiwan lost control at the time of transfer to the bank. If we or ASE
Test
Taiwan maintain any control over these sold accounts receivable after the
initial sale, the sale of these accounts receivable will no longer qualify
as an
off-balance sheet transaction and the total proceeds
receivable
from the bank would have to be recorded as borrowings in our consolidated
financial statements. See notes 2 and 7 to our consolidated financial statements
included in this annual report.
The
following table sets forth the maturity of our contractual obligations as of
December 31, 2006.
|
Payments
Due by Period
|
||||||||||||||||||||
|
Total
|
Under
1 Year
|
1
to 3 Years
|
3
to 5 Years
|
After
5 Years
|
||||||||||||||||
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
||||||||||||||||
|
(in
millions)
|
||||||||||||||||||||
|
Contractual
Obligations:
|
||||||||||||||||||||
|
Long-term
debt
(1)
|
34,420.7
|
5,090.3
|
21,943.0
|
7,387.4
|
—
|
|||||||||||||||
|
Capital
lease obligations
(2)
|
608.6
|
540.7
|
67.2
|
0.7
|
—
|
|||||||||||||||
|
Operating
leases
(3)
|
1,592.7
|
836.5
|
581.4
|
174.8
|
—
|
|||||||||||||||
|
Purchase
obligations
(4)
|
3,768.0
|
3,768.0
|
—
|
—
|
—
|
|||||||||||||||
|
Total
(5)(6)(7)
|
40,390.0
|
10,235.5
|
22,591.6
|
7,562.9
|
—
|
|||||||||||||||
|
(1)
|
Excludes
interest payments.
|
|
(2)
|
Represents
our commitments under property leases less imputed interest. These
obligations are recorded on our consolidated balance sheets. See
note 16
to our consolidated financial statements included in this annual
report.
|
|
(3)
|
Represents
our commitments under leases for land, machinery and equipment such
as
testers, and office buildings and equipment. See note 26 to our
consolidated financial statements included in this annual
report.
|
|
(4)
|
Represents
unpaid commitments for construction. These commitments are not recorded
on
our consolidated balance sheets as of December 31, 2006. See note
26 to
our consolidated financial statements included in this annual report.
Total commitments for construction of buildings were approximately
NT$4,000.0 million (US$122.7 million), of which NT$232.0 million
(US$7.1
million) had been paid as of December 31,
2006.
|
|
(5)
|
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 2006 were approximately
NT$320.5 million (US$9.8 million). Royalty expenses in 2006 were
approximately NT$282.3 million (US$8.7 million). See note 26 to our
consolidated financial statements included in this annual
report.
|
|
(6)
|
Excludes
non-binding commitments to purchase machinery and equipment of
approximately NT$4,500.0 million (US$138.1 million) as of December
31,
2006, of which NT$75.8 million (US$2.3 million) had been paid. See
note 26
to our consolidated financial statements included in this annual
report.
|
|
(7)
|
Excludes
our minimum pension funding requirements since such amounts have
not been
determined. We made pension contributions of approximately NT$345.6
million in 2005 and NT$266.3 million (US$8.2 million) in 2006 and
we
estimate that we will contribute approximately NT$133.8 million (US$4.1
million) in 2007. See “—Operating Results and Trend Information—Critical
Accounting Policies” and note 17 to our consolidated financial statements
included in this annual report.
|
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 22, 2006. The terms of the
current directors expire on June 21, 2009. Directors may serve any number of
consecutive terms and may be removed from office at any time by a resolution
adopted at a 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. We and our subsidiaries do not have
service contracts with our directors that provide for benefits upon termination
of employment.
Our
board
of directors established an audit committee on July 22, 2005 to satisfy the
requirements of Rule 10A-3 under the Exchange Act. The audit committee is
appointed by the board of directors and currently consists of Alan Cheng, who
is
an independent director and financially literate with accounting or related
financial management expertise. The audit committee has
responsibility for, among other things, overseeing the qualifications,
independence and performance of our independent auditors and the integrity
of
our financial statements.
The
following table sets forth information regarding all of our directors as of
April 30, 2007.
|
Name
|
Position
|
Director
Since
|
Age
|
Other
Significant
Positions
Held
|
||||
|
Jason
C.S. Chang
(1)
|
Director,
Chairman and Chief Executive Officer
|
1984
|
62
|
Chairman
of ASE Test; Chairman of ASE Test Taiwan
|
||||
|
Richard
H.P. Chang
(1)
|
Director,
Vice Chairman and President
|
1984
|
60
|
Vice
Chairman of ASE Test; Chairman of Universal Scientific
|
||||
|
Tien
Wu
(2)
|
Director
and Chief Operating Officer
|
2003
|
49
|
Chief
Executive Officer of ISE Labs
|
||||
|
Joseph
Tung
(2)
|
Director,
Chief Financial Officer and Vice President
|
1997
|
48
|
Supervisor
of Universal Scientific; Director of ASE Test
|
||||
|
Raymond
Lo
(2)
|
Director
and General Manager, Kaohsiung packaging facility
|
2006
|
53
|
President
of ASE Test
|
||||
|
Jeffrey
Chen
(2)
|
Director
and Vice President
|
2003
|
43
|
Director
of ASE Test
|
||||
|
Alan
Cheng
|
Director
|
2005
|
61
|
Director
of ASE Test
|
|
(1)
|
Jason
C.S. Chang and Richard H.P. Chang are brothers.
|
|
(2)
|
Representative
of ASE Enterprises, a company organized under the laws of Hong Kong,
which
held 17.3% of our outstanding common shares as of April 30, 2007.
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 22, 2006, and their terms will expire
on June 21, 2009. 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, our Articles of Incorporation or the resolutions of our
shareholders’ meeting. 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 supervisors as
of
April 30, 2007.
|
Name
|
Position
|
Supervisor
Since
|
Age
|
Other
Significant
Positions
Held
|
||||
|
Feng
Mei-Jean
(1)
|
Supervisor
|
1984
|
52
|
Supervisor
of J&R Industrial Inc.
|
||||
|
Samuel
Liu
(2)
|
Supervisor
|
2005
|
59
|
Chief
Technical Officer (Test) of ASE Inc.
|
||||
|
Tien-Szu
Chen
(2)
|
Supervisor
|
2006
|
45
|
Director
of ASE Test Taiwan
|
||||
|
John
Ho
(2)
|
Supervisor
|
1998
|
52
|
Director
of Universal Scientific
|
||||
|
Yen-Yi
Tseng
(2)
|
Supervisor
|
2000
|
65
|
Chairman
of Hung Ching
|
|
(1)
|
Feng
Mei-Jean is the wife of Richard H.P. Chang.
|
|
(2)
|
Representative
of ASE Test Taiwan.
|
In
accordance with ROC law, each of our directors and supervisors is elected either
in his or her 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 and may be replaced as
representatives by such shareholders at will. Of the current directors and
supervisors, four represent ASE Enterprises and four represent ASE Test
Taiwan. 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 April 30, 2007.
|
Name
|
Position
|
Years
with
the
Company
|
Age
|
|||
|
Jason
C.S. Chang
|
Chairman
and Chief Executive Officer
|
23
|
62
|
|||
|
Richard
H.P. Chang
|
Vice
Chairman and President
|
23
|
60
|
|||
|
Tien
Wu
|
Chief
Operating Officer; Chief Executive Officer, ISE Labs
|
7
|
49
|
|||
|
Joseph
Tung
|
Chief
Financial Officer and Vice President
|
12
|
48
|
|||
|
Raymond
Lo
|
President,
ASE Test; President, ASE Test Taiwan; General Manager, Kaohsiung
packaging
facility
|
21
|
53
|
|||
|
Sang
Jin Maeng
|
President,
ASE Korea
|
8
|
55
|
|||
|
Kwai
Mun Lee
|
President,
ASE South-East Asia operations
|
9
|
44
|
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.
Tien
Wu
has served as a director of ASE Inc. since June 2003 and Chief Operating
Officer since April 2006, prior to which he served as the President of Worldwide
Marketing and Strategy of the ASE Group. Mr. Wu has also served as the Chief
Executive Officer of ISE Labs since March 2003. 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, a M.S. degree in mechanical
engineering and a Ph.D. in applied mechanics from the University of
Pennsylvania.
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.
Raymond
Lo
has served as a director of ASE Inc. and General Manager of our
packaging facility in Kaohsiung, Taiwan since April 2006. Mr. Lo has
also served as President of ASE Test since April 2004, prior to which he served
as President of ASE Test Taiwan since 1999 and Vice President of Operations
of
ASE Inc. since July 1993. Mr. Lo also served as a supervisor of ASE Inc. between
July 2000 and April 2006. 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.
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. 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 a 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.
Alan
Cheng
has served as a director of ASE Inc. since June 2005 and is the
Chairman of H.R. Silvine Electronics, Inc. as well as a director of ASE Test
and
Hung Ching Development & Construction Co., Ltd., an affiliate of ours. Mr.
Cheng holds a degree in industrial engineering from Chung Yuan Christian
University in Taiwan and a master’s degree in industrial engineering from Rhode
Island University.
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.
Samuel
Liu
has served as a supervisor of ASE Inc. since May 2005. He is currently
the Chief Technical Officer for test operations. Mr. Liu has worked in the
electronics industry for over 30 years in various technical and management
roles. He holds a B.S.E.E. from National Taiwan University and a Ph.D. in
material science from Stanford University.
Tien-Szu
Chen
has served as a supervisor of ASE Inc. since June 2006 and is the
President of Power ASE. Mr. Chen holds a bachelor’s degree in industrial
engineering from Chung Yuan Christian University in Taiwan.
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.
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.
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.
Kwai
Mun Lee
has served as President of our Southeast Asia operations, with
responsibility for the operations of our Penang, Malaysia and Singapore
manufacturing facilities, since March 2006. Prior to this appointment, he served
as General Manager of ASE Singapore Pte. Ltd., formerly ISE Labs Singapore,
since May 1998. Before joining the ASE Group, Mr. Lee held senior management
positions at Chartered Semiconductor and STATSChipPAC. He started his career
as
an engineer at Intel. He holds a degree in engineering from the Swinburne
Institute of Technology in Australia.
The
business address of our directors, supervisors and executive officers is our
registered office.
In
2006,
we paid to our directors, supervisors and executive officers approximately
NT$53.2 million (US$1.6 million) in cash remuneration. In June 2004, we granted
an aggregate of 11,150,000 options to our directors, supervisors and executive
officers under our employee stock option plan at an initial exercise price
of
NT$26.60 per share, which as of September 16, 2005 has been adjusted to an
exercise price of NT$22.7 per share due to subsequent stock dividends. In 2006,
we accrued pension costs of NT$18.1 million (US$0.6 million) for retirement
benefits for our management. We did not pay any remuneration in kind
to our directors, supervisors or executive officers in 2006. We have not
provided any loans to or guarantees for the benefit of any of our directors,
supervisors
or
executive officers. For information regarding our pension and other retirement
plans and those of our subsidiaries, see “Item 5. Operating and Financial Review
and Prospects—Operating Results and Trend Information—ROC Labor Pension Act” and
note 17 to our consolidated financial statements included in this annual
report.
ASE
Inc. Employee Bonus and Stock Option Plans
We
award
bonuses to employees of ASE Inc. and its subsidiaries who are located in Taiwan
based on overall income and individual performance targets. These employees
are
eligible to receive bonuses in the form of our common shares valued at par.
Actual amounts of bonuses to individual employees are determined based upon
the
employee meeting specified individual performance objectives. In 2004, we
granted an aggregate of 15,427,203 common shares as stock bonuses with an
aggregate value of NT$154.3 million. At our annual shareholders’ meeting held on
June 15, 2004, our shareholders, in addition to approving such stock bonus,
also
approved NT$18.4 million as cash bonuses to employees. In 2005, we granted
an
aggregate of 25,567,460 common shares as stock bonuses with an aggregate value
of NT$255.7 million. At our annual shareholders’ meeting held on June 30, 2005,
our shareholders, in addition to approving such stock bonus, also approved
NT$9.5 million as cash bonuses to employees. We did not grant any bonuses or
stock options in 2006. See “Item 5. Operating and Financial Review and
Prospects—Operating Results and Trend Information—U.S. GAAP Reconciliation” for
a discussion of how stock bonuses are calculated under ROC GAAP.
We
currently maintain two option plans, adopted in 2002 and
2004. Pursuant to these plans, our full-time employees as well as the
full-time employees of our domestic and foreign subsidiaries are eligible to
receive stock option grants. Each option entitles the holder to purchase one
ASE
Inc. common share at a price equal to the closing market price on the date
of
the option issuance, such exercise price being subject to retroactive adjustment
in the event of certain capital transactions in subsequent periods. Each option
is exercisable upon vesting for five years. 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 grant
date. The options are generally not transferable. As of December 31, 2006,
a
total of 159,968,000 options had been granted under the 2002 plan, 145,989,000
of which had an original exercise price of NT$20.80 per share (currently
adjusted to NT$16.10 per share) and 13,979,000 of which had an original exercise
price of NT$24.60 per share (currently adjusted to NT$21.00 per share). As
of
December 31, 2006, a total of 139,917,000 options had been granted under the
2004 plan, 124,917,000 of which had an original exercise price of NT$26.60
per
share (currently adjusted to NT$22.70 per share) and 15,000,000 of which had
an
original exercise price of NT$20.55 per share (currently adjusted to NT$18.60
per share).
ASE
Test Share Option Plans
As
of
December 31, 2006, ASE Test maintained three option plans, which included plans
adopted in 1999, 2000 and 2004. Under ASE Test’s share option plans,
ASE Test’s directors, employees, advisors, consultants and affiliates, some of
whom serve as our directors, supervisors and employees, 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
ten years. ASE Test’s board of directors may amend or modify the plans at any
time. As of December 31, 2006, an aggregate of 16,500,000 of ASE Test’s shares
had been reserved for issuance and 10,325,038 options to purchase its shares
remained outstanding under its various option plans. An aggregate of 4,985,000
options (of which 4,404,500 were outstanding as of December 31, 2006) 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$5.50
to US$25.00 per share.
The
following table sets forth, for the periods indicated, certain information
concerning our employees for the dates indicated.
|
As
of December 31,
|
||||||||||||
|
2004
|
2005
|
2006
|
||||||||||
|
Total
|
34,649
|
29,039
|
26,986
|
|||||||||
|
Function
|
||||||||||||
|
Direct
labor
|
23,184
|
17,857
|
16,321
|
|||||||||
|
Indirect
labor (manufacturing)
|
7,238
|
7,167
|
6,614
|
|||||||||
|
Indirect
labor (administration)
|
2,017
|
2,101
|
2,227
|
|||||||||
|
Research
and development
|
2,210
|
1,914
|
1,824
|
|||||||||
|
Location
|
||||||||||||
|
Taiwan
|
22,893
|
20,821
|
19,145
|
|||||||||
|
Malaysia
|
5,787
|
2,437
|
2,259
|
|||||||||
|
PRC
(1)
|
2,561
|
2,282
|
1,972
|
|||||||||
|
Korea
|
1,912
|
1,850
|
1,851
|
|||||||||
|
Japan
(2)
|
988
|
1,002
|
1,020
|
|||||||||
|
Singapore
|
304
|
303
|
392
|
|||||||||
|
United
States
|
195
|
344
|
347
|
|||||||||
|
Hong
Kong
(3)
|
9
|
—
|
—
|
|||||||||
|
(1)
|
We
commenced our operations in the PRC in June 2004. See “Item 4. Information
on the Company—Organizational Structure—Our Consolidated Subsidiaries—ASE
Shanghai”.
|
|
(2)
|
We
commenced our operations in Japan in May 2004. See “Item 4. Information on
the Company—History and Development of the Company—Acquisition of NEC’s
Packaging and Testing Operations in Yamagata, Japan”.
|
|
(3)
|
We
dissolved our Hong Kong operations in
2005.
|
Eligible
employees may participate in our employee share bonus plan and stock option
plans and the ASE Test’s share option plans. See “—Compensation—ASE Inc.
Employee Bonus and Stock Option Plans” and “—Compensation—ASE Test Share Option
Plans”. See also “Item 5. Operating and Financial Review and Prospects—Operating
Results and Trend Information—ROC Labor Pension Act”.
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.
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 April 30, 2007.
|
Director,
Supervisor or
Executive
Officer
|
Number
of ASE Inc.
Common
Shares
Held
|
Percentage
of Total
ASE
Inc. Common
Shares
Issued and
Outstanding
|
Number
of Options
Held
(1)
|
Exercise
Price
of
Options
(NT$)
|
Expiration
Date
of
Options
|
|||||
|
Jason
C.S. Chang
|
40,896,026
(2)
|
0.88%
|
9,800,000
|
16.1–22.7
|
12/24/2012–6/30/2014
|
|||||
|
Richard
H.P. Chang
|
57,394,918
|
|
1.24%
|
6,200,000
|
16.1–22.7
|
12/24/2012–6/30/2014
|
||||
|
Tien
Wu
|
1,129,742
|
0.02%
|
*
|
16.1–22.7
|
12/24/2012–6/30/2014
|
|||||
|
Joseph
Tung
|
1,441,864
|
0.03%
|
*
|
16.1–22.7
|
12/24/2012–6/30/2014
|
|||||
|
Raymond
Lo
|
927,928
|
0.02%
|
*
|
16.1–22.7
|
12/24/2012–6/30/2014
|
|||||
|
Jeffrey
Chen
|
143,700
|
0.00%
|
*
|
16.1–22.7
|
12/24/2012–6/30/2014
|
|||||
|
Alan
Cheng
|
383,100
|
0.01%
|
¾
|
¾
|
¾
|
|||||
|
Feng
Mei-Jean
|
73,725,050
|
1.59%
|
¾
|
¾
|
¾
|
|||||
|
Samuel
Liu
|
24,717
|
0.00%
|
*
|
22.7
|
6/30/2014
|
|||||
|
Tien-Szu
Chen
|
163,101
|
0.00%
|
*
|
16.1-22.7
|
12/24/2012-6/30/2014
|
|
Director,
Supervisor or
Executive
Officer
|
Number
of ASE Inc.
Common
Shares
Held
|
Percentage
of Total
ASE
Inc. Common
Shares
Issued and
Outstanding
|
Number
of Options
Held
(1)
|
Exercise
Price
of
Options
(NT$)
|
Expiration
Date
of
Options
|
|||||
|
John
Ho
|
1,038,626
|
0.02%
|
*
|
16.1–22.7
|
12/24/2012–6/30/2014
|
|||||
|
Yen-Yi
Tseng
|
162,660
|
0.00%
|
*
|
16.1–22.7
|
12/24/2012–6/30/2014
|
|||||
|
Sang
Jin Maeng
|
0
|
0.00%
|
*
|
16.1–22.7
|
12/24/2012–6/30/2014
|
|||||
|
Kwai
Mun Lee
|
0
|
0.00%
|
*
|
21.0–22.7
|
8/22/2013–6/30/2014
|
|
(1)
|
Each
option covers one of our common shares.
|
|
(2)
|
In
addition to holding 0.88% of our common shares directly, Jason C.S.
Chang
is the sole shareholder and director of a company that holds all
the
outstanding shares of ASE Enterprises, which holds 17.3% of our common
shares. See “Item 7. Major Shareholders and Related Party
Transactions—Major Shareholders”.
|
|
*
|
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.
|
The
following table sets forth information known to us with respect to the
beneficial ownership of our common shares, as of April 30, 2007, by each
shareholder known by us to beneficially own more than 5% of our outstanding
common shares and all directors, supervisors and executive officers as a
group.
|
Common
Shares Beneficially Owned
|
||||||||
|
Name
of Shareholder or Group
|
Number
|
Percentage
|
||||||
|
ASE
Enterprises
(1)
|
803,869,512
|
17.3 | % | |||||
|
Directors,
supervisors and executive officers as a group
(2)
|
979,768,140
|
21.1 | % | |||||
|
(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)
|
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 April 30,
2007.
|
Common
Shares Beneficially Owned
|
||||||||
|
Name
of Shareholder
|
Number
|
Percentage
|
||||||
|
ASE
Test Taiwan
(1)
|
834,977
|
0.02 | % | |||||
|
Hung
Ching
(2)
|
51,839,721
|
1.1 | % | |||||
|
J&R
Holding Limited
(3)
|
92,935,933
|
2.0 | % | |||||
|
(1)
|
ASE
Test Taiwan is a 99.99%-owned subsidiary of ASE Test, our 50.8%-owned
subsidiary.
|
|
(2)
|
As
of April 30, 2007, we held 26.2% 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”.
|
|
(3)
|
J&R
Holding Limited is our wholly-owned subsidiary. J&R Holding
Limited’s ownership of our common shares is the result of the merger of
ASE Chung Li with and into us and subsequent dividends upon shares
received in connection with such merger. See “—Related Party
Transactions.
|
In
connection with the merger of ASE Chung Li and ASE Material with and into ASE
Inc., we and ASE Test have established
a trust to hold and
dispose of 149,175,000 and 5,000,000 of our common shares that were issued
to
ASE Test and ASE Test Taiwan, respectively, upon completion of the merger.
As a
result, the trustee appointed under the trust agreement has 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. As of April 30, 2007, as a result of stock dividends, the
total
amount of our common shares held by the trust was 179,297,211. See “—Related
Party Transactions”.
None
of
our major shareholders has voting rights different from those of our other
shareholders.
Other
than:
|
|
·
|
FMR
Corp. becoming the beneficial owners of more than 5% of our outstanding
common shares in 2005, and ceasing to be the beneficial owner of
more than
5% of our outstanding common shares in
2006;
|
|
|
·
|
Capital
Group International, Inc. and Capital International, Inc. ceasing
to be
beneficial owners of more than 5% of our outstanding common shares
in
2005; and
|
|
|
·
|
the
receipt by J&R Holding Limited, our wholly-owned subsidiary, of
92,935,933 of our outstanding shares in connection with the merger
of ASE
Chung Li with and into ASE Inc and subsequent dividends. See “—Related
Party Transactions”;
|
there
were
no changes in our major shareholders or significant changes in the percentage
ownership of any of our major shareholders in 2004, 2005 and 2006.
As
of May
31, 2007, a total of 4,645,295,431 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 April 30, 2007, 94,956,490 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 April 30, 2007, 18,988,204 ADSs,
representing 94,941,020 common shares, were held of record by Cede & Co.,
and 3,083 ADSs, representing 15,415 common shares, were held by six other U.S.
persons. The remaining 55 common shares held by Citibank, N.A. are a result
of
fractional shares distributed during stock distributions on the common shares
underlying the ADSs. We have no further information as to common shares held,
or
beneficially owned, by U.S. persons.
In
recent
years, we have awarded our common shares to the employees of our subsidiaries
as
part of their compensation, based in part on our consolidated net income and
the
subsidiaries’ contribution to the consolidated income. We expect this practice
to continue in the future. Because we recorded a consolidated net
loss in 2005, we did not award any common shares to the employees of
subsidiaries in 2006.
Prior
to
its merger into us, ASE Material sold interconnect materials in the aggregate
amount of NT$3,766.2 million and to us in 2004. In 2004, ASE Group
purchased approximately 51% of its substrate requirements by value for its
packaging facilities from ASE Material (including the amount provided by the
former operations of ASE Material after ASE Material’s merger into us). Before
the completion of our merger with ASE Material on August 1, 2004, we purchased
materials from ASE Material at prevailing market prices.
On
August
1, 2004, ASE Chung Li and ASE Material merged with and into us pursuant to
a
merger agreement dated October 28, 2003. We are the surviving corporation.
The
merger was consummated by means of a share exchange pursuant to which the
respective shareholders (other than ourselves) of ASE Chung Li and ASE Material
received our common shares in exchange for the common shares of each of ASE
Chung Li and ASE Material. We issued 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 issued 149,175,000
of our common shares to ASE Test, our consolidated subsidiary, 79,914,225 of
our
common shares to J&R Holding Limited, 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 had a transaction value of approximately
NT$7,101.8 million, based on NT$31.00 per ASE Inc. common share, which was
the
average of the closing prices of our 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 issued 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 ourselves) of
ASE
Material and a strategic investor. The merger with ASE Material had a
transaction value of approximately NT$1,650.0 million, based on NT$31.00 per
ASE
Inc. common share, which was the average of the closing prices of our 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, also received our common shares in exchange for common
shares of ASE Material held by him.
All
of the
assets and liabilities of ASE Chung Li and ASE Material are owned and have
been
assumed by ourselves and the operations of ASE Chung Li and ASE Material have
been integrated with our operations. The merger agreement was approved by our
board of directors and shareholders as well as the board of directors and
shareholders of each of ASE Chung Li and ASE Material.
In
order
to comply with Singapore law, trusts organized under ROC law have been
established to hold and dispose of our 149,175,000 common shares issued to
ASE
Test and our 5,000,000 common shares 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 our company, ASE Test’s parent
company. Pursuant to the applicable trust agreements, the trustee under each
trust is (1) the registered owner of the common shares, (2) authorized to
exercise all of the rights as a shareholder of the common shares, (3) authorized
to sell the common shares, subject to market conditions, when such common shares
become available for resale under ROC law and in accordance with volume
limitations under ROC law, at its sole discretion; provided such common shares
are sold (i) in compliance with ROC laws and regulations, (ii) in an orderly
manner in order to minimize the impact on the trading price of the common
shares, and (iii) in a manner consistent with its fiduciary duties owed to
ASE
Test and (4) able to transfer and deliver to ASE Test or ASE Test Taiwan the
proceeds from the sale of our common shares and any cash dividends distributed,
as the case may be. Neither ASE Test nor ASE Test Taiwan 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 declared while the shares remain in
trust.
We
have
historically guaranteed the promissory notes of many of our subsidiaries and
affiliates. As of December 31, 2006, we had endorsed and guaranteed an aggregate
amount of NT$12,410.5 million (US$380.8 million) of the outstanding promissory
notes of our subsidiaries.
We
constructed a new building in Kaohsiung, Taiwan with Hung Ching, our affiliate
engaged in the development and management of commercial, residential and
industrial real estate in Taiwan. The new building was completed in July 2004
and has approximately 1,172,000 square feet of floor space. We and ASE Test
Taiwan purchased Hung Ching’s interest in the development in January 2005. We
own the first eight floors of the building with floor space of approximately
940,000 square feet and ASE Test Taiwan owns the remaining two floors with
floor
space of approximately 232,000 square feet. We use our floor space to house
part
of our operations in Kaohsiung. The total cost to us of the construction project
was approximately NT$1,329.2 million.
On
May 23,
2006, we purchased from Hung Ching two new buildings in Chung Li, Taiwan that
we
built with Hung Ching for NT$1,311.4 million (US$40.2 million). See “Item 4.
Information on the Company—Property, Plants and Equipment”.
Not
applicable.
Consolidated
financial statements are set forth under “Item 18. Financial
Statements”.
On
January
31, 2006, Tessera, Inc. filed an amended complaint in the United States District
Court for the Northern District of California adding Advanced Semiconductor
Engineering, Inc. and ASE (U.S.) Inc. (collectively, “ASE”), and other companies
to a suit alleging that ASE’s and the 13 other defendants’ manufacturing, using,
importing, offering for sale, and selling of various packaged semiconductor
products infringes patents owned by Tessera relating to certain types of
semiconductor chip packaging and/or breaches technology license agreements
regarding certain types of semiconductor chip packages between Tessera and
certain defendants, including ASE. Tessera is seeking, among other things,
monetary damages and injunctive relief in the lawsuit. On March 27, 2006,
ASE filed answers and counterclaims with the court. On May 15, 2007, at
Tessera’s request, the United States International Trade Commission instituted
an investigation of certain of ASE’s co-defendants and other companies,
including certain of ASE’s customers. ASE has not been named as a
respondent in this investigation. Tessera seeks an order preventing these
companies from importing certain packaged semiconductor chips and products
containing them into the United States. The International Trade Commission
investigation involves two of the same patents asserted in the California
litigation and may involve some of the same products packaged by ASE that are
included in the California litigation. The district court in the
California litigation has vacated the trial schedule and stayed all proceedings
pending a final resolution of the International Trade Commission investigation.
The United States Patent and Trademark Office has also instituted
reexamination proceedings on all the patents Tessera has asserted in the
California litigation. It is not possible to predict the outcome of the
California litigation, the total costs of resolving the litigation or when
the
stay will be lifted; nor is it possible to predict the outcome of the
International Trade Commission investigation or the Patent and Trade Office
proceedings or their impact on the California litigation.
We
have
historically paid dividends on our common shares with respect to the results
of
the preceding year following approval by our shareholders at the annual general
meeting of shareholders. We have historically paid the large majority
of our dividends in the form of stock.
We
have
paid annual stock dividends on our common shares since 1989, except in 2002
and
2006 when we did not pay any dividend due to the losses we incurred in the
2001
and 2005 fiscal years, respectively. We also paid cash dividends of NT$0.10
per
share in 2004.
The
following table sets forth the stock dividends paid during each of the years
indicated and related information.
|
Stock
Dividends Per
Common
Shares(1)
|
Total
Common Shares
Issued
as Stock Dividends
|
Outstanding
Common Shares
on
Record Date(2)
|
Percentage
of
Outstanding
Common Shares
Represented
by Stock Dividends
|
|||||
|
NT$
|
||||||||
|
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%
|
||||
|
2004
|
0.57
|
221,977,360
|
3,862,595,437
|
5.7%
|
||||
|
2005
|
1.00
|
411,221,140
|
4,119,763,000
|
10.0%
|
||||
|
2006
|
—
|
—
|
4,592,508,620
|
—
|
|
(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.
|
In
order
to meet the needs of our present and future capital expenditures, we anticipate
paying both stock and cash dividends in the future. The form, frequency and
amount of future cash or stock dividends on our common shares will depend upon
our net income, cash flow, financial condition and other factors. Currently,
our
Articles of Incorporation provide that cash dividends may not exceed 50% of
any
dividend distribution. At our annual general shareholders’ meeting to be held on
June 28, 2007, our shareholders will consider a proposal to amend our Articles
of Incorporation to allow us to distribute cash dividends in excess of 50%
of a
dividend distribution, subject to approval at a shareholders’ meeting. 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 and taxes payable, 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 pro rata out of our annual net income:
|
·
|
up
to 2% of our annual net income (less prior years’ losses, taxes payable
and legal and special reserves, if any) should be paid to our directors
and supervisors as compensation;
and
|
|
·
|
between
5% and 7% of the annual net income (less prior years’ losses, taxes
payable 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.
|
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 similarly entitled
to the full amount of any dividend declared.
For
information relating to ROC withholding taxes payable on dividends, see “Item
10. Additional Information—Taxation—ROC Taxation—Dividends”.
Other
than
as disclosed elsewhere in this annual report, we have not experienced any
significant changes since the date of the annual financial
statements.
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 May 31, 2007, there were an aggregate
of 4,645,295,431 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 May 31, 2007 was NT$38.00 per share.
|
Closing
Price per Share
|
Adjusted
Closing
Price
per Share(1)
|
Average
Daily
Trading
Volume
|
Taiwan
Stock
Exchange
Index
|
|||||||||||||||||||||||||
|
High
|
Low
|
High
|
Low
|
(in
thousands of shares)
|
High
|
Low
|
||||||||||||||||||||||
|
2002
|
38.50
|
15.90
|
29.80
|
12.30
|
24,798
|
6,462.3
|
3,850.0
|
|||||||||||||||||||||
|
2003
|
35.50
|
16.90
|
30.23
|
14.39
|
24,852
|
6,142.3
|
4,139.5
|
|||||||||||||||||||||
|
2004
|
36.20
|
21.10
|
33.47
|
17.97
|
24,113
|
6,209.2
|
5,856.5
|
|||||||||||||||||||||
|
2005
|
31.00
|
19.35
|
31.00
|
17.50
|
26,833
|
7,171.8
|
5,633.0
|
|||||||||||||||||||||
|
First
Quarter
|
24.85
|
20.00
|
22.47
|
18.08
|
27,356
|
6,074.8
|
6,018.1
|
|||||||||||||||||||||
|
Second
Quarter
|
25.75
|
19.35
|
23.28
|
17.50
|
24,107
|
7,171.8
|
5,803.7
|
|||||||||||||||||||||
|
Third
Quarter
|
25.95
|
20.80
|
23.46
|
18.81
|
21,712
|
6,455.6
|
5,925.5
|
|||||||||||||||||||||
|
Fourth
Quarter
|
31.00
|
19.70
|
31.00
|
19.70
|
34,090
|
6,575.5
|
5,633.0
|
|||||||||||||||||||||
|
2006
|
38.30
|
26.50
|
38.30
|
26.50
|
50,712
|
7,823.7
|
6,257.8
|
|||||||||||||||||||||
|
First
Quarter
|
31.00
|
26.50
|
31.00
|
26.50
|
45,067
|
6,742.4
|
6,364.6
|
|||||||||||||||||||||
|
Second
Quarter
|
38.30
|
28.50
|
38.30
|
28.50
|
38,417
|
7,474.1
|
6,299.6
|
|||||||||||||||||||||
|
Third
Quarter
|
34.00
|
26.60
|
34.00
|
26.60
|
27,901
|
6,946.3
|
6,257.8
|
|||||||||||||||||||||
|
Fourth
Quarter
|
37.95
|
29.75
|
37.95
|
29.75
|
24,665
|
7,823.7
|
6,875.0
|
|||||||||||||||||||||
|
December
|
37.30
|
36.00
|
37.30
|
36.00
|
221,545
|
7,823.7
|
7,450.3
|
|||||||||||||||||||||
|
2007
|
||||||||||||||||||||||||||||
|
First
Quarter
|
41.20
|
35.90
|
41.20
|
35.90
|
24,665
|
7,935.5
|
7,344.6
|
|||||||||||||||||||||
|
January
|
37.90
|
35.90
|
37.90
|
35.90
|
21,629
|
7,935.5
|
7,618.6
|
|||||||||||||||||||||
|
February
|
39.05
|
37.35
|
39.05
|
37.35
|
24,888
|
7,902.0
|
7,701.5
|
|||||||||||||||||||||
|
March
|
41.20
|
39.00
|
41.20
|
39.00
|
27,580
|
7,884.4
|
7,344.6
|
|||||||||||||||||||||
|
Second
Quarter (through May 31)
|
||||||||||||||||||||||||||||
|
April
|
42.30
|
38.45
|
42.30
|
38.45
|
40,753
|
8,084.5
|
7,875.4
|
|||||||||||||||||||||
|
May
|
40.00
|
37.60
|
40.00
|
37.60
|
21,310
|
8,221.8
|
7,903.0
|
|||||||||||||||||||||
|
(1)
|
As
adjusted retroactively by the Taiwan Stock Exchange to give effect
to
stock dividends paid in the periods indicated. See “Item 8. Financial
Information—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. In the case of equity securities
traded on the Taiwan Stock Exchange, such as our common shares, fluctuations
in
the price of a particular security may not exceed a 7% change either above
or
below the previous day’s closing price of such security.
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 May 31, 2007, a total of 21,944,576 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 May 31, 2007 was US$5.95 per ADS.
|
Closing
Price per ADS
|
Adjusted
Closing
Price
per ADS(1)
|
Average
Daily
Trading
Volume
|
New
York Stock
Exchange
Index
|
|||||||||||||||||||||||||
|
High
|
Low
|
High
|
Low
|
(In
thousands
of
ADSs)
|
High
|
Low
|
||||||||||||||||||||||
|
US$
|
US$
|
US$
|
US$
|
|||||||||||||||||||||||||
|
2002
|
5.54
|
2.21
|
4.31
|
1.72
|
111
|
6,445.01
|
4,452.49
|
|||||||||||||||||||||
|
2003
|
5.27
|
2.45
|
4.51
|
1.91
|
195
|
6,440.30
|
4,486.70
|
|||||||||||||||||||||
|
2004
|
5.95
|
3.18
|
5.09
|
2.75
|
219
|
7,253.06
|
6,217.06
|
|||||||||||||||||||||
|
2005
|
4.49
|
2.85
|
4.49
|
2.80
|
280
|
7,852.18
|
6,935.31
|
|||||||||||||||||||||
|
First
Quarter
|
4.07
|
3.20
|
3.68
|
2.90
|
165
|
7,441.18
|
6,996.56
|
|||||||||||||||||||||
|
Second
Quarter
|
4.06
|
3.09
|
3.68
|
2.80
|
397
|
7,346.32
|
6,935.31
|
|||||||||||||||||||||
|
Third
Quarter
|
4.01
|
3.10
|
3.63
|
3.00
|
251
|
7,663.82
|
7,245.59
|
|||||||||||||||||||||
|
Closing
Price per ADS
|
Adjusted
Closing
Price
per ADS(1)
|
Average
Daily
Trading
Volume
|
New
York Stock
Exchange
Index
|
|||||||||||||||||||||||||
|
High
|
Low
|
High
|
Low
|
(In
thousands
of
ADSs)
|
High
|
Low
|
||||||||||||||||||||||
|
US$
|
US$
|
US$
|
US$
|
|||||||||||||||||||||||||
|
Fourth
Quarter
|
4.49
|
2.85
|
4.49
|
2.85
|
286
|
7,852.18
|
7,234.09
|
|||||||||||||||||||||
|
2006
|
6.12
|
4.00
|
6.12
|
4.00
|
342
|
9,179.40
|
7,719.78
|
|||||||||||||||||||||
|
First
Quarter
|
4.79
|
4.00
|
4.79
|
4.00
|
463
|
8,271.79
|
7,902.27
|
|||||||||||||||||||||
|
Second
Quarter
|
6.12
|
4.33
|
6.12
|
4.33
|
338
|
8,646.96
|
7,719.78
|
|||||||||||||||||||||
|
Third
Quarter
|
5.22
|
4.07
|
5.22
|
4.07
|
294
|
8,490.68
|
7,892.87
|
|||||||||||||||||||||
|
Fourth
Quarter
|
6.06
|
4.49
|
6.06
|
4.49
|
275
|
9,179.40
|
8,447.83
|
|||||||||||||||||||||
|
December
|
5.80
|
5.54
|
5.80
|
5.54
|
131
|
9,179.40
|
8,949.07
|
|||||||||||||||||||||
|
2007
|
||||||||||||||||||||||||||||
|
First
Quarter
|
6.10
|
5.57
|
6.10
|
5.57
|
258
|
9,453.93
|
8,837.97
|
|||||||||||||||||||||
|
January
|
5.87
|
5.57
|
5.87
|
5.57
|
185
|
9,268.49
|
9,003.12
|
|||||||||||||||||||||
|
February
|
5.97
|
5.65
|
5.97
|
5.65
|
296
|
9,453.93
|
9,079.41
|
|||||||||||||||||||||
|
March
|
6.10
|
5.90
|
6.10
|
5.90
|
291
|
9,341.36
|
8,837.97
|
|||||||||||||||||||||
|
Second
Quarter (through May 31)
|
||||||||||||||||||||||||||||
|
April
|
6.39
|
5.81
|
6.39
|
5.81
|
797
|
9,746.57
|
9,305.55
|
|||||||||||||||||||||
|
May
|
6.04
|
5.76
|
6.04
|
5.76
|
532
|
10,042.60
|
9,639.79
|
|||||||||||||||||||||
|
(1)
|
As
adjusted retroactively to give effect to stock dividends paid in
the
periods indicated.
|
Not
applicable.
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.
Not
applicable.
Not
applicable.
Not
applicable.
Not
applicable.
