Siliconware Precision Industries 20F 2005 Annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)


o		Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934


þ		Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2005


o		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to


o		Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of event requiring this shell company report

Commission file number 1-14700

(Exact Name of Registrant as Specified in Its Charter)

Siliconware Precision Industries Co., Ltd.

(Translation of Registrant’s Name Into English)

Taiwan, Republic of China
(Jurisdiction of Incorporation or Organization)

No. 123, Sec. 3, Da Fong Road, Tantzu, Taichung, Taiwan, ROC
(Address of Principal Executive Offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of Each Class		Name of Each Exchange On Which Registered

None

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Common Shares, par value NT$10 per share

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

As of December 31, 2005, 2,328,919,337 Common Shares were outstanding

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yesþ Noo

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.

Yeso Noþ

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.

Yesþ Noo

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 filerþ Accelerated filero Non-accelerated filero

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17o Item 18þ

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 Securities Exchange Act of 1934).

Yeso Noþ

SILICONWARE PRECISION INDUSTRIES CO., LTD.
FORM 20-F ANNUAL REPORT
FISCAL YEAR ENDED DECEMBER 31, 2005

TABLE OF CONTENTS


	Page
Forward Looking Statements in This Annual Report May Not Be Accurate		1
PART I		2
Item 1. Identity of Directors, Senior Management and Advisers		2
Item 2. Offer Statistics and Expected Timetable		2
Item 3. Key Information		2
Item 4. Information on the Company		18
Item 4A. Unresolved Staff Comments		36
Item 5. Operating and Financial Review and Prospects		36
Item 6. Directors, Senior Management and Employees		58
Item 7. Major Shareholders and Related Party Transactions		63
Item 8. Financial Information		65
Item 9. The Offer and Listing		66
Item 10. Additional Information		68
Item 11. Quantitative and Qualitative Disclosures About Market Risk		81
Item 12. Description of Securities Other Than Equity Securities		82
PART II		83
Item 13. Defaults, Dividend Arrearages and Delinquencies		83
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds		83
Item 15. Controls and Procedures		83
Item 16A. Audit Committee Financial Expert		83
Item 16B. Code of Ethics		83
Item 16C. Principal Accountant Fees and Services		84	��
Item 16D. Exemptions from the Listing Standards for Audit Committees		84
Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers		84
PART III		84
Item 17. Financial Statements		84
Item 18. Financial Statements		84
Item 19. Exhibit Index		86
EX-8.1 LIST OF SIGNIFICANT SUBSIDIARIES
EX-12.1 CERTIFICATION OF CEO PURSUANT TO SEC. 302
EX-12.2 CERTIFICATION OF CFO PURSUANT TO SEC. 302
EX-13.1 CERTIFICATION OF CEO PURSUANT TO SEC. 1350
EX-13.2 CERTIFICATION OF CFO PURSUANT TO SEC. 1350
EX-15.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

- i -

Forward Looking Statements in This Annual Report May Not Be Accurate

Our disclosure and analysis in this annual report contain or incorporate by reference some forward-looking statements. Our forward-looking statements contain information regarding, among other things, our financial condition, future expansion plans and business strategy. We have based these forward-looking statements on our current expectations and projections about future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Although we believe that these expectations and projections are reasonable, such forward-looking statements are inherently subject to risks, uncertainties and assumptions about us, including, among other things:

	•		the intensely competitive semiconductor and personal computer industries and markets;

	•		risks associated with international business activities;

	•		our dependence on key personnel;

	•		natural disasters, such as earthquakes and droughts, which are beyond our control;

	•		general economic and political conditions, including those related to the semiconductor and personal computer industries;

	•		possible disruptions in commercial activities caused by human-induced disasters, including terrorist activity and armed conflict, and outbreaks of contagious diseases, such as avian influenza which reduce end-user purchases relative to expectations and orders;

	•		fluctuations in foreign currency exchange rates;

	•		additional disclosures we make in our previous and future Form 20-F annual reports and Form 6-K periodic reports to the Securities and Exchange Commission, or the SEC; and

	•		those other risks identified in “Item 3. Key Information—D. Risk Factors” of this annual report.

The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “will,” “shall” and similar expressions, as they relate to us, are intended to identify a number of these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might not occur and our actual results could differ materially from those anticipated in these forward-looking statements.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

A. Selected Financial Data

The selected financial data shown below should be read in conjunction with “Item 5. Operating and Financial Review and Prospects,” and the financial statements and the notes to those statements included elsewhere in this annual report. The selected statement of income data for the years ended December 31, 2003, 2004 and 2005 and the selected balance sheet data as of December 31, 2004 and 2005 have been derived from our audited financial statements included elsewhere in this annual report. The selected statement of income data for the years ended December 31, 2001 and 2002 and the selected balance sheet data as of December 31, 2001, 2002 and 2003 have been derived from our audited financial statements not included in this annual report. The financial statements have been prepared and presented according to generally accepted accounting principles in the Republic of China, or ROC GAAP, which differ in many important respects from generally accepted accounting principles in the United States, or US GAAP. For a discussion of the material differences, see note 30 to our financial statements included elsewhere in this annual report. Some of our statement of income and balance sheet data items have been reconciled to US GAAP as shown below.


	Year Ended December 31,
	2001			2002			2003			2004			2005
	NT$			NT$			NT$			NT$			NT$				US$⁽⁶⁾
	(in millions, except earnings (loss) or dividends per share and per ADS data)
Income Statement Data:
ROC GAAP
Net operating revenues		16,530			22,299			27,411			35,252			43,488				1,326
Cost of goods sold		(15,109	)		(20,210	)		(23,298	)		(28,871	)		(33,960	)			(1,035	)

Gross profit		1,421			2,089			4,113			6,381			9,528				291

Operating expenses		(1,428	)		(1,542	)		(1,592	)		(2,048	)		(2,279	)			(70	)

Operating income		(7	)		547			2,521			4,333			7,249				221
Equity investment income (loss)⁽¹⁾		(1,199	)		61			(533	)		308			448				14
Other non-operating income⁽¹⁾		608			469			882			732			853				26
Other non-operating expenses		(884	)		(797	)		(667	)		(1,548	)		(941	)			(29	)

Income (loss) before income tax⁽¹⁾		(1,482	)		280			2,203			3,825			7,609		��		232
Income tax benefit		283			145			636			457			(16	)			(0.5	)

Income from continuing operations		(1,183	)		425			2,839			4,282			7,593				231.5

Cumulative effects of changes in accounting principles		—			—			—			—			651				19.5

Net income (loss)⁽¹⁾⁽²⁾		(1,183	)		425			2,839			4,282			8,244				251

Earnings (loss) per share⁽³⁾
Basic		(0.54	)		0.19			1.30			1.93			3.59				0.11
Diluted		(0.54	)		0.19			1.18			1.51			3.38				0.10
Shares used in per share calculation (average, as adjusted)⁽²⁾
Basic		2,195			2,169			2,182			2,216			2,294				2,294
Diluted		2,195			2,169			2,448			2,604			2,670				2,670
Earnings (loss) per ADS⁽³⁾