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 may engage in the
following types of business:
|
|
·
|
the
manufacture, assembly, processing, testing and export of various
types of
integrated circuitry;
|
|
|
·
|
the
research, development, design and manufacture, assembly, processing,
testing and export of various computers, electronics, communications,
information products and their peripheral
products;
|
|
|
·
|
general
import and export trading (excluding businesses that require trading
permits);
|
|
|
·
|
the
manufacture of electronic parts and
components;
|
|
|
·
|
the
manufacture of mechanical and electronic devices and materials (including
integrated circuit leadframes, BGA substrates and flip-chip
substrates);
|
|
|
·
|
wholesale
and retail sales of electronic
materials;
|
|
|
·
|
technical
support and consulting service for integrated circuit leadframes,
BGA
substrates and flip-chip
substrates;
|
|
|
·
|
leasing;
and
|
|
|
·
|
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$63,000,000,000, divided into
6,300,000,000 common shares, 4,645,295,431 of which were issued in registered
form and outstanding as of May 31, 2007. 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 Financial Supervisory Commission,
Executive Yuan, we may grant stock options to our employees, provided that
NT$5,000,000,000 of our authorized capital is reserved for employee stock
options and 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 grant
date of the option. As of December 31, 2006, we had granted 299,885,000 options
pursuant to employee stock option plans established on August 28, 2002 and
May
27, 2004, to our full-time employees as well as to full-time employees of our
domestic and foreign subsidiaries. See “Item 6. Directors, Senior
Management and Employees—Compensation—ASE Inc. Employee Bonus 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 representatives appointed
by corporate shareholders which appoint individual 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, our Articles of Incorporation or shareholders
resolutions.
The
board
of directors is constituted by the directors, who elect a 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.
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 and taxes payable, 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:
|
|
·
|
up
to 2% of our annual net income (less prior years’ losses, taxes payable
and legal and special reserves, if any) should be paid to our directors
and supervisors as compensation;
and
|
|
|
·
|
between
5% and 7% of the annual net income (less prior years’ losses, taxes
payable 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 dividends
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 50% of the distribution for any
given year. For information on our proposed change to this requirement, see
“Item 8. Financial Information—Dividends and Dividend Policy”.
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 “—Taxation—ROC
Taxation—Dividends”.
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 ourselves, the approval of the ROC Financial Supervisory
Commission, Executive Yuan 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, except under certain circumstances or when
exempted by the ROC Financial Supervisory Commission, Executive Yuan. 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. Any shareholder who holds 1% or more of our issued and
outstanding shares may submit one written proposal for discussion at our annual
shareholders’ meeting. 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. 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, except
that there are no voting rights for those shares held by us or directly or
indirectly held by controlled companies or affiliates. 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:
|
|
·
|
amendment
to the Articles of Incorporation, including increase of authorized
share
capital and any changes of the rights of different classes of
shares;
|
|
|
·
|
transfer
of the company’s entire business or assets or substantial part of its
business or assets;
|
|
|
·
|
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;
|
|
|
·
|
acquisition
of the entire business or assets of any other company, which would
have a
significant impact on the company’s
operations;
|
|
|
·
|
distribution
of any stock dividend;
|
|
|
·
|
dissolution,
merger or spin-off of the company;
and
|
|
|
·
|
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.
Other
Rights of Shareholders
Under
the
ROC Company Law, dissenting shareholders are entitled to appraisal rights in
certain major corporate actions such as a proposed amalgamation by the company.
If agreement with the company cannot be
reached,
a
dissenting shareholder may seek a court order for the company to redeem all
of
their shares. Shareholders may exercise their appraisal rights by serving
written notice on the company prior to the related shareholders’ meeting and/or
by raising and registering an objection at the shareholders’ meeting. In
addition to appraisal rights, shareholders have the right to sue for the
annulment of any resolution adopted at a shareholders’ meeting where the
procedures were legally defective within 30 days after the date of the
shareholders’ meeting. One or more shareholders who have held more than 3% of
the issued and outstanding shares of a company for more than one year may
require a supervisor to bring a derivative action on behalf of the company
against a director as a result of the director's unlawful actions or failure
to
act.
Rights
of Holders 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 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, our chairman
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.
While
shareholders who own 1% or more of our outstanding shares are entitled to submit
one proposal to be considered at our annual general meetings, only holders
representing at least 51% of our ADSs outstanding at the relevant record date
are entitled to submit one proposal to be considered at our annual general
meetings. Hence, only one proposal may be submitted on behalf of all ADS
holders.
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:
|
|
·
|
ordinary
shareholders’ meeting—60 days;
|
|
|
·
|
extraordinary
shareholders’ meeting—30 days; and
|
|
|
·
|
relevant
record date—five days.
|
Annual
Financial Statements
At
least
ten 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:
|
|
·
|
to
transfer shares to our employees;
|
|
|
·
|
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
|
|
|
·
|
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.
We
may not
pledge or hypothecate any of our shares purchased by us. In addition,
we may not exercise any shareholders’ right attaching to such
shares. In the event that we purchase our shares on the Taiwan
Securities Exchange, our affiliates, directors, supervisors, managers, and
their
respective spouses and minor children and/or nominees are prohibited from
selling any of our shares during the period in which we are purchasing our
shares.
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:
|
|
·
|
each
director, supervisor, executive officer 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 Financial Supervisory Commission, Executive Yuan;
and
|
|
|
·
|
each
director, supervisor, executive officer or substantial shareholder,
after
acquiring the status of director, supervisor, executive officer 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
Financial Supervisory Commission, Executive Yuan 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:
|
|
·
|
0.2%
of the outstanding shares of the company in the case of a company
with no
more than 30 million outstanding shares;
or
|
|
|
·
|
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
|
|
|
·
|
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 Financial
Supervisory Commission, Executive
Yuan.
|
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 and described under “—Substantial Shareholders”) 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 transferring 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.
Asset
Purchase Agreement by and among Flextronics Manufacturing (M) Sdn Bhd and ASE
Electronics (M) Sdn. Bhd., dated as of October 3, 2005
On
October
3, 2005, ASE Test Malaysia entered into an asset purchase agreement with
Flextronics Manufacturing (M) Sdn Bhd, or Flextronics, in connection with the
sale of ASE Test Malaysia’s camera module assembly operations to Flextronics for
a purchase price of approximately US$19.1 million. Pursuant to the terms and
conditions of the asset purchase agreement, all of the tangible and intangible
assets, rights and properties owned by or licensed or leased to ASE Test
Malaysia with respect to the camera module assembly operations were sold to
Flextronics.
Joint
Venture Agreement by and among Powerchip Semiconductor Corp. and Advanced
Semiconductor Engineering, Inc.
On
July
14, 2006, we entered into a joint venture agreement with Powerchip Semiconductor
Corp. to establish Power ASE to focus on packaging and testing of memory
semiconductors. Pursuant to the joint venture agreement, we invested US$30.0
million for a 60.0% of the equity interest in Power ASE and Powerchip invested
US$20.0 million for the remaining 40.0%.
Sale and
Purchase Agreement by and among Seacoast Profits Limited and J&R
Holding Limited
On
January
11, 2007, we, through our subsidiary J&R Holding Limited, entered into a
sale and purchase agreement with Seacoast Profits Limited in
connection with the acquisition of all the shares of Top Master Enterprises
Limited, the sole shareholder of GAPT, for a purchase price of US$60.0
million.
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.
ROC
Exchange Controls
The
ROC
Foreign Exchange Control Law and regulations provide that all foreign exchange
transactions must be executed by banks designated by the ROC Financial
Supervisory Commission, Executive Yuan and by the Central Bank of the Republic
of China (Taiwan) to engage in such transactions. 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.
Apart
from
trade, ROC companies and resident individuals may, without foreign exchange
approval, remit outside and into 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 the Republic of China (Taiwan).
In
addition, foreign persons may, subject to specified requirements, but without
foreign exchange approval of the Central Bank of the Republic of China (Taiwan),
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.
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 (referred
to here as a “non-ROC holder”). As used in the preceding sentence, a
“non-resident individual” is a non-ROC 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 business
agent 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%
undistributed earnings tax is imposed on a ROC company for its after-tax
earnings generated after January 1, 1998 which are not distributed in the
following year. The undistributed earnings tax so paid will further reduce
the
retained earnings available for future distribution. When we declare a dividend
out of those retained earnings, an amount in respect of the undistributed
earnings tax up to a maximum amount of 10% of the dividend to be distributed,
will be credited against the 20% withholding tax imposed on the non-ROC
holders.
Distributions
of share dividends out of capital reserves will not be subject to withholding
tax.
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 ADSs 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
evidenced by securities.
Estate
and Gift Tax
ROC
estate
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. Estate tax is currently imposed at rates ranging
from 2% of the first NT$670,000 to 50% of amounts in excess of NT$111,320,000.
Gift tax is imposed at rates ranging from 4% of the first NT$670,000 donated
to
50% of amounts donated in excess of NT$50,090,000. Under the ROC Estate and
Gift
Act, 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, Senegal, Sweden, Belgium, Denmark and Vietnam.
These
tax treaties may limit the rate of ROC withholding tax on dividends paid with
respect to common shares in ROC companies. 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 common shares or ADSs to those U.S. holders
described below who hold such common shares or ADSs as capital assets for U.S.
federal income tax purposes. For these purposes, you are a U.S. holder if you
are a beneficial owner of common shares or ADSs that is, for U.S. federal income
tax purposes:
|
|
·
|
a
citizen or resident of the United
States;
|
|
|
·
|
a
corporation, or other entity taxable as a corporation, created or
organized under the laws of the United States or of any political
subdivision of the United States;
or
|
|
|
·
|
an
estate or trust the income of which is subject to U.S. federal income
tax
purposes regardless of its source.
|
This
discussion assumes that we are not a passive foreign investment company, as
discussed below.
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 holders subject to special
rules, including:
|
|
·
|
persons
subject to the alternative minimum
tax;
|
|
|
·
|
insurance
companies;
|
|
|
·
|
tax-exempt
entities;
|
|
|
·
|
dealers
or traders in securities or foreign
currencies;
|
|
|
·
|
certain
financial institutions;
|
|
|
·
|
partnerships
or other entities classified as partnerships for U.S. federal income
tax
purposes;
|
|
|
·
|
persons
carrying on a trade or business in the
ROC;
|
|
|
·
|
persons
who hold or will hold common shares or ADSs as part of an integrated
investment, including a straddle, hedging or conversion
transaction;
|
|
|
·
|
persons
whose functional currency for U.S. federal income tax purposes is
not the
U.S. dollar;
|
|
|
·
|
persons
who own 10% or more of our voting stock;
or
|
|
|
·
|
persons
who acquired our common shares or ADSs pursuant to the exercise of
any
employee stock option or otherwise as
compensation.
|
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.
The
U.S.
Treasury has expressed concerns that parties to whom ADSs 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. Accordingly, the analysis of the creditability of
ROC
taxes and the availability of the reduced tax rate
for
dividends received by certain noncorporate U.S. holders, both described below,
could be affected by actions that may be taken by parties to whom the ADSs
are
pre-released.
Please
consult your tax adviser with regard to the application of the U.S. federal
income tax laws to common shares or ADSs as well as any tax consequences arising
under the laws of any state, local or non-U.S. taxing
jurisdictions.
Dividends
Distributions
paid on common shares or ADSs (other than certain 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 us,
generally will constitute foreign source dividend income to the extent paid
out
of our current or accumulated earnings and profits as determined in accordance
with U.S. federal income tax principles. Because we do not maintain calculations
of our earnings and profits under U.S. federal income tax principles, we expect
that distributions will generally be reported to U.S. holders as dividends.
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 payment
is received by the depositary (in the case of ADSs) or by you (in the case
of
common shares), regardless of whether the payment is in fact converted into
U.S.
dollars on the date of receipt. If you do not convert the amount of any dividend
income received into U.S. dollars and you realize gain or loss on a sale or
other disposition of NT dollars, it generally will 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 and the discussion above regarding concerns expressed
by
the U.S. Treasury, under current law, certain dividends paid by qualified
foreign corporations to certain noncorporate U.S. holders in taxable years
beginning before January 1, 2011, are taxable at a maximum rate of 15%. A
foreign corporation is treated as a qualified foreign corporation with respect
to dividends paid on stock that is readily tradable on a securities market
in
the United States, such as the New York Stock Exchange, where our ADSs are
traded. You should consult your own tax advisers to determine whether the
favorable rates may apply to dividends you receive and whether you are subject
to any special rules that limit your ability to be taxed at this favorable
rate.
Subject
to
applicable limitations and restrictions and the discussion above regarding
concerns expressed by the U.S. Treasury, the ROC taxes withheld from dividend
distributions, reduced by any credit against the withholding tax which is paid
by the Company on account of the 10% retained earnings tax, will be eligible
for
credit against your U.S. federal income tax liability. The limitation on foreign
taxes eligible for credit is calculated separately with respect to specific
classes of income. The rules governing foreign tax credits are complex and,
therefore, you should consult your own tax adviser regarding the availability
of
foreign tax credits in your particular circumstances. Instead of
claiming a credit, you may, at your election, deduct such otherwise creditable
ROC taxes in computing your taxable income, subject to generally applicable
limitations under U.S. law.
Certain
pro rata
distributions of common shares by a company to all of 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 category
income, subject to applicable limitations and restrictions.
Capital
Gains
You
will
generally recognize U.S. source capital gain or loss for U.S. federal income
tax
purposes on the sale or exchange of common shares or ADSs, which will be
long-term capital gain or loss if the common shares or ADSs were held for more
than one year. The amount of gain or loss will be equal to the
difference between your tax basis in the common shares or ADSs disposed of
and
the amount realized on disposition. You should consult your own tax adviser
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
We
believe
that we were not a passive foreign investment company, or PFIC, for U.S. federal
income tax purposes for 2006 and do not expect to be considered a PFIC in the
foreseeable future. However, since PFIC status depends upon the
composition of our income and assets and the market value of our assets
(including, among others, less than 25 percent owned equity investments) from
time to time, there can be no assurance that we will not be considered a PFIC
for any taxable year. If we were treated as a PFIC for any taxable
year during which a U.S. holder held a common share or an ADS, certain adverse
consequences could apply to the U.S. holder.
Information
Reporting and Backup Withholding
Payment
of
dividends and sales proceeds that are made within the United States or through
certain U.S.-related financial intermediaries generally are subject to
information reporting and to backup withholding unless (i) you are a corporation
or other exempt recipient or (ii) in the case of backup withholding, you provide
a correct taxpayer identification number and certify that you are not subject
to
backup withholding.
The
amount
of any backup withholding from a payment to you will be allowed as a credit
against your United States federal income tax liability and may entitle you
to a
refund, provided that the required information is furnished to the Internal
Revenue Service.
Not
applicable.
Not
applicable.
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
.
Not
applicable.
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.
In
February 2005, we entered into interest rate swap contracts whereby we receive
NT dollars at a 90-day CP rate in exchange for following: (1) during the first
year, if the US dollar 3-month LIBOR is equal to or below 4.25%, we pay 1%,
otherwise, we pay the US dollar 3-month LIBOR per quarter; (2) during the second
year, if the US
dollar
3-month LIBOR is equal to or below 4.75%, we pay 1.5% per quarter, otherwise,
we
pay the US dollar 3-month LIBOR; and (3) from the third year to the fifth year,
if the US dollar 3-month LIBOR is equal to or below 5.00%, we pay 1.5% or 1.65%
per quarter, otherwise, we pay the US dollar 3-month LIBOR or 8.5%, whichever
is
lower. The contracts each have notional amounts of NT$2,000.0
million. NT$1,000.0 million worth of the contracts was unwound in December
2005.
The remaining amounts under the contracts, which were to expire in December
2009, were terminated in March 2006.
In
December 2005, we entered into an interest rate swap contract whereby for a
portion of the contract, we receive NT dollars at the US dollar 3-month
LIBOR per quarter in exchange for the 90-day CP rate plus 2.7%; and for the
rest
of the contract, we receive NT dollars at the 90-day CP rate per quarter in
exchange for the following: (1) during the first year, if the US dollar 3-month
LIBOR is equal to or below 5.00%, we pay 1.5%, otherwise, we pay the US dollar
3-month LIBOR per quarter; and (2) from the second year to the fourth year,
(i)
if the US dollar 3-month LIBOR is equal to or below 5.25%, we pay 1.5% per
quarter, (ii) if the US dollar 3-month LIBOR is above 5.25% but below 8.5%,
we
pay the US dollar 3-month LIBOR per quarter, and (iii) if the US dollar 3-month
LIBOR is equal to or above 8.5%, we pay 8.5% per quarter. The contract was
originally due to expire in December 2009, but we terminated the contract in
March 2006.
In
May
2004, we entered into an interest rate swaption contract with a bank whereby
we
pay a floating interest rate, the 6 month US$-LIBOR-BBA and receive a fixed
annual rate of 3.65% on a notional amount of US$20.0 million. The
contract was originally to expire in May 2006, but was terminated in May
2005.
In
April
2004, we entered into an interest rate swaption contract with a bank, which
will
expire on October 20, 2007. The notional amount of the contract was
US$157.0 million.
The contract was terminated in March
2006.
In
December 2003, we entered into an interest rate swap contract whereby we pay
NT
dollars at the 90-day BA rate minus 0.70% in exchange for three possible
payoff scenarios: (1) if the US dollar 6-month LIBOR is below 0.95%, we receive
the US dollar 6-month LIBOR per annum; (2) if the US$ 6-month LIBOR is equal
to
or above 0.95% and equal to or below 2.00%, we receive 3.60% per annum; and
(3)
if the US dollar 6-month LIBOR is above 2.00%, we receive either 4.00% minus
US
dollar 6-month LIBOR or 0%, whichever is greater. The contract has a notional
amount of NT$2,750.0 million and expires in January 2009. As of December 31,
2006, the contract’s fair value was negative US$1.8 million.
In
October
2003, we entered into two cross-currency swap contracts to hedge against
reductions in value caused by changes in foreign currency exchange rates, as
well as to manage our exposure to interest rates. See “
¾
Foreign Currency
Exchange Rate Risk”.
The
table
below sets forth information relating to our significant obligations that are
sensitive to interest rate fluctuations as of December 31, 2006.
|
Expected
Maturity Date
|
||||||||||||||||||||||||||||||||
|
2007
|
2008
|
2009
|
2010
|
2011
|
Thereafter
|
Total
|
Fair
Value
|
|||||||||||||||||||||||||
|
(in
millions, except percentages)
|
||||||||||||||||||||||||||||||||
|
Short-term
debt:
|
||||||||||||||||||||||||||||||||
|
Variable
rate (NT$)
|
138.0
|
–
|
–
|
–
|
–
|
–
|
138.0
|
138.0
|
||||||||||||||||||||||||
|
Average
interest rate
|
2.13 | % |
–
|
–
|
–
|
–
|
–
|
2.13 | % | |||||||||||||||||||||||
|
Variable
rate (US$)
|
44.6
|
–
|
–
|
–
|
–
|
–
|
44.6
|
44.6
|
||||||||||||||||||||||||
|
Average
interest rate
|
5.94 | % |
–
|
–
|
–
|
–
|
–
|
5.94 | % | |||||||||||||||||||||||
|
Variable
rate (RMB)
|
305.0
|
–
|
–
|
–
|
–
|
–
|
305.0
|
305.0
|
||||||||||||||||||||||||
|
Average
interest rate
|
5.26 | % |
–
|
–
|
–
|
–
|
–
|
5.26 | % | |||||||||||||||||||||||
|
Long-term
debt:
|
||||||||||||||||||||||||||||||||
|
Variable
rate (NT$)
|
836.8
|
3,257.4
|
5,841.4
|
3,963.5
|
1,200.0
|
–
|
15,099.1
|
15,099.1
|
||||||||||||||||||||||||
|
Average
interest rate
|
2.67 | % | 1.85 | % | 2.42 | % | 3.05 | % | 3.06 | % |
–
|
2.53 | % | |||||||||||||||||||
|
Expected
Maturity Date
|
||||||||||||||||||||||||||||||||
|
2007
|
2008
|
2009
|
2010
|
2011
|
Thereafter
|
Total
|
Fair
Value
|
|||||||||||||||||||||||||
|
(in
millions, except percentages)
|
||||||||||||||||||||||||||||||||
|
Fixed
rate (NT$)
|
447.3
|
36.9
|
7.8
|
0.6
|
0.1
|
–
|
492.7
|
492.7
|
||||||||||||||||||||||||
|
Average
interest rate
|
4.33 | % | 5.34 | % | 5.31 | % | 6.01 | % | 5.98 | % |
–
|
4.42 | % | |||||||||||||||||||
|
Variable
rate (US$)
|
127.1
|
271.8
|
98.7
|
61.5
|
–
|
–
|
559.1
|
559.1
|
||||||||||||||||||||||||
|
Average
interest rate
|
3.76 | % | 5.03 | % | 5.91 | % | 6.05 | % |
–
|
–
|
5.01 | % | ||||||||||||||||||||
|
Fixed
rate (US$)
|
2.9
|
0.7
|
–
|
–
|
–
|
–
|
3.6
|
3.6
|
||||||||||||||||||||||||
|
Average
interest rate
|
7.97 | % | 6.48 | % |
–
|
–
|
–
|
–
|
7.68 | % | ||||||||||||||||||||||
|
Variable
rate (JP¥)
|
400.0
|
1,200.0
|
1,600.0
|
800.0
|
–
|
–
|
4,000.0
|
4,000.0
|
||||||||||||||||||||||||
|
Average
interest rate
|
1.87 | % | 2.15 | % | 2.38 | % | 2.58 | % |
–
|
–
|
2.30 | % | ||||||||||||||||||||
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 and Japanese yen. 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, Korean won, Japanese yen, Malaysian ringgit and
PRC
renminbi. 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. 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$222.4
million in 2004, a net foreign exchange gain of NT$154.3 million in 2005, and
a
net foreign exchange gain of NT$92.8 million (US$2.8 million) in 2006. In 2004,
2005 and 2006, the average exchange rate of the NT dollar to the U.S. dollar
was
33.37, 32.13 and 32.51, respectively, calculated using noon buying rates in
The
City of New York for cable transfers in NT dollars as certified for customs
purposes by the Federal Reserve Bank of New York.
Foreign
currency denominated liabilities as of December 31, 2006 primarily include
U.S.
dollar debt and Japanese yen debt. As of December 31, 2006, approximately 68.4%
of our cash and accounts receivable were denominated in U.S. dollars, with
a
substantial portion of the remainder denominated primarily in NT dollars and
Japanese yen. As of December 31, 2006, approximately 77.6% of our accounts
payable and payable for properties 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 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.
In
October
2003, we entered into two cross-currency swap contracts to hedge against
exchange rate fluctuations in connection with our US$200.0 million zero coupon
convertible bonds due 2008, of which US$15.0 million were repurchased in the
market in April 2005.
The
terms
of one of such contracts provide that we pay NT dollars at a fixed rate of
1.7%
and receive U.S. dollars at a fixed rate of 2.7%. The contract rate is
US$/NT$33.95. The contract has a notional amount of US$157.0 million/NT$5,330.2
million. In April 2005, the notional amount of US$15.0 million was terminated
early because of the repurchase in the market of a portion of our foreign
convertible bonds. The remaining US$142.0 million will expire in
October 2007. As of December 31, 2006, the contract had a fair value of negative
US$8.4 million.
The
other
such contract was terminated in December 2005. Under this contract we were
to
pay U.S. dollars at a floating rate that is the percentage by which LIBOR is
greater than 2% and receive NT dollars at a floating rate that is the percentage
by which LIBOR is less than 2%. The contract rate was US$/NT$33.95. The contract
had a notional amount of US$43.0 million/NT$1,459.9 million.
The
table
below sets forth our outstanding forward exchange contracts in aggregate terms
by type of contract as of December 31, 2006.
|
Forward
Exchange Contracts
|
|
|
Sell
US$ against NT$
|
|
|
Notional
Amount
|
US$69.0
million
|
|
Weighted
Average Strike Price
|
US$/NT$32.305
|
|
Fair
Value
|
Negative
US$0.28 million
|
|
Sell
US$ against JP¥
|
|
|
Notional
Amount
|
US$23.3
million
|
|
Weighted
Average Strike Price
|
US$/JP¥116.69
|
|
Fair
Value
|
Negative
US$0.29 million
|
|
Sell
US$ against KRW
|
|
|
Notional
Amount
|
US$13.0
million
|
|
Weighted
Average Strike Price
|
US$/KRW954.50
|
|
Fair
Value
|
US$0.35
million
|
Other
Market Risk.
Our exposure to other market
risk relates primarily to our investments in publicly-traded stock and
open-ended mutual funds. The value of these investments may fluctuate based
on
various factors including prevailing market conditions. Moreover, the fair
value
of investments in unlisted securities may be significantly different from their
carrying value. Of our investments in publicly-traded stocks and open-ended
mutual funds held as of December 31, 2006, NT$1,546.5 million (US$47.5 million)
were classified as financial assets held for trading and NT$9,346.4 million
(US$286.8 million) were classified as available-for-sale financial
assets.
Not
applicable.
Not
applicable.
Not
applicable.
Disclosure
Controls and Procedures
As
of
December 31, 2006, we, under the supervision and with the participation of
our
management as defined in Rules 13a-15(e) and 15(d)-15(e) under the Exchange
Act,
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.
Management’s
Annual Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Securities Exchange Act of 1934.
Because
of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2006. In making this assessment, our
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework.
Based
on
this assessment, management concluded that, as of December 31, 2006, our
internal control over financial reporting is effective based on those
criteria.
Deloitte
& Touche, an independent registered public accounting firm, who has also
audited our consolidated financial statements as of and for the years ended
December 31, 2004, 2005 and 2006, has issued an audit report on management’s
assessment on internal control over financial reporting. This report appears
below under “Attestation Report of the Registered Public Accounting
Firm.”
Attestation
Report of the Registered Public Accounting Firm
To
the
Board of Directors and Shareholders of
Advanced
Semiconductor Engineering, Inc.
We
have
audited management's assessment, included in the accompanying
Management
’
s
Annual R
eport on Internal Control
Over Financial
Reporting
, that Advanced Semiconductor Engineering, Inc. and subsidiaries
(the "Company") maintained effective internal control over financial reporting
as of December 31, 2006, based on criteria established in
Internal
Control—Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating management's assessment,
testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered necessary in
the
circumstances. We believe that our audit provides a reasonable basis for
our opinions.
A
company's internal control over financial reporting is a process designed by,
or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by
the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of
the inherent limitations of internal control over financial reporting, including
the possibility of collusion or improper management override of controls,
material misstatements due to error or fraud may not be prevented or detected
on
a timely basis. Also, projections of any evaluation of the effectiveness
of the internal
control
over financial reporting to future periods are subject to the risk that the
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In
our
opinion, management's assessment that the Company maintained effective internal
control over financial reporting as of December 31, 2006, is fairly stated,
in
all material respects, based on the criteria established in
Internal
Control—Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2006, based on the criteria established in
Internal Control—Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We
have
also audited, in accordance with auditing standards generally accepted in the
Republic of China and the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements as of and for
the
year ended December 31, 2006 of the Company and our report dated April 30,
2007
expressed an unqualified opinion on those financial statements.
Deloitte
& Touche
Taipei,
Taiwan
The
Republic of China
April
30,
2007
Changes
in Internal Control Over Financial Reporting
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.
Our
board
of directors determined that Alan Cheng is an audit committee financial expert
as defined under the applicable rules of the SEC issued pursuant to Section
407
of the Sarbanes-Oxley Act of 2002 and is independent for the purposes of Rule
10A-3 of the Exchange Act.
We
have
adopted a code of ethics that satisfies the requirements of Item 16B of Form
20-F and applies to all employees, officers, supervisors and directors of our
company and our subsidiaries, including our Chief Executive Officer and Chief
Financial Officer. We have posted our code of ethics on our website at
http://www.aseglobal.com.
Policy
on Pre-Approval of Audit and Non-Audit Services of Independent Registered Public
Accounting Firm
Our
audit
committee, which was established on July 22, 2005, pre-approves all audit and
non-audit services provided by our independent registered public accounting
firm, 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. Prior to the establishment
of our audit committee, such services were pre-approved by our board of
directors.
Independent
Registered Public Accounting Firm’s Fees
The
following table sets forth the aggregate fees by categories specified below
in
connection with certain professional services rendered by Deloitte & Touche.
We did not pay any other fees to our independent registered public accounting
firm during the periods indicated below.
|
For
the Year Ended December 31,
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Audit
fees
(1)
|
43,713.7
|
110,695.1
|
3,396.6
|
|||||||||
|
Audit-related
fees
(2)
|
9,752.0
|
1,658.7
|
50.9
|
|||||||||
|
Tax
fees
(3)
|
4,961.5
|
12,056.8
|
369.9
|
|||||||||
|
All
other fees
(4)
|
863.5
|
2,388.4
|
73.3
|
|||||||||
|
Total
|
59,290.7
|
126,799.0
|
3,890.7
|
|||||||||
|
(1)
|
Audit
fees are defined as the standard audit and review work that needs
to be
performed each year in order to issue an opinion on our consolidated
financial statements and to issue reports on the local statutory
financial
statements. It also includes services that can only be provided by
our
auditor such as statutory audits required by the Tax Bureau of the
ROC and
the Customs Bureau of the ROC, auditing of non-recurring transactions
and
application of new accounting policies, pre-issuance reviews of quarterly
financial results, consents and comfort letters and any other audit
services required for SEC or other regulatory filings.
|
|
(2)
|
Audit-related
fees include assurance and related services provided by auditors
that are
reasonably related to the performance of the audit or review of our
financial statements and not reported above under “Audit fees”. They
comprise amounts for services such as acquisition due diligence and
consultation concerning financial accounting and reporting
matters.
|
|
(3)
|
Tax
fees consist of professional services rendered by Deloitte & Touche
for tax compliance and tax advice. The services for the fees
disclosed under this category include tax return preparation and
technical
tax advice.
|
|
(4)
|
Other
fees consist of fees for agreed-upon procedures as required by the
ROC
government for capital investments in the PRC, agreed- upon procedures
related to our accounts receivable securitization in 2005 and the
review
of our capital registration with the ROC
government.
|
Not
applicable.
None
of
our equity securities were purchased by ourselves or our affiliated purchasers
in 2006.
The
Company has elected to provide financial statements for fiscal year 2006 and
the
related information pursuant to Item 18.
Reference
is made to pages F-1 to F-72 of this annual report.
The
consolidated financial statements of the Company and the report thereon by
its
independent registered public accounting firm listed below are attached hereto
as follows:
|
(a)
|
Report
of Independent Registered Public Accounting Firm of the Company dated
April 30, 2007 (page F-1 to F-2).
|
|
(b)
|
Consolidated
Balance Sheets of the Company and subsidiaries as of December 31,
2005 and
2006 (page F-3).
|
|
(c)
|
Consolidated
Statements of Income of the Company and subsidiaries for the years
ended
December 31, 2004, 2005 and 2006 (page F-4 to
F-6).
|
|
(d)
|
Consolidated
Statements of Changes in Shareholders’ Equity of the Company and
subsidiaries for the years ended December 31, 2004, 2005 and 2006
(page
F-7).
|
|
(e)
|
Consolidated
Statements of Cash Flows of the Company and subsidiaries for the
years
ended December 31, 2004, 2005 and 2006 (pages F-8 to
F-10).
|
|
(f)
|
Notes
to Consolidated Financial Statements of the Company and subsidiaries
(pages F-11 to F-72).
|
Item
19.
Exhibits
|
1.
|
Articles
of Incorporation of the Registrant (English translation of Chinese)
(incorporating all amendments as of June 21,
2006).
|
|
2.
|
(a)
|
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 (a) to our registration statement
on
Form F-6 (File No. 333-108834) filed on September 16,
2003).
|
|
(b)
|
Letter
Agreement dated as of February 1, 2001 by and between ASE Inc.
and
Citibank N.A., as depositary for the sole purpose of accommodating
the
surrender of ASE Inc’s Rule 144A Global Depositary Shares, the issuance of
American Depositary Shares and the delivery of American Depositary
Receipts in the context of the termination of ASE Inc.’s Rule 144A
Depositary Receipts Facility (incorporated by reference to Exhibit
(b)(i)
to our registration statement on Post-Effective Amendment No. 1
to Form
F-6 (File No. 333-108834) filed on April 3,
2006).
|
|
(c)
|
Letter
Agreement dated as of September 25, 2003 by and between ASE Inc.
and
Citibank N.A., as depositary for the sole purpose of accommodating
the
issuance of American Depositary Shares upon ASE Inc.’s deposit of its
shares with the depositary following the conversion of certain
bonds
issued by ASE Inc. in accordance with, and subject to, the terms
and
conditions of the indenture governing such bonds (incorporated
by
reference to Exhibit (b)(ii) to our registration statement on
Post-Effective Amendment No. 1 to Form F-6 (File No. 333-108834)
filed on
April 3, 2006).
|
|
(d)
|
Amendment
No. 1 to Amended and Restated Deposit Agreement dated as of April
6, 2006
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 (a)(ii) to our registration
statement on Post-Effective Amendment No. 2 to Form F-6 (File No.
333-108834) filed on October 25,
2006).
|
|
(e)
|
Form
of Amendment No. 2 to Amended and Restated Deposit Agreement 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 (a)(iii) to our registration
statement on Post-Effective Amendment No. 2 to Form F-6 (File No.
333-108834) filed on October 25,
2006).
|
|
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 100.0% of the common stock of Motorola Korea
Ltd.
(incorporated by reference to Exhibit 10.3 to the ASE Test 1999 Form
F-3).
|
|
(d)†
|
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).
|
|
(e)†
|
Amendment
dated March 18, 2003 renewing the BGA Immunity Agreement dated as
of
January 25, 1994 between ASE Inc. and Motorola, Inc. (incorporated
by
reference to Exhibit 4(g) to our annual report on Form 20-F (File
No.
001-16125) for the year ended December 31, 2003 filed on June 30,
2004).
|
|
(f)
|
Consent
dated June 10, 2004 to the Assignment of the BGA Immunity Agreement
between ASE Inc. and Motorola, Inc. dated January 25, 1994 (incorporated
by reference to Exhibit 4(h) to our annual report on Form 20-F (File
No.
001-16125) for the year ended December 31, 2003 filed on June 30,
2004).
|
|
(g)
|
Asset
Purchase Agreement by and among Flextronics Manufacturing (M) Sdn
Bhd, as
Buyer, ASE Electronics (M) Sdn. Bhd. as Company, dated as of October
3,
2005 (incorporated by reference to Exhibit 4(g) to our annual report
on
Form 20-F (File No. 001-16125) for the year ended December 31, 2005
filed
on June 19, 2006).
|
|
(h)
|
Commission
Agreement dated as of August 1, 2005 between ASE Electronics (M)
Sdn. Bhd.
and Gardex International Limited (incorporated by reference to Exhibit
4(l) to our annual report on Form 20-F (File No. 001-16125) for the
year
ended December 31, 2005 filed on June 19,
2006).
|
|
(i)
|
Commission
Agreement dated as of August 1, 2005 between ASE Test, Inc. and Gardex
International Limited (incorporated by reference to Exhibit 4(m)
to our
annual report on Form 20-F (File No. 001-16125) for the year ended
December 31, 2005 filed on June 19,
2006).
|
|
(j)
|
Commission
Agreement dated as of August 1, 2005 between ASE (Korea) Inc. and
Gardex
International Limited (incorporated by reference to Exhibit 4(n)
to our
annual report on Form 20-F (File No. 001-16125) for the year ended
December 31, 2005 filed on June 19,
2006).
|
|
(k)
|
Commission
Agreement dated as of August 1, 2005 between Advanced Semiconductor
Engineering, Inc. and Gardex International Limited (incorporated
by
reference to Exhibit 4(o) to our annual report on Form 20-F (File
No.
001-16125) for the year ended December 31, 2005 filed on June 19,
2006).
|
|
(l)
|
Commission
Agreement dated as of August 1, 2005 between ASE Inc. (Chung Li)
and
Gardex International Limited (incorporated by reference to Exhibit
4(p) to
our annual report on Form 20-F (File No. 001-16125) for the year ended
December 31, 2005 filed on June 19,
2006).
|
|
(m)
|
Commission
Agreement dated as of January 1, 2006 between ASE Electronics (M)
Sdn.
Bhd. and Gardex International Limited (incorporated by reference
to
Exhibit 4(q) to our annual report on Form 20-F (File No. 001-16125)
for
the year ended December 31, 2005 filed on June 19,
2006).
|
|
(n)
|
Commission
Agreement dated as of January 1, 2006 between ASE Test, Inc. and
Gardex
International Limited (incorporated by reference to Exhibit 4(r)
to our
annual report on Form 20-F (File No. 001-16125) for the year ended
December 31, 2005 filed on June 19,
2006).
|
|
(o)
|
Commission
Agreement dated as of January 1, 2006 between ASE (Korea) Inc. and
Gardex
International Limited (incorporated by reference to Exhibit 4(s)
to our
annual report on Form 20-F (File No. 001-16125) for the year ended
December 31, 2005 filed on June 19,
2006).
|
|
(p)
|
Commission
Agreement dated as of January 1, 2006 between Advanced Semiconductor
Engineering, Inc. and Gardex International Limited (incorporated
by
reference to Exhibit 4(t) to our annual report on Form 20-F (File
No.
001-16125) for the year ended December 31, 2005 filed on June 19,
2006).
|
|
(q)
|
Commission
Agreement dated as of January 1, 2006 between ASE Inc. (Chung Li)
and
Gardex International Limited (incorporated by reference to Exhibit
4(u) to
our annual report on Form 20-F (File No. 001-16125) for the year
ended
December 31, 2005 filed on June 19,
2006).
|
|
(r)
|
Joint
Venture Agreement dated as of July 14, 2006 among Advanced Semiconductor
Engineering, Inc. and Powerchip Semiconductor Corp. relating to the
establishment of, and our investment of 60.0% in, Power
ASE.
|
|
(s)
|
Sale
and Purchase Agreement dated January 11, 2007 among J&R
Holding Limited and Seacoast Profits Limited relating to our acquisition
of 100% of GAPT.
|
|
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.
|
____________________
|
†
|
Does
not contain portions for which confidential treatment has been
granted.
|
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.
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing
on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
|
ADVANCED
SEMICONDUCTOR ENGINEERING, INC.
|
|||
|
By:
|
/s/
Joseph Tung
|
||
| Joseph Tung | |||
| Chief Financial Officer | |||
Date:
June
25, 2007
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
Consolidated
Financial Statements of Advanced Semiconductor Engineering, Inc.
and
Subsidiaries
|
|
|
F-1
|
|
|
F-3
|
|
|
F-4
|
|
|
F-7
|
|
|
F-8
|
|
|
F-11
|
Advanced
Semiconductor Engineering,
Inc.
and
Subsidiaries
Consolidated
Financial Statements for the
Years
Ended
December 31, 2004, 2005 and 2006 and
Report
of
Independent Registered Public Accounting Firm
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 subsidiaries (collectively the “Company”) as of December 31, 2005
and 2006, and the related consolidated statements of income, changes in
shareholders’ equity and cash flows for each of the three years ended December
31, 2006, all expressed in New Taiwan dollars. These consolidated
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the Rules Governing the Audit of
Financial Statements by Certified Public Accountants, auditing standards
generally accepted in the Republic of China and the Standards of the Public
Company Accounting Oversight Board (United States). Those rules and
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
as
of December 31, 2005 and 2006, and the consolidated results of their operations
and their cash flows for each of the three years ended December 31, 2006, in
conformity with the Guidelines Governing the Preparation of Financial Reports
by
Securities Issuers, the requirements of the Business Accounting Law and
Guidelines Governing Business Accounting relevant to financial accounting
standards, and accounting principles generally accepted in the Republic of
China.
As
discussed in Note 29 to the consolidated financial statements, the Company
incurred fire damage to its production line and facilities in Chung Li, Taiwan
on May 1, 2005. The Company recognized an estimated loss of
NT$13,479,079 thousand for the damage to its inventories, building, machinery
and equipment, net of NT$4,641,000 thousand (US$142,406 thousand) of insurance
receivable in 2005. The Company reached final settlement with the
insurers in June 2006 with regards to the fire damage referred to
above. The final settlement amount of NT$8,068,000 thousand
(US$247,561 thousand), less the NT$4,641,000 thousand recorded in 2005 and
the
related repair and restoring expenses of NT$1,043,132 thousand (US$32,008
thousand), was recorded as a gain in 2006. The Company also reversed
NT$2,190,583 thousand (US$67,217 thousand) of previously recorded impairment
charges on these fire-damaged building, machinery and equipment due to an
increase in the estimated service potential of the assets. Net amount
of NT$4,574,451 thousand (US$140,364 thousand) was recognized as a gain on
insurance settlement and impairment recovery.
As
discussed in Note 3 to the consolidated financial statements, the Company
adopted the Republic of China Statement of Financial Accounting Standards No.
34
“Financial Instruments: Recognition and Measurement”, No. 36 “Financial
Instruments: Disclosure and Presentation” and other revised Statements on
January 1, 2006.
Accounting
principles generally accepted
in the Republic of China
differ
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 31 to the consolidated financial
statements.
Our
audits also comprehended the
translation of New Taiwan
d
ollar
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.
We
have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2006, based on the criteria
established in
Internal Control-Integrated Framework
issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated April 30, 2007 expressed an unqualified opinion on management’s assessment
of the effectiveness of the Company’s internal control over financial reporting
and an unqualified opinion on the effectiveness of the Company’s internal
control over financial reporting.
Deloitte
& Touche
Taipei,
Taiwan
The
Republic of China
April
30,
2007
Notice
to
Readers
The
accompanying financial statements
are intended only to present the financial positio
n, results of operations
and cash flows
in accordance with accounting principles and practices generally accepted in
the
Republic of
China
and not those of any other
jurisdictions. The standards, procedures and practices to audit such
financial statement
s
are those generally accepted and
applied in the Republic of
China
.
For
the convenience of readers,
the
auditors
’
report and the
accompanying
financial statements
have been translated
into English from
the original Chinese version
prepared
and
used in the
Republic of
China
.
If
there is any conflict
between the English version and the original Chinese version or any difference
in the interpretation of the two versions, the Chinese-language
auditors
’
report and financial statements shall
prevail. Also,
as
stat
ed
in Note 2 to the financial
statements,
the additional
footnote
disclosures
that are not
required under generally accepted accounting principles
were not translated
into
English.
CONSOLIDATED
BALANCE SHEETS
(Amounts
in Thousands, Except Par Value)
|
December
31
|
December
31
|
||||||||||||||||||||||||
|
ASSETS
|
NT$
|
NT$
|
US$
(Note 2)
|
LIABILITIES
AND
SHAREHOLDERS’ EQUITY |
NT$
|
NT$
|
US$
(Note 2)
|
||||||||||||||||||
|
Cash
(Note 4)
|
$ |
13,263,788
|
$ |
15,730,075
|
$ |
482,666
|
Short-term
borrowings (Note 13)
|
$ |
5,084,937
|
$ |
2,868,138
|
$ |
88,007
|
||||||||||||
|
Financial
assets at fair value through profit or loss (Notes 2, 3, 5
and
23)
|
4,330,733
|
1,557,903
|
47,803
|
Financial
liabilities at fair value through profit or loss (Notes 2,
3, 5 and
23)
|
202,729
|
352,583
|
10,819
|
||||||||||||||||||
|
Available-for-sale
financial assets (Notes 2, 3, 6 and 23)
|
27,973
|
9,346,415
|
286,788
|
Derivative
financial liabilities for hedging (Notes 2, 3 and 23)
|
129,179
|
-
|
-
|
||||||||||||||||||
|
Notes
receivable
|
83,936
|
109,912
|
3,373
|
Notes
payable and accounts payable
|
10,984,695
|
7,304,812
|
224,143
|
||||||||||||||||||
|
Accounts
receivable, net
(Notes 2 and 7)
|
15,501,680
|
11,344,961
|
348,112
|
Income
tax payable
(Note 2)
|
37,751
|
1,332,000
|
40,871
|
||||||||||||||||||
|
Other
receivables
|
3,851,270
|
915,390
|
28,088
|
Accrued
expenses (Note 17)
|
4,005,290
|
3,108,175
|
95,372
|
||||||||||||||||||
|
Inventories
(Notes 2, 3 and 8)
|
7,757,077
|
5,674,010
|
174,103
|
Payable
for properties
|
3,659,836
|
3,082,384
|
94,581
|
||||||||||||||||||
|
Deferred
income tax assets, net
(Notes
2 and 21)
|
1,615,696
|
2,808,184
|
86,167
|
Current
portion of bonds payable (Notes 2, 14 and 23)
|
-
|
3,798,233
|
116,546
|
||||||||||||||||||
|
Pledged
time deposits
(Note 25)
|
62,505
|
-
|
-
|
Current
portion of long-term bank loans (Notes 15, 23 and 25)
|
5,232,529
|
1,292,040
|
39,645
|
||||||||||||||||||
|
Prepayments
and other
|
1,049,353
|
1,275,948
|
39,151
|
Temporary
receipts (Note 7)
|
1,005,057
|
2,503,125
|
76,806
|
||||||||||||||||||
|
Current
portion of capital lease obligations (Notes 2, 16 and 23)
|
205,662
|
540,736
|
16,592
|
||||||||||||||||||||||
|
Total
current assets
|
47,544,011
|
48,762,798
|
1,496,251
|
Other
|
557,954
|
1,828,016
|
56,091
|
||||||||||||||||||
|
LONG-TERM
INVESTMENTS
|
Total
current liabilities
|
31,105,619
|
28,010,242
|
859,473
|
|||||||||||||||||||||
|
Held-to-maturity
financial assets (Notes 2, 3 and 23)
|
50,000
|
50,000
|
1,534
|
||||||||||||||||||||||
|
Financial
assets carried at cost (Notes 2, 3, 9 and 23)
|
1,272,311
|
1,595,597
|
48,960
|
LONG-TERM
DEBTS
|
|||||||||||||||||||||
|
Equity
method investments (Notes 2 and 10)
|
3,494,371
|
4,088,949
|
125,466
|
Long-term
bonds payable (Notes 2, 14 and 23)
|
9,361,902
|
5,758,611
|
176,699
|
||||||||||||||||||
|
Prepayments
for long-term investments
|
81,375
|
-
|
-
|
Long-term
bank loans (Notes 15, 23 and 25)
|
33,298,508
|
23,571,786
|
723,283
|
||||||||||||||||||
|
Capital
leases obligations (Notes 2, 16 and 23)
|
201,700
|
67,903
|
2,083
|
||||||||||||||||||||||
|
Total
long-term investments
|
4,898,057
|
5,734,546
|
175,960
|
||||||||||||||||||||||
|
Total
long-term debts
|
42,862,110
|
29,398,300
|
902,065
|
||||||||||||||||||||||
|
PROPERTY,
PLANT AND
EQUIPMENT (Notes 2, 11, 16, 24 and 25)
|
|||||||||||||||||||||||||
|
Cost
|
OTHER
LIABILITIES
|
||||||||||||||||||||||||
|
Land
|
2,255,006
|
2,284,577
|
70,101
|
Accrued
pension cost (Notes 2 and 17)
|
2,234,994
|
2,296,384
|
70,463
|
||||||||||||||||||
|
Buildings
and improvements
|
26,257,236
|
30,508,824
|
936,141
|
Deferred
income tax liabilities (Notes 2 and 21)
|
-
|
25,888
|
794
|
||||||||||||||||||
|
Machinery
and equipment
|
104,206,962
|
100,838,100
|
3,094,142
|
Other
|
72,521
|
183,303
|
5,625
|
||||||||||||||||||
|
Transportation
equipment
|
149,143
|
165,665
|
5,083
|
||||||||||||||||||||||
|
Furniture
and fixtures
|
2,698,066
|
2,951,547
|
90,566
|
Total
other liabilities
|
2,307,515
|
2,505,575
|
76,882
|
||||||||||||||||||
|
Leased
assets and leasehold
improvements
|
2,364,403
|
1,042,889
|
32,000
|
||||||||||||||||||||||
|
Total
cost
|
137,930,816
|
137,791,602
|
4,228,033
|
Total
liabilities
|
76,275,244
|
59,914,117
|
1,838,420
|
||||||||||||||||||
|
Accumulated
depreciation
|
(67,277,930 | ) | (71,608,252 | ) | (2,197,246 | ) | |||||||||||||||||||
|
70,652,886
|
66,183,350
|
2,030,787
|
EQUITY
ATTRIBUTE TO
SHAREHOLDERS OF THE PARENT |
||||||||||||||||||||||
|
Construction
in progress
|
3,690,175
|
3,678,333
|
112,867
|
Capital
stock - NT$10 par value
|
|||||||||||||||||||||
|
Machinery
in transit and
prepayments
|
4,843,303
|
3,682,071
|
112,982
|
Authorized
- 6,300,000 thousand
shares in 2005 and 7,000,000 |
|||||||||||||||||||||
|
Accumulated
impairment
|
(11,145,593 | ) |
-
|
-
|
thousand shares in 2006
|
||||||||||||||||||||
|
Issued
- 4,557,372 thousand shares in 2005 and 4,592,509 thousand
shares in
2006
|
45,573,723
|
45,925,086
|
1,409,177
|
||||||||||||||||||||||
|
Net
property, plant and equipment
|
68,040,771
|
73,543,754
|
2,256,636
|
Capital
received in advance (Note 18)
|
156,228
|
384,428
|
11,796
|
||||||||||||||||||
|
Capital
surplus (Note 18)
|
|||||||||||||||||||||||||
|
INTANGIBLE
ASSETS
|
Capital
in excess of par value
|
2,093,712
|
269,027
|
8,255
|
|||||||||||||||||||||
|
Patents
(Note 2)
|
-
|
4,081
|
125
|
Treasury
stock transactions
|
237,503
|
16,768
|
514
|
||||||||||||||||||
|
Goodwill
(Notes 2 and 12)
|
2,843,022
|
2,831,274
|
86,876
|
Long-term
investment
|
3,585,077
|
3,519,973
|
108,008
|
||||||||||||||||||
|
Land
use rights (Note 2)
|
746,087
|
600,322
|
18,420
|
Total
capital surplus
|
5,916,292
|
3,805,768
|
116,777
|
||||||||||||||||||
|
Retained
earnings (accumulated deficit) (Note 18)
|
(2,745,555 | ) |
16,985,043
|
521,174
|
|||||||||||||||||||||
|
Total
intangible assets
|
3,589,109
|
3,435,677
|
105,421
|
Other
equity adjustments (Notes 2, 3 and 18)
|
|||||||||||||||||||||
|
Cumulative
translation adjustments
|
1,072,511
|
1,330,651
|
40,830
|
||||||||||||||||||||||
|
OTHER
ASSETS
|
Unrecognized
pension cost
|
(17,421 | ) | (19,041 | ) | (584 | ) | ||||||||||||||||||
|
Guarantee
deposits (Note 23)
|
223,592
|
314,489
|
9,650
|
Unrealized
gain or loss on financial instruments
|
(199,093 | ) |
416,400
|
12,777
|
|||||||||||||||||
|
Deferred
charges, net (Note 2)
|
1,960,849
|
1,880,712
|
57,708
|
Total
other equity adjustments
|
855,997
|
1,728,010
|
53,023
|
||||||||||||||||||
|
Deferred
income tax assets, net
(Notes
2 and 21)
|
4,046,772
|
2,512,421
|
77,092
|
Treasury
stock - 184,713 thousand
shares (Notes 2 and 18)
|
(2,808,436 | ) | (2,808,436 | ) | (86,175 | ) | |||||||||||||||
|
Restricted
assets (Notes 23 and 25)
|
204,632
|
336,463
|
10,324
|
Total
equity attribute to
shareholders of the parent |
46,948,249
|
66,019,899
|
2,025,772
|
||||||||||||||||||
|
Other
|
617,688
|
520,016
|
15,956
|
||||||||||||||||||||||
|
MINORITY
INTEREST IN
CONSOLIDATED SUBSIDIARIES |
7,901,988
|
11,106,860
|
340,806
|
||||||||||||||||||||||
|
Total
other assets
|
7,053,533
|
5,564,101
|
170,730
|
||||||||||||||||||||||
|
Total
shareholders' equity
|
54,850,237
|
77,126,759
|
2,366,578
|
||||||||||||||||||||||
|
TOTAL
|
$ |
131,125,481
|
$ |
137,040,876
|
$ |
4,204,998
|
TOTAL
|
$ |
131,125,481
|
$ |
137,040,876
|
$ |
4,204,998
|
||||||||||||
The
accompanying notes are an integral part of the consolidated financial
statements.
(With
Deloitte & Touche audit report dated April 30, 2007)
CONSOLIDATED
STATEMENTS OF INCOME
(Amounts
in Thousands, Except Share Data)
|
Year
Ended December 31
|
||||||||||||||||
|
2005
|
2006
|
|||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
NET
REVENUES (Note 2)
|
||||||||||||||||
|
Packaging
|
$ |
58,261,796
|
$ |
66,022,940
|
$ |
76,820,475
|
$ |
2,357,179
|
||||||||
|
Testing
|
16,473,924
|
17,121,986
|
21,429,584
|
657,551
|
||||||||||||
|
Other
|
501,966
|
890,872
|
2,173,588
|
66,695
|
||||||||||||
|
Total
net revenues
|
75,237,686
|
84,035,798
|
100,423,647
|
3,081,425
|
||||||||||||
|
COST
OF REVENUES (Note 20)
|
||||||||||||||||
|
Packaging
|
47,115,746
|
55,894,282
|
57,539,702
|
1,765,563
|
||||||||||||
|
Testing
|
12,141,233
|
12,688,893
|
12,701,354
|
389,732
|
||||||||||||
|
Other
|
384,101
|
934,829
|
1,402,211
|
43,025
|
||||||||||||
|
Total
cost of revenues
|
59,641,080
|
69,518,004
|
71,643,267
|
2,198,320
|
||||||||||||
|
GROSS
PROFIT
|
15,596,606
|
14,517,794
|
28,780,380
|
883,105
|
||||||||||||
|
OPERATING
EXPENSES (Notes 12 and 20)
|
||||||||||||||||
|
Selling
|
1,341,067
|
1,100,023
|
1,320,646
|
40,523
|
||||||||||||
|
General
and administrative
|
4,717,653
|
4,813,177
|
4,381,267
|
134,436
|
||||||||||||
|
Research
and development
|
2,581,089
|
2,785,432
|
2,632,036
|
80,762
|
||||||||||||
|
Total
operating expenses
|
8,639,809
|
8,698,632
|
8,333,949
|
255,721
|
||||||||||||
|
INCOME
FROM OPERATIONS
|
6,956,797
|
5,819,162
|
20,446,431
|
627,384
|
||||||||||||
|
NON-OPERATING
INCOME AND GAINS
|
||||||||||||||||
|
Interest
income
|
77,797
|
173,325
|
406,364
|
12,469
|
||||||||||||
|
Equity
in earnings of equity method investees (Notes 2 and 10)
|
-
|
74,292
|
315,654
|
9,685
|
||||||||||||
|
Foreign
exchange gain, net (Notes 3 and 23)
|
222,358
|
154,275
|
92,819
|
2,848
|
||||||||||||
|
Gain
on valuation of financial asset, net (Notes 5 and 23)
|
-
|
-
|
29,278
|
898
|
||||||||||||
|
Gain
on valuation of financial liability, net (Note 5 and 23)
|
-
|
20,919
|
-
|
-
|
||||||||||||
|
Gain
on insurance settlement and impairment recovery (Note 29)
|
-
|
-
|
4,574,451
|
140,364
|
||||||||||||
|
Other
|
396,182
|
324,132
|
961,041
|
29,489
|
||||||||||||
|
Total
non-operating income and gains
|
696,337
|
746,943
|
6,379,607
|
195,753
|
||||||||||||
|
NON-OPERATING
EXPENSES AND LOSSES
|
||||||||||||||||
|
Interest
expense (Note 11)
|
972,188
|
1,571,058
|
1,620,294
|
49,718
|
||||||||||||
|
Loss
on valuation of financial liability (Notes 5 and 23)
|
370,502
|
-
|
289,847
|
8,894
|
||||||||||||
|
Loss
on inventory valuation and obsolescence
|
75,842
|
611,679
|
1,143,925
|
35,100
|
||||||||||||
|
Equity
in losses of equity method investees (Notes 2 and 10)
|
394,995
|
-
|
-
|
-
|
||||||||||||
|
Loss
on fire damage (Note 29)
|
-
|
8,838,079
|
-
|
-
|
||||||||||||
|
Other
investment loss (Notes 2 and 3)
|
512,000
|
-
|
-
|
-
|
||||||||||||
|
Impairment
of goodwill (Notes 2, 3 and 12)
|
1,950,097
|
-
|
-
|
-
|
||||||||||||
|
Other
(Note 7)
|
414,593
|
1,219,135
|
1,520,548
|
46,657
|
||||||||||||
|
Total
non-operating expenses and losses
|
4,690,217
|
12,239,951
|
4,574,614
|
140,369
|
||||||||||||
|
INCOME
(LOSS) BEFORE INCOME TAX
|
2,962,917
|
(5,673,846 | ) |
22,251,424
|
682,768
|
|||||||||||
|
INCOME
TAX BENEFIT (EXPENSE) (Notes 2 and 21)
|
1,397,003
|
118,656
|
(2,084,787 | ) | (63,970 | ) | ||||||||||
|
INCOME
(LOSS) FROM CONTINUING OPERATIONS
|
4,359,920
|
(5,555,190 | ) |
20,166,637
|
618,798
|
|||||||||||
|
DISCONTINUED
OPERATIONS (Note 28)
|
||||||||||||||||
|
Income
from discontinued operations, net of income tax expense of NT$677
thousand
in 2004 and NT$2,147 thousand in 2005
|
568,222
|
120,962
|
-
|
-
|
||||||||||||
|
Gain
on disposal of discontinued operations, net of income tax expense
of
NT$1,920 thousand
|
-
|
232,737
|
-
|
-
|
||||||||||||
(Continued)
ADVANCED
SEMICONDUCTOR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(Amounts
in Thousands, Except Share Data)
|
EARNINGS
(LOSS) PER SHARE (Note 22)
|
||||||||||||||||
|
Basic
earnings (loss) per share
|
||||||||||||||||
|
Before
income tax
|
||||||||||||||||
|
Income
(loss) from continuing operations
|
0.71
|
(1.31 | ) |
4.33
|
0.13
|
|||||||||||
|
Discontinued
operations
|
0.13
|
0.08
|
-
|
-
|
||||||||||||
|
Cumulative
effect of changes in accounting principles
|
(0.01 | ) |
-
|
(0.10 | ) |
-
|
||||||||||
|
Income
(loss) of parent company’s common
shareholders
|
0.83
|
(1.23 | ) |
4.23
|
0.13
|
|||||||||||
|
After
income
tax
|
||||||||||||||||
|
Income
(loss) from continuing operations
|
0.87
|
(1.15 | ) |
4.03
|
0.12
|
|||||||||||
|
Discontinued
operations
|
0.13
|
0.08
|
-
|
-
|
||||||||||||
|
Cumulative
effect of changes in accounting principles
|
(0.01 | ) |
-
|
(0.08 | ) |
-
|
||||||||||
|
Income
(loss) of parent company’s common
shareholders
|
0.99
|
(1.07 | ) |
3.95
|
0.12
|
|||||||||||
|
Diluted
earnings (loss) per share
|
||||||||||||||||
|
Before
income
tax
|
||||||||||||||||
|
Income
(loss) from continuing operations
|
0.71
|
(1.31 | ) |
4.13
|
0.13
|
|||||||||||
|
Discontinued
operations
|
0.12
|
0.08
|
-
|
-
|
||||||||||||
|
Cumulative
effect of changes in accounting principles
|
(0.01 | ) |
-
|
(0.10 | ) | (0.01 | ) | |||||||||
|
Income
(loss) of parent company’s common
shareholders
|
0.82
|
(1.23 | ) |
4.03
|
0.12
|
|||||||||||
|
After
income
tax
|
||||||||||||||||
|
Income
(loss) from continuing operations
|
0.85
|
(1.15 | ) |
3.84
|
0.12
|
|||||||||||
|
Discontinued
operations
|
0.12
|
0.08
|
-
|
-
|
||||||||||||
|
Cumulative
effect of changes in accounting principles
|
(0.01 | ) |
-
|
(0.07 | ) |
-
|
||||||||||
|
Income
(loss) of parent company’s common
shareholders
|
0.96
|
(1.07 | ) |
3.77
|
0.12
|
|||||||||||
|
EARNINGS
PER
EQUIVALENT ADS (Note
22
)
|
||||||||||||||||
|
Basic
earnings (loss) per
equivalent
ADS
|
||||||||||||||||
|
Before
income
tax
|
||||||||||||||||
|
Income
(loss) from continuing operations
|
3.50
|
(6.55 | ) |
21.65
|
0.66
|
|||||||||||
|
Discontinued
operations
|
0.67
|
0.41
|
-
|
-
|
||||||||||||
|
Cumulative
effect of changes in accounting principles
|
(0.03 | ) |
-
|
(0.52 | ) | (0.01 | ) | |||||||||
|
Income
(loss) of parent company’s common
shareholders
|
4.14
|
(6.14 | ) |
21.13
|
0.65
|
|||||||||||
|
After
income
tax
|
||||||||||||||||
|
Income
(loss) from continuing operations
|
4.30
|
(5.77 | ) |
20.16
|
0.62
|
|||||||||||
|
Discontinued
operations
|
0.67
|
0.40
|
-
|
-
|
||||||||||||
|
Cumulative
effect of changes in accounting principles
|
(0.03 | ) |
-
|
(0.39 | ) | (0.01 | ) | |||||||||
|
Income
(loss) of parent company’s common
shareholders
|
4.94
|
(5.37 | ) |
19.77
|
0.61
|
|||||||||||
(Continued)
ADVANCED
SEMICONDUCTOR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(Amounts
in Thousands, Except Share Data)
|
Year
Ended December 31
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Diluted
earnings (loss) per
equivalent
ADS
|
||||||||||||||||
|
Before
income
tax
|
||||||||||||||||
|
Income
(loss) from continuing operations
|
3.50
|
(6.55 | ) |
20.66
|
0.63
|
|||||||||||
|
Discontinued
operations
|
0.63
|
0.41
|
-
|
-
|
||||||||||||
|
Cumulative
effect of changes in accounting principles
|
(0.03 | ) |
-
|
(0.49 | ) | (0.01 | ) | |||||||||
|
Income
(loss) of parent company’s common
shareholders
|
4.10
|
(6.14 | ) |
20.17
|
0.62
|
|||||||||||
|
After
income
tax
|
||||||||||||||||
|
Income
(loss) from continuing operations
|
4.22
|
(5.77 | ) |
19.22
|
0.59
|
|||||||||||
|
Discontinued
operations
|
0.62
|
0.40
|
-
|
-
|
||||||||||||
|
Cumulative
effect of changes in accounting principles
|
(0.03 | ) |
-
|
(0.37 | ) | (0.01 | ) | |||||||||
|
Income
(loss) of parent company’s common
shareholders
|
4.81
|
(5.37 | ) |
18.85
|
0.58
|
|||||||||||
(Concluded)
The
accompanying notes are an integral part of the consolidated financial
statements.
(With
Deloitte & Touche audit report dated April 30, 2007)
(Amounts
in Thousands)
|
Retained
Earnings (Accumulated Deficit)
|
Other
Adjustments
|
|||||||||||||||||||||||||||||||||||||||||||
|
Capital
Stock
|
Capital
Received in Advance
|
Capital
Surplus
|
Legal
Reserve
|
Unappropriated
Earnings (Accumulated Deficit)
|
Cumulative
Translation Adjustments
|
Unrecognized
Pension Cost
|
Unrealized
Gain (Loss) on Financial Instruments
|
Treasury
Stock
|
Minority
Interest
|
Total
Shareholders' Equity
|
||||||||||||||||||||||||||||||||||
|
New
Taiwan dollars
|
||||||||||||||||||||||||||||||||||||||||||||
|
BALANCE,
JANUARY 1, 2004
|
$ |
35,802,800
|
$ |
-
|
$ |
4,046,774
|
$ |
1,051,665
|
$ |
2,756,771
|
$ |
1,559,599
|
$ | (16,137 | ) | $ | (68,833 | ) | $ | (10,037 | ) | $ |
10,077,575
|
$ |
55,200,177
|
|||||||||||||||||||
|
Appropriations
of 2003 earnings
|
||||||||||||||||||||||||||||||||||||||||||||
|
Legal
reserve
|
-
|
-
|
-
|
274,279
|
(274,279 | ) |
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||||
|
Compensation
to directors and supervisors
|
-
|
-
|
-
|
-
|
(49,320 | ) |
-
|
-
|
-
|
-
|
-
|
(49,320 | ) | |||||||||||||||||||||||||||||||
|
Bonus
to employees - cash
|
-
|
-
|
-
|
-
|
(18,428 | ) |
-
|
-
|
-
|
-
|
-
|
(18,428 | ) | |||||||||||||||||||||||||||||||
|
Bonus
to employees - stock
|
154,272
|
-
|
-
|
-
|
(154,272 | ) |
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||||
|
Stock
dividends - 5.7%
|
2,219,774
|
-
|
-
|
-
|
(2,219,774 | ) |
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||||
|
Capital
received in advance from stock options exercised by
employees
|
-
|
42,759
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
42,759
|
|||||||||||||||||||||||||||||||||
|
Reclassification
of ASE Inc. shares held by subsidiaries to treasury stock
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,798,399 | ) |
-
|
(2,798,399 | ) | |||||||||||||||||||||||||||||||
|
Valuation
loss on derivatives financial instruments
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(36,607 | ) |
-
|
-
|
(36,607 | ) | |||||||||||||||||||||||||||||||
|
Adjustment
of equity in subsidiary
|
-
|
-
|
15,332
|
-
|
-
|
-
|
11,427
|
(1,781 | ) |
-
|
-
|
24,978
|
||||||||||||||||||||||||||||||||
|
Issuance
of common stock through merger
|
2,823,154
|
-
|
3,153,342
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
5,976,496
|
|||||||||||||||||||||||||||||||||
|
Elimination
of long-term investment balance on consolidation
|
-
|
-
|
(242,792 | ) |
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(242,792 | ) | |||||||||||||||||||||||||||||||
|
Net
income in 2004
|
-
|
-
|
-
|
-
|
4,209,690
|
-
|
-
|
-
|
-
|
691,608
|
4,901,298
|
|||||||||||||||||||||||||||||||||
|
Change
in minority interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,364,357 | ) | (2,364,357 | ) | |||||||||||||||||||||||||||||||
|
Cumulative
translation adjustments
|
-
|
-
|
-
|
-
|
-
|
(919,220 | ) |
-
|
-
|
-
|
-
|
(919,220 | ) | |||||||||||||||||||||||||||||||
|
BALANCE,
DECEMBER 31, 2004
|
41,000,000
|
42,759
|
6,972,656
|
1,325,944
|
4,250,388
|
640,379
|
(4,710 | ) | (107,221 | ) | (2,808,436 | ) |
8,404,826
|
59,716,585
|
||||||||||||||||||||||||||||||
|
Appropriations
of 2004 earnings
|
||||||||||||||||||||||||||||||||||||||||||||
|
Legal
reserve
|
-
|
-
|
-
|
420,969
|
(420,969 | ) |
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||||
|
Compensation
to directors and supervisors
|
-
|
-
|
-
|
-
|
(75,720 | ) |
-
|
-
|
-
|
-
|
-
|
(75,720 | ) | |||||||||||||||||||||||||||||||
|
Bonus
to employees - cash
|
-
|
-
|
-
|
-
|
(9,536 | ) |
-
|
-
|
-
|
-
|
-
|
(9,536 | ) | |||||||||||||||||||||||||||||||
|
Bonus
to employees - stock
|
255,675
|
-
|
-
|
-
|
(255,675 | ) |
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||||
|
Cash
dividends - 1%
|
-
|
-
|
-
|
-
|
(411,221 | ) |
-
|
-
|
-
|
-
|
-
|
(411,221 | ) | |||||||||||||||||||||||||||||||
|
Stock
dividends - 6.99%
|
2,878,548
|
-
|
-
|
-
|
(2,878,548 | ) |
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||||
|
Capital
surplus transferred to common stock - 2.99%
|
1,233,663
|
-
|
(1,233,663 | ) |
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||||
|
Adjustment
of equity in subsidiary
|
-
|
-
|
18,043
|
-
|
-
|
-
|
(12,711 | ) |
700
|
-
|
-
|
6,032
|
||||||||||||||||||||||||||||||||
|
Valuation
gain on derivative financial instruments
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
36,607
|
-
|
-
|
36,607
|
|||||||||||||||||||||||||||||||||
|
Stock
options exercised by employees
|
||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock
|
205,837
|
(42,759 | ) |
159,256
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
322,334
|
||||||||||||||||||||||||||||||||
|
Capital
received in advance
|
-
|
156,228
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
156,228
|
|||||||||||||||||||||||||||||||||
|
Net
loss in 2005
|
-
|
-
|
-
|
-
|
(4,691,187 | ) |
-
|
-
|
-
|
-
|
(510,304 | ) | (5,201,491 | ) | ||||||||||||||||||||||||||||||
|
Change
in minority interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
7,466
|
7,466
|
|||||||||||||||||||||||||||||||||
|
Cumulative
translation adjustments
|
-
|
-
|
-
|
-
|
-
|
432,132
|
-
|
-
|
-
|
-
|
432,132
|
|||||||||||||||||||||||||||||||||
|
BALANCE,
DECEMBER 31, 2005
|
45,573,723
|
156,228
|
5,916,292
|
1,746,913
|
(4,492,468 | ) |
1,072,511
|
(17,421 | ) | (69,914 | ) | (2,808,436 | ) |
7,901,988
|
54,979,416
|
|||||||||||||||||||||||||||||
|
Effect
of adopting ROC SFAS No. 34
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(129,179 | ) |
-
|
-
|
(129,179 | ) | |||||||||||||||||||||||||||||||
|
Offset
against deficit
|
-
|
-
|
(2,314,447 | ) | (1,746,913 | ) |
4,061,360
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||||
|
Unrealized
gain on available-for-sale financial assets
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
16,827
|
-
|
-
|
16,827
|
|||||||||||||||||||||||||||||||||
|
Valuation
gain on derivative financial instruments
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
129,179
|
-
|
-
|
129,179
|
|||||||||||||||||||||||||||||||||
|
Adjustment
of equity in subsidiary
|
-
|
-
|
(65,104 | ) |
-
|
-
|
-
|
(1,620 | ) |
469,487
|
-
|
-
|
402,763
|
|||||||||||||||||||||||||||||||
|
Stock
options exercised by employees
|
||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock
|
351,363
|
(156,228 | ) |
269,027
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
464,162
|
||||||||||||||||||||||||||||||||
|
Capital
received in advance
|
-
|
384,428
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
384,428
|
|||||||||||||||||||||||||||||||||
|
Net
income in 2006
|
-
|
-
|
-
|
-
|
17,416,151
|
-
|
-
|
-
|
-
|
2,407,983
|
19,824,134
|
|||||||||||||||||||||||||||||||||
|
Changes
in minority interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
796,889
|
796,889
|
|||||||||||||||||||||||||||||||||
|
Cumulative
translation adjustments
|
-
|
-
|
-
|
-
|
-
|
258,140
|
-
|
-
|
-
|
-
|
258,140
|
|||||||||||||||||||||||||||||||||
|
BALANCE,
DECEMBER 31, 2006
|
$ |
45,925,086
|
$ |
384,428
|
$ |
3,805,768
|
$ |
-
|
$ |
16,985,043
|
$ |
1,330,651
|
$ | (19,041 | ) | $ |
416,400
|
$ | (2,808,436 | ) | $ |
11,106,860
|
$ |
77,126,759
|
||||||||||||||||||||
|
U.S.
Dollars
|
||||||||||||||||||||||||||||||||||||||||||||
|
BALANCE,
JANUARY 1, 2006
|
$ |
1,398,396
|
$ |
4,794
|
$ |
181,537
|
$ |
53,603
|
$ | (137,848 | ) | $ |
32,909
|
$ | (534 | ) | $ | (2,145 | ) | $ | (86,175 | ) | $ |
242,467
|
$ |
1,687,004
|
||||||||||||||||||
|
Effect
of adopting of ROC SFAS No. 34
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,964 | ) |
-
|
-
|
(3,964 | ) | |||||||||||||||||||||||||||||||
|
Offset
against deficit
|
-
|
-
|
(71,017 | ) | (53,603 | ) |
124,620
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||||
|
Unrealized
gain on available-for-sale financial assets
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
516
|
-
|
-
|
516
|
|||||||||||||||||||||||||||||||||
|
Valuation
gain on derivative financial instruments
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3,964
|
-
|
-
|
3,964
|
|||||||||||||||||||||||||||||||||
|
Adjustment
of equity in subsidiary
|
-
|
-
|
(1,998 | ) |
-
|
-
|
-
|
(50 | ) |
14,406
|
-
|
-
|
12,358
|
|||||||||||||||||||||||||||||||
|
Stock
options exercised by employees
|
||||||||||||||||||||||||||||||||||||||||||||
|
Common
stock
|
10,781
|
(4,794 | ) |
8,255
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
14,242
|
||||||||||||||||||||||||||||||||
|
Capital
received in advance
|
-
|
11,796
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
11,796
|
|||||||||||||||||||||||||||||||||
|
Net
income in 2006
|
-
|
-
|
-
|
-
|
534,402
|
-
|
-
|
-
|
-
|
73,887
|
608,289
|
|||||||||||||||||||||||||||||||||
|
Changes
in minority interest
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
24,452
|
24,452
|
|||||||||||||||||||||||||||||||||
|
Cumulative
translation adjustments
|
-
|
-
|
-
|
-
|
-
|
7,921
|
-
|
-
|
-
|
-
|
7,921
|
|||||||||||||||||||||||||||||||||
|
BALANCE,
DECEMBER 31, 2006
|
$ |
1,409,177
|
$ |
11,796
|
$ |
116,777
|
$ |
-
|
$ |
521,174
|
$ |
40,830
|
$ | (584 | ) | $ |
12,777
|
$ | (86,175 | ) | $ |
340,806
|
$ |
2,366,578
|
||||||||||||||||||||
The
accompanying notes are an integral part of the consolidated financial
statements.