	Year Ended December 31,
	2001			2002			2003		2004		2005
	NT$			NT$			NT$		NT$		NT$		US$⁽⁶⁾
	(in millions, except earnings (loss) or dividends per share and per ADS data)
Basic		(2.70	)		0.95			6.50		9.65		17.95		0.55
Diluted		(2.70	)		0.95			5.90		7.55		16.90		0.52
Dividends per share⁽⁴⁾		1.45			—			—		1.35		1.55		0.05
ADSs used in per ADS calculation (average, as adjusted)⁽³⁾
Basic		439			434			436		443		459		459
Diluted		439			434			490		521		534		534

				(Restated)			(Restated)		(Restated)
US GAAP
Net income (loss)		(1,790	)		(169	)		3,097		3,671		3,971		121
Earnings (loss) per share⁽⁵⁾
Basic		(0.82	)		(0.08	)		1.42		1.65		1.74		0.05
Diluted		(0.82	)		(0.08	)		1.34		1.27		1.73		0.05
Shares used in per share calculation (average, as adjusted)⁽⁵⁾
Basic		2,176			2,169			2,182		2,225		2,277		2,277
Diluted		2,176			2,169			2,449		2,422		2,295		2,295
Earnings (loss) per ADS
Basic		(4.10	)		(0.40	)		7.10		8.25		8.70		0.27
Diluted		(4.10	)		(0.40	)		6.70		6.35		8.65		0.26
ADSs used in per ADS calculation (average, as adjusted)⁽⁵⁾
Basic		435			434			436		445		455		455
Diluted		435			434			514		484		459		459


	Year Ended December 31,
	2001		2002		2003		2004		2005
	NT$		NT$		NT$		NT$		NT$		US$⁽⁶⁾
	(in millions)
Other Data:
ROC GAAP
Capital expenditures		5,474		6,445		4,885		9,785		8,245		251
Depreciation and amortization		4,323		4,902		5,185		6,153		6,572		200


	As of December 31,
	2001		2002		2003		2004		2005
	NT$		NT$		NT$		NT$		NT$		US$⁽⁶⁾
	(in millions)
Balance Sheet Data:
ROC GAAP
Cash and cash equivalents		6,310		5,970		12,203		10,922		12,341		376
Working capital		6,176		6,856		4,766		13,492		15,475		472
Total assets		42,566		46,236		54,658		58,962		67,175		2,048
Short-term debt and current portion of long-term debt		2,667		2,968		10,342		4,013		1,885		57
Long-term debt		10,640		14,143		8,813		16,639		14,644		446
Total liabilities		16,519		20,057		24,960		25,469		26,350		803
Total stockholders’ equity		26,047		26,179		29,698		33,493		40,825		1,245

			(Restated)		(Restated)		(Restated)
US GAAP
Total assets		47,852		50,333		61,756		65,118		81,167		2,475
Total liabilities		16,517		20,017		25,419		26,020		29,776		908
Total stockholders’ equity		31,335		30,316		36,337		39,098		51,391		1,567


(1)		The ROC Securities and Futures Bureau has allowed us to delay our recognition of investment income in certain investee companies accounted for under the equity method. In particular, we derive a significant amount of our investment income in ChipMOS Technologies Inc., or ChipMOS, which we owned 28.8% equity interest as of March 31, 2006. In 2002, because ChipMOS did not provide its financial statements to us in time to enable us to recognize its financial results for such period, we were permitted to delay the recognition of the investment loss of ChipMOS until 2003. As a result, we did not recognize investment loss of ChipMOS for 2002 in our financial results under ROC GAAP until the first quarter of 2003. For the three months ended March 31, 2003, we recognized an investment loss of NT$366 million for ChipMOS’s financial results in 2002. If this investment loss had been included in our results for 2002, our non-operating income, income before income tax and net income for 2002 would have been reduced by the same amount and our basic and diluted earnings per share in 2002 would have been reduced by NT$0.2. In 2003 and 2004, we also experienced a delay in recognition of investment income. For the three months ended March 31, 2004, we recognized an investment income of NT$247 million from ChipMOS’s financial results in 2003. From January 1, 2005, we adopted ROC Statement of Financial Accounting Standards No. 5, “Accounting for Long-term Equity Investment”, pursuant to which we ceased to defer the recognition of investment income of investees accounted for under the equity method until the subsequent year, and recognized investment income from all investees accounted for under the equity method based on investees’ audited financial statements for the same periods. Therefore, for the three months ended March 31, 2005, we recorded our investment income of NT$667 million from ChipMOS in 2004 as cumulative effects of changes in accounting principles and recognized an investment income of NT$433 million from CgipMos’s financial results in 2005. We also experienced a delay in recognition of investment income in Double Win Enterprise Co., Ltd. in 2003 and 2004 and Taiwan High-tech Corporation in 2003, and recognized their financial results in the subsequent year. Our investment income (loss) from Double Win Enterprise Co., Ltd. and Taiwan High-tech Corporation for the aforementioned years was not material.

		Under US GAAP, there is no provision that allows us to delay recognition of financial results of ChipMOS or any other investee accounted for under the equity method. In 2003, 2004 and 2005, our investment income (loss) under US GAAP from ChipMOS were NT$250 million, NT$664 million and NT$469 million (US$14.3 million), respectively. As a result, our financial results under US GAAP would not provide meaningful year-to-year comparison to our financial results under ROC GAAP.

(2)		Net income in 2001 was net of minority interest loss of NT$16 million. The company does not have minority interest in 2002, 2003, 2004 and 2005, and is therefore not presented separately in this table.

(3)		Retroactively adjusted for all subsequent stock dividends and employee share bonuses.

(4)		Adjusted to reflect 235,421,212 shares, 189,447,578 shares and 168,889,805 shares distributed as stock dividends in 2001, 2004 and 2005, respectively, with respect to the earnings of 2000, 2003 and 2004. No stock dividend was declared in 2002 and 2003.

(5)		Retroactively adjusted for all subsequent stock dividends only.

(6)		Amounts translated for convenience at the Federal Reserve Bank of New York noon buying exchange rate of NT$32.80 to US$1.00 on December 30, 2005.

Subsequent to the filing of our consolidated financial statements on Form 20-F for the year ended December 31, 2004, we determined that our accounting for the derivative instruments, embedded in our convertible bonds, was incorrect. The accounting for such embedded derivatives is described in note 30 to our financial statements included elsewhere in this annual report. We have corrected our US GAAP reconciliation for the years ended December 31, 2002, 2003 and 2004 accordingly. However, we discuss the results of restatement only for the years ended December 31, 2003 and 2004 in our financial statements. The effects of the amendments made for the year ended December 31, 2002 not included in note 30 are set out as below:


( in millions)	As reported			Restatement			As restated

Net income		(223	)		54			(169	)
Earnings(Loss) per share:
Basic		(0.11	)		0.03			(0.08	)
Diluted		(0.11	)		0.03			(0.08	)
Total assets		50,333			0			50,333
Total liabilities		20,071			(54	)		20,017
Total shareholders’ equity		30,262			54			30,316

Currency Translations and Exchange Rates

We have translated certain New Taiwan dollars, or NT dollars, amounts included in this annual report into US dollars for the convenience of the readers. The rate we used for the translations was NT$32.80 = US$1.00, which was the noon buying rate announced by the Federal Reserve Bank of New York on December 30, 2005. The translation does not mean that NT dollars could actually be converted into US dollars at that rate. The following table shows the noon buying rates for NT dollars expressed in NT dollar per US$1.00.