(With
Deloitte &
Touche
audit report dated April 30, 2007)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts
in Thousands)
|
Year
Ended December 31
|
||||||||||||||||
|
2004
|
||||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||||||
|
Net
income (loss)
|
$ |
4,901,298
|
$ | (5,201,491 | ) | $ |
19,824,134
|
$ |
608,289
|
|||||||
|
Cumulative
effect of changes in accounting principle
|
-
|
-
|
342,503
|
10,509
|
||||||||||||
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
||||||||||||||||
|
Depreciation
|
13,898,098
|
13,990,219
|
13,488,180
|
413,875
|
||||||||||||
|
Amortization
|
888,174
|
1,042,560
|
1,000,031
|
30,685
|
||||||||||||
|
Equity
in losses (earnings) of equity method investees, net of cash dividends
received
|
394,995
|
(74,292 | ) | (222,847 | ) | (6,838 | ) | |||||||||
|
Impairment
of goodwill
|
1,950,097
|
-
|
-
|
-
|
||||||||||||
|
Other
investment loss
|
512,000
|
-
|
-
|
-
|
||||||||||||
|
Accrued
interest on foreign convertible bonds
|
255,172
|
241,394
|
247,155
|
7,584
|
||||||||||||
|
Unrealized
exchange loss (gain) on long-term foreign bonds payable and accrued
interest
|
(425,822 | ) |
215,762
|
(52,213 | ) | (1,602 | ) | |||||||||
|
Allowance
for inventory valuation
|
75,842
|
611,679
|
1,143,925
|
35,100
|
||||||||||||
|
Provision
(reversal) for doubtful accounts and sales allowances
|
151,358
|
115,200
|
(62,198 | ) | (1,908 | ) | ||||||||||
|
Loss
on disposal of properties
|
83,826
|
193,038
|
45,535
|
1,397
|
||||||||||||
|
Gain
on disposal of discontinued operations
|
-
|
(232,737 | ) |
-
|
-
|
|||||||||||
|
Loss
on fire damage (gain on insurance settlement and impairment
recovery)
|
-
|
8,212,780
|
(4,574,451 | ) | (140,364 | ) | ||||||||||
|
Deferred
income taxes
|
(1,660,695 | ) | (481,310 | ) |
481,919
|
14,787
|
||||||||||
|
Amortization
of goodwill
|
877,582
|
528,943
|
-
|
-
|
||||||||||||
|
Accrued
pension cost
|
372,580
|
109,068
|
44,541
|
1,367
|
||||||||||||
|
Other
|
110,592
|
219,949
|
225,271
|
6,912
|
||||||||||||
|
Changes
in operating assets and liabilities
|
||||||||||||||||
|
Financial
assets for trading
|
225,680
|
(1,782,863 | ) |
2,773,501
|
85,103
|
|||||||||||
|
Notes
and accounts receivable
|
(674,517 | ) | (2,024,569 | ) |
4,192,941
|
128,657
|
||||||||||
|
Other
receivable
|
(492,059 | ) | (621,283 | ) |
573,125
|
17,586
|
||||||||||
|
Inventories
|
(4,691,419 | ) |
87,290
|
1,363,885
|
41,850
|
|||||||||||
|
Prepayments
and other current assets
|
(469,247 | ) |
100,859
|
(228,740 | ) | (7,019 | ) | |||||||||
|
Financial
liabilities for trading
|
308,138
|
(80,852 | ) | (436,667 | ) | (13,399 | ) | |||||||||
|
Notes
and accounts payable
|
1,485,391
|
3,134,747
|
(3,679,883 | ) | (112,914 | ) | ||||||||||
|
Income
tax payable
|
62,727
|
(249,958 | ) |
1,294,249
|
39,713
|
|||||||||||
|
Accrued
expenses and other current liabilities
|
1,059,138
|
705,200
|
(522,403 | ) | (16,029 | ) | ||||||||||
|
Other
liabilities
|
7,729
|
(8,246 | ) |
28,526
|
876
|
|||||||||||
|
Net
cash provided by operating activities
|
19,206,658
|
18,751,087
|
37,290,019
|
1,144,217
|
||||||||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||||||
|
Acquisition
of property, plant and equipment
|
(28,521,375 | ) | (15,611,549 | ) | (17,764,237 | ) | (545,082 | ) | ||||||||
|
Acquisition
of available-for-sale financial assets
|
(1,347,213 | ) | (795,770 | ) | (16,652,840 | ) | (510,980 | ) | ||||||||
|
Disposal
of available-for-sale financial assets
|
995,256
|
1,503,175
|
7,518,738
|
230,707
|
||||||||||||
|
Acquisition
of financial assets carried at cost
|
-
|
-
|
(320,881 | ) | (9,846 | ) | ||||||||||
|
Proceeds
from insurance claims
|
-
|
2,300,000
|
5,768,000
|
176,987
|
||||||||||||
|
Decrease
(increase) in pledged time deposits and restricted assets
|
41,827
|
(4,198 | ) | (69,326 | ) | (2,127 | ) | |||||||||
|
Acquisition
of long-term equity method investments
|
(61,713 | ) | (104,738 | ) | (309 | ) | (10 | ) | ||||||||
|
Increase
in other assets
|
(2,006,620 | ) | (598,680 | ) | (815,006 | ) | (25,008 | ) | ||||||||
|
Proceeds
from sales of:
|
||||||||||||||||
|
Property,
plant and equipment
|
628,508
|
1,119,132
|
413,540
|
12,689
|
||||||||||||
|
Others
|
505,546
|
82,171
|
-
|
-
|
||||||||||||
|
Purchase
of ASE Japan Co., Ltd. shares
|
(830,678 | ) |
-
|
-
|
-
|
|||||||||||
|
Purchase
of ASE (U.S.) Inc. shares
|
(112,824 | ) |
-
|
-
|
-
|
|||||||||||
|
Purchase
of ASE Test Limited shares
|
(339,644 | ) |
-
|
-
|
-
|
|||||||||||
|
Proceeds
from disposal of discontinued operations
|
-
|
566,411
|
-
|
-
|
||||||||||||
|
Increase
in land use rights
|
-
|
(87,912 | ) | (182,187 | ) | (5,590 | ) | |||||||||
|
Net
cash used in investing activities
|
(31,048,930 | ) | (11,631,958 | ) | (22,104,508 | ) | (678,260 | ) | ||||||||
(Continued)
ADVANCED
SEMICONDUCTOR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts
in Thousands)
|
Year
Ended December 31
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||||||
|
Proceeds
from (repayments of):
|
||||||||||||||||
|
Issuance
of domestic secured bonds
|
$ |
2,733,112
|
$ |
-
|
$ |
-
|
$ |
-
|
||||||||
|
Investment
payable
|
(2,309,960 | ) |
-
|
-
|
-
|
|||||||||||
|
Foreign
convertible bonds
|
-
|
(502,748 | ) |
-
|
-
|
|||||||||||
|
Short-term
borrowings
|
2,695,984
|
3,638,444
|
(2,216,799 | ) | (68,021 | ) | ||||||||||
|
Commercial
papers and bank acceptances payable
|
(167,149 | ) | (908,816 | ) |
-
|
-
|
||||||||||
|
Proceeds
from long-term debts
|
19,246,822
|
24,514,627
|
16,148,800
|
495,514
|
||||||||||||
|
Repayments
of long-term debts
|
(13,251,715 | ) | (27,736,492 | ) | (29,894,517 | ) | (917,291 | ) | ||||||||
|
Proceeds
from exercise of stock options by employees
|
42,759
|
478,562
|
848,590
|
26,038
|
||||||||||||
|
Increase
in guarantee deposits received
|
-
|
-
|
261,754
|
8,032
|
||||||||||||
|
Increase
in collection of accounts receivable sold
|
-
|
887,354
|
1,491,110
|
45,754
|
||||||||||||
|
Increase
in minority interest
|
242,059
|
7,466
|
809,544
|
24,840
|
||||||||||||
|
Compensation
to directors and supervisors and bonus to employees
|
(67,748 | ) | (75,720 | ) | (9,536 | ) | (293 | ) | ||||||||
|
Cash
dividends
|
-
|
(394,453 | ) |
-
|
-
|
|||||||||||
|
Net
cash provided by (used in) financing activities
|
9,164,164
|
(91,776 | ) | (12,561,054 | ) | (385,427 | ) | |||||||||
|
EFFECT
OF EXCHANGE RATE CHANGES
|
90,786
|
261,332
|
(162,734 | ) | (4,994 | ) | ||||||||||
|
EFFECT
OF FIRST INCLUSION FOR CONSOLIDATION OF A SUBSIDIARY
|
-
|
-
|
4,564
|
140
|
||||||||||||
|
NET
INCREASE (DECREASE) IN CASH
|
(2,587,322 | ) |
7,288,685
|
2,466,287
|
75,676
|
|||||||||||
|
CASH,
BEGINNING OF YEAR
|
8,562,425
|
5,975,103
|
13,263,788
|
406,990
|
||||||||||||
|
CASH,
END OF YEAR
|
$ |
5,975,103
|
$ |
13,263,788
|
$ |
15,730,075
|
$ |
482,666
|
||||||||
|
SUPPLEMENTAL
INFORMATION
|
||||||||||||||||
|
Interest
paid (excluding capitalized interest)
|
$ |
951,281
|
$ |
1,759,546
|
$ |
1,689,075
|
$ |
51,828
|
||||||||
|
Income
tax paid
|
$ |
193,829
|
$ |
612,612
|
$ |
308,619
|
$ |
9,470
|
||||||||
|
Cash
paid for acquisition of property, plant and equipment
|
||||||||||||||||
|
Acquisition
of property, plant and equipment
|
$ | (30,588,311 | ) | $ | (12,957,405 | ) | $ | (17,730,935 | ) | $ | (544,060 | ) | ||||
|
Increase
(decrease) in payable
|
1,961,788
|
(2,891,017 | ) | (444,718 | ) | (13,646 | ) | |||||||||
|
Increase
in capital lease obligations
|
105,148
|
236,873
|
411,416
|
12,624
|
||||||||||||
| $ | (28,521,375 | ) | $ | (15,611,549 | ) | $ | (17,764,237 | ) | $ | (545,082 | ) | |||||
|
Cash
received from disposal of property, plant and equipment
|
||||||||||||||||
|
Proceeds
from disposal of property, plant and equipment
|
$ |
628,508
|
$ |
1,119,132
|
$ |
637,541
|
$ |
19,562
|
||||||||
|
Increase
in other receivables
|
-
|
-
|
(224,001 | ) | (6,873 | ) | ||||||||||
| $ |
628,508
|
$ |
1,119,132
|
$ |
413,540
|
$ |
12,689
|
|||||||||
|
Cash
received from issuance of domestic secured bonds
|
||||||||||||||||
|
Proceeds
|
$ |
2,750,000
|
$ |
-
|
$ |
-
|
$ |
-
|
||||||||
|
Issuance
expense
|
(16,888 | ) |
-
|
-
|
-
|
|||||||||||
| $ |
2,733,112
|
$ |
-
|
$ |
-
|
$ |
-
|
|||||||||
|
Cash
received from disposal of discontinued operations
|
||||||||||||||||
|
Sales
price
|
$ |
-
|
$ |
625,559
|
$ |
-
|
$ |
-
|
||||||||
|
Increase
in receivable
|
-
|
(59,148 | ) |
-
|
-
|
|||||||||||
| $ |
-
|
$ |
566,411
|
$ |
-
|
$ |
-
|
|||||||||
(Continued)
ADVANCED
SEMICONDUCTOR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts
in Thousands)
SUPPLEMENTAL
DISCLOSURES
Effect
of
first inclusion for consolidation of the subsidiary - Shanghai Ding Hui Real
Estate Development Co., Ltd. (amounts of its assets and liabilities as of
December 31, 2005) was as follows:
|
Cash
|
$ |
4,564
|
||
|
Others
|
76,874
|
|||
|
Total
assets
|
81,438
|
|||
|
Liabilities
|
-
|
|||
|
Total
shareholders’ equity
|
$ |
81,438
|
||
|
Allocated
to:
|
||||
|
Minority
interest in consolidated subsidiaries
|
$ |
8,145
|
||
|
Shareholders’
equity
|
73,293
|
(Concluded)
The
accompanying notes are an integral part of the consolidated financial
statements.
(With
Deloitte & Touche audit report dated April 30, 2007)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2004, 2005 AND 2006
(Amounts
in Thousands, Except Share Data and Unless Otherwise
Stated)
1.
HISTORY
AND ORGANIZATION
|
|
Advanced
Semiconductor Engineering, Inc. (“ASE Inc. or including its subsidiaries,
collectively the “Company”), a corporation incorporated under the laws of
Republic of China (the “ROC”), is an independent provider of semiconductor
packaging and testing services and offers a comprehensive range of
advanced IC packaging service. The Company’s common shares are
traded on the Taiwan Stock Exchange under the symbol
“2311”. Since September 2000, the Company’s common shares have
been traded on the New York Stock Exchange under the symbol “ASX” in the
form of American depositary shares (“ADS”). The Company and its
affiliates are together referred to as the “ASE
Group”.
|
|
|
On
August 1, 2004, ASE (Chung Li) Inc. (“ASE Chung Li”) and
ASE Material
Inc.
(
“
ASE
Material”
) were merged
into the
Company.
|
|
|
As
of December 31, 2005 and 2006, the Company had approximately 29,000
and
27,000 employees, respectively.
|
|
|
Set
forth is a brief overview of the Company’s organizational
structure.
|
a.
Wholly-owned
subsidiaries as of December 31, 2006:
|
|
1)
|
ASE
Holding Limited (incorporated in Bermuda in April 1990), which holds
shares in ASE Group companies;
|
|
|
2)
|
ASE
Marketing Services Ltd. (incorporated in Hong Kong in February 1991),
which engages in trading
activities;
|
|
|
3)
|
J&R
Holding Limited (incorporated in Bermuda in December 1995), which
holds
shares in ASE Group companies;
|
|
|
4)
|
ASE
Marketing & Service Japan Co., Ltd. (incorporated in Japan in November
2003), which engages in marketing and provides sales services in
the
packaging and testing markets;
|
|
|
5)
|
Innosource
Limited (“Innosource”) was a holding company incorporated in British
Virgin Islands in June 2004 through which the Company invested in
ASE (Kun
Shan) Inc. and ASE Modules (Shanghai) Inc. Due to an
organizational restructure, the Company transferred its investment
shareholding in ASE (Kun Shan) from Innosource to Omniquest Industrial
Limited (“Omniquest”), a subsidiary of the Company through direct and
indirect ownership, and invested an additional US$ 30,000 thousand
in
Omniquest. As of December 31, 2006, Innosource held a 20%
ownership interest in Omniquest;
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|
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6)
|
Ming-Jei
Technologies Inc. (formerly ASE - Compeq Technologies, Inc., incorporated
in the ROC in February 2004), which is engaged in the manufacturing
and
sale of electronic components. ASE – Compeq Technologies, Inc.
was renamed Ming-Jei Technologies Inc. in November 2005 and was dissolved
in May 2006.
|
|
|
7)
|
ASE
Global, Inc. (incorporated in the ROC in May 2005), which is engaged
in
the manufacturing and sales of electronic materials and related
equipment. ASE Global, Inc. was dissolved in November
2006.
|
b.
As
of
December 31, 2006, the Company held more than 50% ownership interest in the
following subsidiaries:
|
|
1)
|
99.5%
ownership interest 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. ASE
Technologies, Inc. is in the process of
liquidation;
|
|
|
2)
|
90.0%
ownership interest in ASE Network Inc. (incorporated in the ROC in
January
2000), which had a 1.62% equity stake in Taiwan Fixed Network Co.,
Ltd;
and
|
|
|
3)
|
65.6%
direct ownership interest in Omniquest and the other 20% and 14.4%
were
held through Innosource and J&R Holding Limited,
respectively. The Company invested in ASE (Shanghai) Inc. and
ASE High-Tech (Shanghai) Inc. through Omniquest in September 1990
and
February 2006, respectively. As a result of an investment
restructure, the Company made new investments in ASE Corporation
(incorporated in the British Cayman Islands in August 2006 and had
two
wholly-owned subsidiaries, ASE Mauritius Inc. and ASE Labuan Inc.)
through
Omniquest. The Company then transferred the shareholding of ASE
(Shanghai) Inc. and ASE High-Tech (Shanghai) Inc. from Omniquest
to ASE
Mauritius Inc.
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|
|
ASE
(Shanghai) Inc. held a 90% ownership interest in Shanghai Ding Hui
Real
Estate Development Co., Ltd.
|
|
|
The
Company had 1% of direct ownership interest and through ASE Labuan
Inc.,
99% of indirect ownership interest in ASE Electronics Inc., which
was
incorporated in March 2006 in the ROC. As a result of an
organizational restructure, the Company transferred the operation,
assets
and liabilities of its material department to ASE Electronics Inc.
on
August 1, 2006.
|
c.
ASE
Holding Limited has the following wholly-owned or majority-owned
subsidiaries:
|
|
1)
|
ASEP
Realty Corporation (incorporated in the Philippines in December 1995),
which holds real estate of ASE Holding Electronics (Philippines),
and is
in the process of liquidation;
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|
|
2)
|
ASE
Holding Electronics (Philippines) Incorporated (incorporated in the
Philippines in December 1995), which manufactures electronic products,
components and semiconductors, and is in the process of liquidation;
and
|
|
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3)
|
70.0%
ownership interest in ASE Investment (Labuan) Inc. (incorporated
in
Malaysia in June 1999). ASE Investment (Labuan) Inc. holds
shares in ASE Korea Inc. (incorporated in Korea in 1999), which engages
in
the packaging and testing of semiconductors. In addition, ASE
Test Limited owned the remaining 30.0% ownership interest in ASE
Investment (Labuan) Inc.
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|
|
A
portion of the share capital of the Company’s subsidiaries incorporated in
the Philippines is held by certain Filipino individuals, on behalf
of the
Company, in order to comply with the Philippine legal
requirements.
|
d.
J&R
Holding Limited has six subsidiaries:
|
|
1)
|
100.0%
ownership interest in J&R Industrial Inc. (incorporated in the ROC in
April 1999), which is mainly engaged in the leasing of substrate,
packaging and testing equipment, to consolidated subsidiaries of
the
Company. J&R Industrial Inc. reduced its capital and
returned NT$2,953,000 thousand (US$90,058 thousand) to J&R Holding
Limited in June 2006;
|
|
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2)
|
100.0%
ownership interest in Grand Innovation Co., Ltd. (incorporated in
the
British Virgin Islands in March 2001), which holds convertible preferred
stock of Integrated Programmable Communication, Inc. (“Integrated”)
representing 6.1% Integrated’s equity
interest;
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|
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3)
|
100%
ownership interest in ASE Japan Co., Ltd. (incorporated in Japan
in May
2004), which is engaged in the packaging and testing of
semiconductors;
|
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4)
|
100%
ownership interest in ASE (U.S.) Inc. (incorporated in the USA in
December
1983), which is engaged in marketing and provides sales services
relating
to packaging and testing;
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|
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5)
|
57.9%
ownership interest in Power ASE Technology Holding Limited (incorporated
in the British Cayman Islands in December 2006), which is a holding
company that owned 95% of Power ASE Technology Inc. (incorporated
in the
ROC in June 2006). The Company directly owned the remaining 5%
ownership interest in Power ASE Technology Inc. Power ASE
Technology Inc. is engaged in the packaging and testing of memory;
and
|
|
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6)
|
39.8%
ownership interest in ASE Test Limited (“ASE Test”) (incorporated in
Singapore in May 1996), which holds shares in ASE Group
companies. ASE Holding Limited owned another 11.1% ownership
interest in ASE Test. Since June 1996, shares of ASE Test have
been traded on the NASDAQ National Market in the United States under
the
symbol “ASTSF”. In addition, J&R Holding Limited offered
partial shares of ASE Test in the form of Taiwan Depositary Receipts
traded on the Taiwan Stock Exchange under the symbol
“9101”.
|
e.
ASE
Test
has four direct subsidiaries:
|
|
1)
|
ASE
Test, Inc. (incorporated in the ROC in December 1987 and wholly-owned
by
ASE Test Limited), which is engaged in the testing of
semiconductors;
|
|
|
2)
|
ASE
Holdings (Singapore) Pte Ltd. (incorporated in Singapore in December
1994), which is engaged in investing
activities;
|
|
|
3)
|
ASE
Test Holdings, Limited (“ASE Test Holdings”) (incorporated in Cayman
Islands in April 1999), which is engaged in investing activities;
and
|
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|
4)
|
ASE
Test Finance Limited (“ASE Test Finance”) (incorporation in Mauritius in
June 1999), which is engaged in financing
activities.
|
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|
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 Malaysia disposed of its camera module
operations on October 3, 2005 (Note
28).
|
|
|
ASE
Test Holdings has a wholly-owned subsidiary, ISE Labs, Inc. (“ISE Labs”)
(incorporated in California, U.S.A. in November 1983). ISE Labs
and its wholly-owned subsidiaries, ISE Labs Hong Kong Limited, which
was
dissolved in 2005, ASE Singapore Pte Ltd., ISE Technology, Inc. and
Digital Testing Services Inc., are engaged in the front-end engineering
testing and final testing of
semiconductors.
|
2.
SIGNIFICANT
ACCOUNTING POLICIES
|
|
The
accompanying consolidated financial statements have been prepared
in
conformity with the Guidelines Governing the Preparation of Financial
Reports by Securities Issuers, Business Accounting Law, Guidelines
Governing Business Accounting, and accounting principles generally
accepted in the Republic of China (“ROC GAAP”). Under these
law, guidelines and principles, the Company should reasonably estimate
the
amounts of allowances for doubtful accounts, allowance for sales
discounts, inventory valuations, depreciation of property, plant,
and
equipment, loss on impairment of assets, pension expenses, gain (loss)
on
valuation of financial instrument and allowance of deferred income
tax
assets. Actual results may differ from these
estimates. Significant accounting policies are summarized as
follows:
|
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Basis
of Presentation
|
|
|
The
Company prepares its consolidated financial statements using the
aforementioned law, guidelines and principles with reconciliation
to
accounting principles generally accepted in the United States of
America
(“U.S. GAAP”) (Note 31). The accompanying consolidated balance
sheets are presented as of December 31, 2005 and 2006, and the
accompanying consolidated statements of income, changes in shareholders’
equity and cash flows are presented for the three years ended December
31,
2004, 2005 and 2006.
|
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Basis
of Consolidation
|
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|
The
consolidated financial statements include the accounts of the Company
and
all of the aforementioned subsidiaries. All significant
intercompany accounts and transactions are eliminated upon
consolidation.
|
|
|
Current
and Noncurrent Assets and
Liabilities
|
|
|
Current
assets include cash, financial assets held for trading purposes and
assets
expected to be converted to cash, sold or consumed within one year
from
the balance sheet date. Current liabilities are obligations
incurred for trading purposes and obligations expected to be settled
within one year from the balance sheet date. Assets and
liabilities that are not classified as current are noncurrent assets
and
liabilities, respectively.
|
|
|
Financial
Assets/Liabilities at Fair Value Through Profit or
Loss
|
|
|
Financial
instruments at fair value through profit or loss consist of financial
assets or financial liabilities held for trading. These
financial instruments are initially recognized at fair value with
associated transaction costs expensed as incurred. The
financial instruments are subsequently remeasured at fair value,
and
changes in fair value are recognized in current income
(loss). A regular way purchase or sale of financial assets is
recognized and derecognized using settlement date
accounting.
|
|
|
Derivatives
which are not qualified for hedge accounting are recorded as financial
assets or liabilities held for trading. Fair
value
of
beneficiary certificates of open-end mutual funds and
derivatives with no active market fair value is estimated using the
net asset value
and valuation techniques,
respectively.
|
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|
Available-for-Sale
Financial Assets
|
|
|
Available-for-sale
financial assets are initially recognized at fair value plus transaction
costs that are directly attributable to the
acquisition. Changes in fair value of financial assets are
reported in a separate component of shareholders’ equity. The
corresponding accumulated gains or losses are recognized in earnings
when
the financial asset is derecognized from the balance sheet. A
regular way purchase or sale of financial assets is accounted for
using
settlement date accounting.
|
|
|
Fair
value for beneficiary certificates of open-ended mutual funds and
publicly
traded stocks are
determined
using the
net asset value and closing-price at the balance sheet
date
,
respectively.
|
|
|
If
certain objective evidence indicates that such available-for-sale
financial asset should be impaired, a loss should be recognized currently,
if, in a subsequent period, the amount of the impairment loss decreases,
for equity securities, the previously recognized impairment loss
is
reversed to the extent of the decrease and recorded as an adjustment
to
shareholders’ equity.
|
|
|
Revenue
Recognition, Accounts Receivable and Allowance for Doubtful
Accounts
|
|
|
Revenues
from semiconductor packaging and testing services are recognized
upon
completion of the services or shipment. 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 remain with the customer for those bare
semiconductors and/or packaged semiconductors. Accordingly, the
costs of customer-supplied semiconductors materials are not included
in
the accompanying consolidated financial statements. Other
criteria the Company uses to determine when to recognize revenue
are: (i)
existence of persuasive evidence of an arrangement, (ii) the selling
price
is fixed or determinable and (iii) collectibility is reasonably
assured.
|
|
|
Revenues
are determined using the fair value taking into account related sales
discounts agreed to by the Company and customers. Since the
receivables from sales are collectible within one year and such
transactions are frequent, the fair value of receivables is equivalent
to
the nominal amount of cash
received.
|
|
|
Allowance
for doubtful accounts is provided based on an evaluation of the
collectibility of receivables. The Company determines the
amount of allowance for doubtful receivables by examining the aging
analysis of the outstanding accounts receivable and current trends
in the
credit quality of its customers. An appropriate sales
allowance, based on historical experience, is recognized in the same
period the sale is recognized.
|
|
|
Accounts
Receivable Securitization
|
|
|
Accounts
receivable securitization is the transfer of a designated pool of
accounts
receivable to a bank which in turn issues beneficial securities or
asset-backed securities based on the accounts receivable. Under
ROC Statement of Financial Accounting Standards (ROC SFAS) No. 33
“
Accounting for Transfers
of
Fina
ncial Assets
and
Extinguishments of Liabilities”
, such transfer of financial assets
in which the transferor surrenders control over those assets is accounted
for as a sale to the extent that consideration other than beneficial
interests in the transferred assets is received in
exchange. The difference between the book value of accounts
receivable and total proceeds received is recorded as a gain or loss
on
the disposal of financial assets.
|
|
|
Inventories
|
|
|
Inventories
including raw materials (materials received from customers for processing,
mainly semiconductor wafers are excluded from inventories as title
and
risk of loss remain with the customers), supplies and spare parts,
work in
process, finished goods and supplies in transit are stated at the
lower of
cost or market value. Market value represents net realizable
value for finished goods and work in process, and replacement costs
for
raw materials, supplies and spare
parts.
|
|
|
Raw
materials, supplies and spare parts are recorded at moving average
cost;
others are recorded at standard cost and adjusted to the approximate
weighted average cost at the balance sheet date. Estimated
losses on scrap and slow-moving items are recognized and included
in the
allowance for losses.
|
|
|
Construction
in progress is accounted for using the completed-contract
method.
|
|
|
Held-to-Maturity
Financial Assets
|
|
|
Held-to-maturity
financial assets are carried at amortized cost under the effective
interest method. Those financial assets are initially
recognized at fair value plus transaction costs that are directly
attributable to the acquisition. Gains or losses are recognized
at the time of derecognition, impairment or
amortization.
|
|
|
If
certain objective evidence indicates that such held-to-maturity financial
asset is impaired, a loss should be recognized currently. If,
in a subsequent period, the amount of the impairment loss decreases
and
the decrease is clearly attributable to an event which occurred after
the
impairment loss was recognized, the previously recognized impairment
loss
is reversed to the extent of the decrease. The reversal may not
result in a carrying amount that exceeds the amortized cost that
would
have been determined as if no impairment loss had been
recognized.
|
|
|
Financial
Assets Carried at Cost
|
|
|
Investments
that do not have a quoted market price in an active market and whose
fair
value cannot be reliably measured are carried at their original cost,
such
as non-publicly traded stocks. If certain objective evidence
indicates that such financial asset is impaired, a loss should be
recognized. A subsequent reversal of such impairment loss is
not allowed.
|
|
|
Cash
dividends are recognized as investment income on declaration
date. Stock dividends not resulting in investment income are
recorded as an increase in the number of shares held and the cost
per
share is recalculated based on the new total number of
shares.
|
|
|
Equity
Method Investments
|
|
|
Investments
in companies of which the Company owns at least 20% of the outstanding
voting shares or where the Company exercises significant influence
over
the investee company’s operating and financial policy decisions are
accounted for using the equity method. Prior to January 1, 2006
the difference, if any, between the cost of investment and 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 10 years. Effective January 1, 2006,
pursuant to the revised ROC SFAS No. 5, “Long-term Investments under
Equity Securities” (SFAS No. 5), the cost of an investment shall be
analyzed and the difference between the cost of investment and the
fair
value of identifiable net assets acquired, representing goodwill,
shall
not be amortized and instead shall be tested for impairment
annually. The accounting treatment for the investment premiums
acquired before January 1, 2006 is the same as that for goodwill
which is
no longer being amortized.
|
|
|
When
the Company subscribes for additional investee’s shares at a percentage
different from its existing ownership percentage, the resulting carrying
amount of the investment in the investee differs from the amount
of the
Company’s share in the investee’s net equity. The Company
records such a difference as an adjustment to equity method investments
with the corresponding amount charged or credited to capital
surplus.
|
|
|
Gains
or losses on sales from the Company to equity method investees are
deferred in proportion to the Company’s ownership percentage in the
investees until such gains or losses are realized through transactions
with third parties. Gains or losses on sales from equity method
investees to the Company are deferred in proportion to the Company’s
ownership percentages in the investees until they are realized through
transactions with third parties.
|
|
|
On
the balance sheet date, the Company tests investments for
impairment. When an impairment is identified, the carrying
amount of the investments is reduced, with the related impairment
loss
recognized in earnings.
|
|
|
Property,
plant and equipment
|
|
|
Property,
plant and equipment, except for machinery and equipment under operating
lease, are stated at cost less accumulated depreciation and accumulated
impairment. Equipment held under capital leases is 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 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 overhaul and improvements are capitalized, while
maintenance and repairs are expensed as
incurred.
|
|
|
Depreciation
is computed using the straight-line method over estimated service
lives,
which range as follows: buildings and improvements, 2 to 55
years; machinery and equipment, 2 to 10 years; furniture and fixtures,
2
to 15 years; transportation equipment, 1 to 10 years; and leased
assets
and leasehold improvements, 2 to 6 years. In the event that an
asset depreciated to its residual value is still in service, its
residual
value is depreciated over its re-estimated service
life.
|
|
|
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.
|
|
|
Intangible
Assets
|
|
|
Patents
are recorded at cost and amortized using straight-line method over
the
estimated useful lives of 2 years. Land use rights are
amortized over the contract terms of 50
years.
|
|
|
Goodwill
|
|
|
Goodwill
represents the excess of the consideration paid for an acquisition
over
the fair value of identifiable net assets acquired. Prior to
January 1, 2006, goodwill was amortized using the straight-line method
over the estimated life of 10 years. Effective January 1, 2006,
pursuant to the newly revised ROC SFAS No. 25, “Business
Combinations-Accounting Treatment under Purchase Method” (“SFAS No.25”),
goodwill is no longer amortized and instead is tested for impairment
annually.
|
|
|
The
Company regularly evaluates the carrying amount of goodwill according
to
its recoverable amount. If the carrying amount of goodwill is
determined to exceed its recoverable amount, an impairment loss is
recognized at an amount equal to that excess. Reversal of such
impairment loss is prohibited.
|
|
|
Asset
Impairment
|
|
|
The
Company evaluates whether or not there are indications that
assets (primarily property, plant and equipment, intangible assets,
assets leased to others and long-term investments) may be impaired
on the
balance sheet date. If there are indications, the Company
should estimate the recoverable amount for the asset. If an
asset’s recoverable amount is lower than its carrying amount, the carrying
amount of the asset should be reduced to its recoverable amount by
recording a charge to the accumulated impairment account of the asset
and
such reduction should be recognized as impairment loss in current
period
income. When the recoverable amount subsequently increases,
then the impairment loss previously recognized would be reversed
and
recorded as a gain. However, the carrying amount of an asset
(other than goodwill) after the reversal of impairment loss should
not
exceed the carrying amount of the asset that would have been determined
net of depreciation as if no impairment loss had been
recognized.
|
|
|
Deferred
Charges
|
|
|
Deferred
charges consist of certain intangibles and other assets, including
tools,
license fees, telecommunications and computer network systems, bond
issuance costs and the costs directly attribute to bringing the assets
to
be capable of operating. The amounts are amortized over 2 to 5
years.
|
|
|
Pension
Cost
|
|
|
For
employees under defined benefit pension plan, pension costs are 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.
|
|
|
For
employees under defined contribution pension plan, pension costs
are
recorded based on the actual contribution made to employee’s personal
pension accounts.
|
|
|
Convertible
Bonds
|
|
|
Prior
to the adoption of ROC SFAS No. 34 and No. 36 on January 1, 2006,
convertible bonds issued was recorded as financial
liability. The stated redemption price in excess of the face
value of bond is recognized as interest expense over a period starting
from the issuance date to the last date of the redemption period,
using
the effective interest rate method. Conversion of convertible
bonds into common shares is accounted for by the book value
method. Under this method, unamortized bond issuance costs and
accrued interest which is no longer payable, together with the carrying
amount of converted bonds are written off, and the common shares
issued
are recorded at their par value, and any excess is recorded as capital
surplus. No change in accounting treatment was required for
convertible bonds after the adoption of ROC SFAS No. 34 and No.
36.
|
|
|
Employee
Stock Options
|
|
|
All
stock-based compensation for awards granted or modified after January
1,
2004 is accounted for by the related Interpretations of the Accounting
Research and Development Foundation (ARDF) in ROC. The
compensation cost is measured based on the intrinsic value method,
for
which the compensation cost for stock options is measured as the
excess,
if any, of the quoted market price of the Company’s stock at the date of
the grant over the amount an employee must pay to acquire the
stock. The intrinsic value of the shares is recognized as
expense over the requisite service or vesting
period.
|
|
|
Treasury
Stock
|
|
|
The
Company’s shares held by its subsidiaries are accounted for as treasury
stock and, accordingly, the cost of such shares are reclassified
from
long-term investments to treasury stock upon
consolidation.
|
|
|
Shipping
and Handling Costs
|
|
|
Shipping
and handling costs are recorded as selling expense and the amounts
in
2004, 2005 and 2006 were NT$170,771 thousand, NT$156,043 thousand
and
NT$168,986 thousand (US$5,185 thousand),
respectively.
|
|
|
Research
and Development Costs
|
|
|
Research
and development costs are charged to expenses as
incurred.
|
|
|
Income
Taxes
|
|
|
The
Company applies intra-period and inter-period allocations for its
income
tax whereby (1) a portion of current income tax expense is allocated
to
the income from discontinued operations and the cumulative effect
of
changes in accounting principles; and (2) deferred income tax assets
and
liabilities are recognized for the tax effects of temporary differences,
loss carryforward and unused tax credits. Valuation allowances
are provided to the extent, if any, that it is more likely than not
that
deferred income tax assets will not be realized. A deferred tax
asset or liability is classified as current or noncurrent in accordance
with the classification of its related asset or
liability. However, if a deferred tax asset or liability does
not relate to an asset or liability in the financial statements,
then it
is classified as either current or noncurrent
|
based
on
the expected length of time before it is realized or settled.
|
|
Any
tax credits arising from purchases of machinery, equipment and technology,
research and development expenditures, and personnel training are
recognized in the year in which they are acquired and
expended.
|
|
|
Adjustments
of prior years’ income tax are added to or deducted from the current
year’s tax provision.
|
|
|
Income
tax on undistributed earnings is recorded by the Company and Taiwan-based
subsidiaries at the rate of 10% and is recorded as an expense in
the
subsequent year following the shareholders’
approval.
|
|
|
Foreign
Currency Transactions and Translation of Foreign-currency Financial
Statements
|
|
|
The
functional and reporting currency of the Company is N.T. dollars,
while
the functional currencies of its major subsidiaries are their local
currencies, namely, U.S. dollars
,
Japanese Yen
,
Korea Won
,
China Yuan Renminbi and Malaysia Ringgits,
respectively.
|
|
|
Foreign
currency transactions, except for derivative transactions, are recorded
in
the local currencies at the rates of exchange in effect when the
transactions occur.
|
|
|
If
an investee’s functional currency is a foreign currency, translation
adjustments will result from the translation of the investee’s financial
statements into the reporting currency of the Company. Such
adjustments are accumulated and reported as a separate component
of
shareholders’ equity.
|
|
|
The
financial statements of foreign subsidiaries are translated into
New
Taiwan dollars at the following exchange rates: Assets and
liabilities - spot rates at year-end; shareholders’ equity - historical
rates; income and expenses - average rates during the year. The
resulting translation adjustments are recorded as a separate component
of
shareholders’ equity.
|
|
|
Derivative
Financial
Instruments
for
Hedg
ing
|
|
|
Derivative
financial instruments
for hedging are stated at fair value.
At
period-end, the balances
of
derivative
financial
instruments
are remeasured at fair
value and the resulting differences are charged to current
income
, or
recorded
as
unrealized
gain from
financial
instruments
under
shareholders
’
equity.
|
|
|
Cash
Flow
Hedg
e
Accounting
|
|
|
Gains
or losses from hedging instruments that are determined to
meet
the
criteria for hedge accounting
shall be recognized directly in
shareholders’ equity.
|
|
|
If
a
hedge of a forecast transaction subsequently results in the recognition
of
a financial asset or a financial liability, the associated gains
or losses
that were recognized directly in equity shall be reclassified into
profit
or loss in the same period or periods during which the asset acquired
or
liability assumed affects profit or
loss.
|
|
|
If
a
hedge of a forecast transaction subsequently results in the recognition
of
a non-financial asset or a non-financial liability becomes a firm
commitment, then the entity shall reclassify the associated gains
and
losses as adjustment to acquisition cost or book value of the asset
or
liability.
|
|
|
Recent
Accounting Pronouncements
|
|
|
In
July 2006, the ROC ARDF issued ROC SFAS No. 37 “Intangible Assets”, which
is required to be applied by the Company on January 1,
2007.
The standard
provides
guidance on initial recognition and measurement, amortizatio
n,
presentation and
disclosure of intangible assets
. An intangible asset
should be measured initially at cost. For an intangible asset
of a finite useful life; the carrying amount shall be amortized over
its
useful life. On the other hand, for an intangible asset with an
indefinite useful life, the carrying amount shall not be
amortized. Intangible assets shall be evaluated for impairment
at least
|
annually
as required by ROC. SFAS No.35 “Accounting for Impairment of Assets” (ROC SFAS
No. 35). Upon adoption of the standard on January 1, 2007, the
Company expects no significant impact on its current accounting
treatment.
|
|
In
November 2006, ARDF issued ROC SFAS No. 38 “Non-current Assets Held for
Sale and Discontinued Operations” (ROC SFAS No. 38), which is also
required to be applied by the Company on January 1, 2007. Under
ROC SFAS No.38, assets classified as held-for-sale shall be measured
at
the lower of carrying values or fair values and ceased to be depreciated
or amortized. Any impairment loss shall be recognized in
current earnings. Assets classified as held-for-sale shall be
presented separately on the balance sheet. ROC SFAS No.38 also
requires the Company to disclose information of discontinued operations
separately on the statements of income and cash flow or in a
footnote.
Upon adoption of the standard on January
1, 2007, the Company expects no significant impact on its current
accounting treatment.
|
In
March
2007, ARDF requires ROC companies to recognize compensation expenses for bonuses
paid to employees, directors and supervisors beginning January 1, 2008. Such
bonuses are currently recorded as appropriation of earnings under ROC GAAP.
On
March 30, 2007, the ROC Financial Supervisory Commission also issued an
interpretation which requires that bonuses granted to employees, directors
and
supervisors in the form of shares be valued at fair market value for purposes
of
compensation expenses.
|
|
U
.
S
.
Dollar Amount
s
|
|
|
The
Company prepares its
consolidated financial statements in N
.T.
dollars.
A translation
of the
200
6
financial statements into
U
.
S
.
dollars is included solely for
the convenience of the reader, and has been based on the U
.
S
.
Federal Reserve Bank of
New York
noon buying rate of
NT$
32.59
to US$1.00 in effect at December
31, 200
6
.
The
translations should not be
construed as representations that the N
.T.
dollar
s
amounts have been, could have
been, or could in the future be, converted into U
.
S
.
dollars at this or any other rate
of exchange.
|
|
|
Reclassifications
|
|
|
Certain
accounts in the consolidated financial statements as of December
31, 2005
and for the years ended December 31, 2004 and 2005 have been reclassified
to conform to the consolidated financial statements as of and for
the year
ended December 31, 2006.
|
3.
ACCOUNTING
CHANGE
|
|
On
January 1, 2006, the Company adopted the newly released SFAS No.
34,
“Financial Instruments: Recognition and Measurement” and No.
36, “Financial Instruments: Disclosure and Presentation” and revisions of
previously released SFAS No. 5 and No.
25.
|
a.
Effect
of
adopting the newly released SFASs and revisions of previously released
SFASs
|
|
1)
|
The
Company had categorized its financial assets and liabilities upon
the
initial adoption of the newly released ROC SFAS No.34 and
No.36. The adjustments made to the carrying amounts of the
financial instruments categorized as financial assets or liabilities
at
fair value through profit or loss were included in the cumulative
effect
of changes in accounting principles; on the other hand, the adjustments
made to the carrying amounts of those categorized as available-for-sale
financial assets were recognized as adjustments to shareholders’
equity.
|
|
|
Deferred
exchange losses for cash flow hedges were reclassified as adjustments
to
shareholders’ equity.
|
|
|
The
effect of adopting the newly released SFASs is summarized as
follows:
|
|
Recognized
as Cumulative
Effect
of
Changes
in Accounting
Principles
(Net of Tax)
|
Recognized
as a
Separate
Component
of
Shareholders’
Equity
|
|||||||||||||||
|
NT$
|
US$
|
NT$
|
US$
|
|||||||||||||
|
Financial
assets at fair value
through profit
or
loss
|
503
|
16
|
-
|
-
|
||||||||||||
|
Financial
liabilities at fair
value through
profit
or
loss
|
(343,006 | ) | (10,525 | ) |
-
|
-
|
||||||||||
|
Derivative
financial
liabilities for hedging
|
-
|
-
|
(129,179 | ) | (3,694 | ) | ||||||||||
| (342,503 | ) | (10,509 | ) | (129,179 | ) | (3,694 | ) | |||||||||
|
|
In
addition to the effect on cumulative effect of changes in accounting
principles and shareholders’ equity shown above, the adoption of ROC SFAS
No. 34 and No. 36 also resulted in an increase in net income before
cumulative effect of changes in accounting principles of NT$242,961
thousand (US$7,455 thousand), a decrease in net income of NT$99,542
thousand (US$3,054 thousand) (net of income tax of NT$33,181 thousand
(US$10,162 thousand), and a decrease in basic earnings per share
(after
income tax) of NT$0.02 for the year ended December 31,
2006.
|
|
|
2)
|
The
Company adopted the newly revised SFAS No. 5 and SFAS No. 25, which
prescribe that investment premiums, representing goodwill, be ceased
from
amortization and be assessed for impairment at least on an annual
basis. Such a change in accounting principle resulted in an
increase in net income before cumulative effect of changes in accounting
principles of NT$619,397 thousand (US$19,006 thousand) and an increase
in
basic earnings per share (after income tax) of NT$0.14 for the year
ended
December 31, 2006.
|
|
|
The
adoption of the Company for the newly released and revised SFAS resulted
in an aggregate increase in net income before cumulative effect of
changes
in accounting principles of NT$862,358 thousand (US$26,461 thousand),
an
increase in net income of NT$519,855 thousand (US$15,951 thousand),
an
increase in basic earnings per share (after income tax) of NT$0.12,
and
unrealized gain on financial instruments of NT$416,400 thousand (US$12,777
thousand) recognized under shareholders’ equity for the year ended
December 31, 2006.
|
b.
Reclassifications
|
|
Upon
the adoption of SFAS No. 34, certain accounts in the consolidated
financial statements as of December 31, 2005 and for the years ended
December 31, 2004 and 2005 were reclassified to conform to the
consolidated financial statements as of and for the year end December
31,
2006. The previous issued consolidated financial statements as
of December 31, 2005 and for the years ended December 31, 2004 and
2005
were not required to be restated.
|
|
|
Certain
accounting policies prior to the adoption of the newly released SFASs
are
summarized as follows:
|
|
|
1)
|
Short-term
investments
|
|
|
Short-term
investments that were publicly-traded stock, mutual fund, or bonds
were
recorded at historical cost and are carried at the lower of cost
or market
value as of the balance sheet date. An allowance or decline in
value is provided and is charged to current income when the aggregate
carrying amount of the investments exceeds the aggregate market
value. A reversal of the allowance is recorded for a subsequent
recovery in the aggregate market
value.
|
|
|
2)
|
Long-term
Investments
|
|
|
Forward
exchange contracts, which the Company enters into as an economic
hedge of
foreign-currency denominated assets or liabilities, are initially
recorded
in N.T. dollars at the spot rates on the date of each forward
contract. The differences between the spot rates and the
forward rates are amortized over the contract periods and recognized
as
gains or losses. On the balance sheet date, the balances of the
forward exchange receivables or payables are restated based on the
prevailing exchange rates and the resulting adjustments are credited
or
charged to income. Any resulting gain or loss upon settlement
is credited or charged to income in the year of
settlement.
|
|
|
For
outstanding forward contracts as of the balance sheet date, the related
receivables and payables are netted with the resulting amount presented
as
either a current asset or
liability.
|
|
|
3)
|
Forward
exchange contracts
|
|
|
Forward
exchange contracts, which the Company enters into as an economic
hedge of
foreign-currency denominated assets or liabilities, are initially
recorded
in N.T. dollars at the spot rates on the date of each forward
contract. The differences between the spot rates and the
forward rates are amortized over the contract periods and recognized
as
gains or losses. On the balance sheet date, the balances of the
forward exchange receivables or payables are restated based on the
prevailing exchange rates and the resulting adjustments are credited
or
charged to income. Any resulting gain or loss upon settlement
is credited or charged to income in the year of
settlement.
|
|
|
For
outstanding forward contracts as of the balance sheet date, the related
receivables and payables are netted with the resulting amount presented
as
either an other receivable or
payable.
|
|
4)
|
Option
contracts
|
Exchange
gains or losses from option contracts for the purpose of hedging an identifiable
foreign currency commitment should be deferred as a part of the foreign currency
commitment.
|
5)
|
Interest
rate swap contracts
|
|
|
Interest
rate swap contracts entered into to limit the impact of interest
rate
fluctuations on certain long-term debt are not recorded as assets
or
liabilities on the contract date. The difference between fixed
and variable rates to be paid or received on swaps is accrued as
an
interest rate change based on the contracts and is included in current
interest income or expense.
|
|
|
6)
|
Cross
currency swap contracts
|
|
|
The
Company enters into cross-currency swap contracts in order to manage
its
exposure to exchange rate fluctuations on foreign-currency denominated
assets and liabilities. The principal amount is recorded at
spot rates on the contract date. The difference in interest
between the contract starting date rate and the rate on each settlement
date or the balance sheet date is recorded as an adjustment to the
interest income or expense associated with the hedged
items.
|
|
|
At
the end of each year, the receivables or payables arising from outstanding
cross-currency swap contracts are restated at prevailing spot rates
and
the difference is charged to income or loss. In addition, the
receivables and payables under the contracts are presented on a net
basis
as either an asset or a liability.
|
|
|
The
reclassifications of the whole or a part of the account balances
of
certain accounts are summarized as
follows:
|
|
Before
Reclassification
|
After
Reclassification
|
|||||||||||||||
|
NT$
|
US$
|
NT$
|
US$
|
|||||||||||||
|
Balance
sheet as of
December 31, 2005
|
||||||||||||||||
|
Short-term
investments
|
4,352,923
|
133,566
|
-
|
-
|
||||||||||||
|
Other
receivables
|
5,783
|
177
|
-
|
-
|
||||||||||||
|
Other
current
assets
|
129,179
|
3,964
|
-
|
-
|
||||||||||||
|
Long-term
investments - cost
method
|
1,272,311
|
39,040
|
-
|
-
|
||||||||||||
|
Other
long-term
investment
|
50,000
|
1,534
|
-
|
-
|
||||||||||||
|
Other
payable
|
177,128
|
5,435
|
-
|
-
|
||||||||||||
|
Other
financial liabilities -
noncurrent
|
154,780
|
4,749
|
-
|
-
|
||||||||||||
|
Unrealized
loss on long-term
investments
|
69,914
|
2,145
|
-
|
-
|
||||||||||||
|
Financial
assets at fair value
through profit or loss -current
|
-
|
-
|
4,330,733
|
132,885
|
||||||||||||
|
Available-for-sale
financial
assets - current
|
-
|
-
|
27,973
|
857
|
||||||||||||
|
Held-to-maturity
financial
assets - noncurrent
|
-
|
-
|
50,000
|
1,534
|
||||||||||||
|
Financial
assets carried at
cost - noncurrent
|
-
|
-
|
1,272,311
|
39,040
|
||||||||||||
|
Financial
liabilities at fair
value through profit or loss
|
-
|
-
|
202,729
|
6,221
|
||||||||||||
|
Derivative
financial
liabilities for hedging
|
-
|
-
|
129,179
|
3,964
|
||||||||||||
|
Unrealized
loss on financial
instruments
|
-
|
-
|
199,093
|
6,109
|
||||||||||||
|
Statement
of income for
2005
|
||||||||||||||||
|
Exchange
gain,
net
|
175,194
|
5,376
|
154,275
|
4,734
|
||||||||||||
|
Gain
on valuation of financial
liability, net
|
-
|
-
|
20,919
|
642
|
||||||||||||
|
Statement
of income for
2004
|
||||||||||||||||
|
Exchange
gain (loss),
net
|
(148,144 | ) | (4,546 | ) |
222,358
|
6,823
|
||||||||||
|
Loss
on valuation of financial
liability, net
|
-
|
-
|
370,502
|
11,369
|
||||||||||||
|
|
On
January 1, 2005, the Company adopted the newly revised SFAS No. 7,
“Consolidated Financial Statements”. Long-term investments of
which the Company owns less than 50% of the outstanding voting shares
but
where the Company exercises significant influence over the investee
company’s operations are accounted for as subsidiaries of the
Company. The adoption of ROC SFAS No. 7 did not have an effect
on the Company’s consolidated financial statements as of and for the year
ended December 31, 2005.
|
|
|
The
Company introduced Enterprise Resource Planning (ERP) as part of
its
strategy to enhance operations to enhance its competitiveness as
well as
strengthen internal management and integrate resources. Thus,
at the beginning of 2004, the Company decided to change its method
for
pricing raw materials and supplies from the weighted-average method
to the
moving-average method. The cumulative effect of this accounting
change resulted in decrease of NT$26,844 thousand and NT$0.01 in
net
income and earnings per share, respectively, for the year ended December
31, 2004. The pro forma effects of this change in accounting
principle on the 2003 net income were
immaterial.
|
|
|
On
December 31, 2004, the Company adopted ROC SFAS No. 35 “Accounting for
Asset Impairment”. The adoption of ROC SFAS No. 35 resulted in
the decrease in the balance of long-term investments and goodwill
by
NT$512,000 thousand and NT$1,950,097 thousand,
respectively.
|
4.
CASH
|
December
31
|
||||||||||||
|
2005
|
|
2006
|
||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Cash
on hand
|
4,031
|
8,186
|
251
|
|||||||||
|
Checking
and saving
accounts
|
11,122,724
|
13,482,961
|
413,715
|
|||||||||
|
Time
deposits
|
2,137,033
|
2,238,928
|
68,700
|
|||||||||
|
13,263,788
|
15,730,075
|
482,666
|
||||||||||
5.
FINANCIAL
INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Financial
assets for
trading
|
||||||||||||
|
Beneficiary
Certificate of
funds
|
|
4,324,950
|
|
1,546,450
|
|
47,452
|
||||||
|
Forward
exchange
contracts
|
5,783
|
11,453
|
351
|
|||||||||
|
4,330,733
|
1,557,903
|
47,803
|
||||||||||
|
Financial
liabilities for
trading
|
||||||||||||
|
Cross
currency swap
contracts
|
154,780
|
274,421
|
8,421
|
|||||||||
|
Interest
rate swap
contracts
|
-
|
58,990
|
1,810
|
|||||||||
|
Forward
exchange
contracts
|
5,652
|
19,172
|
588
|
|||||||||
|
Foreign
currency option
contracts
|
42,297
|
-
|
-
|
|||||||||
|
|
202,729
|
|
352,583
|
|
10,819
|
|||||||
|
|
The
Company entered into derivative contracts during the years ended
December
31, 2005 and 2006 to manage exposures to foreign exchange rates and
interest rates risk.
|
|
|
Information
on such derivative transactions is as
follows:
|
a.
Forward
exchange contracts
|
|
The
outstanding put forward
contracts on December 31, 2005 and 2006 are as
follows:
|
|
Contract
|
||
|
Amount
|
||
|
Currency
|
Maturity
Date
|
(in
Thousands)
|
|
December
31, 2006
|
||
|
USD/JPY
|
2007.01.09
～
2007.03.22
|
USD23,300/JPY2,718,849
|
|
USD/NTD
|
2007.01.11
～
2007.03.01
|
USD69,000/NTD2,229,074
|
|
USD/KRW
|
2007.01.09
～
2007.02.09
|
USD13,000/KRW12,408,440
|
|
December
31, 2005
|
||
|
USD/JPY
|
2006.03.02
|
USD172/JPY20,000
|
b
.
Cross
-
currency
swap contract
s
|
|
In
October 2003, the Company
entered into two cross-currency swap contracts with banks to manage
its
exposure to interest rate and exchange rate f
luctuations
associated with its
long-term bonds payable,
described
as
follows:
|
|
|
1)
|
The
terms of one of these
contracts
provide for
a semi-annual
exchange of interest payments,
whereby the
Company pays
an annual interest
rate of 1.7%
and
receives
an
annua
l interest
rate
of 2.7%
on a
n
otional amount
of
US$157,000 thousand.
In
April 2005, the nominal amount
of US$15,000 thousand was closed early because of partial redemption
of
foreign convertible bonds. The remaining of US$142,000 thousand
will expire in
October
2007.
|
|
|
2)
|
The
Company got the agreement of
the terms to calculate interest with the bank. If the terms are
met once, the Company pays interests on a nominal amount of US$43,000
thousand in semi-annual payments. Otherwise, the bank pays
interes
ts to the
Company with the same terms. This contract was closed early in
December 2005.
|
|
|
For
the year ended
December
31, 2006,
the effect of the
cross-currency swap contracts based on mark to market valuation and
the
fluctuation
of exchange rate of
bond
s payable was
resulted in an increase in net income of NT$108,420 thousand (US$3,327
thousand), and was recognized as gain on valuation of financial liability
of NT$56,206 thousand (US$1,725 thousand) and exchange gain of NT$52,214
thousand (US$1,602 thou
s
and),
respectively.
|
c
.
Interest
rate swap
contracts
|
|
The
outstanding contracts on
December 31, 2005 and 2006 are as
follows:
|
|
Notional
Amount
|
||||||||
|
Contract
Date
|
Maturity
Date
|
NT$
(Thousand)
|
Interest
Receipt
|
Interest
Payment
|
||||
|
As
of December 31, 2005
|
||||||||
|
2003.12.19
|
2009.01.09
|
2,750,000
|
Based
on floating rate semi-annually
|
Based
on floating rate semi-annually
|
||||
|
2005.02.04
|
Note
|
Decreases
by every contract period; 1,000,000 in this period
|
Based
on floating rate quarterly
|
Computed
quarterly based on fixed rate specified in contract
|
||||
|
2005.02.23
|
Note
|
Decreases
by every contract period; 2,000,000 in this period
|
Based
on floating rate quarterly
|
Computed
quarterly based on fixed rate specified in contract
|
||||
|
2005.12.23
|
Note
|
2,000,000
|
Based
on floating rate quarterly
|
Based
on floating rate quarterly
|
||||
|
2005.12.23
|
Note
|
2,000,000
|
Based
on floating rate quarterly
|
Computed
quarterly based on fixed rate appointed by contract
|
||||
|
As
of December 31, 2006
|
||||||||
|
|
||||||||
|
2003.12.19
|
2009.01.09
|
2,750,000
|
Based
on floating rate semi-annually
|
Based
on floating rate semi-annually
|
||||
|
|
Note: The
contracts
were terminated in 2006.
|
d.
European
foreign currency option contracts
The
outstanding contracts as of December 31, 2005 are as follows:
|
Amount
|
||||
|
Contract
|
(In
Millions)
|
Strike
Price
|
Maturity
Date
|
|
|
Sell
USD Put/NTD
Call
|
US$185.00
|
$32.6~32.7
|
2006.08.21
|
|
|
Buy
USD Put/NTD
Call
|
185.00
|
33.2~33.3
|
2006.03.20
|
|
|
Buy
USD Put/JPY
Call
|
13.20
|
103.5
|
2006.01.05
- 2006.06.05
|
|
|
Sell
USD Call/JPY
Put
|
13.20
|
103.5
|
2006.01.05
- 2006.06.05
|
|
|
Buy
KRW Call/USD
Put
|
15.00
|
Note
|
2006.06.28
|
|
|
Sell
KRW Put/USD
Call
|
15.00
|
1,090
|
2006.06.28
|
|
|
Buy
KRW Call/USD
Put
|
0.150
|
990
|
2006.06.28
|
|
Note: Strike
rate was 1,070 and there is no right and obligation if USD/KRW
<
990.
e.
Interest
rate swaption
contracts
|
|
In
May 2004, the Company entered
into a
n
interest rate swaption contract
with a bank. According to the c
ontract, if
the interest rate ever
reaches 3.65%, the bank has the right to request the Company to pay
a
floating interest rate from May 2005 to May 2006,
and receive
s
a
fixed annual
rate
of
3.65%
on t
he
no
tional
amount of US$20,000
thousand. The contract
was early
terminated in May
2005.
|
|
|
In
April 2004,
the
Company entered
into
an
interest rate swaption contract
which will expire in October 2007. The term
s
of the contract provide that if
the interest rate (USD 6 Month LIBOR fixing at 11 Am London time
and set on
London
Business Days) ever reaches 5 % before the expiration of the contract,
the
interest
to be
paid to
the
bank
during
the
contract period
is calculated
based
on the arrangement of the
revised contract on the
notional
amount of US$
157
,000
thou
sand. The contract
was
early terminated in March,
2006.
|
|
|
For
the years ended December 31, 2005 and 2006, gain on valuation of
financial
asset held for trading was NT$0 thousand and NT$29,278 thousand(US$898
thousand), respectively; the valuation of financial liability held
for
trading was net gain NT$20,919 thousand and net loss NT$289,847
thousand(US$8,894 thousand),
respectively.
|
6. AVAILABLE-FOR-SALE FINANCIAL ASSET
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Publicly-traded
stocks
|
27,973
|
117,421
|
3,603
|
|||||||||
|
Open-ended
mutual
funds
|
-
|
9,228,994
|
283,185
|
|||||||||
|
27,973
|
9,346,415
|
286,788
|
||||||||||
7.
ACCOUNTS
RECEIVABLE
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Accounts
receivable
|
16,010,070
|
11,639,978
|
357,164
|
|||||||||
|
Allowance
for doubtful accounts
(Note 2)
|
(382,608 | ) | (244,366 | ) | (7,498 | ) | ||||||
|
Allowance
for sales allowances
(Note 2)
|
(125,782 | ) | (50,651 | ) | (1,554 | ) | ||||||
|
15,501,680
|
11,344,961
|
348,112
|
||||||||||
|
|
The
change in allowance for doubtful accounts and sales allowances are
as
follows:
|
|
Doubtful
|
Sales
|
|||||||
|
Accounts
|
Allowances
|
|||||||
|
NT$
|
NT$
|
|||||||
|
Balance
at January 1,
2004
|
337,311
|
45,107
|
||||||
|
Additions
|
98,597
|
52,761
|
||||||
|
Write-offs
|
(7,132 | ) | (29,126 | ) | ||||
|
Balance
at December 31,
2004
|
428,776
|
68,742
|
||||||
|
Additions
|
35,712
|
79,488
|
||||||
|
Write-offs
|
(81,880 | ) | (22,448 | ) | ||||
|
Balance
at December 31,
2005
|
382,608
|
125,782
|
||||||
|
Additions
|
2,464
|
34,738
|
||||||
|
Reversal
|
(92,748 | ) | (6,652 | ) | ||||
|
Write-offs
|
(47,958 | ) | (103,217 | ) | ||||
|
Balance
at December 31,
2006
|
244,366
|
50,651
|
||||||
|
Doubtful
|
Sales
|
|||||||
|
Accounts
|
Allowances
|
|||||||
|
US$
|
US$
|
|||||||
|
Balance
at January 1,
2006
|
11,740
|
3,860
|
||||||
|
Additions
|
76
|
1,066
|
||||||
|
Reversal
|
(2,846 | ) | (204 | ) | ||||
|
Write-offs
|
(1,472 | ) | (3,168 | ) | ||||
|
Balance
at December 31,
2006
|
7,498
|
1,554
|
||||||
|
|
In
November 2005, the Company and ASE Test Inc. entered into a three-year
revolving accounts receivable securitization agreement with a bank
for
US$100 million and the credit line was increased to US$200 million
in June
2006.
|
|
|
Under
the agreement, the Company and ASE Test Inc. transferred a pool of
accounts receivable to the bank, who issued securities backed by
these
accounts receivable. Proceeds received from the bank were the
net carrying value of the pool of accounts receivable, less a deferred
purchase price receivable at 20% of accounts receivable sold, guarantee
deposit, program fee and other related expenses. The Company
lost control of these accounts receivable at the time of transfer
to the
bank, and therefore the transaction was accounted for as a sale of
accounts receivable, for which the book value of the accounts receivable
was derecognized and difference between the book value and the proceeds
received was recorded as non-operating loss. Loss from sale of
receivables was NT$13,374 thousand and $235,509 thousand (US$7,226
thousand) in 2005 and 2006,
respectively.
|
|
|
After
the transfer of the accounts receivable, the Company continues to
service,
administer, and collect these accounts receivable on behalf of the
bank. The Company collects on the initial receivables and
transfers certain new accounts receivable having similar value to
replace
the collected receivables. Collected receivables not yet
replaced by new accounts receivable due to timing difference are
recorded
as temporary receipts on the balance sheet, which amounted to NT$887,354
thousand and NT$ 2,378,464 thousand (US$72,981 thousand) as of December
31, 2005 and 2006, respectively. Total accounts receivable sold
was NT$3,915,034 thousand and NT$ 4,608,182 thousand (US$141,399
thousand)
as of December 31, 2005 and 2006,
respectively.
|
8.
INVENTORIES
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Raw
materials
|
5,438,301
|
3,663,475
|
112,411
|
|||||||||
|
Supplies
and spare
parts
|
837,106
|
800,668
|
24,568
|
|||||||||
|
Work
in
process
|
1,227,920
|
526,680
|
16,161
|
|||||||||
|
Finished
goods
|
657,675
|
609,982
|
18,717
|
|||||||||
|
Supplies
in
transit
|
87,066
|
162,395
|
4,983
|
|||||||||
|
Construction
in
progress
|
-
|
484,805
|
14,876
|
|||||||||
|
8,248,068
|
6,248,005
|
191,716
|
||||||||||
|
Allowance
for obsolescence
(Note 2)
|
(490,991 | ) | (573,995 | ) | (17,613 | ) | ||||||
|
7,757,077
|
5,674,010
|
174,103
|
||||||||||
|
|
The
movement of allowance for obsolescence is as
follows:
|
|
US$
|
||||
|
Balance
at January 1,
2006
|
15,066
|
|||
|
Additions
|
35,100
|
|||
|
Write-offs
|
(32,553 | ) | ||
|
Balance
at December 31,
2006
|
17,613
|
|||
9.
FINANCIAL
ASSETS CARRIED AT COST
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
|
US$
|
|||||||||
|
Non-publicly
traded common
stocks
|
||||||||||||
|
Taiwan
Fixed Network Co.,
Ltd.
|
1,050,000
|
1,050,000
|
32,219
|
|||||||||
|
H&HH
Venture Investment
Corporation
|
50,000
|
65,790
|
2,019
|
|||||||||
|
Global
Strategic Investment,
Inc.
|
65,720
|
65,192
|
2,000
|
|||||||||
|
UC
Fund II
|
32,860
|
32,596
|
1,000
|
|||||||||
|
InveStar
Burgeon Venture
Capital, Inc.
|
4,508
|
7
|
-
|
|||||||||
|
Non-publicly
traded preferred
stock
|
||||||||||||
|
ID
Solutions,
Inc.
|
8,083
|
16,166
|
496
|
|||||||||
(Continued)
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Limited
Partnership
|
||||||||||||
|
Crimson
Velocity Fund,
L.P.
|
61,140
|
90,726
|
2,784
|
|||||||||
|
Ripley
Cable Holdings I,
L.P.
|
-
|
275,120
|
8,442
|
|||||||||
|
1,272,311
|
1,595,597
|
48,960
|
||||||||||
(Concluded)
|
|
There
is no
quoted price
from
an
active
ma
rket
for
these
investments
and
fair value is
not
readily
available
.
T
herefore
,
these investments are
carried at
cost.
|
10. EQUITY
METHOD INVESTMENTS
|
December
31
|
||||||||||||||||||||
|
2005
|
2006
|
|||||||||||||||||||
|
%
of
|
%
of
|
|||||||||||||||||||
|
Direct
|
Direct
|
|||||||||||||||||||
|
Owner-
|
Owner-
|
|||||||||||||||||||
|
NT$
|
ship
|
NT$
|
US$
|
ship
|
||||||||||||||||
|
Publicly
traded
|
||||||||||||||||||||
|
Universal
Scientific
Industrial Co., Ltd.
|
2,762,233
|
23.7
|
3,074,221
|
94,330
|
19.8
|
|||||||||||||||
|
Hung
Ching Development &
Construction Co.
|
680,920
|
26.4
|
958,417
|
29,408
|
26.4
|
|||||||||||||||
|
Non-publicly
traded
|
||||||||||||||||||||
|
Hung
Ching Kwan
Co.
|
347,319
|
27.3
|
352,414
|
10,814
|
27.3
|
|||||||||||||||
|
Inprocomm,
Inc.
|
2,224
|
32.1
|
2,224
|
68
|
32.1
|
|||||||||||||||
|
Intergrated
Programmable
Communication, Inc.
|
1,824
|
26.5
|
1,822
|
56
|
26.5
|
|||||||||||||||
|
3,794,520
|
4,389,098
|
134,676
|
||||||||||||||||||
|
Unrealized
gain on sale of
land
|
(300,149 | ) | (300,149 | ) | (9,210 | ) | ||||||||||||||
|
3,494,371
|
4,088,949
|
125,466
|
||||||||||||||||||
|
|
The
market value of the publicly
traded stocks was NT$2,169,644
thousand and
NT$4,525,391
thousand (US$138,838 thousand) as of December 31, 2005 and 2006,
respectively.
|
|
|
T
he
Company acquired shares of
Universal Scientific Industrial Co., Ltd. (“
USI”
)
from the
open
market
on the Taiwan Stock
Exchange
. As of December
31, 200
6
,
the Company ha
d
an accumulated total investment
cost of NT$
3,838,677
thousand
(
US$
117,787
thousand
)
and owned 19.8% of the
outstanding shares. The Company exercises significant influence over
USI,
therefore the investment was still accounted for
equity method
. USI
is engaged in the
manufacturing, processing and sale of computer peripherals, integrated
circuits, electrical parts, personal computers and related
accessories. USI declared stock and cash dividends in
200
6
f
or
NT$0.4 and NT$
0.4
per sh
are, respectively.
As of December 31,
200
6
,
the market value of the shares
held in USI totaled NT$
3,104,755
thousand
(US$
95,267
thousand)
.
The difference between the
cost of
investment
and the
Company
’
s
share in the net equity of
USI
amounted to
NT$371,
436
thousand
is
attributable to goodwill.
Effective January
1, 2006, the
goodwill was no longer amortized and instead was tested for
impairment.
|
|
|
For
the year ended December 31, 2004, the Company recorded an impairment
loss
of NT$512,000 thousand on its investment in USI, based on the difference
between the calculated recoverable amount and the book value of the
investment.
|
|
|
T
he
Company acquired shares of Hung
Ching Development & Construction Co. (“
HCDC”
)
from the
Taiwan S
tock
Exchange
. As
of December
31, 200
6
,
the
C
ompany
ha
d
an accumulated total investment
cost of NT$
2,845,913
thousand
(US$
87,325
thousand)
. HCDC is engaged
in
the development and management of commercial, residential and industrial
real estate properties in
Taiwan
.
HCDC
declared cash
dividends
in 2006 for NT$ 0.35
per share.
|
|
|
The
Company acquired its 27.3%
equity interest in Hung Ching Kwan Co. (“
HCKC”
)
in 1992 by transferring HCKC a
parcel of land as an investment in HCKC at an agreed value of
NT$390,470
thousand
. The resulting
ga
in of
NT$300,149
thousand
, 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, 200
6
,
the Company ha
d
a
44.1
%
effective interest in
H
CKC, which
consist
ed
of
a 27.3
%
interest directly owned by the
Company, and
a
16.8
% interest
indirectly owned through HCDC (based on HCDC
’
s
63.5
%
interest in
HCKC).
|
|
|
As
of December 31, 2006,
Inprocomm
,
Inc
. and Intergrated
Programmable
Communication, In
c.
are in liquidation.
|
|
|
The
Company recorded
equity in losses
of equity method
investees
of
NT$394,995
thousand in 2004, and equity in earnings of equity method investees
of
NT$74,292 thousand and NT$315,654 thousand (US$9,685 thousand)
in 2005 and
2006,
respectively,
from
its investments in the
aforementioned equity-method
investees.
|
11.
PROPERTY,
PLANT AND EQUIPMENT
|
|
Accumulated
depreciation consists of:
|
|
December
31
|
||||||||||||
|
2005
|
|
2006
|
||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Buildings
and
improvements
|
5,859,410
|
7,035,205
|
215,870
|
|||||||||
|
Machinery
and
equipment
|
58,898,061
|
62,065,807
|
1,904,443
|
|||||||||
|
Transportation
equipment
|
75,185
|
80,112
|
2,458
|
|||||||||
|
Furniture
and
fixtures
|
1,720,872
|
1,916,860
|
58,818
|
|||||||||
|
Leased
assets and leasehold
improvements
|
724,402
|
510,268
|
15,657
|
|||||||||
|
67,277,930
|
71,608,252
|
2,197,246
|
||||||||||
|
|
Accumulated
impairment consists of:
|
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Buildings
and
improvements
|
2,839,510
|
-
|
-
|
|||||||||
|
Machinery
and
equipment
|
5,707,605
|
-
|
-
|
|||||||||
|
Transportation
equipment
|
493
|
-
|
-
|
|||||||||
|
Furniture
and
fixtures
|
50,351
|
-
|
-
|
|||||||||
|
Leased
assets and leasehold
improvements
|
1,147,869
|
-
|
-
|
|||||||||
|
Construction
in
progress
|
270,347
|
-
|
-
|
|||||||||
|
Machinery
in transit and
prepayments
|
1,129,418
|
-
|
-
|
|||||||||
|
11,145,593
|
-
|
-
|
||||||||||
|
|
Interest
capitalized and included
as cost of properties amounted to
NT$298,062
thousand, NT$258,960
thousand and
NT$241,188 thousand
(US$
7,401
thousand)
for the years
ended December 31,
2004, 2005 and 2006,
respectively.
|
|
|
As
discussed in Note 29, the Company reversed $2,190,583 thousand of
impairment loss previously
recorded
to accumulated
impairment. The remaining $8,955,010 thousand of impairment was
concluded not recoverable, and was netted against the corresponding
assets
in 2006 to reflect the new cost basis of these impaired
assets.
|
12.
GOODWILL
|
|
Goodwill
arose from purchases of the
following:
|
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
ASE
Chung Li
shares
|
957,166
|
957,166
|
29,370
|
|||||||||
|
ISE
Labs
shares
|
678,398
|
672,948
|
20,649
|
|||||||||
|
ASE
Test
shares
|
575,117
|
570,496
|
17,505
|
|||||||||
|
ASE
Material
shares
|
423,664
|
423,664
|
13,000
|
|||||||||
|
ASE
Korea
shares
|
169,106
|
167,747
|
5,147
|
|||||||||
|
ASE
Japan
shares
|
23,679
|
23,489
|
721
|
|||||||||
|
ASE
(U.S.)
shares
|
15,892
|
15,764
|
484
|
|||||||||
|
2,843,022
|
2,831,274
|
86,876
|
||||||||||
|
|
As
discussed
in Note 3 and
effective January
1, 2006,
goodwill was no longer amortized and instead is tested for impairment
at
least annually.
|
|
|
Amortization
of goodwill is
reflected in general and administrative expenses in the consolidated
statement of income and was
NT$877,582
th
ousand and
NT$528,943 thousand
for the year
ended
December 31,
2004 and
200
5,
respectively
.
|
13.
SHORT-TERM
BORROWINGS
|
|
Revolving
borrowings;
annual
interest
rates
was
1.47%-6.50% and 1.80%-7.33% as
of
December
31, 2005 and 2006,
respectively.
|
14.
LONG-TERM
BONDS PAYABLE
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Foreign
convertible
bonds
|
6,079,100
|
6,030,260
|
185,034
|
|||||||||
|
Accrued
interest
|
532,802
|
776,584
|
23,829
|
|||||||||
|
6,611,902
|
6,806,844
|
208,863
|
||||||||||
|
Current
portion
|
-
|
(3,798,233 | ) | (116,546 | ) | |||||||
|
6,611,902
|
3,008,611
|
92,317
|
||||||||||
|
Domestic
secured
bonds
|
2,750,000
|
2,750,000
|
84,382
|
|||||||||
|
9,361,902
|
5,758,611
|
176,699
|
||||||||||
|
|
Information
on the long-term bonds
pa
yable is
as
follows:
|
a.
Foreign
convertible bonds
|
|
In
September 2003, the Company
issued US$200
,000
thousand of unsecured
zero coupon
convertible bonds due
September 2008, consisting of 200,000 units with face values of
US$1
,000
each. The bonds
ha
ve
an
implied interest rate of
3.75%.
In
April 2005, the Company redeemed US$15,000 thousand of the bonds,
resulting in other loss of NT$7,012 thousand and an exchange gain
of
NT$34,614 thousand. Outstanding balance on the convertible
bonds was US$185,000 t
housand as
of December 31, 2005
and 2006.
|
From
31
days after the date of issuance
through
10
days before the due date
, the bondholders ha
ve
the right to convert the bonds
into
the
Company
’
s
common shares or
ADS
at
the specified conversion
price. The con
version
price
i
s
based on the current market price at
the time of sale.
|
|
The
Company may redeem the bonds
at the early redemption price
if:
|
|
|
1)
|
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$31.98 per share on December 31, 2006) in effect on each such
trading
day;
|
|
|
2)
|
At
least 90% of the bonds have already been converted, redeemed, or
purchased
and cancelled; or
|
|
|
3)
|
If
the applicable tax law is unfavorably changed, the Company may redeem
at
any time all, but not some, of the
bonds.
|
In
addition, the stipulation of redemption is as below:
|
|
1)
|
Unless
the bonds have been previously redeemed, repurchased and cancelled,
or
converted, bondholders shall have the right to require the Company
to
purchase for cash the bonds at 116.02% of their outstanding principal
amount on September 25, 2007;
|
|
|
2)
|
Upon
the occurrence of change of control, bondholders shall have the option
to
require the Company to repurchase all (or any portion) of the holders’
bonds; or
|
|
|
3)
|
In
the event that the common share of the Company cease to be listed
or
admitted to trading on the Taiwan Stock Exchange, each holders have
the
right to require the Company to repurchase all (but not less than
all) of
such holders’ bonds at a price equal to 100% of the outstanding principal
amount.
|
|
|
Based
on the aforementioned stipulation, the holders of the bonds have
the right
to request the redemption of the bond on September
2007. However, the Company has obtained new long term
credit
lines to refinance
on a long-term basis before December 31, 2006. Therefore, some
of the bonds, amounted to NT$3,008,611 thousand (US$92,317 thousand),
were
classified as long-term debts.
|
b.
Domestic
secured bonds
|
|
In
January 2004, the Company issued NT$2.75 billion in domestic secured
bonds, due in January 2009. The bonds consisted of 275 units
with par value of NT$10 million each and are repayable in January
2008 and
2009 in two equal payments. The interest, payable semiannually,
was 0.27%-3.60% in 2005 and 0%-0.27% in 2006. The bank has
guaranteed the bonds and has the right to redeem the bonds early
in the
event the Company violates certain provisions of the bond
agreement.
|
15.
LONG-TERM
BANK LOANS
|
|
Long-term
bank loans consist of the
following:
|
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Revolving
bank
loans
|
22,879,566
|
17,356,844
|
532,582
|
|||||||||
|
Mortgage
bank loans for
purchase of building and
machinery
|
5,371,568
|
2,605,248
|
79,940
|
|||||||||
|
Acceptances
payable
|
3,937,923
|
-
|
-
|
|||||||||
|
Loans
for special
purpose
|
6,341,980
|
4,901,734
|
150,406
|
|||||||||
|
38,531,037
|
24,863,826
|
762,928
|
||||||||||
|
Current
portion
|
(5,232,529 | ) | (1,292,040 | ) | (39,645 | ) | ||||||
|
33,298,508
|
23,571,786
|
723,283
|
||||||||||
a.
Revolving
bank loans
|
December
31
|
|
|||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Syndicated
bank loan - effective
interest rate was
2.68%-4.87%
in 2005
and 1.51%-6.16% in 2006
|
||||||||||||
|
ASE
|
15,250,000
|
9,600,000
|
294,569
|
|||||||||
|
ASE
Shanghai
|
2,595,940
|
3,878,924
|
119,022
|
|||||||||
|
ASE
Japan
|
-
|
1,096,000
|
33,630
|
|||||||||
|
Revolving
credit lines due April
2007 to August
2010
- effective
interest rate was 1.98%-5.29%
in
2005 and
2.25%-6.12% in 2006
|
||||||||||||
|
ASE
|
2,728,600
|
1,010,000
|
30,991
|
|||||||||
|
Other
|
2,305,026
|
1,771,920
|
54,370
|
|||||||||
|
22,879,566
|
17,356,844
|
532,582
|
||||||||||
|
|
The
loan agreements
contain
the
following
financial
and non-financial covenants:
|
|
|
1)
|
W
ithout
the prior written consent
from the majority of the banks, the Company
should not
make
significant
operating change,
p
rovide
financing to
any
other
entity
other than
in the normal course
of business,
pledge its assets, assume liabilities or dispose of
assets in excess of 20% of total assets, unless the transaction involves
a
transfer of assets between
affiliates;
|
|
|
2)
|
The
Company should not merge with any other entity or make investments
in
excess of NT$10.0 billion or acquire material assets from another
entity;
|
|
|
3
)
|
T
he
Company
’
s
tangible net worth
,
as defined in a loan
agreement
,
should not be less than
NT$
45
.0
billion
;
and
|
|
4)
|
T
he
Company should maintain certain
financial ratio
s.
|
|
|
As
of
December 31,
2006
, the Company
was in compliance
with
all of the
loan
covenants.
|
|
|
As
of December 31, 2006,
syndicated bank loans
of
ASE Shanghai also has covenants including negative pledge,
disposals, merger and certain financial
ratios.
|
|
|
As
of December 31, 2005, revolving bank loan of NT$690,000 thousand
was due
before the end of 2006. The Company has received permission
from the banks concerned to refinance these loans or obtain a new
long-term credit line to repay these
loans.
|
b.
Mortgage
bank loans for purchase of building and machinery
|
|
Mortgage
bank loans obtained by the Company, are repayable in quarterly or
in a
lump sum payment at maturity. The effective interest rates on
these loans ranged from 1.45% to 6.38% in 2005 and 2.50% to 6.80%
in 2006,
respectively.
|
c.
Acceptance
payables - as of December 31, 2005
|
Acceptance
payables
|
3,955,800
|
|||
|
Unamortized
discounts
|
(17,877 | ) | ||
|
3,937,923
|
||||
|
Interest
rate
|
2.27%-2.75 | % |
d.
Loans
for
special purpose
|
|
Loans
for special purpose
wer
e restricted
for
use in the redemption of the other loans or purchase of machinery
and the
interest rate ranged from 5.45% to 5.73% in 2005 and 6.10% to 6.35%
in
2006, respectively.
|
|
|
The
loan
for special
use
agreement
’
s
covenants specify
the tangible
net
worth of ASE
Corporation should
not be less than US$200,000
thousand.
|
|
|
The
abovementioned bank loan
contracts have variable interest rates and are subject to adjustments
by
banks or changes in prime rate.
In
addition,
several of the loan
agreements have
default provisions, whereby a default under one debt agreement may
also
trigger cross-defaults
under
other debt
agreements.
|
|
|
As
of
December 31, 2006,
the maturities of long-term bonds payable and long-term bank loans
were as
follows:
|
|
Amount
|
||||||||
|
NT$
|
US$
|
|||||||
|
Within
the following
year
|
5,090,273
|
156,191
|
||||||
|
During
the second
year
|
12,444,800
|
381,860
|
||||||
|
During
the third
year
|
9,498,230
|
291,446
|
||||||
|
During
the fourth
year
|
6,187,367
|
189,855
|
||||||
|
During
the fifth year and
thereafter
|
1,200,000
|
36,821
|
||||||
|
34,420,670
|
1,056,173
|
|||||||
Long-term
bonds payable and long-term bank loans by currencies are detailed as
follows:
|
December
31
|
||||||||
|
2005
|
2006
|
|||||||
|
New
Taiwan
dollars
|
NT$ |
27,581,042
|
NT$ |
15,099,112
|
||||
|
U.S.
dollars
|
US$ |
592,699
|
US$ |
559,135
|
||||
|
Japanese
yen
|
￥ |
3,000,000
|
￥ |
4,000,000
|
||||
16.
CAPITAL
LEASE OBLIGATIONS
|
|
The
Company lease machinery and equipment under certain non-cancelable
capital
lease agreements. The effective interest rates on obligations
under capital leases ranged from 4.16% to 11% in 2005 and 3.02% to
11% in
2006, respectively.
|
|
|
The
future minimum lease payments under the above-mentioned capital leases
as
of December 31, 2006 were as
follows:
|
|
NT$
|
US$
|
|||||||
|
Within
the following
year
|
573,349
|
17,593
|
||||||
|
Within
the second
year
|
66,199
|
2,031
|
||||||
|
Within
the third
year
|
8,676
|
266
|
||||||
|
Within
the fourth
year
|
615
|
19
|
||||||
|
Within
the fifth
year
|
80
|
2
|
||||||
|
Total
minimum lease
payments
|
648,919
|
19,911
|
||||||
|
Imputed
interest
|
(40,280 | ) | (1,236 | ) | ||||
|
Present
value of future lease
obligations
|
608,639
|
18,675
|
||||||
|
Capital
lease obligation,
current
|
(540,736 | ) | (16,592 | ) | ||||
|
Capital
lease obligation,
long-term
|
67,903
|
2,083
|
||||||
17.
PENSION
PLANS
Defined
Contribution Pension Plan
a.
The
Labor
Pension Act (“the Act”), which took effect in ROC on July 1, 2005, provides for
a pension mechanism that is deemed a defined contribution plan. The
employees of the Company who was subject to the Labor Standards Law (“the LS
Law”) of ROC before the enforcement of this Act may choose to be subject to the
pension mechanism under the Act or may continue to be subject to the pension
mechanism under the Labor Standards Law. For those employees who were
subject to the Labor Standards Law before July 1, 2005, work for the same
company after July 1, 2005 and choose to be subject to the pension mechanism
under the Act, their service years will be retained.
b.
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 the U.S. Internal Revenue Code Section
401(k). ASE Test Malaysia and ASE Singapore Pte Ltd. also have
defined contribution plan.
c.
According
to the regulations of local government, ASE (Shanghai) made contribution based
on each employee’s average wage at rate of 22% to the government.
|
|
Under
defined contribution plans, the Company recognized pension costs
of
NT$184,332 thousand and NT$403,572 thousand (US$12,383 thousand)
for the
year ended 2005 and 2006,
respectively.
|
Defined
Benefit Pension Plans
a.