Year Ended December 31,	Average⁽¹⁾		High		Low		At Period-End
2001		33.91		35.13		32.23		35.00
2002		34.53		35.16		32.85		34.70
2003		34.41		34.98		33.72		33.99
2004		33.27		34.16		31.74		31.74
2005		32.16		33.77		30.65		32.80
October		33.47		33.77		33.19		33.55
November		33.58		33.71		33.39		33.51
December		33.29		33.56		32.80		32.80
2006
January		32.04		32.59		31.83		31.97
February		32.32		32.65		31.97		32.40
March		32.46		32.62		32.28		32.42
April		32.29		32.54		31.90		31.90
May		31.74		32.13		31.28		31.99
June (up to June 15, 2006)		32.31		32.62		32.02		32.53


Source: Federal Reserve Statistical Release, Board of Governors of the Federal Reserve System.

(1)		Annual averages are calculated using the average of the exchange rates on the last day of each month during the period. Monthly averages are calculated using the average of the daily rates during the relevant period.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Our business and operations are subject to various risks, many of which are beyond our control. If any of the risks described below actually occurs, our services, financial condition or results of operations could be seriously harmed.

Risks Relating to Our Financial Condition and Business

Our operating results fluctuate significantly, which may affect the value of your investments

Our historical net operating revenues and results of operations have varied, at times significantly, from quarter to quarter. Our future net operating revenues, gross profit and operating income may vary significantly due to a combination of factors. These factors include:

•

our ability to develop and implement new technologies. If we are unable to successfully implement new technologies in a timely manner, our operating results could suffer because we would allow our competitors to seize the opportunities in developing new markets.

	•		changes in our product mix or our customers’ preferences. When we discontinue or add a product or when our customers’ demand change, our operating results usually fluctuate.

	•		changes in capacity utilization. When capacity utilization is low, such as in times of market downturns, we may need to adjust our product mix to respond to changes in demand and to adjust our prices sufficiently enough to maintain the level of our capacity utilization.

Moreover, the growing demand for substrate packaging which uses higher-cost raw materials has caused the costs of production for semiconductor packaging to rise significantly. If our revenues do not grow and we are unable to reduce our expenses, our profitability will suffer.

The cyclical nature of the semiconductor industry makes us particularly vulnerable to economic downturns and changes in the semiconductor industry

Because our services is, and will continue to be, dependent on the requirements of semiconductor companies for independent testing and assembly services, any downturn in the highly cyclical semiconductor industry may reduce demand for our services and adversely affect our results of operations. Variations in order levels from our customers and in service fee rates may result in volatility in our net operating revenues and earnings. The markets for semiconductors are also characterized by rapid technological change, evolving industry standards and periods of heightened competition. If demand for semiconductor capacity does not keep pace with the growth of supply, or further declines, our services would be subject to more intense competition and our results of operations may suffer because of the resulting downward pricing pressure and capacity underutilization. From the last quarter of 2000 to early 2003, we also experienced intense competition in the semiconductor industry worldwide and oversupply of packaging and testing capacities in the local market. This increased competition caused average selling prices of many of our semiconductor packages and testing services to decrease significantly. Downward pressure on average selling prices led to pressure on our gross margins which negatively affected our operating results. Future downturns in the semiconductor industry may be severe. In the event of any future downturn, our average selling prices may decline without a corresponding decrease in our high fixed costs. This could lead to a decline in our gross margin, which would seriously harm our services.

The general recovery in the semiconductor industry since 2003 could be temporary and could be adversely affected by general economic uncertainties created by the possibility of future terrorist attacks, retaliatory actions, hostilities and outbreaks of contagious diseases. Since we cannot predict results for 2006 and subsequent periods with confidence at this time, we cannot assure you that our results would continue to improve; any unfavorable factors such as those described above could materially and adversely affect our results of operations.

We are highly dependent on the personal computer industry and any downturn in the personal computer industry would harm our operating results

A significant percentage of our net operating revenues is derived from customers who use our manufacturing services to make semiconductors for personal computers. In 2003, 2004 and 2005, more than 40% of our net operating revenues were attributable to customers whose products are primarily used in personal computers or personal computer peripherals. Our results of operations were negatively affected in 2001 due to reduced demand for personal computer products as a result of the global economic downturn between late 2000 and 2002. However, our net operating revenues improved in 2002 and 2003 compared to 2001 due partially to increased demand for personal computers as market conditions in 2002 and 2003 have generally improved compared to 2001. Our net operating revenues increased in 2004 compared to 2003 and in 2005 compared to 2004 due in part to general improvement in the personal computer industry. Any future decrease in the demand for personal computers may decrease the demand for our services and would likely to seriously harm our operating results. In addition, the declining average selling price of personal computers has placed significant pressure on the price of the components that are used in these personal computers. We believe the average selling price of personal computers will continue to decrease, and the resulting pricing pressure on the semiconductor components we package and test may reduce our net operating revenues and reduce our gross profit margin significantly.

We do not have any significant backlog because our customers do not place purchase orders far in advance, which makes us vulnerable to sudden changes in customer demand

Our customers generally do not place purchase orders far in advance, and our contracts with major domestic customers do not generally require minimum purchase of our products or services. In addition, our customers’ purchase orders have varied significantly from period to period because demand for their products is often volatile. As a result, we do not typically operate with any significant backlog. The lack of a significant backlog makes it difficult for us to forecast our net operating revenues in future periods and causes our operating results to fluctuate from period to period. Moreover, our expense levels are based in part on our expectations of future revenue and we may be unable to adjust costs in a timely manner to compensate for revenue shortfalls. For example, in 1999 and early 2000, we incurred significant costs in expectation of strong demand in the semiconductor market, but this demand did not fully materialize because of the market downturn between late 2000 and early 2003. We expect that in the future our net operating revenues in any quarter will continue to be substantially dependent upon purchase orders received in that quarter. We cannot assure you that any of our customers will continue to place orders with us in the future at the same levels as in prior periods. We also cannot assure you that our customers’ orders will be consistent with our expectations when we made or will make the necessary investments in raw materials, labor and equipment.