The
Company has a defined benefit
pension plan under the subject to the pension mechanism under the LS
Law. The retirement benefits are calculated based on the length of
service and average basic
regular salaries of the last six months before
retirement. T
he
Company
contributes an amount equal to 2% of
monthly salaries to a retirement fund, which is deposited in the Central Trust
of China
(the “CTC”), an ROC government agency,
in the name of, and
is administered by the
employees
’
pension monitoring
committee.
b.
ASE
Japan has a pension plan where
eligible employees with more than ten years of service are entitled to receive
retirement benefits based on their length of service and rate of pay
at the time of
termination. In addition,
ASE Korea has a pension
plan
under which
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 the
ir length of service
and rate of pay at
the time of termination.
c.
The
Company and ASE Test, Inc. maintain
pension plans for management. Pension cost for these management was
NT$25,226 thousand and NT$18,141 thousand (US$557 thousand) for the year
ende
d in 2005 and 2006,
respectively; of which, NT$25,226 thousand and NT$ 43,367 thousand (US$1,331
thousand) was recorded as accrued pension cost as of December 31, 2005 and
2006.
|
|
The
related information of aforementioned defined benefit pension plan
is
summarized as follows:
|
a.
Pension
costs
for these entities
consist of:
|
Year
Ended December
31
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Service
costs
|
455,912
|
488,610
|
366,314
|
11,240
|
||||||||||||
|
Interest
|
88,090
|
98,144
|
91,386
|
2,804
|
||||||||||||
|
Projected
return on pension
assets
|
(26,179 | ) | (33,862 | ) | (35,408 | ) | (1,086 | ) | ||||||||
|
Amortization
|
16,454
|
19,292
|
11,751
|
360
|
||||||||||||
|
534,277
|
572,184
|
434,043
|
13,318
|
|||||||||||||
b.
Other
pension information based on actuarial calculations of the plan during the
periods indicated is as follows:
|
e.
|
The
Company
expects
to make
contributions of NT$133,770 thousand
(US$
4,105
thousand)
to
retirement
funds
in
2007.
|
|
f
.
|
Expected
benefit
payments
:
|
|
Year
of
Payments
|
NT$
|
|||
|
2007
|
99,769
|
|||
|
2008
|
104,792
|
|||
|
2009
|
121,764
|
|||
|
2010
|
130,993
|
|||
|
2011
|
75,232
|
|||
|
2012
and
thereafter
|
1,101,117
|
|||
|
|
Plan
assets and obligations reflected herein were measured as of December
31,
2006.
|
18.
SHAREHOLDERS’
EQUITY
|
|
Common
Stock
|
|
|
As
of December 31, 2005 and 2006, the Company had
“
capital
received in advance” of NT$156,228 thousand and NT$384,428 thousand
(US$11,796 thousand) as a result of employees exercising their options
in
accordance with the 2002 Stock Option
Plan.
|
|
|
American
Depositary
Shares
|
|
|
In
July 1995, the Company issued
8,600,000
Global
Depositary Shares
,
representing 43,000
thousand
common
shares. In September 2000, the Company issued 2
0,000
thousand
ADS, representing
100,000
thousand
common
shares. In connection with the ADS offering in 2000, the
Company offered to exchange all outstanding GDS for ADS listed on
the New
York Stock Exchange.
|
|
|
The
ADS holders generally have the same rights and obligations as other
shareholders, subject to provisions of relevant laws. The
exercise of such rights and obligations shall comply with the related
regulations and the deposit agreement, which stipulate, among other
things, that the ADS holders can, through Citicorp Financial Services
Limited as the nominee holder: (a) exercise their voting rights;
(b) sell
their ADS; and (c) receive dividends declared and subscribe to the
issuance of new shares.
|
|
|
As
of December 31, 2006, there were 19,608 thousand ADS outstanding
and
representing for approximately 98,042 thousand common shares of the
Company. As of December 31, 2006, outstanding ADS represented
2.13% of the Company’s total outstanding common shares (including treasury
stock).
|
|
|
Capital
Surplus
|
|
|
Under
the ROC Company Law, capital
surplus from paid-in capital in excess of par value
and from treasury
stock
transactions
can be
used to offset a deficit. In addition, such capital surplus may
be transferred to capital and is subject to a specified li
mit 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
pr
ovide that
the
annual net income shall be appropriated
in the order
as shown
below
:
|
a.
Offset
against deficit, if
any;
b.
10.0%
of the remainder
from a.
as
legal reserve;
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
from
c.
as compensation to
directors and supervisors;
e.
Between
5.0% to 7.0% of the
remainder
from
d.
as bonus to employees,
of w
hich 5.0% will be
distributed in accordance with the employee bonus plan and the excess
will
be distributed to specific employees as
decided by the board of directors; and
|
|
f.
|
The
remainder
from e.
as dividends to
shareholders.
|
|
|
The
aforementioned
approp
riations shall
be approved by the shareholders in the
subsequent
year and given effect in the
financial statements
in the year
of
shareholder
s
’
approval.
|
|
|
Under
the ROC Company Law, the
appropriation for aforementioned legal reserve
shall
be made until th
e reserve equals
the
Company
’
s
capital
surplus
.
The
reserve
may
be used to offset a
deficit
,
or be distributed as dividends
and bonuses for the portion in excess of 50% of the capital
surplus
if
the Company
has no unappropriated earnings
and the reserve b
alance has
exceeded 50% of
the
Company
’
s
paid-in capital. Also,
when the reserve has reached 50% of capital
surplus
,
up to 50% thereof may be
transferred to capital
stock
.
|
|
|
The
shareholders
’
meeting was held in June 2006 and
approved to offset the defici
t in 2005 with
NT$1,746,913
thousand (US$53,603 thousand) legal capital reserve and NT$2,314,447
thousand (US$71,017 thousand) capital
surplus.
|
|
|
The
appropriation of 2004 earnings
resolved at the
Company
’
s
annual shareholders
’
meeting and the
appropriati
on of 2006
to be resolved by the
Company
’
s
annual shareholders
’
meeting were as
follow:
|
|
2004
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Legal
reserve
|
420,969
|
1,698,504
|
52,117
|
|||||||||
|
Compensations
to directors and
supervisors
|
75,720
|
300,000
|
9,205
|
|||||||||
|
Bonus
to employees -
cash
|
9,536
|
535,029
|
16,417
|
|||||||||
|
Bonus
to employees -
stock
|
255,675
|
535,029
|
16,417
|
|||||||||
|
Stock
dividends - NT$0.699 in
2004 and NT$1.500 in 2006
|
2,878,548
|
6,941,011
|
212,980
|
|||||||||
|
Cash
dividends - NT$0.100 in
2004 and NT$0.150 in 2006
|
411,221
|
6,941,011
|
212,980
|
|||||||||
|
4,051,669
|
16,950,584
|
520,116
|
||||||||||
|
|
Should
the bonus to employees,
directors and supervisors be charged to expense of 2004, the basic
earnings per share (aft
er income tax)
for the year ended
December 31, 2004 would decrease from NT$0.99 to
NT$0.91.
|
|
|
The
shares distributed as a bonus
to employees represented 25,567 thousand shares and 0.62% of the
company
’
s
total outstanding common shares
as of December 31, 20
04.
|
|
|
The
above information about the appropriations of earnings is available
at the
Market Observation Post System
website.
|
|
|
Dividend
Policy
|
|
|
In
order to meet the needs of the
Company
’
s
present and future capital
expenditures, the Company
’
s
dividend di
stribution
shall be primarily in
the form of stock dividends. Cash dividends may also be
distributed
under
certain
circumstances. However, the percentage of cash dividends
generally shall not exceed
50
%
of
any dividend
declared.
|
|
|
With
respect to the
per
centage of
cash
dividends to be paid referred to in the preceding paragraph, the
Company
may decide the most suitable manner to distribute such dividends
in
accordance with its current operational status
while
taking into consideration
its
plan for the fol
lowing year. The board
of directors shall propose a profit distribution plan, which shall
be
submitted to the shareholders for approval before
implementation.
|
|
|
Imputation
Tax
System
|
|
|
Under
the Integrated Income Tax
System
in the
ROC,
which became
effect
ive on
January 1,
1998
, non-corporate
resident shareholders are allowed a tax credit for the income tax
paid or
payable by the Company on earnings generated in 1998 and
onwards.
Non-resident
shareholders are
allowed only a tax credit from the 10% income t
ax on undistributed
earnings,
which can be used to deduct the withholding income tax on dividends
paid.
An
Imputation Credit Account (“
ICA
”
)
is maintained by the Company for
such income tax and the tax credit allocated to each
shareholder. The maximum cr
edit available
for allocation to
each shareholder cannot exceed the balance shown in the
ICA
on the date of distribution of
dividends.
|
|
|
As
of December 31, 20
06,
the creditable taxes aggregated
NT$
134,500 thousand
(US$
4,127
thousand)
.
The
estimated
creditable ratio
for the
distribution of earnings
for
200
6
was
4.70%
.
|
|
|
Treasury
Stock
|
|
|
As
of December 31, 2005 and 2006,
the information on Company
’
s
shares held by its subsidiaries
is as follows:
|
|
Calculated
by the Company’s
Ownership
|
||||||||||||||||
|
Thousand
|
Thousand
|
Book
|
Market
|
|||||||||||||
|
Subsidiary
|
Shares
|
Shares
|
Value
(NT$)
|
Value
(NT$)
|
||||||||||||
|
2005
|
||||||||||||||||
|
ASE
Test
|
173,482
|
88,389
|
1,337,211
|
2,415,680
|
||||||||||||
|
J
&
R
Holding
Limited
|
92,936
|
92,936
|
1,405,334
|
2,539,939
|
||||||||||||
|
ASE
Test, Inc.
|
6,650
|
3,388
|
65,891
|
92,597
|
||||||||||||
|
273,068
|
184,713
|
2,808,436
|
5,048,216
|
|||||||||||||
|
2006
|
||||||||||||||||
|
ASE
Test
|
173,482
|
88,389
|
1,337,211
|
3,270,405
|
||||||||||||
|
J
&
R
Holding
Limited
|
92,936
|
92,936
|
1,405,334
|
3,438,630
|
||||||||||||
|
ASE
Test, Inc.
|
6,650
|
3,388
|
65,891
|
125,360
|
||||||||||||
|
273,068
|
184,713
|
2,808,436
|
6,834,395
|
|||||||||||||
|
Calculated
by
the
Company’s
Ownership
|
||||||||
|
Book
|
Market
|
|||||||
|
Subsidiary
|
Value
(US$)
|
Value
(US$)
|
||||||
|
2006
|
||||||||
|
ASE
Test
|
41,031
|
100,350
|
||||||
|
J
&
R
Holding
Limited
|
43,122
|
105,512
|
||||||
|
ASE
Test, Inc.
|
2,022
|
3,847
|
||||||
|
86,175
|
209,709
|
|||||||
|
|
Stock
dividends and cash dividends received by the subsidiaries from the
Company
was 24,783 thousand shares and NT$16,768 thousand which was recorded
as
capital surplus in 2005, respectively. There was no change in
2006.
|
|
|
The
Company issued common shares in connection with the merger of ASE
Chung Li
and ASE Material. The Company reclassified the shares held by
its subsidiaries with a book value of NT$2,798,399 thousand, representing
234,089 thousand shares, from long-term investments to treasury
stock. The Company’s subsidiary, ASE Test, is a Singapore
incorporated company and may not acquire, directly or indirectly,
shares
in the Company under Singapore laws. In order to comply with
relevant regulations, a trust has been established to hold and dispose
of
the Company’s shares acquired by ASE Test in connection with the
merger. Pursuant to the trust agreement, ASE Test’s rights with
respect to the Company’s shares held in trust are limited to the right to
receive the proceeds from the sale of such common shares and any
cash
dividends declared while the shares remain in
trust.
|
|
|
Although
these shares are treated
as treasury stock in the
consolidated
fin
ancial statements,
the
shareholders are entitled to exercise their rights on these shares,
except
for participation in additional capital increases through cash
payment.
However, based
on
revised ROC Corporation Law, the shareholders of treasury stock
can
not exercise
their rights to vote.
|
19.
EMPLOYEE
STOCK OPTION PLANS
|
|
In
order to attract, retain and incentive employees, the Company adopted
two
employee stock option plans, the 2002 Plan and the 2004 Plan, which
were
approved in August 2002 and May 2004, respectively. The maximum
number of units authorized to be granted under 2002 Plan and 2004
Plan is
160,000 thousand and 140,000 thousand, respectively, with each unit
representing the right to purchase one share of common
stock. Under the terms of the plans, stock option rights are
granted at an exercise price equal to the closing price of the Company’s
common shares listed on the Taiwan Stock Exchange on the date of
grant. The option rights of both plans are valid for ten years
and exercisable at certain percentages subsequent to the second
anniversary of the grant date. Under the 2002 Plan, the number
of units authorized, including those which were never granted and
those
which had been granted and subsequently cancelled all expired as
of August
2004. Under the 2004 Plan, 124,917 thousand and 15,000 thousand
units were granted on June 30, 2004 and May 23, 2005,
respectively. The remaining 83 thousand units will never be
granted.
|
|
|
As
of December 31, 2006,
ASE Test
ha
d
three
stock option plans,
th
e
1999
,
2000
and
2004
Option Plans. Stock
options granted under these plans are exercisable for ASE Test ordinary
shares based on a vesting schedule
and expire
ten
years
from
the grant date
.
|
|
|
Information
on the outstanding stock options in 2004 and 2005 and 2006 is as
follows:
|
|
|
ASE
Inc. Option Plan
|
|
2004
|
2005
|
2006
|
|||||||||||||||||||||||||||||||||
|
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||||||||||||||||||
|
Average
|
Weighted
|
Average
|
Weighted
|
Average
|
Weighted
|
||||||||||||||||||||||||||||||
|
Exercise
|
Average
|
Exercise
|
Average
|
Exercise
|
Average
|
||||||||||||||||||||||||||||||
|
Number
of
|
Price
|
Grant
Date
|
Number
of
|
Price
|
Grant
Date
|
Number
of
|
Price
|
Grant
Date
|
|||||||||||||||||||||||||||
|
Shares
|
Per
Share
|
Fair
Values
|
Shares
|
Per
Share
|
Fair
Values
|
Shares
|
Per
Share
|
Fair
Values
|
|||||||||||||||||||||||||||
|
(in
Thousand)
|
(NT$)
|
(NT$)
|
(in
Thousand)
|
(NT$)
|
(NT$)
|
(in
Thousand)
|
(NT$)
|
(NT$)
|
|||||||||||||||||||||||||||
|
Beginning
outstanding
balance
|
146,752
|
$ |
18.30
|
260,047
|
$ |
19.50
|
227,341
|
$ |
19.80
|
||||||||||||||||||||||||||
|
Option
granted
|
124,917
|
25.10
|
$ |
11.08
|
15,000
|
18.60
|
$ |
7.09
|
-
|
-
|
$ |
-
|
|||||||||||||||||||||||
|
Option
exercised
|
(2,402 | ) |
17.80
|
(27,761 | ) |
16.20
|
(44,999 | ) |
18.90
|
||||||||||||||||||||||||||
|
Option
forfeited
|
(9,220 | ) |
19.20
|
(19,945 | ) |
20.10
|
(11,086 | ) |
20.70
|
||||||||||||||||||||||||||
|
Option
expired
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
|
Ending
outstanding
balance
|
260,047
|
21.50
|
227,341
|
19.80
|
171,256
|
20.00
|
|||||||||||||||||||||||||||||
|
|
The
numbers of outstanding options and their exercise prices have been
adjusted to reflect the dilution attributable to the distribution
of stock
dividends in accordance with the terms of the
plans.
|
|
|
Information
on outstanding and exercisable option rights as of December 31, 2006
is as
follows:
|
|
Outstanding
|
Exercisable
|
|||||||||||||||||
|
Number
of
|
Remaining
|
Exercisable
|
Remaining
|
|||||||||||||||
|
Exercise
|
Options
(in
|
Contractual
|
Options
(in
|
Contractual
|
||||||||||||||
|
Price
(NT$)
|
Thousands)
|
Life
(Years)
|
Thousands)
|
Life
(Years)
|
||||||||||||||
|
16.1
|
60,659
|
6.0
|
38,494
|
6.0
|
||||||||||||||
|
21.0
|
7,516
|
6.6
|
3,687
|
6.6
|
||||||||||||||
|
22.7
|
89,691
|
7.5
|
35,911
|
7.5
|
||||||||||||||
|
18.6
|
13,390
|
8.4
|
-
|
-
|
||||||||||||||
|
171,256
|
7.0
|
78,092
|
6.7
|
|||||||||||||||
|
|
As
of December 31, 2006, the number of options that are expected to
vest was
79,414 thousand.
|
|
|
The
aggregate intrinsic value of outstanding and exercisable options
was
NT$2,916,990 thousand and NT$1,377,038 thousand as of December 31,
2006,
respectively. Total intrinsic value of options exercised in the years
ended December 31, 2004, 2005 and 2006 was NT$14,205 thousand, NT$177,938
thousand and NT$585,948 thousand,
respectively.
|
|
|
The
fair value of the common stock options issued was determined using
a
Black-Scholes option pricing model with the following
assumptions:
|
|
2004
|
2005
|
|
|
Expected
dividend yield
|
3.00%
|
3.00%
|
|
Expected
volatility
|
59%
|
47%
|
|
Risk
free interest rate
|
2.50%
|
1.80%
|
|
Expected
life
|
5
years
|
5
years
|
|
|
ASE
Test Option Plan
|
|
|
Information
regarding the stock options granted or modified after January 1,
2004 is
presented below:
|
|
2004
|
2005
|
2006
|
||||||||||||||||||||||||||||||||||
|
Weighted
|
Weighted
|
Weighted
|
||||||||||||||||||||||||||||||||||
|
Average
|
Weighted
|
Average
|
Weighted
|
Average
|
Weighted
|
|||||||||||||||||||||||||||||||
|
Exercise
|
Average
|
Exercise
|
Average
|
Exercise
|
Average
|
|||||||||||||||||||||||||||||||
|
Number
of
|
Price
|
Grant
Date
|
Number
of
|
Price
|
Grant
Date
|
Number
of
|
Price
|
Grant
Date
|
||||||||||||||||||||||||||||
|
Shares
|
Per
Share
|
Fair
Values
|
Shares
|
Per
Share
|
Fair
Values
|
Shares
|
Per
Share
|
Fair
Values
|
||||||||||||||||||||||||||||
|
(in
Thousand)
|
(US$)
|
(US$)
|
(in
Thousand)
|
(US$)
|
(US$)
|
(in
Thousand)
|
(US$)
|
(US$)
|
||||||||||||||||||||||||||||
|
Beginning
outstanding
balance
|
-
|
$ |
-
|
260
|
$ |
6.18
|
293
|
$ |
6.21
|
|||||||||||||||||||||||||||
|
Option
granted
|
260
|
6.18
|
$ |
6.18
|
33
|
6.50
|
$ |
6.50
|
130
|
9.60
|
$ |
9.60
|
||||||||||||||||||||||||
|
Option
exercised
|
-
|
-
|
-
|
-
|
(9 | ) |
6.10
|
|||||||||||||||||||||||||||||
|
Option
forfeited
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||
|
Option
expired
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||
|
Ending
outstanding
balance
|
260
|
6.18
|
293
|
6.21
|
414
|
7.28
|
||||||||||||||||||||||||||||||
|
|
Above
options outstanding at December 31, 2006 and the related weighted
average
exercise price and remaining contractual life information is as
follows:
|
|
Exercisable
|
||||||||||||||||||
|
Options
|
||||||||||||||||||
|
Number
of
|
Weighted-
|
|||||||||||||||||
|
Outstanding
|
Remaining
|
Exercisable
|
average
|
|||||||||||||||
|
Exercise
|
Options
(in
|
Contractual
|
Options
(in
|
Exercise
|
||||||||||||||
|
Price
(US$)
|
Thousands)
|
Life
(Years)
|
Thousands)
|
Price
(US$)
|
||||||||||||||
|
5.50
|
60
|
7.6
|
24
|
5.50
|
||||||||||||||
|
6.10
|
51
|
7.8
|
15
|
6.10
|
||||||||||||||
|
6.50
|
173
|
7.6
|
77
|
6.50
|
||||||||||||||
|
9.79
|
115
|
9.3
|
12
|
9.79
|
||||||||||||||
|
8.10
|
15
|
9.6
|
7
|
8.10
|
||||||||||||||
|
414
|
135
|
|||||||||||||||||
|
|
The
fair value of the common stock options issued was determined using
a
Black-Scholes option pricing model with the following
assumptions:
|
|
2004
|
2005
|
2006
|
|
|
Expected
dividend yield
|
0%
|
0%
|
0%
|
|
Expected
volatility
|
78.28%
|
59.06%
|
59.95%-62.03%
|
|
Risk
free interest rate
|
3.50%-3.88%
|
3.88%
|
4.88%
|
|
Expected
life
|
5
years
|
5
years
|
3-5
years
|
|
|
For
purposes of pro forma disclosure below, the estimated fair values
of the
options is assumed to be amortized to expense over the option vesting
periods. Had the Company and ASE Test recorded compensation
costs based on the estimated grant date fair value, the Company’s net
income (loss) would have been reduced to the pro forma amounts below
:
|
|
2004
|
|
|
2005
|
2006
|
||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Net
income (loss) for calculation of basic EPS
|
||||||||||||||||
|
As
reported
|
4,209,690
|
(4,691,187 | ) |
17,416,151
|
534,402
|
|||||||||||
|
Pro
forma
|
3,784,386
|
(5,924,330 | ) |
16,301,168
|
500,189
|
|||||||||||
|
Net
Income (loss) for calculation of diluted EPS
|
||||||||||||||||
|
As
reported
|
4,373,239
|
(4,691,187 | ) |
17,582,151
|
539,495
|
|||||||||||
|
Pro
forma
|
3,947,935
|
(5,924,330 | ) |
16,467,168
|
505,283
|
|||||||||||
|
Earnings
(loss) per share (EPS):
|
||||||||||||||||
|
Basic
EPS as reported
|
0.99
|
(1.07 | ) |
3.95
|
0.12
|
|||||||||||
|
Pro
forma basic EPS
|
0.89
|
(1.36 | ) |
3.70
|
0.11
|
|||||||||||
|
Diluted
EPS as reported
|
0.96
|
(1.07 | ) |
3.77
|
0.12
|
|||||||||||
|
Pro
forma diluted EPS
|
0.87
|
(1.36 | ) |
3.53
|
0.11
|
|||||||||||
20.
PERSONNEL EXPENDITURE, DEPRECIATION AND AMORTIZATION
|
Year
Ended December 31,
2005
|
Year
Ended December 31,
2006
|
|||||||||||||||||||||||||||
|
Cost
of
|
Operating
|
Cost
of
|
Operating
|
|||||||||||||||||||||||||
|
Revenues
|
Expenses
|
Total
|
Revenues
|
Expenses
|
Total
|
|||||||||||||||||||||||
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
NT$
|
US$
|
||||||||||||||||||||||
|
Personnel
|
||||||||||||||||||||||||||||
|
Salary
|
10,661,821
|
3,314,091
|
13,975,912
|
11,247,354
|
3,401,115
|
14,648,469
|
449,477
|
|||||||||||||||||||||
|
Pension
cost
|
676,226
|
181,192
|
857,418
|
748,437
|
191,233
|
939,670
|
28,833
|
|||||||||||||||||||||
|
Labor
and health
insurance
|
823,231
|
226,243
|
1,049,474
|
862,163
|
242,791
|
1,104,954
|
33,905
|
|||||||||||||||||||||
|
Others
|
955,882
|
346,502
|
1,302,384
|
1,175,983
|
395,931
|
1,571,914
|
48,233
|
|||||||||||||||||||||
|
13,117,160
|
4,068,028
|
17,185,188
|
14,033,937
|
4,231,070
|
18,265,007
|
560,448
|
||||||||||||||||||||||
|
Depreciation
|
13,286,081
|
704,138
|
13,990,219
|
12,736,924
|
751,256
|
13,488,180
|
413,875
|
|||||||||||||||||||||
|
Amortization
|
687,178
|
884,325
|
1,571,503
|
576,102
|
423,929
|
1,000,031
|
30,685
|
|||||||||||||||||||||
21.
INCOME TAX
|
|
The
ROC government enacted the Alternative Minimum Tax Act (the AMT Act),
which became effective on January 1, 2006. The alternative
minimum tax (AMT) imposed under the AMT Act is a supplemental tax
levied
at a rate of 10% which is payable if the income tax payable determined
pursuant to the Income Tax Law is below the minimum amount prescribed
under the AMT Act. The taxable income for calculating the AMT
includes most of the income that is exempted from income tax under
various
laws and statutes. The Company has considered the impact of the
AMT Act in the determination of its tax
liabilities.
|
|
a.
|
Income
tax expense (benefit) is summarized as
follows:
|
|
Year
Ended December 31
|
|
|||||||||||||||
|
|
|
2004
|
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Tax
(benefit) based on pre-tax
accounting
income (loss) at
statutory
rate
|
1,470,928
|
(1,038,061 | ) |
5,957,310
|
182,796
|
|||||||||||
|
Cumulative
effect of change in
accounting
principle
|
-
|
-
|
(114,168 | ) | (3,503 | ) | ||||||||||
|
Add
(less) tax effects of:
|
||||||||||||||||
|
Permanent
differences T
ax-exempt income
|
(651,812 | ) |
-
|
(778,834 | ) | (23,898 | ) | |||||||||
(Continued)
|
Year
Ended December 31
|
||||||||||||||||
|
2004
|
|
2005
|
2006
|
|||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Equity
in losses (earnings) of
equity
method investees
|
132,031
|
(18,573 | ) | (78,914 | ) | (2,421 | ) | |||||||||
|
Other
|
-
|
2,997
|
(10,516 | ) | (323 | ) | ||||||||||
|
Temporary
differences
|
||||||||||||||||
|
Other
investment loss
|
123,345
|
-
|
-
|
-
|
||||||||||||
|
Capital
tax credits
|
-
|
(104,856 | ) | (375,764 | ) | (11,530 | ) | |||||||||
|
Bond
interest payable
|
63,793
|
56,586
|
60,855
|
1,867
|
||||||||||||
|
Depreciation
|
-
|
(36,969 | ) |
174,853
|
5,365
|
|||||||||||
|
Other
|
76,872
|
335,705
|
(409,395 | ) | (12,562 | ) | ||||||||||
|
1,215,157
|
(803,171 | ) |
4,425,427
|
135,791
|
||||||||||||
|
Operating
loss carryforwards
|
-
|
1,370,960
|
(1,246,641 | ) | (38,252 | ) | ||||||||||
|
Income
taxes on undistributed
earnings
|
86,968
|
173,834
|
-
|
-
|
||||||||||||
|
Credits
for investments and research
and
development
|
(1,081,023 | ) | (292,195 | ) | (1,697,397 | ) | (52,083 | ) | ||||||||
|
Net
change in deferred income tax for
the
period
|
(1,660,695 | ) | (481,310 | ) |
367,751
|
11,284
|
||||||||||
|
Adjustment
of prior year’s income tax
|
42,590
|
(86,774 | ) |
121,479
|
3,727
|
|||||||||||
|
Cumulative
effect of change in
accounting
principle
|
-
|
-
|
114,168
|
3,503
|
||||||||||||
| (1,397,003 | ) | (118,656 | ) |
2,084,787
|
63,970
|
|||||||||||
(Concluded)
|
b.
|
The
above-mentioned taxes on pre-tax accounting income (loss) based on
the
applicable statutory rates for both domestic and foreign entities
are
shown below:
|
|
Year
Ended December 31
|
|
|||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Domestic
entities in ROC
(25%
statutory rate)
|
1,364,316
|
(1,255,167 | ) |
5,570,158
|
170,916
|
|||||||||||
|
Foreign
entities
|
||||||||||||||||
|
ASE
Korea (30.8% statutory rate)
|
(37,683 | ) |
41,159
|
97,499
|
2,992
|
|||||||||||
|
ASE
Japan (40% statutory rate)
|
101,429
|
182,148
|
182,372
|
5,596
|
||||||||||||
|
ISE
Labs (federal tax rate 35% and
state
tax rate 6%)
|
(16,852 | ) | (2,963 | ) | (11,141 | ) | (342 | ) | ||||||||
|
ASE
Test Malaysia (28% statutory
rate)
|
59,718
|
(3,238 | ) |
118,422
|
3,634
|
|||||||||||
|
1,470,928
|
(1,038,061 | ) |
5,957,310
|
182,796
|
||||||||||||
(Continued)
|
c.
|
Deferred
income tax assets and liabilities are summarized as
follows:
|
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Current
deferred income tax
assets
|
||||||||||||
|
Unused
tax
credits
|
1,339,206
|
2,405,057
|
73,797
|
|||||||||
|
Bond
interest
payable
|
-
|
160,675
|
4,930
|
|||||||||
|
Operating
loss
carryforwards
|
1,257,792
|
6,904
|
212
|
|||||||||
|
Other
|
183,066
|
259,091
|
7,950
|
|||||||||
|
2,780,064
|
2,831,727
|
86,889
|
||||||||||
|
Valuation
allowance
|
(1,164,368 | ) | (23,543 | ) | (722 | ) | ||||||
|
Net
current deferred income tax
assets
|
1,615,696
|
2,808,184
|
86,167
|
|||||||||
|
Non-current
deferred income tax
assets
|
||||||||||||
|
Unused
tax
credits
|
4,962,603
|
2,927,041
|
89,814
|
|||||||||
|
Accrued
pension
costs
|
531,545
|
261,000
|
8,009
|
|||||||||
|
Loss
carryforwards
|
305,401
|
267,157
|
8,198
|
|||||||||
|
Unused
capital tax
credits
|
-
|
204,833
|
6,285
|
|||||||||
|
Investment
income
|
(144,000 | ) | (144,000 | ) | (4,419 | ) | ||||||
|
Others
|
342,223
|
67,484
|
2,071
|
|||||||||
|
5,997,772
|
3,583,515
|
109,958
|
||||||||||
|
Valuation
allowance
|
(1,951,000 | ) | (1,071,094 | ) | (32,866 | ) | ||||||
|
Non-current
deferred income tax
assets
|
4,046,772
|
2,512,421
|
77,092
|
|||||||||
|
Non-current
deferred income tax
liabilities
|
-
|
(25,888 | ) | (794 | ) | |||||||
|
5,662,468
|
5,294,717
|
162,465
|
||||||||||
| In assessing the realizability of deferred income tax assets, the Company considers its future taxable earnings and expected timing of the reversal of temporary differences. In addition, in the event future taxable earnings do not materialize as forecasted, 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
tax holidays for the Company are as
follow:
|
| 1) | A portion of the Company’s income from the packing of semiconductors is exempt from income tax for the five years ending 2007 and September 2009. A portion income of ASE Chung Li branch from the manufacturing, processing and testing of semiconductors is exempt from income tax for the five years ending 2007. |
|
|
2)
|
A
portion of ASE Test, Inc.’s income from the testing of semiconductors is
exempt from income tax for the five years ending December 2005 and
2010,
respectively.
|
|
|
3)
|
Under
the tax regulation in China, the income of ASE (Shanghai) Inc. was
wholly
exempt from income tax from 2006 to 2007 and half exempt from income
tax
from 2008 to 2010.
|
|
|
4)
|
ASE
Singapore Pte Ltd. has been granted pioneer status under the provisions
of
the Economic Expansion Incentives (Relief from Income Tax) Act for
its
operation in Singapore for a qualifying period of 10 years commencing
September 1, 1998. During the qualifying period, all income
arising from pioneer status activities is wholly exempt from income
tax.
|
|
|
The
per share effect of this tax holiday was NT$0.15 in 2004, NT$0 in
2005 and NT$0.18 in 2006,
respectively.
|
|
d.
|
As
of December 31, 2006, unused tax credits which can be utilized to
offset
future income tax, are set forth
below:
|
|
Year
of
Expiry
|
NT$
|
US$
|
||||||
|
2007
|
1,838,601
|
56,416
|
||||||
|
2008
|
1,797,871
|
55,166
|
||||||
|
2009
|
823,390
|
25,265
|
||||||
|
2010
|
607,595
|
18,644
|
||||||
|
2011
and
thereafter
|
264,641
|
8,120
|
||||||
|
5,332,098
|
163,611
|
|||||||
|
In
the ROC, the tax credits may be utilized to reduce up to 50% of
income tax
payable each year. In the year of expiration, any remaining
unused tax credits can be used entirely. Effective on January
1, 2006, the Company and its subsidiaries in Taiwan have to pay
a minimum
of 10% tax on their taxable income, including taxable income earned
during
tax holiday periods according to the new tax regulation of
ROC.
|
|
Income
tax returns of the company have been examined by the ROC tax authorities
through the 2002 (Income tax returns of ASE Material and ASE Chung
Li have
been examined through 2003). However, the Company was unwilling
to accept the examination in 2002, and the High Administrative
Court
judged against the Company in January 2007 though. For the High
Administrate Court award, the Company have recognized related income
tax
expense in 2006 and appealed this case to the Supreme Administrate
Court.
|
22.
EARNINGS
(LOSS) PER SHARE
|
|
The
Company’s common shares corresponding to the employees’ stock options
issued by the Company and convertible bonds had a dilutive effect
on the
2004 and 2006 EPS calculation, while the employee stock options issued
by
ASE Test had a dilutive effect only on the 2006 EPS
calculation. The numerators and denominators used in the EPS
calculations were as follows:
|
|
a.
|
Numerator
- net income (loss)
|
|
2004
|
2005
|
|||||||||||||||
|
Before
|
After
|
Before
|
After
|
|||||||||||||
|
Income
Tax
|
Income
Tax
|
Income
Tax
|
Income
Tax
|
|||||||||||||
|
NT$
|
NT$
|
NT$
|
NT$
|
|||||||||||||
|
Income
(loss) from continuing operations
|
2,985,244
|
3,668,312
|
(5,722,984 | ) | (5,044,886 | ) | ||||||||||
|
Discontinued
operations
|
568,899
|
568,222
|
357,766
|
353,699
|
||||||||||||
|
Cumulative
effect of change in accounting principle
|
(26,844 | ) | (26,844 | ) |
-
|
-
|
||||||||||
|
Basic
EPS
|
||||||||||||||||
|
Income
(loss) of parent company’s common shareholders
|
3,527,299
|
4,209,690
|
(5,365,218 | ) | (4,691,187 | ) | ||||||||||
|
Interest,
net of tax, paid on convertible bonds
|
197,762
|
163,549
|
-
|
-
|
||||||||||||
|
Diluted
EPS
|
||||||||||||||||
|
Income
(loss) of parent company’s common shareholders
|
3,725,061
|
4,373,239
|
(5,365,218 | ) | (4,691,187 | ) | ||||||||||
|
2006
|
||||||||||||||||
|
Before
Income
Tax
|
After
Income
Tax
|
|||||||||||||||
|
NT$
|
US$
|
NT$
|
US$
|
|||||||||||||
|
Income
from continuing operations
|
19,067,237
|
585,064
|
17,758,654
|
544,911
|
||||||||||||
|
Cumulative
effect of change in accounting principle
|
(456,671 | ) | (14,012 | ) | (342,503 | ) | (10,509 | ) | ||||||||
|
Basic
EPS
|
||||||||||||||||
|
Income
of parent company’s common shareholders
|
18,610,566
|
571,052
|
17,416,151
|
534,402
|
||||||||||||
|
Interest,
net of tax, paid on convertible bonds
|
213,079
|
6,538
|
168,993
|
5,185
|
||||||||||||
|
Employee
stock option from ASE Test issued
|
(2,993 | ) | (92 | ) | (2,993 | ) | (92 | ) | ||||||||
|
Diluted
EPS
|
||||||||||||||||
|
Income
of parent company’s common shareholders
|
18,820,652
|
577,498
|
17,582,151
|
539,495
|
||||||||||||
|
b.
|
Denominator
- shares (in thousands)
|
|
2004
|
2005
|
2006
|
||||||||||
|
Weighted-average
number of common stock
|
3,580,280
|
4,100,661
|
4,566,952
|
|||||||||
|
Retroactive
adjustments for capitalization of retained
earnings
|
631,744
|
436,789
|
-
|
|||||||||
|
Issuance
of common stock in connection with the
merger
|
130,887
|
-
|
-
|
|||||||||
|
Shares
issued in connection with stock options
exercised
by employees
|
15
|
17,777
|
22,605
|
|||||||||
|
Shares
held by subsidiaries
|
(78,113 | ) | (184,713 | ) | (184,713 | ) | ||||||
|
Number
of shares used for purposes of the basic EPS
calculation
|
4,264,813
|
4,370,514
|
4,404,844
|
|||||||||
|
Potential
number shares issuable upon exercise of
options
|
68,909
|
-
|
62,632
|
|||||||||
|
Potential
number of outstanding shares assumed upon
conversion
of convertible bonds
|
212,145
|
-
|
197,119
|
|||||||||
|
Number
of shares used in the diluted EPS calculation
|
4,545,867
|
4,370,514
|
4,664,595
|
|||||||||
|
|
For
purposes of the ADS calculation, the denominator represents the
above-mentioned weighted average outstanding shares divided by five
(one
ADS represents five common shares). The numerator was the
same.
|
23.
DISCLOSURES
FOR FINANCIAL INSTRUMENTS
|
a.
|
Fair
value of financial instruments was as
follows:
|
|
December
31
|
|||||||||||||||||||||||
|
2005
|
2006
|
||||||||||||||||||||||
|
Carrying
|
|||||||||||||||||||||||
|
Values
|
Fair
Values
|
Carrying
Values
|
Fair
Values
|
||||||||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
NT$
|
US$
|
||||||||||||||||||
|
Non-derivative
financial
instruments
|
|||||||||||||||||||||||
|
Assets
|
|||||||||||||||||||||||
|
Financial
assets at fair value
through profit or loss
|
4,324,950
|
4,325,568
|
1,546,450
|
47,452
|
1,546,450
|
47,452
|
|||||||||||||||||
|
Available-for-sale
financial
assets
|
27,973
|
43,686
|
9,346,415
|
286,788
|
9,346,415
|
286,788
|
|||||||||||||||||
|
Held-to-maturity
financial
assets
|
50,000
|
50,000
|
1,534
|
||||||||||||||||||||
|
Financial
assets carried at
cost
|
1,272,311
|
1,595,597
|
48,960
|
||||||||||||||||||||
|
Guarantee
deposit-noncurrent
|
223,592
|
223,592
|
314,489
|
9,650
|
314,489
|
9,650
|
|||||||||||||||||
|
Restricted
assets
|
204,632
|
204,632
|
336,463
|
10,324
|
336,463
|
10,324
|
|||||||||||||||||
(Continued)
|
December
31
|
||||||||||||||||||||||||
|
2005
|
2006
|
|||||||||||||||||||||||
|
Carrying
|
||||||||||||||||||||||||
|
Values
|
Fair
Values
|
Carrying
Values
|
Fair
Values
|
|||||||||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
NT$
|
US$
|
|||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||
|
Financial
liabilities at fair value through
profit
or
loss
|
202,729
|
202,729
|
352,583
|
10,819
|
352,583
|
10,819
|
||||||||||||||||||
|
Long-term
bonds payable
(included current
portion)
|
9,361,902
|
10,092,675
|
9,556,844
|
293,245
|
10,262,526
|
314,898
|
||||||||||||||||||
|
Long-term
bank loans (included
current
portion)
|
38,531,037
|
38,531,037
|
24,863,826
|
762,928
|
24,863,826
|
762,928
|
||||||||||||||||||
|
Capital
lease obligation
(included current
portion)
|
407,362
|
407,362
|
608,639
|
18,675
|
608,639
|
18,675
|
||||||||||||||||||
|
Derivative
financial
instruments
|
||||||||||||||||||||||||
|
Foreign
currency option
contracts
|
(171,476 | ) | (171,476 | ) |
-
|
-
|
-
|
-
|
||||||||||||||||
|
Interest
rate swap
contracts
|
-
|
(228,401 | ) | (58,990 | ) | (1,810 | ) | (58,990 | ) | (1,810 | ) | |||||||||||||
|
Cross
currency swap
contract
|
(154,780 | ) | (330,627 | ) | (274,421 | ) | (8,421 | ) | (274,421 | ) | (8,421 | ) | ||||||||||||
|
Interest
rate swaption
contract
|
-
|
(53,094 | ) |
-
|
-
|
-
|
-
|
|||||||||||||||||
|
Forward
exchange
contracts
|
131
|
131
|
(7,719 | ) | (237 | ) | (7,719 | ) | (237 | ) | ||||||||||||||
|
Geographical
classify by
traded object
|
||||||||||||||||||||||||
|
Taiwan
|
(327,076 | ) | (633,492 | ) | (334,956 | ) | (10,278 | ) | (334,956 | ) | (10,278 | ) | ||||||||||||
|
Outside
of Taiwan (including foreign agencies
operating
in Taiwan)
|
951
|
(149,975 | ) | (6,174 | ) | (190 | ) | (6,174 | ) | (190 | ) | |||||||||||||
(Concluded)
|
|
The
Company adopted the newly released SFAS No. 34
from
January 1, 2006. As a result, certain financial instruments
were not included in the consolidated financial statements for the
year
ended December 31, 2005. Please see Note 3 for the cumulative
effect of changes in accounting principles and adjustments to
shareholders’
equity.
|
|
b.
|
Methods
and assumptions used in the determination of fair values of financial
instruments were as below:
|
|
|
1)
|
The
aforementioned financial instruments do not include cash, notes and
accounts receivable, pledged time deposits-current, other receivables,
short-term borrowings, notes and accounts payables, accrued expense,
payable for properties, and temporary receipts. These financial
instruments’ carrying amounts approximate their fair
values.
|
|
|
2)
|
Fair
values of financial assets or liabilities at fair value through profit
or
loss and available-for-sale financial assets were determined at their
quoted market prices. Fair values of derivatives were
determined using valuation techniques incorporating estimates and
assumptions that were consistent with prevailing market
conditions.
|
|
|
3)
|
The
fair value of financial assets carried at cost and held-to-maturity
financial assets were not measured, since they didn’t have active market
and quotation price or significant cost will be incurred to verify
the
fair value in practice.
|
|
|
4)
|
The
interest rate of long-term debts except bonds payable and some bank
loans
were floating, fair values approximate book values. Bonds
payable was based on their quoted market
price.
|
|
|
5)
|
The
carrying value of guarantee deposits and restricted assets reflects
their
fair value.
|
|
c.
|
Gain
or loss from changes of the fair value determined using valuation
techniques was gain NT$20,919 thousand and loss NT$260,569 thousand
(US$7,995 thousand) for the year ended December 31, 2005 and 2006,
respectively.
|
|
d.
|
As
of December 31, 2005 and 2006, financial assets exposed to fair value
interest rate risk were NT$378,514 thousand and NT$288,389 thousand
(US$8,849 thousand), respectively, financial liabilities exposed
to fair
value interest rate risk were NT$7,517,962 thousand and NT$7,428,267
thousand (US$227,931 thousand), respectively, financial assets exposed
to
cash flow interest rate risk were NT$11,115,658 thousand and NT$13,911,303
thousand (US$426,858 thousand), respectively, and financial liabilities
exposed to cash flow interest rate risk were NT$40,150,185 thousand
and
NT$26,960,168 thousand (US$827,252 thousand),
respectively.
|
|
e.
|
For
the years ended December 31, 2004, 2005 and 2006, the Company recognized
interest income NT$77,797 thousand, NT$173,325 thousand and NT$406,364
thousand (US$12,469 thousand), and interest expense (including capitalized
interest) NT$1,125,141 thousand, NT$1,791,947 thousand and NT$1,841,401
thousand (US$56,502 thousand) for those financial assets or liabilities
that are not categorized as financial assets or liabilities at fair
value
through profit and loss.
|
|
|
f.
|
Strategy
for financial risk
|
|
|
The
derivative instrument employed by the company is to mitigate risks
arising
from the ordinary business operation. All derivative
transactions engaged by the company should be designated into two
purposes: hedging and speculating which are govern by separated internal
guidelines and controls. Derivative transactions enter for
hedging purpose must hedge the risk against fluctuation in foreign
exchange and interest rates arising from operating
activities. The currency and the amount of derivative
instrument held by the company must match company’s actual assets and
liabilities.
|
|
g.
|
Information
about financial risk
|
|
|
1)
|
Market
risk
|
|
|
All
derivative financial instruments are mainly used to hedge the exchange
rate fluctuations of foreign - currency - denominated assets and
liabilities and interest rate fluctuations on its floating rate long-term
loans. Exchange gains or losses on these derivative contracts
are likely to be offset by gains or losses on the hedged assets and
liabilities. Interest rate risks are also controlled because
the expected cost of capital is fixed. Thus, market price risks
are believed to be minimal.
|
|
|
2)
|
Credit
risk
|
|
|
Credit
risk represents the potential loss that would be incurred by the
Company
if the counter-parties or third-parties breached
contracts. Risk factors include the degree of concentration and
components and contract amounts of financial
instruments. Credit risk represents the positive fair values of
contracts as of the balance sheet date. The Company’s maximum
credit risk on financial instruments approximated the book value
as of
December 31, 2005 and 2006.
|
|
|
3)
|
Liquidity
risk
|
|
|
The
Company believes its liquidity risk is low because the Company’s working
capital, which includes investments in mutual funds and other marketable
securities that are readily convertible to cash at or near fair market
value, is sufficient to fulfill its obligations incurred in the
operation.
|
|
|
4)
|
Cash
flow interest rate risk
|
|
|
The
Company mainly engages in floating interest-rate
debts. Therefore, cash flows are expected to increase
NT$270,000 thousand (US$8,248 thousand) while the market interest
rate
increase 1%.
|
|
h.
|
Cash
flow hedging
|
|
|
The
Company entered into cash flow hedge transitions to manage its exposure
to
exchange rate fluctuations arising from commitments for the payment
of materials and capital expenditures in Japanese
yen.
|
|
|
The
outstanding European foreign currency option contracts as of December
31,
2005 were as follows:
|
|
Amount
|
|||
|
Contract
|
(In
Millions)
|
Strike
Price
|
Maturity
Date
|
|
Buy
USD Put/JPY
Call
|
US$34.8
|
$103.5
|
2006.01.05
- 2006.06.05
|
|
Sell
USD Call/JPY
Put
|
34.8
|
103.5
|
2006.01.05
- 2006.06.05
|
|
|
The
derivative financial liabilities for hedging amounted to NT$129,179
thousand (US$3,964 thousand) arising from above contracts based on
mark-to-market valuation on December 31,
2005.
|
24. RELATED
PARTY TRANSACTIONS
a. Related
parties
|
|
The
name and relationship of related parties are the equity method investees
as disclosed in Note 10.
|
b. Significant
transactions with related parties were as follows:
|
|
The
Company and ASE Test Inc. purchased real estate from HCDC for NT$930,745
thousand in 2005 and NT$1,311,429 thousand (US$40,240 thousand) in
2006
and the prices were based on fair market value of the assets as assessed
by the appraisers.
|
25.
ASSETS
PLEDGED OR MORTGAGED
|
|
The
following assets have been pledged or mortgaged as collaterals for
bank
loans and as guarantees for the employment of foreign labor and the
leases
of property, plant and equipment,
etc.
|
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Land
|
511,644
|
507,534
|
15,573
|
|||||||||
|
Buildings
and improvements,
net
|
2,174,690
|
2,093,043
|
64,223
|
|||||||||
|
Machinery
and equipment,
net
|
5,714,003
|
2,542,862
|
78,026
|
|||||||||
|
Pledged
time deposits -
current
|
62,505
|
-
|
-
|
|||||||||
|
Restricted
assets -
noncurrent
|
204,632
|
336,463
|
10,325
|
|||||||||
|
8,667,474
|
5,479,902
|
168,147
|
||||||||||
26.
COMMITMENTS
AND CONTINGENCIES
|
a.
|
The
Company and ASE Test, Inc. lease the land on which their buildings
are
situated under various operating lease agreements with the ROC
government
expiring on various dates through February 2016. The agreements
grant these entities the option to renew the leases and reserve
the right
for the lessor to adjust the lease payments upon an increase in
the
assessed value of the land and to terminate the leases under certain
conditions. In addition, the Company leases buildings and
machinery and equipment under non-cancelable operating leases which
will
expire through December 2010.
|
|
|
The
future minimum lease payments under the above-mentioned operating
leases
are as follows:
|
|
Operating
Leases
|
NT$
|
US$
|
||||||
|
2007
|
836,526
|
25,668
|
||||||
|
2008
|
375,173
|
11,512
|
||||||
|
2009
|
206,198
|
6,327
|
||||||
|
2010
|
133,323
|
4,091
|
||||||
|
2011
and
thereafter
|
41,485
|
1,273
|
||||||
|
Total
minimum lease
payments
|
1,592,705
|
48,871
|
||||||
|
b.
|
The
Company engages outside sales agencies to provide sales
services. Commissions and service fees were paid based on
monthly service-related costs and expenses incurred plus a certain
percentage, subject to specified limits, for costs and expenses incurred
or based on a certain percentage of net export
sales. Commissions and service fees paid in 2004, 2005 and 2006
were approximately NT$769,637 thousand, NT$231,874 thousand and
NT$320,503 thousand (US$9,834 thousand),
respectively.
|
|
c.
|
As
of December 31, 2006, unused letters of credit were approximately
NT$1,288,540 thousand (US$39,538
thousand).
|
|
d.
|
As
of December 31, 2006, commitments to purchase machinery and equipment
were
approximately NT$4,500,000 thousand (US$138,079 thousand), of which
NT$75,817 thousand (US$2,326 thousand) had been
prepaid.
|
|
e.
|
As
of December 31, 2006, outstanding commitments related to the construction
of buildings were approximately NT$4,000,000 thousand (US$122,737
thousand), of which NT$232,000 thousand (US$7,119 thousand) had been
prepaid.
|
| f. |
The
Company entered into technology license agreements with foreign companies
which will expire on various dates through 2010. Pursuant to
the agreements, the Company shall pay royalties based on specified
percentages of sales volume, and licensing fees to the counter
parties. Royalties and licensing fees paid in 2004, 2005 and
2006 were approximately NT$163,975 thousand, NT$179,061 thousand
and
NT$282,329 thousand (US$8,663 thousand),
respectively.
|
|
g.
|
Tessera
Inc. (Tessera) filed a lawsuit in February 2006 against the Company
for
patent infringements. The Company has retained attorneys to
investigate this asserted claim. Tessera has not disclosed the
details of the alleged infringements, and therefore the outcome of
this
litigation cannot be determined at this
time.
|
27.
SUBSEQUENT
EVENTS
|
a.
|
In
December 2006, the Ministry of Economic Affairs, ROC approved the
Company’s investment to Global Advanced Packaging Technology Limited
(GAPT), which was incorporated in Shanghai, through a subsidiary
in the
Cayman Island. The Company subsequently increased its ownership
interest in GAPT to 100% on January 11, 2007. Total amount of
the investment was US$60,000 thousand. GAPT is engaged in
semiconductor wire bonding packaging and testing services. The
purpose of the investment was to promote competitive strengths and
achieve
the Company’s targeted long-term production
capacity.
|
|
b.
|
On
February 2, 2007, the Company and NXP Semiconductors (NXP), formerly
Philips Semiconductors, announced the signing of a Memorandum
of Understanding to form a joint venture (JV) in Suzhou, China, focused
on
semiconductor testing and packaging. Terms of the agreement are
subject to final negotiations between NXP and the Company and the
receipt
of necessary approvals from regulatory authorities. The Company
plans to invest 60% in the JV.
|
28.
DISCONTINUED
OPERATIONS
|
ASE
Test Malaysia sold its camera module assembly operations in early
October
2005 for US$19,116 thousand, which covers the book value of the equipment
and inventory, plus an acquisition premium. As a result, the
Company reclassified the camera module assembly segment as discontinued
operations.
|
|
|
Summarized
below are operating results of the discontinued segment for the years
ended December 31, 2004 and 2005.
|
|
2004
|
From
January
1, 2005 to
October
3,
2005
|
|||||||
|
NT$
|
NT$
|
|||||||
|
Net
revenues
|
6,474,958
|
2,095,835
|
||||||
|
Cost
of
revenues
|
5,806,058
|
1,885,492
|
||||||
|
Gross
profit
|
668,900
|
210,343
|
||||||
|
Operating
expenses
|
74,540
|
44,909
|
||||||
|
Non-operating
expenses
|
25,461
|
42,325
|
||||||
|
Income
from discontinued
operations before income tax
|
568,899
|
123,109
|
||||||
|
Income
tax
expense
|
677
|
2,147
|
||||||
|
Income
from discontinued
operations
|
568,222
|
120,962
|
||||||
|
Gain
on disposal of
assets
|
-
|
234,657
|
||||||
|
Income
tax
expense
|
-
|
1,920
|
||||||
|
Gain
on disposal of
discontinued operations
|
-
|
232,737
|
||||||
|
568,222
|
353,699
|
|||||||
29.
LOSS
ON FIRE DAMAGE
|
|
Significant
Unusual Loss and gain
|
|
|
The
Company and its subsidiary, ASE Test, Inc., incurred fire damage
to its
production lines in Chung Li, Taiwan on May 1, 2005, and recognized
an
estimated loss of NT$13,479,079 thousand for damages to its inventories,
building, machinery and equipment. With the assistance of
external counsel, the Company submitted insurance claims of NT$4,641,000
thousand (US$142,406 thousand) to its insurers for compensation for
damages which the Company believes to be clearly identifiable and
reasonably estimated, and recorded such amount as an offset to fire
loss
in 2005.
|
|
|
The
Company reached final settlement with the insurers in June 2006 with
regards to the fire damage incurred to the production lines and facilities
in Chung Li. The final settlement amount of NT$8,068,000
thousand (US$247,561 thousand), offset by the NT$4,641,000 thousand
(US$142,406 thousand) recorded in 2005 and the related repair and
restoring expenses of NT$1,043,132 thousand (US$32,008 thousand),
was
recorded in the current period. The Company also reversed
NT$2,190,583 thousand (US$67,217 thousand) of impairment loss recognized
in 2005 after careful analysis of the increase in the estimated service
potential of the production line facilities by an external
specialist. Net amount of NT$4,574,451 thousand (US$140,364
thousand) was recognized as a gain on insurance settlement and loss
recovery in 2006. All of the insurance recoveries were received
in August 2006.
|
30.
SEGMENT
AND GEOGRAPHICAL INFORMATION
|
a.
|
Geographical
sales and long-lived assets
information
|
|
1)
|
Net
revenues:
|
|
Year
Ended December
31
|
||||||||||||||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||||||||||||||
|
%
of
|
%
of
|
%
of
|
||||||||||||||||||||||||||
|
Total
|
Total
|
Total
|
||||||||||||||||||||||||||
|
NT$
|
Revenues
|
NT$
|
Revenues
|
NT$
|
US$
|
Revenues
|
||||||||||||||||||||||
|
America
|
41,094,054
|
55
|
43,294,394
|
52
|
53,280,483
|
1,634,872
|
53
|
|||||||||||||||||||||
|
Taiwan
|
17,656,632
|
23
|
16,798,661
|
20
|
18,810,441
|
577,184
|
19
|
|||||||||||||||||||||
|
Asia
|
9,821,205
|
13
|
13,649,326
|
16
|
15,752,825
|
483,365
|
16
|
|||||||||||||||||||||
|
Europe
|
6,664,946
|
9
|
10,293,167
|
12
|
12,579,366
|
385,988
|
12
|
|||||||||||||||||||||
|
Other
|
849
|
-
|
250
|
-
|
532
|
16
|
-
|
|||||||||||||||||||||
|
75,237,686
|
100
|
84,035,798
|
100
|
100,423,647
|
3,081,425
|
100
|
||||||||||||||||||||||
|
2)
|
Long-lived
assets:
|
|
December
31
|
||||||||||||||||||||
|
2005
|
2006
|
|||||||||||||||||||
|
NT$
|
%
|
NT$
|
US$
|
%
|
||||||||||||||||
|
Taiwan
|
46,661,951
|
69
|
49,802,688
|
1,528,159
|
68
|
|||||||||||||||
|
Asia
|
20,996,335
|
31
|
23,307,342
|
715,169
|
32
|
|||||||||||||||
|
America
|
382,485
|
-
|
433,724
|
13,308
|
-
|
|||||||||||||||
|
68,040,771
|
100
|
73,543,754
|
2,256,636
|
100
|
||||||||||||||||
|
b.
|
Major
customers
|
|
|
For
the years ended December 31, 2004, 2005 and 2006, the Company did
not have
a single customer to which the net revenues accounted for over 10%
of
total net revenues.
|
|
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 for segments
are the same as those described in Note 2. Segment information
for the years ended December 31, 2004, 2005 and 2006 was as
follows:
|
|
Packaging
|
Testing
|
Investing
|
All
Other
|
Total
|
||||||||||||||||
|
2004
|
||||||||||||||||||||
|
Revenue
from external
customer
|
NT$
|
58,261,796
|
NT$
|
16,473,924
|
NT$
|
-
|
NT$
|
501,966
|
NT$
|
75,237,686
|
||||||||||
|
Inter-segment
revenues
|
122,131
|
128,398
|
-
|
5,254,732
|
5,505,261
|
|||||||||||||||
|
Interest
income
|
50,222
|
6,445
|
19,516
|
1,614
|
77,797
|
|||||||||||||||
|
Interest
expense
|
(599,379 | ) | (132,320 | ) | (166,910 | ) | (73,579 | ) | (972,188 | ) | ||||||||||
|
Net
interest
expense
|
(549,157 | ) | (125,875 | ) | (147,394 | ) | (71,965 | ) | (894,391 | ) | ||||||||||
|
Depreciation
and
amortization
|
7,487,669
|
6,220,398
|
431,492
|
1,257,197
|
15,396,756
|
|||||||||||||||
|
Impairment
on
assets
|
175,348
|
1,774,749
|
-
|
512,000
|
2,462,097
|
|||||||||||||||
|
Segment
profit
(loss)
|
5,035,031
|
691,150
|
(1,737,156 | ) | (1,026,108 | ) |
2,962,917
|
|||||||||||||
|
Segment
asset
|
75,714,335
|
35,200,341
|
4,239,422
|
18,796,778
|
133,950,876
|
|||||||||||||||
|
Expenditures
for segment
assets
|
16,756,713
|
7,769,043
|
-
|
6,062,555
|
30,588,311
|
|||||||||||||||
|
Goodwill
|
868,682
|
1,977,438
|
-
|
490,256
|
3,336,376
|
|||||||||||||||
|
2005
|
||||||||||||||||||||
|
Revenue
from external
customer
|
66,022,940
|
17,121,986
|
-
|
890,872
|
84,035,798
|
|||||||||||||||
|
Inter-segment
revenues
|
84,909
|
86,810
|
-
|
2,454,643
|
2,626,362
|
|||||||||||||||
|
Interest
income
|
108,362
|
32,013
|
22,097
|
10,853
|
173,325
|
|||||||||||||||
|
Interest
expense
|
(965,068 | ) | (194,310 | ) | (288,306 | ) | (123,374 | ) | (1,571,058 | ) | ||||||||||
|
Net
interest
expense
|
(856,706 | ) | (162,297 | ) | (266,209 | ) | (112,521 | ) | (1,397,733 | ) | ||||||||||
|
Depreciation
and
amortization
|
8,351,842
|
5,786,034
|
179,911
|
1,096,059
|
15,413,846
|
|||||||||||||||
|
Loss
on fire
damage
|
(2,973,506 | ) | (2,420,339 | ) |
-
|
(3,444,234 | ) | (8,838,079 | ) | |||||||||||
|
Segment
profit
(loss)
|
791,286
|
(575,806 | ) | (495,164 | ) | (5,394,162 | ) | (5,673,846 | ) | |||||||||||
|
Segment
asset
|
77,135,982
|
30,547,884
|
2,511,894
|
20,929,721
|
131,125,481
|
|||||||||||||||
|
Expenditures
for segment
assets
|
6,359,429
|
2,527,322
|
-
|
4,070,654
|
12,957,405
|
|||||||||||||||
|
Goodwill
|
775,899
|
1,627,567
|
-
|
439,556
|
2,843,022
|
|||||||||||||||
|
2006
|
||||||||||||||||||||
|
Revenue
from external
customer
|
76,820,475
|
21,429,584
|
-
|
2,173,588
|
100,423,647
|
|||||||||||||||
|
Inter-segment
revenues
|
74,879
|
51,214
|
-
|
5,821,221
|
5,947,314
|
|||||||||||||||
|
Interest
income
|
193,412
|
66,237
|
115,742
|
30,973
|
406,364
|
|||||||||||||||
|
Interest
expense
|
(861,737 | ) | (145,669 | ) | (397,394 | ) | (215,494 | ) | (1,620,294 | ) | ||||||||||
|
Net
interest
expense
|
(668,325 | ) | (79,432 | ) | (281,652 | ) | (184,521 | ) | (1,213,930 | ) | ||||||||||
|
Depreciation
and
amortization
|
8,245,204
|
4,889,792
|
11,202
|
1,342,013
|
14,488,211
|
|||||||||||||||
|
Gain
on insurance
settlement
and
impairment
recovery
|
1,758,957
|
1,637,709
|
-
|
1,177,785
|
4,574,451
|
|||||||||||||||
|
Segment
profit
(loss)
|
14,679,021
|
7,829,473
|
(247,276 | ) | (9,794 | ) |
22,251,424
|
|||||||||||||
|
Segment
asset
|
78,958,866
|
33,095,566
|
4,472,318
|
20,514,126
|
137,040,876
|
|||||||||||||||
|
Expenditures
for segment
assets
|
7,025,247
|
4,859,188
|
-
|
5,846,500
|
17,730,935
|
|||||||||||||||
|
Goodwill
|
772,148
|
1,619,698
|
-
|
439,428
|
2,831,274
|
|||||||||||||||
|
2006
|
||||||||||||||||||||
|
Revenue
from external
customer
|
US$
|
2,357,179
|
US$
|
657,551
|
US$
|
-
|
US$
|
66,695
|
US$
|
3,081,425
|
||||||||||
|
Inter-segment
revenues
|
2,298
|
1,571
|
-
|
178,620
|
182,489
|
|||||||||||||||
|
Interest
income
|
5,935
|
2,033
|
3,551
|
950
|
12,469
|
|||||||||||||||
|
Interest
expense
|
(26,442 | ) | (4,470 | ) | (12,194 | ) | (6,612 | ) | (49,718 | ) | ||||||||||
|
Net
interest
expense
|
(20,507 | ) | (2,437 | ) | (8,643 | ) | (5,662 | ) | (37,249 | ) | ||||||||||
|
Depreciation
and
amortization
|
252,998
|
150,039
|
344
|
41,179
|
444,560
|
|||||||||||||||
|
Gain
on insurance
settlement
and
impairment
recovery
|
53,972
|
50,252
|
-
|
36,140
|
140,364
|
|||||||||||||||
|
Segment
profit
(loss)
|
450,415
|
240,240
|
(7,587 | ) | (300 | ) |
682,768
|
|||||||||||||
|
Segment
asset
|
2,422,794
|
1,015,513
|
137,230
|
629,461
|
4,204,998
|
|||||||||||||||
|
Expenditures
for segment
assets
|
215,564
|
149,101
|
-
|
179,395
|
544,060
|
|||||||||||||||
|
Goodwill
|
23,693
|
49,699
|
-
|
13,484
|
86,876
|
|||||||||||||||
|
31.
|
SUMMARY
OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
FOLLOWED
BY THE COMPANY AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED
STATES OF
AMERICA
|
|
|
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, “Employers’ Accounting for Pensions” on January 1, 1987,
which requires the Company to determine the accumulated pension obligation
and the pension expense on an actuarial
basis.
|
|
|
U.S.
SFAS No. 87 was amended by U.S. SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans” on September 29,
2006, which requires employers to recognize the overfunded or underfunded
status of a defined benefit pension plan as an asset or liability
in its
statement of financial position and to recognize changes in that
funded
status in the year in which the changes occur through comprehensive
income. The Company adopted U.S. SFAS No. 158 on December 31,
2006. U.S. SFAS No. 158 defines the funded status of a benefit
plan as the difference between the fair value of the plan assets
and the
projected benefit obligation. Previously unrecognized items
such as gains or losses, prior service credits and transition assets
or
liabilities will be recognized in accumulated other comprehensive
income
and will be subsequently recognized through net periodic benefit
cost
pursuant to the provisions of U.S. SFAS No.
87.
|
|
|
ROC
SFAS No. 18 “Accounting for Pensions” is similar in many respects to U.S.
SFAS No. 87 and was adopted by the Company. in 1996. However,
ROC SFAS No. 18 does not require a company to recognize the overfunded
or
underfunded status of a defined benefit pension plan as an asset
or
liability in the statement of financial position. The
difference in the dates of adoption gives rise to a U.S. GAAP difference
in the actuarial computation for transition obligation pension expense
and
the related amortization.
|
|
b.
|
Marketable
securities
|
|
|
Under
ROC GAAP, prior to January 1, 2006, marketable securities are carried
at
the lower of aggregate cost or market, and debt securities are carried
at
cost, with only unrealized losses recognized. Effective January
1, 2006, the Company adopted ROC SFAS No. 34, “Financial Instruments:
Recognition and Measurement”, and No. 36, “Financial Instruments:
Disclosure and Presentation”. Financial instrument including debt
securities and equity securities are recognized at fair value or
including
transaction costs and categorized as financial assets or liabilities
at
fair value through profit or loss (FVTPL), available-for-sale (AFS)
or
held-to-maturity (HTM) securities. FVTPL has two
sub-categories, financial asset designated on initial recognition
as one
to be measured at fair value with fair value changes in profit or
loss,
and those that are classified as held for trading. These
classifications are similar to those required by U.S. SFAS No. 115,
“Accounting for Certain Investments in Debt and Equity
Securities”.
|
Under
U.S.
SFAS No.115, debt and equity securities that have readily determinable fair
values are 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.
Upon
adoption of ROC SFAS No. 34 and No. 36, the Company has recorded accumulated
effect of changes in accounting principles of NT$342,503 thousand for the year
ended December 31, 2006 for marketable securities and derivative financial
instruments, of which NT$16,331 thousand relates to the adjustment of carrying
basis of trading securities to fair market value. Such adjustment,
representing unrealized gain on trading securities already recognized under
U.S.
GAAP in 2005, was reversed in 2006 as a one-time reconciling adjustment between
U.S. GAAP and ROC GAAP.
Upon
adoption of ROC GAAP No. 34 and No. 36, the Company also adjusted the carrying
value of the marketable securities categorized as available-for-sale, which
were
carried at the lower of aggregate cost or market with unrealized losses included
in earnings, to fair market value on January 1, 2006, therefore unrealized
gains
and losses included in shareholders’ equity associated with available-for-sale
marketable securities acquired prior to January 1, 2006 under ROC GAAP would
be
different from that under U.S. GAAP.
|
c.
|
Bonuses
to employees, directors and
supervisors
|
|
|
According
to ROC regulations and the Articles of Incorporation of the Company,
a
portion of distributable earnings is required to 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 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’ meeting in the
subsequent year, the total amount of the aforementioned bonuses is
initially accrued based on 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 any shares issued as bonuses is recognized in the year of approval
by
the shareholders.
|
|
d.
|
Depreciation
of buildings
|
|
|
Under
ROC GAAP, buildings may be depreciated over their estimated life
or up to
40 years based on ROC practices and tax regulations. For U.S.
GAAP purposes, buildings are depreciated over their estimated economic
useful life of 25 years.
|
|
e.
|
Depreciation
on the excess of book value on transfer of buildings between consolidated
subsidiaries
|
|
|
ASE
Test, Inc., a subsidiary of the Company, purchased buildings and
facilities from another subsidiary, ASE Technologies, in
1997. The purchase price was based on market value, which
represents the portion of the purchase price in excess of book value
NT$17,667 thousand was capitalized by ASE Test, Inc. as allowed under
ROC
GAAP. Under U.S. GAAP, transfers of assets between entities
under common control are recorded at historical
costs. Therefore, depreciation on the capitalized amount
recorded under ROC GAAP is reversed under U.S. GAAP until the buildings
and facilities are fully depreciated or
disposed.
|
|
f.
|
Gain
on sales of subsidiary’s stock
|
|
|
The
carrying value of stock investments in ASE Test by J&R Holding Limited
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.
|
|
g.
|
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 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, stock options and the 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.
|
|
h.
|
Impairment
of long-lived assets
|
Under
U.S.
GAAP, an impairment loss is recognized when the carrying amount of an asset
or a
group of assets is not recoverable from the expected future cash flows and
the
impairment loss is measured as the difference between the fair value and the
carrying amount of the asset or group of assets. The impairment loss
is recorded in earnings and cannot be reversed
subsequently. Effective January 1, 2002, long-lived assets (excluding
goodwill and other indefinite 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.
Under
ROC
GAAP, effective January 1, 2005, the Company is required to recognize an
impairment loss when an indication is identified that the carrying amount of
an
asset or a group of assets is not recoverable from the expected future cash
flows. However, if the recoverable amount increases in a future
period, the amount previously recognized as impairment would be reversed and
recognized as a gain. The adjusted amount may not exceed the carrying
amount that would have been determined, net of depreciation, if no impairment
loss had been recognized.
Prior
to
January 1, 2005, the Company followed U.S. GAAP in accounting for impairment
of
long-lived assets for ROC GAAP purpose.
|
|
On
December 31, 2004, the Company adopted ROC SFAS No. 35 to account
for
impairment of long-lived assets for ROC GAAP purposes. Similar
to U.S. SFAS No. 144 in principal, ROC SFAS No. 35 requires the Company
to
analyze for impairment when there is an indication. However,
ROC SFAS No. 35 differs from U.S. SFAS No. 144 in the following aspects:
(1) the determination of impairment is based on discounted cashflows
and
(2) previously recorded impairment can be reversed up to the net
book
value of the long-lived assets as if no impairment loss was
recorded.
|
|
|
As
discussed in Note 29, the Company reversed NT$2,190,583 thousand
(US$67,217 thousand) of impairment loss recognized in 2005 under
ROC GAAP
after a careful analysis of the increase in the estimated service
potential of the production line and facilities by an external
specialist. Reversal of the amount is prohibited under U.S.
GAAP. As such, differences in the cost basis of these damaged
machinery and equipment and associated depreciation expense between
ROC
and U.S. GAAP are reflected in the
reconciliation.
|
|
i.
|
Stock
dividends
|
|
|
Under
ROC GAAP, stock dividends are recorded at par value 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 stock dividends paid in
2004 and 2005 is treated as an additional reduction to retained earnings
and an increase to capital surplus amounted to NT$3,285 million and
NT$3,944 million, respectively.
|
|
j.
|
Stock-based
compensation
|
|
|
Under
U.S. GAAP, stock-based compensation expense for the year ended December
31, 2006 includes compensation expense for all unvested stock-based
compensation awards granted prior to January 1, 2006 that are expected
to
vest, based on the grant date fair value estimated in accordance
with the
transition method and the original provision of U.S. SFAS No. 123,
“Accounting for Stock-Based Compensation” (“U.S. SFAS No.
123”). Upon an employee’s termination, unvested awards
are forfeited, which affects the quantity of options to be included
in the
calculation of stock-based compensation expense. Forfeitures do
not include vested options that expire unexercised. Stock-based
compensation expense for all stock-based compensation awards granted
after
January 1, 2006 is based on the grant-date fair value estimate in
accordance with the provisions of U.S. SFAS No. 123R, “Share-Based
Payment” (“U.S. SFAS No. 123R”). The Company recognizes these
compensation costs using the graded vesting method over the requisite
service period of the award, which is generally the option vesting
term of
five years. Prior to the adoption of U.S. SFAS No. 123R, the
Company recognized stock-based compensation expense in accordance
with
U.S. Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for
Stock Issued to Employees” (“APB 25”). See Note 32e a further discussion
on stock-based compensation.
|
|
|
Certain
characteristics of the stock option granted under the ASE 2002 Option
Plan
made the fair values of these options not reasonably estimable using
appropriate valuation methodologies as prescribed under U.S. SFAS
No. 123
and have been accounted for using the intrinsic value
method. Upon the adoption of U.S. SFAS No. 123R, the Company
continued to account for these stock options based on its intrinsic
value,
remeasured at each reporting date through the date of exercise or
other
settlement.
|
|
|
Under
ROC GAAP, employee stock option plans that are amended or have options
granted on or after January 1, 2004 must be accounted for by the
interpretations issued by the ARDF in Taiwan. The Company
adopted the intrinsic value method and any compensation expense determined
using this method is recognized over the vesting period. No
stock-based compensation expense was recognized under ROC GAAP for
the
years ended December 31, 2004, 2005 and
2006.
|
|
k.
|
Derivative
financial instruments
|
|
|
Under
ROC GAAP, prior to January 1, 2006, the Company accounts for certain
derivative instruments as cash flow hedges of certain forecasted
transactions and accordingly any gains or losses on such contracts
have
been recorded to other component of shareholder's
equity. Others are described in Note 3. Effective
January 1, 2006, the Company adopted ROC SFAS No. 34 which required
derivatives that do not qualify for hedge accounting are recorded
as
“financial assets or liabilities at fair value through profit or loss
(FVTPL)” account at fair value as described in Note
2.
|
|
|
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
companies recognize derivative instruments as assets and liabilities
in
the balance sheet at fair value. If certain conditions are met,
including certain rigorous documentation requirements, 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 changes in fair values recorded
in
current period earnings.
|
|
l.
|
Goodwill
|
Before
January 1, 2006, under ROC
GAAP, the Company amortized goodwill arising from acquisitions over 10
years. The Company adopted ROC SFAS No. 35 on December 31, 2004, and
accordingly performed an impairment analysis and recorded an impairment charge
of NT$1,950,097 thousand for the year ended December 31, 2004 based on a
“recoverable amount” as determined by an estimate of the cash flows for the next
six years. The Company performed its annual impairment test and
determined that the goodwill related to the acquisition of ASE Test and ISE
Labs
was impaired and recorded a charge of NT$1,337,670 thousand in 2004
under U.S. GAAP.
|
|
As
discussed in Note 3, effective January 1, 2006, the Company adopted
ROC
SFAS No. 25 (revised 2005), “Business Combinations – Accounting Treatment
under Purchase Method” which is similar to U.S. SFAS No.
142. The Company reviews goodwill for impairment in accordance
with the provision of the standard and found no impairment as of
December
31, 2006.
|
|
|
Under
U.S. GAAP, the Company adopted U.S. SFAS No. 142 “Goodwill and Other
Intangible Assets” (U.S. SFAS No. 142) on January 1, 2002, which requires
the Company to review for possible impairment 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 “Business
Combinations” and U.S. SFAS No. 142. As a result, the
Company ceased to amortize goodwill effective January 1,
2002. Definite-lived intangible assets continue to be amortized
over their estimated useful lives.
|
|
|
Under
U.S. GAAP, the determination of whether or not the goodwill is impaired
is
made by first estimating the fair value of the reporting unit and
comparing the fair value of a reporting unit with its carrying amount,
including goodwill. If the carrying amount of a reporting unit
exceeds its fair value, the Company calculates an implied fair value
of
the goodwill based on an allocation of the fair value reporting unit
to
the underlying assets and liabilities of the reporting unit. If
the carrying amount of reporting unit goodwill exceeds the implied
fair
value of that goodwill, an impairment loss shall be recognized in
an
amount equal to that excess.
|
|
m.
|
Undistributed
earnings tax
|
|
|
In
the ROC, a 10% tax is imposed on unappropriated earnings (excluding
earnings from foreign consolidated subsidiaries). For ROC GAAP
purposes, the Company records the 10% tax on unappropriated earnings
in
the year of shareholders’ approval. Starting from 2002, the
American Institute of Certified Public Accountants International
Practices
Task Force (the "Task Force") concluded that in accordance with Emerging
Issues Task Force (EITF) 95-10, “Accounting for tax credits related to
dividends in accordance with SFAS 109,” the 10% tax on unappropriated
earnings should be accrued under U.S. GAAP during the period the
earnings
arise and adjusted to the extent that distributions are approved
by the
shareholders in the following year.
|
|
n.
|
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 determining
whether on not an impairment charge is required 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 generally 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 investments have an inactive market, another measure of fair
value may
be used. No impairment charge was incurred under U.S. GAAP in
2005 and 2006 as a result of the increase of the market price of
the stock
of investee companies. On December 31, 2004, the Company
adopted ROC SFAS No. 35 and, in accordance with this standard, determined
that an impairment charge of NT$512,000 thousand was
required. The Company recorded an additional NT$1,195,000
thousand for the impairment under U.S.
GAAP.
|
|
o.
|
Earnings
per share
|
|
|
Under
both ROC GAAP and U.S. GAAP, basic earnings per share is calculated
by
dividing net income by the average number of shares outstanding in
each
period. Other shares issued from unappropriated earnings, such
as stock bonuses to employees, are included in the calculation of
weighted-average number of shares outstanding from the date of
occurrence. For diluted earnings per share, unvested stock
options are included in the calculation using the treasury stock
method if
the inclusion of such
|
|
|
would
be dilutive.
U.S.
SFAS No. 128, “Earnings per share” provides guidance on applying the
treasury stock method for equity instruments granted in share-based
payment transactions in determining diluted earnings per share, which
states that the assumed proceeds shall be the sum of (a) the
exercise price, (b) the amount of compensation cost attributed
to future services and not yet recognized, and (c) the amount
of excess tax benefits that would be credited to additional paid-in
capital assuming exercise of the options. Prior to January 1,
2006, the Company used intrinsic value method to account for its
stock-based compensation under APB No. 25, and had no unrecognized
compensation costs to be included in the assumed proceeds
calculation. However, upon adoption of U.S. SFAS No. 123R, the
Company now has unrecognized compensation costs, and therefore, the
number
of diluted shares included in the diluted earnings per share calculation
under U.S. GAAP will be different from that under ROC
GAAP.
|
|
|
The
following schedule 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
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Net
income
(loss)
|
||||||||||||||||
|
Net
income (loss) based on ROC
GAAP
|
4,209,690
|
(4,691,187 | ) |
17,416,151
|
534,402
|
|||||||||||
|
Adjustments:
|
||||||||||||||||
|
a.
Pension benefits
|
2,568
|
(14,748 | ) |
104,011
|
3,192
|
|||||||||||
|
b.
Marketable securities
|
(1,011 | ) |
12,145
|
(16,331 | ) | (501 | ) | |||||||||
|
c.
Bonuses to employees, directors and
supervisors
|
(609,008 | ) | (191,184 | ) | (1,656,438 | ) | (50,827 | ) | ||||||||
|
d.
Depreciation of buildings
|
(98,828 | ) | (2,517 | ) | (103,493 | ) | (3,175 | ) | ||||||||
|
e.
Depreciation on the excess of book value of building
transferred
between
subsidiaries |
432
|
432
|
432
|
13
|
||||||||||||
|
g.
Effect of U.S. GAAP adjustments on
equity-method investees
|
436,619
|
100,868
|
(38,719 | ) | (1,188 | ) | ||||||||||
|
h.