A decline in the operating results of ChipMOS would reduce our participation in the memory chip package market and harm our financial performance

As of March 31, 2006, we owned 28.8% equity interest in ChipMOS, a provider of semiconductor packaging and testing services. If ChipMOS requires guarantees of its indebtedness to obtain financing, we and Mosel Vitelic Inc., or Mosel Vitelic, the other major investor in ChipMOS, are required under the joint venture agreement establishing ChipMOS to provide these guarantees in the ratios of 30% and 70%, respectively. Because ChipMOS did not provide its financial statements to us in time to enable us to recognize its financial results for 2002, prior to January 1, 2005, the Securities and Futures Bureau of the ROC, or the ROC SFB (the predecessor of the Financial Supervisory Commission of the ROC, or the ROC FSC), allows us to delay the recognition of the income (loss) of ChipMOS in our financial results until June 30 of the following year. Thus, we recorded no investment income or loss of ChipMOS in our financial results under ROC GAAP for 2002. The audited financial results of ChipMOS in 2002 were available to us in the first quarter of 2003, and we recorded an investment loss amounting to NT$366 million. This investment loss was included in our financial results for the three months ended March 31, 2003. If this investment loss had been included in our results for 2002, our net income for 2002 would have been decreased by the same amount. In 2003 and 2004, we also experienced similar delays in recognition of investment income. For the three months ended March 31, 2004, we recognized an investment income of NT$247 million from ChipMOS’s financial results in 2003. For the three months ended March 31, 2005, we recognized an investment income of NT$667 million from ChipMOS’s financial results in 2004. From January 1, 2005, we adopted the amended ROC Statement of Financial Accounting Standards No. 5, “Accounting for Long-term Equity Investment”, pursuant to which we ceased to defer the recognition of investment income of investees accounted for under the equity method until the subsequent year, and recognized investment income from all investees accounted for under the equity method based on investees’ audited financial statements for the same periods then ended. Under US GAAP, however, there is no provision that allows us to delay recognition of ChipMOS’s income or loss. In 2003, our investment loss from ChipMOS was NT$250 million under US GAAP. In 2004, our investment income from ChipMOS was NT$664 million under US GAAP. In 2005, our investment income from ChipMOS was NT$469 million (US$14.3 million) under US GAAP. We cannot assure you that ChipMOS will maintain its positive operating results in the future. A decline in the operating results of ChipMOS would reduce our participation in the memory chip package and testing market and adversely affect our non-operating income (loss) and net income (loss).

Potential conflicts of interest with ChipMOS may cause us to lose opportunities to expand and improve our operations

As of March 31, 2006, we owned 28.8% equity interest in ChipMOS. Since ChipMOS is a provider of semiconductor packaging and testing services, our substantial interest in ChipMOS may lead to potential conflicts of interest in the expansion and development of the semiconductor packaging and testing markets. These conflicts may result in lost corporate opportunities or actions that may prevent us from taking advantage of opportunities to expand and improve our operations.

If we are unable to maintain a steady return to our former capacity utilization rates, our profitability would be adversely affected

In 2001, our capacity utilization rates were negatively affected by a general global economic downturn and decreased market demand in the semiconductor industry in general. As a result, our profitability suffered severely in 2001. From 2002 to 2005, our capacity utilization rates increased significantly due to improved demand for our products and services as market conditions from 2002 to 2005 have generally improved compared to 2001. We cannot assure you that we will be able to achieve or sustain a high utilization rate in the future. Nor can we assure you that declines in the semiconductor industry or other factors will not harm our capacity utilization or our profitability in the future.

Given the high fixed costs of our services, high capacity utilization allows us to maintain higher gross margins because it allows us to allocate fixed costs over a greater number of units we package and test. Increases or decreases in capacity utilization rates can have a significant effect on our services. Accordingly, our ability to enhance our gross margins will depend, in part, on our ability to continue to increase our capacity utilization rates.

In addition, in order to continue to increase or sustain our capacity utilization we must:

	•		ensure that our packaging and testing technologies meet our customers’ needs;

	•		install advanced equipment in anticipation of new business; and

	•		prevent disruption of operations due to fire, accidents, mechanical and technical failures, expansion, introduction of new packages or relocation of equipment.

If demand for our services does not meet our expectations, our capacity utilization would decrease and our gross margins would suffer.

We depend on a small number of customers for a substantial portion of our revenues and a loss of any one of these customers would result in the loss of a significant portion of our revenues

We are dependent on a small group of customers for a substantial portion of our services. In 2003, 2004 and 2005, 66.8%, 64.8% and 62.6% of our net operating revenues, respectively, were derived from sales to our top ten customers. In 2005, our largest and second largest customers accounted for 11.0% and 10.0%, respectively, of our net operating revenues. We expect that we will continue to depend on a relatively limited number of customers for a significant portion of our net operating revenues because of the concentration of demand in the semiconductor industry for our products and services. Our ability to maintain close and satisfactory relationships with our customers is important to the ongoing success and profitability of our services. Few of our customers are presently obligated to purchase packaging or testing services or to provide us with binding forecasts of product purchases for any period. If any of our significant customers reduces, delays or cancels its orders, our services would be seriously harmed because each of these customers accounts for a significant portion of our net operating revenues.

If capital resources required for our future expansion plans are not available, we may be unable to successfully implement our services strategy

We have engaged in equipment and facilities expansion in recent years to upgrade our technology and equipment. Our business growth in the future will continue to require substantial capital expenditures to fund such equipment and facilities expansions. The growing demand for substrate products has and will continue to require significant capital expenditures on substrate packaging technology and equipment. In making these planned capital expenditures, we may need to obtain additional capital. In addition, we may be unable to accurately estimate the timing and amount of our capital requirements, which depend on a number of factors including demand for our services and availability of equipment and whether or when the market will recover. In addition, we cannot assure you that additional financing will be available on satisfactory terms to us, or at all, when we require additional financing. If we are unable to obtain the necessary capital resources or financing, we will not be able to achieve our future business growth.

If we cannot compete successfully in our industry, our current and potential customers would likely decide not to use our services, which would seriously harm our services

The independent semiconductor packaging and testing industry is very competitive. We face substantial competition from established packaging and testing companies, including Advanced Semiconductor Engineering, Inc. (Taiwan), ASE Test Limited (Taiwan and Malaysia), Amkor Technology Inc. (USA), ASAT, Ltd. (Hong Kong), STATS ChipPAC Ltd. (Singapore), Hana Microelectronics Public Co. Ltd. (Thailand), Astra International (Indonesia), Carsem Bhd. (Malaysia) and Shinko Electric Industries Co., Ltd. (Japan). We may face additional competition from new competitors in our industry in emerging countries, such as the People’s Republic of China, or the PRC, where demand is expected to grow for our products and services. To a lesser extent, we also compete with the internal packaging and testing capabilities of our customers who have in-house packaging and testing capabilities. Some of our competitors have greater resources in substrate technology. Some of our competitors have greater financial and other resources than we have, including established relationships with many large semiconductor companies which are our current or potential customers. These relationships and lengthy qualification periods required by most of our potential customers may prevent us from securing new customers.

If the outsourcing trend for packaging and testing services does not continue, we could lose a significant number of our current customers and we may be unable to implement our services strategy plan in the future

We depend on outsourcing of packaging and testing services by fabless semiconductor companies and integrated device manufacturers. In recent years, semiconductor companies have increasingly subcontracted parts of the semiconductor production process, including packaging and testing, to independent companies to reduce costs and shorten production cycles. However, we cannot assure you that the outsourcing trend will continue. If integrated device manufacturers become dissatisfied with the services of independent semiconductor packaging and testing companies, they may return to utilizing in-house packaging and testing capabilities. A reversal of, or slowdown in, the outsourcing trend would seriously harm our services and make it difficult for us to implement our growth plan in the future.