Impairment loss reversal net
|
||||||||||||||||
|
Recoverable
amount
|
-
|
-
|
(2,190,583 | ) | (67,217 | ) | ||||||||||
|
Depreciation
on recoverable
amount
|
-
|
-
|
85,631
|
2,628
|
||||||||||||
|
i.
Stock option compensation
|
238,602
|
(976,986 | ) | (635,041 | ) | (19,486 | ) | |||||||||
|
j.
Cumulative effect of changes in accounting principle for
adopting
U.S. SFAS No. 123R |
-
|
-
|
45,976
|
1,411
|
||||||||||||
|
k.
Derivative financial
instruments
|
(374,444 | ) | (216,037 | ) |
590,481
|
18,118
|
||||||||||
|
l.
Goodwill
|
||||||||||||||||
|
Amortization
|
877,582
|
528,943
|
-
|
-
|
||||||||||||
|
Impairment
loss
|
612,427
|
-
|
-
|
-
|
||||||||||||
|
m.
Undistributed earnings tax
|
-
|
-
|
(300,438 | ) | (9,219 | ) | ||||||||||
|
n.
Net impact of impairment loss on equity-method
investees
|
(1,195,000 | ) |
-
|
-
|
-
|
|||||||||||
|
Effect
of U.S. GAAP adjustments
on income tax
|
109,068
|
71,629
|
404,491
|
12,412
|
||||||||||||
|
Effect
of U.S. GAAP adjustments
on minority interest
|
88,376
|
(151,884 | ) |
416,566
|
12,782
|
|||||||||||
|
Net
decrease in net income (loss)
|
87,383
|
(839,339 | ) | (3,293,455 | ) | (101,057 | ) | |||||||||
|
Net
income (loss) based on U.S. GAAP
|
4,297,073
|
(5,530,526 | ) |
14,122,696
|
433,345
|
|||||||||||
|
Earnings
(loss) per share
|
||||||||||||||||
|
Basic
|
1.02
|
(1.27 | ) |
3.21
|
0.10
|
|||||||||||
|
Diluted
|
0.95
|
(1.27 | ) |
3.07
|
0.09
|
|||||||||||
|
Earnings
(loss) per ADS (Note 32(i))
|
||||||||||||||||
|
Basic
|
5.08
|
(6.35 | ) |
16.03
|
0.49
|
|||||||||||
|
Diluted
|
4.76
|
(6.35 | ) |
15.33
|
0.47
|
|||||||||||
|
Number
of weighted average shares outstanding (Note 32(i))
|
||||||||||||||||
|
Basic
|
4,229,632,582
|
4,352,673,959
|
4,404,843,421
|
4,404,843,421
|
||||||||||||
|
Diluted
|
4,509,109,898
|
4,352,673,959
|
4,661,200,143
|
4,661,200,143
|
||||||||||||
|
Number
of ADS
|
||||||||||||||||
|
Basic
|
845,926,516
|
870,534,792
|
880,968,684
|
880,968,684
|
||||||||||||
|
Diluted
|
901,821,980
|
870,534,792
|
932,240,029
|
932,240,029
|
||||||||||||
A
reconciliation of significant balance sheet accounts to the approximate amounts
as determined under U.S. GAAP is as follows:
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Financial
assets at fair value
through profit or loss
|
||||||||||||
|
As
reported
|
4,330,733
|
1,557,903
|
47,803
|
|||||||||
|
U.S.
GAAP
adjustments
|
||||||||||||
|
Adjustment
to fair
value
|
16,331
|
-
|
-
|
|||||||||
|
As
adjusted
|
4,347,064
|
1,557,903
|
47,803
|
|||||||||
(Continued)
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Long-term
investments
|
||||||||||||
|
As
reported
|
4,898,057
|
5,734,546
|
175,960
|
|||||||||
|
U.S.
GAAP
adjustments
|
||||||||||||
|
Equity
investments
|
649,723
|
611,004
|
18,748
|
|||||||||
|
Impairment
loss
|
(2,078,620 | ) | (2,078,620 | ) | (63,780 | ) | ||||||
|
As
adjusted
|
3,469,160
|
4,266,930
|
130,928
|
|||||||||
|
Property,
plant and
equipment
|
||||||||||||
|
As
reported
|
68,040,771
|
73,543,754
|
2,256,636
|
|||||||||
|
U.S.
GAAP
adjustments
|
||||||||||||
|
Depreciation
of
buildings
|
(478,794 | ) | (582,287 | ) | (17,867 | ) | ||||||
|
Impairment
recovery,
net
|
-
|
(2,104,952 | ) | (64,589 | ) | |||||||
|
Depreciation
on the excess of
book value of building transferred between subsidiaries
|
(14,031 | ) | (13,599 | ) | (418 | ) | ||||||
|
As
adjusted
|
67,547,946
|
70,842,916
|
2,173,762
|
|||||||||
|
Goodwill
|
||||||||||||
|
As
reported
|
2,843,022
|
2,831,274
|
86,876
|
|||||||||
|
U.S.
GAAP
adjustments
|
||||||||||||
|
Adjustment
of
carrying
value of subsidiaries’ long-term investments
|
(917,280 | ) | (917,280 | ) | (28,146 | ) | ||||||
|
Goodwill
amortization
|
3,041,351
|
3,041,351
|
93,321
|
|||||||||
|
Impairment
loss of
goodwill
|
(1,600,618 | ) | (1,600,618 | ) | (49,114 | ) | ||||||
|
As
adjusted
|
3,366,475
|
3,354,727
|
102,937
|
|||||||||
|
Deferred
income tax assets –
noncurrent
|
||||||||||||
|
As
reported
|
4,046,772
|
2,512,421
|
77,092
|
|||||||||
|
U.S.
GAAP
adjustments
|
||||||||||||
|
Undistributed
earning
tax
|
-
|
(300,438 | ) | (9,219 | ) | |||||||
|
Effect
of U.S. GAAP adjustments
on income tax
|
231,134
|
635,625
|
19,504
|
|||||||||
|
As
adjusted
|
4,277,906
|
2,847,608
|
87,377
|
|||||||||
|
Current
liabilities
|
||||||||||||
|
As
reported
|
31,105,619
|
28,010,242
|
859,473
|
|||||||||
|
U.S.
GAAP
adjustments
|
||||||||||||
|
Bonuses
to employees, directors
and supervisors
|
-
|
1,656,438
|
50,827
|
|||||||||
|
As
adjusted
|
31,105,619
|
29,666,680
|
910,300
|
|||||||||
|
Other
liabilities
|
||||||||||||
|
As
reported
|
2,307,515
|
2,505,575
|
76,882
|
|||||||||
|
U.S.
GAAP
adjustments
|
||||||||||||
|
Pension
benefits
|
45,793
|
(58,218 | ) | (1,786 | ) | |||||||
|
Unrecognized
pension cost on
adoption of U.S. SFAS No. 158
|
-
|
613,362
|
18,820
|
|||||||||
|
Derivative
financial
instruments
|
461,301
|
-
|
-
|
|||||||||
|
As
adjusted
|
2,814,609
|
3,060,719
|
93,916
|
|||||||||
|
|
As
a
result of the adjustments presented above, total assets under U.S.
GAAP
were NT$129,974,677 thousand and NT$133,731,062 thousand (US$4,103,438
thousand) as of December 31, 2005 and 2006, respectively. Total
liabilities under U.S. GAAP were NT$76,782,338 thousand and NT$62,125,699
thousand (US$1,906,281 thousand) as of December 31, 2005 and 2006,
respectively. Minority interest under U.S. GAAP were
NT$8,233,004 thousand and NT$11,021,310 thousand (US$338,180 thousand)
as
of December 31, 2005 and 2006,
respectively.
|
32.
ADDITIONAL
DISCLOSURES REQUIRED BY U.S. GAAP
a.
Recently
issued accounting standards
|
|
In
February 2006, the FASB issued U.S. SFAS No. 155, “Accounting for Certain
Hybrid Financial Instruments-an amendment of FASB Statements No.
133 and
140.” This Statement resolves issues addressed in Statement No. 133
Implementation Issue No. D1, “Application of Statement No. 133 to
Beneficial Interests in Securitized Financial Assets.” U.S. SFAS No. 155
permits fair value remeasurement for any hybrid financial instrument
that
contains an embedded derivative that otherwise would require bifurcation,
clarifies which interest-only strips and principal-only strips are
not
subject to the requirements of Statement No. 133, establishes a
requirement to evaluate interests in securitized financial assets
to
identify interests that are freestanding derivatives or that are
hybrid
financial instruments that contain an embedded derivative requiring
bifurcation, clarifies that concentrations of credit risk in the
form of
subordination are not embedded derivatives and amends Statement No.
140 to
eliminate the prohibition on a qualifying special-purpose entity
from
holding a derivative financial instrument that pertains to a beneficial
interest other than another derivative financial
instrument. U.S. SFAS No. 155 is effective for all financial
instruments acquired or issued after the beginning of an entity’s first
fiscal year that begins after September 15, 2006. The fair
value election provided for in this U.S. SFAS No. 155 may also be
applied
upon adoption of U.S. SFAS No. 155 for hybrid financial instruments
that
had been bifurcated under paragraph 12 of Statement No. 133 prior
to the
adoption of U.S. SFAS No. 155. Earlier adoption is permitted as
of the beginning of an entity’s fiscal year, providing the entity has not
yet issued financial statements for any interim period for that fiscal
year. The Company does not expect the adoption of U.S. SFAS No.
155 to impact the Company’s consolidated financial position or results of
operations.
|
|
|
In
March 2006, the FASB issued U.S. SFAS No. 156, “Accounting for Servicing
of Financial Assets” (U.S. SFAS No. 156), which (i) provides revised
guidance on when a servicing asset and servicing liability should
be
recognized, (ii) requires all separately recognized servicing assets
and
liabilities to be initially measured at fair value, if practicable,
and
(iii) permits an entity to elect to measure servicing assets and
liabilities at fair value each reporting date and report changes
in fair
value in earnings in the period in which the changes occur. The Company
believes that there is no impact on the results of operations and
financial position of the Company after adopting U.S. SFAS No.
156.
|
|
|
In
September 2006, the FASB issued U.S. SFAS No.157, “Fair Value
Measurements”, which defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles,
and
expands disclosures about fair value measurements. U.S. SFAS
No. 157 does not require any new fair value measurements, but brings
up guidance on how to measure fair value by providing a fair value
hierarchy used to classify the source of the information. This statement
is effective for the Company beginning January 1, 2008. The Company
is
currently assessing the potential impact that the adoption of U.S.
SFAS
No.157 will have on the results of operations and financial position
of
the Company, and is not yet in a position to determine such
effects.
|
|
|
In
September 2006, the FASB issued U.S. SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans—An Amendment of FASB Statements No. 87, 88, 106,
and 132R” (U.S. SFAS No. 158). Provisions with respect to the
recognition of an asset and liability related to the funded status
and the
changes in the funded status be reflected in comprehensive income
are
effective for fiscal years ended after December 15, 2006 and the
change in measurement date provisions is effective for fiscal years
ended
after December 15, 2008. U.S. SFAS No. 158 also requires the
measurement date of the plan’s funded status be the same as the Company’s
fiscal year-end. The Company adopted all requirements of U.S. SFAS
No. 158 its fiscal year ended December 31, 2006. Upon the
adoption of U.S. SFAS No. 158, the Company recognized a decrease
to
accumulated other comprehensive income of NT$460,022 thousand (net
of tax
effect) as of December 31, 2006.
|
|
|
In
July 2006, the FASB issued FASB Interpretation No.48, “Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109” (“FIN 48”). FIN 48 clarifies the accounting for
uncertainty in income taxes by prescribing the recognition threshold
a tax
position is required to meet before being recognized in the financial
statements. It also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure,
and
transition. FIN48 is effective for fiscal years beginning after
December15, 2006 and is required to be adopted by the Company in
fiscal
year 2007. The cumulative effects, if any, of applying FIN 48 will be
recorded as an adjustment to retained earnings as of the beginning
of the
period of adoption. The Company is currently evaluating the effect
that
the adoption of FIN 48 will have on the results of operations and
financial position of the Company and is not yet in a position to
determine such effects.
|
|
|
In
September 2006, the Securities and Exchange Commission issued Staff
Accounting Bulletin (“SAB”) No.108, “Considering the Effects of Prior Year
Misstatements when Quantifying Current Year Misstatements”. SAB
No. 108 requires analysis of misstatements using both an income
statement (rollover) approach and a balance sheet (iron curtain)
approach
in assessing materiality and provides for a one-time cumulative effect
transition adjustment. SAB No. 108 is effective for the Company’s
fiscal year 2006 annual financial statements. The Company believes
that
there is no impact on the results of operations and financial position
of
the Company after adopting SAB No.
108.
|
b.
Pension
Set
forth below is pension information
disclosed in accordance with U.S. SFAS 132:
|
Year
Ended December
31
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Components
of net periodic
benefit
cost
|
||||||||||||||||
|
Service
cost
|
455,913
|
488,303
|
267,351
|
8,204
|
||||||||||||
|
Interest
cost
|
88,087
|
98,268
|
89,761
|
2,754
|
||||||||||||
|
Expected
return on plan
assets
|
(25,961 | ) | (33,862 | ) | (34,777 | ) | (1,067 | ) | ||||||||
|
Amortization
of prior service
cost
|
13,670
|
16,187
|
7,697
|
236
|
||||||||||||
|
Curtailment
loss on
pension
|
-
|
18,036
|
-
|
-
|
||||||||||||
|
Net
periodic benefit
cost
|
531,709
|
586,932
|
330,032
|
10,127
|
||||||||||||
|
Changes
in benefit
obligation
|
||||||||||||||||
|
Benefit
obligation at beginning
of
year
|
1,985,971
|
3,797,207
|
4,006,601
|
122,940
|
||||||||||||
|
Benefit
obligation from
acquisition from ASE Japan
|
1,133,061
|
-
|
-
|
-
|
||||||||||||
|
Service
cost
|
455,913
|
488,303
|
376,027
|
11,538
|
||||||||||||
|
Interest
cost
|
88,087
|
98,268
|
88,341
|
2,711
|
||||||||||||
|
Initial
adoption of U.S.
SFAS No. 158
|
-
|
-
|
31,691
|
972
|
||||||||||||
|
Curtailment
of settlement
gain
|
-
|
-
|
(29,327 | ) | (900 | ) | ||||||||||
|
Actuarial
loss
(gain)
|
142,752
|
(212,871 | ) |
250,851
|
7,697
|
|||||||||||
|
Benefits
paid
|
(52,649 | ) | (20,065 | ) | (285,063 | ) | (8,747 | ) | ||||||||
|
Exchange
loss
(gain)
|
44,072
|
(144,241 | ) |
35,841
|
1,100
|
|||||||||||
|
Benefit
obligation at end of
year
|
3,797,207
|
4,006,601
|
4,474,962
|
137,311
|
||||||||||||
(Continued)
|
Year
Ended December
31
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Change
in plan
assets
|
||||||||||||||||
|
Fair
value of plan assets at
beginning
of year
|
619,358
|
1,051,460
|
1,421,105
|
43,606
|
||||||||||||
|
Acquire
from ASE -
Japan
|
299,142
|
-
|
-
|
-
|
||||||||||||
|
Actual
return on plan
assets
|
20,428
|
96,113
|
51,438
|
1,578
|
||||||||||||
|
Employer
contribution
|
138,320
|
350,226
|
223,136
|
6,847
|
||||||||||||
|
Benefits
paid
|
(25,788 | ) | (76,694 | ) | (38,547 | ) | (1,183 | ) | ||||||||
|
1,051,460
|
1,421,105
|
1,657,132
|
50,848
|
|||||||||||||
|
Funded
status
|
2,745,747
|
2,585,496
|
2,817,830
|
86,463
|
||||||||||||
|
Unrecognized
net transition
obligation
|
-
|
(6,803 | ) |
-
|
-
|
|||||||||||
|
Unrecognized
prior service
cost
|
-
|
(276 | ) |
-
|
-
|
|||||||||||
|
Unrecognized
actuarial gain
(loss)
|
(597,363 | ) | (303,348 | ) |
-
|
-
|
||||||||||
|
Additional
pension
cost
|
8,867
|
12,259
|
-
|
-
|
||||||||||||
|
Net
amount recognized (recognized
as
accrued
pension cost)
|
2,157,251
|
2,287,328
|
2,817,830
|
86,463
|
||||||||||||
|
|
Actuarial
assumptions:
|
|
2004
|
2005
|
2006
|
|
|
Discount
rate
|
2.50%
to 4.50 %
|
2.50%
to 4.40 %
|
2.25%
to 4.40 %
|
|
Rate
of compensation
increase
|
3.00%
to 5.00 %
|
2.50%
to 5.00 %
|
2.50%
to 5.00 %
|
|
Expected
return on plan
assets
|
2.50%
to 3.25 %
|
2.50%
to 2.75 %
|
2.50%
to 2.75 %
|
|
|
The
Company has no other post-retirement or post-employment benefit
plans.
|
c. Marketable
securities
|
|
At
December 31, 2005 and 2006, marketable securities by category are
as
follows. Certain investments as of December 31, 2005 carried at the
lower
of cost or market value under ROC GAAP were adjusted to fair market
value
as required under U.S. SFAS No.
115.
|
|
December
31
|
|||||||||||||||||||||||||||
|
2005
|
2006
|
||||||||||||||||||||||||||
|
Carrying
Value |
Fair
Value
|
Unrealized
Holding
Gains
|
CarryingValue
|
Fair
Value
|
Unrealized
Holding
Gains
|
||||||||||||||||||||||
|
NT$
|
NT$
|
NT$
|
NT$
|
US$
|
NT$
|
US$
|
NT$
|
US$
|
|||||||||||||||||||
|
Trading
- Beneficiary Certificate of funds
|
4,324,950
|
4,325,568
|
618
|
1,546,450
|
47,452
|
1,546,450
|
47,452
|
8,420
|
258
|
||||||||||||||||||
|
Available
for sale
- Publicly-trading stocks
|
27,973
|
43,686
|
15,713
|
117,421
|
3,603
|
117,421
|
3,603
|
42,728
|
1,311
|
||||||||||||||||||
|
4,352,923
|
4,369,254
|
16,331
|
1,663,871
|
51,055
|
1,663,871
|
51,055
|
51,148
|
1,569
|
|||||||||||||||||||
The
Company uses the average cost method for trading securities and
available-for-sale securities when determining their cost basis. Proceeds from
sales of available-for-sale securities for the year ended December 31, 2004,
2005 and 2006 was NT$995,256 thousand, NT$1,503,175 thousand and NT$7,518,738
thousand (US$230,707 thousand), respectively. Net realized gains on these sales
for the year ended December 31, 2004, 2005 and 2006 was NT$57,140 thousand,
NT$65,199 thousand and NT$56,748 thousand (US$1,741 thousand),
respectively.
d.
Income
tax
benefit
|
Year
Ended December
31
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Tax
expense
(benefit)
|
134,811
|
(1,095,366 | ) |
2,842,198
|
87,211
|
|||||||||||
|
Net
change in deferred income tax
assets
(liabilities) for the period
|
(1,769,763 | ) | (552,939 | ) | (36,740 | ) | (1,128 | ) | ||||||||
|
Loss
carry
forward
|
-
|
1,370,960
|
(1,246,641 | ) | (38,252 | ) | ||||||||||
|
Income
tax on undistributed
earnings
|
86,968
|
173,834
|
300,438
|
9,219
|
||||||||||||
|
Adjustment
of prior years’ income
taxes
|
42,590
|
(86,774 | ) |
121,479
|
3,727
|
|||||||||||
|
Income
tax expense
(benefit)
|
(1,505,394 | ) | (190,285 | ) |
1,980,734
|
60,777
|
||||||||||
|
|
A
reconciliation between the income tax calculated on pre-tax 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
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Tax
(benefit) based on pre-tax
accounting
income (loss) at
statutory
rate
|
1,391,754
|
(1,398,039 | ) |
5,107,933
|
156,733
|
|||||||||||
|
Add
(less) tax effects
of:
|
||||||||||||||||
|
Permanent
differences
|
||||||||||||||||
|
Tax-exempt
income
|
||||||||||||||||
|
Tax
holiday
|
(642,285 | ) |
-
|
(778,834 | ) | (23,898 | ) | |||||||||
|
Gain
from sale of
securities
|
(9,527 | ) | (8,829 | ) |
-
|
-
|
||||||||||
|
Investment
gain
|
(202,290 | ) | (53,909 | ) | (69,234 | ) | (2,124 | ) | ||||||||
|
Bonus
to employee and
directors
|
92,602
|
292,043
|
572,870
|
17,578
|
||||||||||||
|
Other
|
(22,094 | ) |
59,916
|
(114,765 | ) | (3,521 | ) | |||||||||
|
Credits
for investments and
research
and development
|
(1,081,023 | ) | (292,195 | ) | (1,697,397 | ) | (52,083 | ) | ||||||||
|
Loss
carry
forward
|
-
|
1,370,960
|
(1,246,641 | ) | (38,252 | ) | ||||||||||
|
Deferred
|
(1,162,089 | ) | (247,292 | ) | (215,115 | ) | (6,602 | ) | ||||||||
|
Income
taxes (10%) on
undistributed
earnings
|
86,968
|
173,834
|
300,438
|
9,219
|
||||||||||||
|
Adjustment
of prior year’s income
tax
|
42,590
|
(86,774 | ) |
121,479
|
3,727
|
|||||||||||
|
Income
tax expense
(benefit)
|
(1,505,394 | ) | (190,285 | ) |
1,980,734
|
60,777
|
||||||||||
|
|
The
abovementioned taxes on pretax accounting income (loss) at the statutory
rates for domestic and foreign entities are shown
below:
|
|
Year
Ended December
31
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Domestic
entities in ROC (25%
statutory
rate)
|
1,287,255
|
(1,617,173 | ) |
4,720,781
|
144,853
|
|||||||||||
|
Foreign
entities
|
||||||||||||||||
|
ASE
Japan (40% statutory
rate)
|
101,429
|
182,148
|
182,372
|
5,596
|
||||||||||||
|
ASE
Test Malaysia (28%
statutory
rate)
|
57,605
|
(1,210 | ) |
118,422
|
3,634
|
|||||||||||
|
Others
|
(54,535 | ) |
38,196
|
86,358
|
2,650
|
|||||||||||
|
1,391,754
|
(1,398,039 | ) |
5,107,933
|
156,733
|
||||||||||||
|
|
Deferred
income tax assets and
liabilities as of December 31, 200
5
and 200
6
are summarized as
follows:
|
|
December
31
|
||||||||||||
|
2005
|
2006
|
|||||||||||
|
NT$
|
NT$
|
US$
|
||||||||||
|
Current
deferred income tax
assets
|
||||||||||||
|
Unused
tax
credits
|
1,339,206
|
2,405,057
|
73,797
|
|||||||||
|
Operating
loss
carryforwards
|
1,257,792
|
6,904
|
212
|
|||||||||
|
Other
|
183,066
|
419,766
|
12,880
|
|||||||||
|
2,780,064
|
2,831,727
|
86,889
|
||||||||||
|
Valuation
allowance
|
(1,164,368 | ) | (23,543 | ) | (722 | ) | ||||||
|
1,615,696
|
2,808,184
|
86,167
|
||||||||||
|
Non-current
deferred income tax
assets (liabilities)
|
||||||||||||
|
Unused
tax credits
|
4,962,603
|
2,927,041
|
89,814
|
|||||||||
|
Accrued
pension costs
|
531,545
|
261,000
|
8,009
|
|||||||||
|
Loss
carryforwards
|
305,401
|
267,157
|
8,198
|
|||||||||
|
Reinvestment
allowance
|
-
|
204,833
|
6,285
|
|||||||||
|
Investment
income
|
(144,000 | ) | (144,000 | ) | (4,419 | ) | ||||||
|
Others
|
573,357
|
402,671
|
12,356
|
|||||||||
|
6,228,906
|
3,918,702
|
120,243
|
||||||||||
|
Valuation
allowance
|
(1,951,000 | ) | (1,071,094 | ) | (32,866 | ) | ||||||
|
4,277,906
|
2,847,608
|
87,377
|
||||||||||
|
Non-current
deferred income tax
liabilities
|
-
|
(25,888 | ) | (794 | ) | |||||||
e. Employee
stock option plans
|
|
Effective
January 1, 2006, the Company adopted the fair value recognition provisions
of U.S. SFAS No. 123R, using the modified prospective transition
method
and therefore has not restated results for prior periods. Under
this transition method, stock-based compensation expense for the
year
ended December 31, 2006 included stock-based compensation expense
for all
share-based payment awards granted prior to, but not yet vested as
of
January 1, 2006, based on the grant-date fair value estimated in
accordance with the original provision of U.S. SFAS No. 123. In
addition, the stock-based compensation expense also includes intrinsic
value of certain outstanding share-based awards for which it was
not
possible to reasonable estimate their grant-date fair value under
the
requirement of U.S. SFAS No. 123. Stock-based compensation
expense for all share-based payment awards granted after January
1, 2006
is based on the grant-date fair value estimated in accordance with
the
provision of U.S. SFAS
|
No.
123R. The Company recognizes these compensation costs using the
graded vesting method over the requisite service period of the award, which
is
generally a five-year vesting period. The adoption of U.S. SFAS No.
123R resulted in a cumulative gain from changes in accounting principle of
$18,084 thousand, which reflects the net cumulative impact of estimating future
forfeitures in the determination of period expense, rather than recording
forfeitures when they occur as previously permitted. Prior to the
adoption of U.S. SFAS No. 123R, the Company accounted for awards granted from
ASE Inc. under the intrinsic value method prescribed “APB 25”, and related
interpretations, and provided the required pro forma disclosures prescribed
by
U.S. SFAS No. 123, as amended. In March 2005, SEC issued Staff Accounting
Bulletin No. 107 (“SAB 107”) regarding SEC’s interpretation U.S. of SFAS No.
123R and the value of share-based payments for public companies. The
Company has applied the provisions of SAB 107 in its adoption of U.S. SFAS
No.
123R.
As a result of adopting U.S. SFAS No. 123R, income before income taxes and net income for the year ended December 31, 2006 were lower by NT$16,614 thousand and NT$12,640 thousand, respectively, than if the Company had continued to account for stock-based compensation under APB 25. Information regarding the Company’s and ASE Test’s stock option plans is as follows.
|
|
ASE
Inc. Option Plan
|
|
|
Information
regarding the Company’s employee stock option plans is provided in Note
19.
|
ASE
Test Option Plan
|
|
ASE
Test has three stock option plans, the 1999 Option Plan, the 2000
Option
Plan and the 2004 Option Plan. Up to 2,000,000 shares,
12,000,000, and 2,500,000 shares have been reserved for issuance
under the
1999, 2000 and 2004 option plans,
respectively.
|
|
|
The
1999, 2000 and 2004 Option Plans granted the following stock options
to
purchase ASE Test’s shares which vest ratably over a period of five years
from the date of grant 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.
|
|
|
The
exercise price under each of the aforementioned stock option plans
was
equal to the stock’s market price on the date of grant. Options
granted under the 1999, 2000 and 2004 Option Plans expire 5 or 10
years
after grant.
|
Information
regarding the option plans
of ASE Test is presented below (in U.S. dollars):
|
Weighted
|
||||||||||||||||
|
Average
|
Weighted
|
Aggregate
|
||||||||||||||
|
Exercise
|
Average
|
Intrinsic
|
||||||||||||||
|
Number
of
|
Price
|
Grant
Date
|
Value
(In
|
|||||||||||||
|
Shares
|
Per
Share
|
Fair
Values
|
thousand)
|
|||||||||||||
|
Beginning
outstanding balance -
January 1, 2004
|
13,301,418
|
$ |
11.80
|
|
|
|||||||||||
|
Option
granted
|
260,000
|
6.18
|
$ |
6.18
|
||||||||||||
|
Option
exercised
|
(512,815 | ) |
8.90
|
|||||||||||||
|
Option
forfeited
|
(417,815 | ) |
11.82
|
|||||||||||||
|
Option
expired
|
(1,753,340 | ) |
20.00
|
|||||||||||||
|
Ending
outstanding balance -
December 31, 2004
|
10,877,448
|
10.48
|
||||||||||||||
|
Option
granted
|
32,500
|
6.50
|
$ |
6.50
|
||||||||||||
|
Option
exercised
|
-
|
-
|
||||||||||||||
|
Option
forfeited
|
(358,884 | ) |
10.97
|
|||||||||||||
|
Option
expired
|
(60,000 | ) |
25.00
|
|||||||||||||
|
Ending
outstanding balance -
December 31, 2005
|
10,491,064
|
10.37
|
||||||||||||||
|
Option
granted
|
130,000
|
9.60
|
$ |
9.60
|
||||||||||||
|
Option
exercised
|
(79,201 | ) |
8.56
|
|||||||||||||
|
Option
forfeited
|
(216,825 | ) |
11.60
|
|||||||||||||
|
Option
expired
|
-
|
-
|
||||||||||||||
|
Ending
outstanding balance -
December 31, 2006
|
10,325,038
|
10.34
|
$ |
16,660
|
||||||||||||
|
Ending
exercisable balance -
December 31, 2006
|
9,025,838
|
10.18
|
$ |
15,479
|
||||||||||||
|
|
As
of December 31, 2006, the number of options that are expected to
vest was
1,278,131.
|
|
|
Total
intrinsic value of options exercised in the years ended December
31, 2004
and 2006 was US$2,144 thousand and US$76 thousand,
respectively.
|
|
|
Options
outstanding on December 31, 2006, the related weighted average exercise
price and remaining contractual life information are as follows (in
U.S.
dollars):
|
|
Outstanding
|
Exercisable
|
|||||||||||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||||||||||
|
Weighted
|
Average
|
Weighted
|
Average
|
|||||||||||||||||||||
|
Average
|
Remaining
|
Average
|
Remaining
|
|||||||||||||||||||||
|
Shares
|
Price
|
Life
(Years)
|
Shares
|
Price
|
Life
(Years)
|
|||||||||||||||||||
|
Options
with exercise price
of:
|
||||||||||||||||||||||||
|
$20-$25
|
596,900
|
$ |
22.35
|
2.93
|
596,900
|
$ |
22.35
|
2.94
|
||||||||||||||||
|
$11.5-$12.95
|
2,139,450
|
12.81
|
6.48
|
1,176,450
|
12.70
|
6.69
|
||||||||||||||||||
|
$5.5-$9.79
|
7,588,688
|
8.70
|
4.34
|
7,252,488
|
8.77
|
4.17
|
||||||||||||||||||
|
10,325,038
|
4.47
|
9,025,838
|
4.39
|
|||||||||||||||||||||
|
|
The
Company has used the fair value based method (based on the Black-Sholes
model) to evaluate the options granted with the following
assumptions:
|
|
2004
|
2005
|
2006
|
|||||||
|
Risk-free
interest
rate
|
3.50-3.88%
|
3.88%
|
4.88%
|
||||||
|
Expected
life
|
5
years
|
5
years
|
3-5
years
|
||||||
|
Expected
volatility
|
78.28%
|
59.06%
|
59.95%-62.03%
|
||||||
|
Expected
dividend
|
0%
|
0%
|
0%
|
||||||
|
|
For
purposes of pro forma
disclosure, the estimated fair value of the options is amortized
to
expense over the option rights vesting periods. Had
the Company
and
ASE Test recorded
compensation costs based on the estimated grant date fair v
alue, as defined
by
U.S.
SFAS No. 123, the
Company
’
s
net income (loss) under U.S.
GAAP would have been reduced to the pro forma amounts
below.
|
|
Year
Ended December 31
|
||||||||
|
2004
|
2005
|
|||||||
|
NT$
|
NT$
|
|||||||
|
Net
income (loss) based on U.S.
GAAP
|
4,297,073
|
(5,530,526 | ) | |||||
|
Stock
- based compensation
expense (net of tax)
|
(375,135 | ) | (424,746 | ) | ||||
|
Pro
forma net income (loss) based
on U.S. GAAP
|
3,921,938
|
(5,955,272 | ) | |||||
|
Report
EPS
|
||||||||
|
Basic
|
1.02
|
(1.27 | ) | |||||
|
Diluted
|
0.95
|
(1.27 | ) | |||||
|
Pro
forma EPS
|
||||||||
|
Basic
|
0.93
|
(1.37 | ) | |||||
|
Diluted
|
0.87
|
(1.37 | ) | |||||
|
Reported
EPS per
ADS
|
||||||||
|
Basic
|
5.08
|
(6.35 | ) | |||||
|
Diluted
|
4.76
|
(6.35 | ) | |||||
|
Pro
forma EPS per
ADS
|
||||||||
|
Basic
|
4.64
|
(6.84 | ) | |||||
|
Diluted
|
4.35
|
(6.84 | ) | |||||
|
|
The
pro forma amounts reflect
compensation expense related to
the Company
’
s
2004 option plan and ASE
Test
’
s
1999
,
2000
and 200
4
option plans granted and vested
only. In future years, the annual compensation expense may
increase relati
ve to
the fair value of the options granted and vested in those future
years.
|
|
|
f.
|
In
accordance with U.S. SFAS No. 130 “Reporting Comprehensive Income”, the
statements of comprehensive income (loss) for the years ended December
31,
2004, 2005 and 2006 are presented
below:
|
|
Year
Ended December
31
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Net
income (loss) based on U.S.
GAAP
|
4,297,073
|
(5,530,526 | ) |
14,122,696
|
433,345
|
|||||||||||
|
Translation
adjustments on
subsidiaries,
net of income tax benefit (expense) of NT$229,805 thousand,NT$108,033
thousand
NT$64,535
thousand in 2004,
2005
and 2006, respectively
|
(689,415 | ) |
324,099
|
193,605
|
5,941
|
|||||||||||
(Continued)
|
Year
Ended December
31
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Unrealized
gain on financial assets
|
-
|
-
|
486,314
|
14,922
|
||||||||||||
|
Unrecognized
pension cost
|
11,427
|
(12,711 | ) | (1,621 | ) | (49 | ) | |||||||||
|
Comprehensive
income
(loss)
|
3,619,085
|
(5,219,138 | ) |
14,800,994
|
454,159
|
|||||||||||
g.
U.S.
GAAP
cash flow information
|
|
The
Company applies ROC SFAS No. 17, “Statement of Cash Flows”. Its objectives
and principles are similar to those set out in the U.S. SFAS No.
95,
“Statement of Cash Flows”. Summarized cash flow data by
operating, investing and financing activities in accordance with
U.S. SFAS
No. 95 are as follows:
|
|
Year
Ended December
31
|
||||||||||||||||
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Cash
flows
|
||||||||||||||||
|
Net
cash provided by operating
activities
|
19,138,910
|
18,675,367
|
37,280,483
|
1,143,924
|
||||||||||||
|
Net
cash used in investing
activities
|
(31,048,930 | ) | (11,631,958 | ) | (22,104,508 | ) | (678,260 | ) | ||||||||
|
Net
cash provided by financing
activities
|
9,231,912
|
(16,056 | ) | (12,551,518 | ) | (385,134 | ) | |||||||||
|
Net
decrease in
cash
|
(2,678,108 | ) |
7,027,353
|
2,624,457
|
80,530
|
|||||||||||
|
Cash,
beginning of
year
|
8,562,425
|
5,975,103
|
13,263,788
|
406,990
|
||||||||||||
|
Effect
of first inclusion for
consolidation
of the subsidiary
|
-
|
-
|
4,564
|
140
|
||||||||||||
|
Effect
of exchange rate changes
in
cash
|
90,786
|
261,332
|
(162,734 | ) | (4,994 | ) | ||||||||||
|
Cash,
end of
year
|
5,975,103
|
13,263,788
|
15,730,075
|
482,666
|
||||||||||||
|
|
The
significant reclassifications for U.S. GAAP cash flow statements
pertain
to the compensation to directors and supervisors and bonuses to employees
shown in the operating activity under U.S. GAAP as opposed to financing
activities under ROC GAAP.
|
h.
Goodwill
|
|
On
January 1, 2002, the Company adopted U.S. SFAS No. 142, 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.
|
|
|
The
Company completed its annual goodwill impairment test at December
31, 2002
and determined that it had impairment of NT$2,213,045 thousand relating
to
the remaining goodwill associated with its acquisition of ASE
Test. The Company also completed its annual goodwill impairment
test on December 31, 2004 and determined impairment of
NT$
1,337,670
thousand
of
the remaining
goodwill associated with its acquisition of ISE Labs. As of
December 31, 2005 and 2006, the Company had goodwill of NT$3,366,475
thousand and NT$3,354,727 thousand (US$102,937 thousand) primarily
from
the reporting units of the testing operations,
respectively.
|
|
|
Changes
in the carrying amount of goodwill for the years ended December 31,
2005
and 2006, by reportable segment, are as
follows:
|
|
Packaging
|
Testing
|
Other
|
Total
|
|||||||||||||||||
|
NT$
|
NT$
|
NT$
|
NT$
|
US$
|
||||||||||||||||
|
Balance
as of
December
31, 2004
|
844,940
|
1,974,375
|
511,571
|
3,330,886
|
101,551
|
|||||||||||||||
|
Translation
adjustment
|
(1,031 | ) |
36,155
|
465
|
35,589
|
1,085
|
||||||||||||||
|
Balance
as of
December
31, 2005
|
843,909
|
2,010,530
|
512,036
|
3,366,475
|
102,636
|
|||||||||||||||
|
Translation
adjustment
|
(737 | ) | (10,883 | ) | (128 | ) | (11,748 | ) |
301
|
|||||||||||
|
Balance
as of
December
31, 2006
|
843,172
|
1,999,647
|
511,908
|
3,354,727
|
102,937
|
|||||||||||||||
i. Earnings
per share
|
|
U.S.
SFAS No. 128 requires the presentation of basic and diluted earnings
per
share. Basic net income per share is computed based on the
weighted average number of common shares outstanding during the
period. Diluted net income per share includes the effect of
diluted equivalent common shares (stock options issued during the
period
using the treasury stock method).
|
|
|
The
following table represents the computation of basic and diluted earnings
(loss) per share for each of the years ended at December
31:
|
|
2004
|
2005
|
2006
|
||||||||||||||
|
NT$
|
NT$
|
NT$
|
US$
|
|||||||||||||
|
Basic
EPS
|
||||||||||||||||
|
Net
income
(loss)
|
4,297,073
|
(5,530,526 | ) |
14,122,696
|
433,345
|
|||||||||||
|
Effect
of ASE Test’s
stock option plans
|
-
|
-
|
(1,663 | ) | (51 | ) | ||||||||||
|
Interest,
net of tax, paid on
convertible
bonds
|
163,549
|
-
|
168,993
|
5,185
|
||||||||||||
|
Diluted
EPS
|
||||||||||||||||
|
Net
income
(loss)
|
4,460,622
|
(5,530,526 | ) |
14,290,026
|
438,479
|
|||||||||||
|
Weighted
average shares
outstanding
|
||||||||||||||||
|
Basic
|
4,229,632,582
|
4,352,673,959
|
4,404,843,421
|
4,404,843,421
|
||||||||||||
|
Effect
of dilutive
securities
|
279,477,316
|
-
|
256,356,722
|
256,356,722
|
||||||||||||
|
Diluted
|
4,509,109,898
|
4,352,67
3,959
|
4,661,200,143
|
4,661,200,143
|
||||||||||||
|
|
Diluted
earnings per share exclude
227,341
thousand
options
and
convertible bonds
for
the year ended December 31, 2005 as a result of net loss,
and
they could be dilutive in the
future.
In 2004 and
2006, no opti
ons or
convertible bonds were excluded from the calculation of diluted
EPS.
|
|
|
The
denominator
used for
purposes of calculating earnings (loss) per ADS was the above-mentioned
weighted average outstanding shares divided by five (one ADS represents
five common shares). The numerator was the same as mentioned in
the above EPS calculation.
|
F-72