If demand for the services of Taiwan’s wafer foundries decreases, a significant source of our sales would decrease, which would seriously harm our services

We depend on Taiwan’s independent wafer foundries to source our sales orders. In recent years, more than half of our net operating revenues were derived from packaging and testing semiconductor wafers manufactured at Taiwan’s wafer foundries. If the demand for foundry services offered by Taiwan’s wafer foundries decreases for any reason, including shifts in demand for these services to wafer foundries in other countries, an important source of our sales would be lost and our profitability would suffer.

If we are unable to obtain raw materials from our suppliers, our production schedules would be delayed and we may lose customers

We must obtain sufficient quantities of raw materials at acceptable prices in a timely manner. We source most of our raw materials, including critical materials like lead-frames and substrates, from a limited group of suppliers. We purchase all of our materials on a purchase order basis and have no long-term contracts with any of our suppliers. From time to time, suppliers have extended lead times or limited the supply of required materials to us because of supply capacity constraints during market upturns for the semiconductor industry. Consequently, we have experienced from time to time difficulty in obtaining acceptable quantities of raw materials on a timely basis. In addition, from time to time, we may reject materials that do not meet our specifications, resulting in declines in output or yield. We cannot assure you that we will be able to obtain in the future sufficient quantities of raw materials and other supplies of an acceptable quality. Our inability to obtain raw materials in a timely and cost effective manner would cause us to delay our production and delivery schedules, which may result in the loss of our customers and revenues.

If we are unable to obtain equipment from our suppliers, we may be forced to delay any future expansion plans

We need to purchase new packaging and testing equipment if we decide to expand our operations in anticipation of a market recovery. From time to time, increased demand for new equipment may cause lead times to extend beyond those normally required by equipment vendors. For example, in the past, increased demand for equipment caused some equipment suppliers to only partially satisfy our equipment orders in the normal lead time frame during market upturns for the semiconductor industry. The unavailability of equipment or failures to deliver equipment could delay implementation of our future expansion plans and impair our ability to meet customer orders. If we are unable to implement our future expansion plans or meet customer orders, we could lose potential and existing customers. Generally, we do not enter into binding equipment purchase agreements and we acquire our equipment on a purchase order basis, which exposes us to substantial risks. For example, sudden changes in foreign currency exchange rates, particularly the US dollar and Japanese yen, could result in increased prices for equipment purchased by us, which could seriously harm our results of operations.

If we are unable to manage our growth effectively, our expansion plans could be jeopardized

We have in the past and again recently experienced growth in the scope and complexity of our operations and in the number of our employees. This growth has strained our managerial, financial, manufacturing and other resources. In order to manage our future growth, we must continue to implement additional operating and financial controls and hire and train additional personnel. We cannot assure you that we will be able to do so in the future, and our failure to do so could jeopardize our future expansion plans.

We are exploring the possibility of expanding our operations or making additional investments in the PRC, which may expose us to additional political, regulatory, economic and foreign investment risks

Some of our customers and foreign competitors have expanded their operations to the PRC. In order to remain competitive and to position ourselves to gain market share, we are exploring potential opportunities for expansion to or investments in the PRC. In December 2001 and June 2004, we obtained foreign investment approval from the Investment Commission of the ROC Ministry of Economic Affairs to invest up to US$50 million in aggregate in Suzhou, PRC. We established a subsidiary named Siliconware Technology (Suzhou) Limited, and, as of March 31, 2006, we have invested a total of US$50 million in this subsidiary. We are in the stage of ramping up our facilities in Suzhou for the manufacturing of DRAM modules, flash memory cards, transistors and other electronic components. With this investment in the PRC, our financial condition, results of operations and future prospects are subject, to a significant degree, to the political and economic situation, regulatory control and general legal developments in the PRC and other foreign investment risks. In addition, these expansions or investments could be adversely affected if relations between the PRC and the ROC deteriorate.

We depend on key management and the loss of any key management personnel may disrupt our services

Our success depends upon the continued service of key senior management. Members of our senior management have served us for an average of over 10 years and have made substantial contributions to our growth. We do not have employment contracts with many of our senior management and none of our senior management is bound by any non- competition agreement. If we lose the services of key senior management we would be unable to find and integrate replacement personnel, which could adversely affect our services expansion.

We depend on our technical personnel and the inability to attract and retain them would jeopardize our operations and future expansion plans

Our business depends on technology and, accordingly, our success depends on our ability to attract, retain and motivate highly skilled employees, particularly engineering and technical personnel. Without sufficient numbers of skilled employees, our operations would suffer, resulting in deteriorating ability to solve operating and other issues in a timely and effective manner. Competition for qualified engineering and technical employees in Taiwan is intense and replacement of qualified employees is difficult. If we are unable to attract, retain and motivate our technical personnel, our operations would be jeopardized and our operating efficiency would deteriorate.

Our failure to comply with environmental regulations or to defend against environmental claims could expose us to serious liabilities

The semiconductor packaging and testing processes require the use of chemicals and gases which are regulated by the government. For example, liquid waste is produced when silicon wafers are diced into chips using diamond saws and cooled with running water. Liquid waste is also produced when lead-frames are plated onto wafer chips and cleansed with water. Moreover, excess material on leads and moldings are removed from packaged semiconductors in the trim and form process. Environmental claims or the failure to comply with any environmental regulations could result in damages or fines against us or suspension of production. We may be required by new regulations to acquire costly equipment or to incur other significant expenses. If we fail to control the use of hazardous substances, we could incur future liabilities, including clean up costs.

We and many Taiwan customers and suppliers are vulnerable to natural disasters and other events outside our control, the occurrence of which may seriously harm our services

Our operations and those of our customers and suppliers are particularly vulnerable to fires, earthquakes, typhoons, droughts, floods, power losses, and similar events. The occurrence of any of these events could interrupt services. For instance, our operations were interrupted for approximately ten days in September 1999 because of an earthquake. Our property and business interruption insurance did not cover all damages incurred during the interruption. Most recently, in November 2004, Taiwan experienced significant earthquakes registering up to 6.7 on the Richter scale. We did not experience any significant damage as a result of these earthquakes. We cannot guarantee that future earthquakes will not cause material damage to our facilities or property, including work in progress, or cause significant business interruptions. Although we maintain property and business interruption insurance for such risks, there is no guarantee that future damages or business loss from earthquakes will be covered by such insurance, that we will be able to collect from our insurance carriers, should we choose to claim under our insurance policies, or that such coverage will be sufficient.

In addition, the production facilities of many of our suppliers and customers providers of complementary semiconductor manufacturing services, including foundries, are located in Taiwan. If our customers are affected, it could result in a decline in the demand for our testing and assembly services. If our suppliers and providers of complementary semiconductor manufacturing services are affected, our production schedule could be interrupted or delayed. As a result, a major earthquake, natural disaster or other disruptive event in Taiwan could severely disrupt the normal operation of business and have a material adverse effect on our financial condition and results of operations.

Disruptions in the international trading environment may seriously decrease our international sales

A substantial portion of our net operating revenues is derived from sales to customers located outside of Taiwan. In 2003, 2004 and 2005, sales to our overseas customers accounted for 56.8%, 59.9% and 62.0%, respectively, of our net operating revenues. We expect sales to customers outside of Taiwan to continue to represent a significant portion of our net operating revenues. As a result, our services will continue to be vulnerable to disruptions in the international trading environment, including adverse changes in foreign government regulations, political unrest and international economic downturns.

These disruptions in the international trading environment affect the demand for our products and change the terms upon which we sell our products overseas, which could seriously decrease our international sales.

The differences between Taiwan and U.S. accounting standards resulted in different amounts of our net income under those standards, which makes evaluating our financial performance difficult

Our financial statements are prepared under ROC GAAP, which differ in many respects from US GAAP. For example, ROC GAAP does not require the recognition of the fair market value of shares distributed as bonuses to employees when calculating net income. Largely as a result of the differences in accounting for employee bonuses, equity investments and overseas convertible bonds, our net income in 2003, 2004 and 2005 under US GAAP was NT$3,097 million (restated), NT$3,671 million (restated) and NT$3,971 million (US$121 million), respectively, as compared to net income under ROC GAAP of NT$2,839 million, NT$4,282 million and NT$8,244 million (US$251 million), respectively.

In addition, prior to January 1, 2005, the ROC SFB allowed us to delay recognition of investment income (loss) from certain of our investee companies in our financial results under the ROC GAAP until June 30 of the following year. Therefore, our financial results in 2004 may not contain investment income (loss) of certain investee companies in such year. After the adoption of amended ROC Statement of Financial Accounting Standard No. 5, “Accounting for Long-term Equity Investment” which became effective on January 1, 2005, we cease to delay recognizing investment income (loss) from certain investee companies accounted for under the equity method. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results-Delay in Recognition of Investment Income in Certain Investee Companies Accounted for under Equity Method.” Under US GAAP, however, there is no provision that allows us to delay recognition of our investment income from our investee companies.

Under ROC GAAP, our overseas convertible bonds are recorded as a liability at an amount equal to the proceeds received. Any discount or premium to the par value of the overseas convertible bonds is amortized in the statement of operations by using the effective interest rate. However, under US GAAP, in accordance with SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, our overseas convertible bonds issued in 2002 and 2004, with the feature of the combination of mutually exclusive conversion of the debt to equity or redemption at a multiple of the bonds par value, are required to be accounted for as embedded derivative instruments. The embedded derivatives separated from the book value of bonds are measured at fair value and changes in fair value are recognized as unrealized gain (loss) in the income statement for each accounting period. As a result, a meaningful year-to-year comparison of our financial results may not be performed. In addition, year-to-year comparison of our financial results under ROC GAAP may significantly differ from year-to-year comparison under US GAAP.

Investor confidence in us may be adversely impacted if we or our independent registered public accountants are unable to attest to the effectiveness of our internal control over financial reporting as of December 31, 2006 as required by Section 404 of the Sarbanes-Oxley Act of 2002.

We are subject to the reporting requirements of the SEC. The SEC, as directed by Section 404 of the U.S. Sarbanes-Oxley Act of 2002, adopted rules requiring U.S. public companies to include a report of management on the company’s internal control over financial reporting in its Annual Report on Form 10-K or Form 20-F, as the case may be, that contains an assessment by management of the effectiveness of the company’s internal control over financial reporting. In addition, the company’s independent registered public accountants must attest to and report on management’s assessment of the effectiveness of the company’s internal control over financial reporting. These requirements will first apply to our Annual Report on Form 20-F for the fiscal year ending on December 31, 2006.

In the course of their audit, our independent auditors PricewaterhouseCoopers have identified certain deficiencies in our current internal accounting processes. While we have taken actions to address these deficiencies, additional measures may be necessary and these measures, along with other measures expected to be taken to improve our internal controls, may not be sufficient to address the issues identified by us or to ensure that our internal controls are effective. See “Item 15. Controls and Procedures”. Moreover, even if our management does conclude that our internal controls over financial reporting are effective, if our independent accountants are not satisfied with our internal controls, the level at which our controls are documented, designed, operated or reviewed, or if the independent accountants interpret the requirements, rules or regulations differently from us, they may decline to attest to our management’s assessment or may issue a report with adverse opinion. Any of these possible outcomes could result in a loss of investor confidence in the reliability of our financial statements, which could negatively impact the market price of our ADSs.

Risks Relating to Our Technologies

If we cannot respond to rapid technology changes in the semiconductor packaging and testing industry, our profitability will suffer

The semiconductor packaging and testing industry is characterized by rapid increases in the diversity and complexity of semiconductor packaging and testing products. As a result, we expect that we will need to continue to develop and offer more advanced packaging and testing processes in order to respond to our customers’ requirements as industry conditions change. Developing and maintaining advanced packaging and testing processes requires significant research and development and capital expenditures.

In addition, advances in technology typically lead to rapid and significant price erosion and decreased margins for older products and services and may cause our current products and services to become less competitive. Our failure to develop or obtain advanced packaging or testing designs will materially and adversely affect our product mix and would seriously harm our profitability.

If we are unable to successfully package and test our products within the acceptable range of precision, we will not be able to achieve satisfactory production yields and our results of operations will suffer

The semiconductor packaging and testing processes are complex and involve a number of precise steps. Defective packaging and testing can result from a number of factors, including:

	•		the level of contaminants in the manufacturing environment;

	•		human error;

	•		equipment malfunction;

	•		defective plating services;

	•		use of defective raw materials; and

	•		inadequate sample testing.

From time to time, we expect to experience lower than anticipated production yields as a result of the above factors, particularly in connection with the expansion of our capacity or change in our processing methods. In addition, our yield on new products will be lower than average as we develop the necessary expertise and experience to produce those products. If we fail to maintain high quality production standards, our reputation may suffer and our customers may cancel their orders or ask for discount.

We rely on technology provided by third parties

We have licensed from Freescale Semiconductor Inc., or Freescale, formerly part of Motorola, Inc., or Motorola, the technology for ball grid array for which we make royalty payments based on the number of pads or balls used in our packages. We also implement new packages by entering into technology alliances and by licensing package technologies from certain technology companies. In April 2004, Motorola spun off its semiconductor package business into Freescale and assigned our agreement with Motorola to Freescale, and Freescale has assumed all of Motorola’s right, duties and obligations under the agreement.

For 2003, 2004 and 2005, our royalty expenses were NT$161 million, NT$143 million and NT$195 million (US$5.9 million), respectively, which accounted for 0.6%, 0.4% and 0.4%, respectively, of our net operating revenues. There can be no assurance that third parties will continue to license advanced technologies to us on terms satisfactory or acceptable to us, or at all. In the event that we are unable to license advanced technologies from third parties, we may be required to develop such technologies internally. There can be no assurance that we will be able to develop such technologies internally.

Disputes over intellectual property rights could be costly and could deprive us of technologies to stay competitive

We may suffer legal liabilities and damages if we infringe on the proprietary rights of others or incur costs resulting from legal claims and adverse proceedings against us. Despite this, we have no means of knowing what patent applications have been filed in the United States or elsewhere until they are granted. The semiconductor packaging and testing industry is characterized by frequent litigation regarding patent and other intellectual property rights. If any third party were to make valid intellectual property infringement claims against us or our customers, we could be required to:

•

discontinue using disputed process technologies which would prevent us from offering some of our packaging and testing products;

	•		pay substantial monetary damages;

	•		seek to develop non-infringing technologies, which may not be feasible; or

	•		seek to acquire licenses to the infringed technology, which may not be available on commercially reasonable terms, if at all.

We could also be required to expend substantial resources to defend any claim alleging our infringement of patents or other intellectual property rights. If we fail to obtain necessary licenses or if litigation relating to patent infringement or other intellectual property matters occurs, it could seriously harm our company.

In addition, we have acquired patents and trademarks to protect some of our proprietary technologies and products. We cannot assure you, however, that these measures will provide meaningful protection of our intellectual property. For example, our competitors may be able to develop similar or superior products, or we may not have sufficient financial and legal resources to protect and enforce our rights.

Political and Economic Risks

We face substantial political risks associated with doing business in Taiwan, particularly due to the tense relationship between the ROC and the PRC.

Our principal executive offices and substantially all of our assets are located in Taiwan. Accordingly, our services, financial condition and results of operations and the market price of our common shares and the ADSs may be affected by changes in Republic of China governmental policies, taxation, inflation or interest rates and by social instability and diplomatic and social developments in or affecting Taiwan which are outside of our control. Taiwan has a unique international political status. Since 1949, Taiwan and the Chinese mainland have been separately governed. The PRC claims that it is the sole government in China and that Taiwan is part of China. Although significant economic and cultural relations have been established during recent years between the ROC and the PRC, relations have often been strained. The PRC government has refused to renounce the use of military force to gain control over Taiwan and, in March 2005, further passed an Anti-Secession Law that authorizes non-peaceful means and other necessary measures should Taiwan move to gain independence from the PRC. Past developments in relations between the ROC and the PRC have on occasion depressed the market prices of the securities of companies in the ROC. In February 2006, the president of Taiwan suspended activities of the country’s National Unification Counsel, a committee established to assist Taiwan in its efforts to reunite with the PRC. Such suspension is commonly viewed as having a detrimental effect to reunification efforts between the two countries. Relations between the Republic of China and the PRC and other factors affecting military, political or economic conditions in Taiwan could materially and adversely affect our financial condition and results of operations, as well as the market price and the liquidity of our securities.

The trading price of our American Depositary Shares may be adversely affected by the general activities of the Taiwan Stock Exchange and U.S. stock exchanges, the trading price of our shares, increases in interest rates and the economic performance of Taiwan markets

Our shares are listed on the Taiwan Stock Exchange. The trading price of our ADSs may be affected by the trading price of our shares on the Taiwan Stock Exchange. The Taiwan Stock Exchange is a smaller market and, more volatile than the securities markets in the United States and a number of 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. On March 13, 2000, the Taiwan Stock Exchange Index experienced a 617-point drop, which represented the single largest decrease in the Taiwan Stock Exchange Index in its history. During 2005, the Taiwan Stock Exchange Index peaked at 6,575.53 on December 29, 2005, and reached a low of 5,632.97 on October 28, 2005. From January 2, 2005 to May 31, 2006, daily closing values of our shares ranged from NT$22.2 per share to NT$48.5 per share. The Taiwan Stock Exchange is particularly volatile during times of political instability including when relations between Taiwan and the PRC are strained. Moreover, the Taiwan Stock Exchange has experienced problems including market manipulation, insider trading and settlement defaults. The recurrence of these or similar problems could decrease the market price and liquidity of our shares and ADSs.

The market price of the ADSs may also be affected by general trading activities on the U.S. stock exchanges, which have experienced significant price volatility with respect to shares of technology companies. Increases in interest rates and other general economic conditions may also have an effect on the market price of our ADSs. Daily closing values of our ADSs ranged from US$1.88 to US$7.95 between June 7, 2000, the date our ADSs were listed on NASDAQ, and May 31, 2006. Over the same period, the NASDAQ Composite Index ranged from 1,114.11 to 2,370.88.

On May 30, 2006, the Taiwan Stock Exchange Index closed at 6,846.95, and the daily closing value of our shares was NT$41.0 per share.

Currency fluctuations could increase our costs relative to our revenues, which could adversely affect our profitability.

More than half of our net operating revenues are denominated in currencies other than NT dollars, primarily US dollars and Japanese Yen. On the other hand, more than half of our costs of direct labor, raw materials and overhead are incurred in NT dollars. We are affected by fluctuations in exchange rates among the US dollar, the Japanese Yen, the NT dollar and other currencies. Any significant fluctuation in exchange rates may be harmful to our financial condition. In addition, fluctuations in the exchange rate between the US dollar and the NT dollar will affect the US dollar value of the ADSs and the US dollar value of any cash dividends we pay, which could have a corresponding effect on the market price of the ADSs.

Any future outbreak of contagious diseases may materially and adversely affect our services and operations, as well as our financial condition and results of operations.

Any future outbreak of contagious diseases, such as severe acute respiratory syndrome or avian influenza, may disrupt our ability to adequately staff our services, and may generally disrupt our operations. If any of our employees is suspected of having contracted any contagious disease, we may under certain circumstances be required to quarantine such employees and the affected areas of our premises. As a result, we may have to temporarily suspend part of or all of our operations. Furthermore, any future outbreak may restrict the level of economic activity in affected regions, including Taiwan, which may also adversely affect our services and prospects. As a result, we cannot assure you that any future outbreak of contagious diseases would not have a material adverse effect on our financial condition and results of operations.

Our future tax obligations may adversely affect our profitability

We have historically treated certain of our revenues as “service revenues” for the purpose of determining our value-added tax, or VAT, obligations. Service revenues have an applicable VAT rate of 0%. The relevant tax authority has determined that a certain amount of such revenues should be taxable and is currently in the process of assessing the aggregate amount of our VAT obligations. Although we believed that our VAT provisions of NT$468 million recorded as of December 31, 2004 were sufficient to cover the liability associated with the tax assessment, we recognized an additional VAT of NT$323 million as other loss in 2005. The total amount of NT$791 million was paid prior to March 31, 2006. We can provide no assurance that the amount of the final assessment will not adversely affect our profitability.

In addition, according to the newly implemented Alternative Minimum Tax, or AMT, Act effective from January 1, 2006, a company will be subject to a 10% AMT if its annual income exceeds NT$2 million, and an individual will be subject to a 20% AMT if his/her annual income exceeds NT$6 million. The imposition of the AMT is designed to remedy the current excessive tax incentives for individuals and businesses. For businesses, the incomes which previously enjoyed tax-exemption privileges under relevant tax regulations, such as the Statute for Upgrading Industries will be subject to the new AMT system for the calculation of business taxpayers’ aggregate incomes. The AMT Act also provides that businesses already qualified for five-year tax exemption before December 31, 2005 may continue to enjoy tax incentives and not to be subject to AMT, so long as the construction of their investment projects breaks ground within one year and is completed within three years of the implementation of the AMT Act. Beginning in 2006, we expect to recognize an accrual tax liability as a result of the imposition of the AMT in accordance with the related AMT rules.

Risks Related to Ownership of Our Shares or ADSs

Restrictions on the ability to deposit shares into our ADS program may adversely affect the liquidity and price of the ADSs

The ability to deposit shares into our ADS program is restricted by ROC law. Under current ROC law, no person or entity, including you and us, may deposit shares into our ADS program without specific approval of the ROC Securities and Futures Bureau ( the “ROC SFB”) except for the deposit of the shares into our ADS program and for the issuance of additional ADSs in connection with:

	•		distribution of share dividends or free distribution of our shares;

	•		exercise of the preemptive rights of ADS holders applicable to the shares evidenced by ADSs in the event of capital increases for cash; or

	•		if permitted under the deposit agreement and the custody agreement, purchases of our shares in the domestic market in Taiwan by the investor directly or through the depositary or the surrender of shares under the possession of investors and then delivery of such shares to the custodian for deposit into our ADS program, subject to the following conditions: (a) the depositary may accept deposit of those shares and issue the corresponding number of ADSs with regard to such deposit only if the total number of ADSs outstanding after the deposit does not exceed the number of ADSs previously approved by ROC SFB, plus any ADSs issued pursuant to the events described in the above two bullet points; and (b) this deposit may only be made to the extent previously issued ADSs have been cancelled.

As a result of the limited ability to deposit shares into our ADS program, the prevailing market price of our ADSs on the NASDAQ National Market, or NASDAQ, may differ from the prevailing market price of the equivalent number of our shares on the Taiwan Stock Exchange.

Holders of our ADSs will not have the same proposal or voting rights as the holders of our shares, which may affect the value of your investment

Due to the amendment to the ROC Company Act and the amendment made to our articles of incorporation accordingly, except for treasury shares, each common share is generally entitled to one vote and no voting discount will be applied. However, except as described in this annual report and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching to the shares evidenced by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the shares represented by the ADSs. The voting rights attaching to the shares evidenced by our ADSs must be exercised as to all matters brought to a vote of shareholders collectively in the same manner.

Moreover, holders of the ADSs do not have individual rights to propose any matter for shareholders’ votes at our shareholders’ meetings. However, holders of at least 51% of the ADS outstanding at the relevant record date may request the depositary to submit to us one proposal per year for consideration at our annual ordinary shareholders’ meeting, provided that such proposal meets certain submission criteria and limitations, including the language and the length of the proposal, the time of submission, the required certification or undertakings, and the attendance at the annual ordinary shareholders’ meeting. A qualified proposal so submitted by the depositary will still be subject to review by our board of directors and there is no assurance that the proposal will be accepted by our board of directors for inclusion in the agenda of our annual ordinary shareholders’ meeting. Furthermore, if we determine, at our discretion, that the proposal submitted by the depositary does not qualify, we have no obligation to notify the depositary or to allow the depositary to modify such proposal.

Furthermore, if holders of 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 election of directors and/or supervisors, the depositary will appoint our Chairman, or his designee, to represent the ADS holders at the shareholders’ meetings and to vote the shares represented by the ADSs outstanding in the manner so instructed. If by the relevant record date the depositary has not received instructions from holders of ADSs holding at least 51% of the ADSs to vote in the same manner for any resolution, then the holders will be deemed to have instructed the depositary to authorize and appoint our Chairman, or his designee, to vote all the shares represented by ADSs at his sole discretion, which may not be in your interest.

The rights of holders of our ADSs to participate in our rights offerings may be limited, which may cause dilution to their 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 those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to be declared effective. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings.

Our public shareholders may have more difficulty protecting their interests than they would as shareholders of a U.S. corporation

Our corporate affairs are governed by our articles of incorporation and by laws governing ROC corporations. The rights of our shareholders to bring shareholders’ suits against us or our board of directors under ROC law are much more limited than those of the shareholders of U.S. corporations. Therefore, our public shareholders may have more difficulty protecting their interests in connection with actions taken by our management, members of our board of directors or controlling shareholders than they would as shareholders of a U.S. corporation. Please refer to “Item 10. Additional Information—B. Memorandum and Articles of Association” included elsewhere in this annual report for a detailed discussion of the rights of our shareholders to bring legal actions against us or our directors under ROC law.

Holders of our ADSs will be required to appoint several local agents in Taiwan if they withdraw shares from our ADS program and become our shareholders, which may make ownership burdensome

Non-ROC persons wishing to withdraw shares represented by their ADSs from our ADS program and hold our shares represented by those ADSs are required to appoint a local agent or representative with qualifications set forth by the ROC SFB to open a securities trading account with a local brokerage firm, pay ROC taxes, remit funds and exercise shareholders’ rights. In addition, the withdrawing holders are also required to appoint a custodian bank with qualifications set forth by the Ministry of Finance to hold the securities in safekeeping, make confirmations, settle trades and report all relevant information. Without making this appointment and opening of the accounts, the withdrawing holders would not be able to subsequently sell our shares withdrawn from a depositary receipt facility on the Taiwan Stock Exchange. Under ROC law and regulations, citizens of the PRC are not permitted to hold our shares or withdraw shares represented by ADSs from our ADS program.

You may not be able to enforce a judgment of a foreign court in the ROC

We are a company limited by shares incorporated under the ROC Company Act. Most of our assets and most of our directors, supervisors and executive officers and experts named in the registration statement are located in Taiwan. As a result, it may be difficult for you to enforce judgments obtained outside Taiwan upon us or such persons in Taiwan. Any judgment obtained against us in any court outside the ROC arising out of or relating to the ADSs will not be enforced by ROC courts if any of the following situations shall apply to such final judgment:

	•		the court rendering the judgment does not have jurisdiction over the subject matter according to ROC law;

	•		the judgment or the court procedures resulting in the judgment is contrary to the public order or good morals of the ROC;

	•		the judgment was rendered by default, except where the summons or order necessary for the commencement of the action was duly served on us within the jurisdiction of the court rendering the judgment within a reasonable period of time and in accordance with the laws and regulations of such jurisdiction, or with judicial assistance of the ROC; or

	•		judgments of ROC courts are not recognized and enforceable in the jurisdiction of the court rendering the judgment on a reciprocal basis.

We may be considered a passive foreign investment company, which could result in adverse U.S. tax consequences for U.S. investors.

We do not believe we were a passive foreign investment company, or PFIC, for 2005 and do not expect to become one in the future, although there can be no assurance in this regard. Based upon the nature of our business activities, we may be classified as a PFIC, for U.S. federal income tax purposes. Such characterization could result in adverse U.S. tax consequences to you if you are a U.S. investor. For example, if we are a PFIC, our U.S. investors may become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, for any taxable year we will be classified as a PFIC for U.S. tax purposes if either (i) 75% or more of our gross income in a taxable year is passive income or (ii) the average percentage of our assets (which includes cash) by value in a taxable year which produce or are held for the production of passive income is at least 50%. The calculation of the value of our assets will be based, in part, on the quarterly market value of our common and preferred shares, which is subject to change. In addition, the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in this offering. See “Taxation — U.S. Federal Income Tax Considerations for U.S. Persons — Passive foreign investment companies.”

Item 4. Information on the Company

A. History and Development of the Company

Our legal and commercial name is Siliconware Precision Industries Co., Ltd. We were incorporated under the ROC Company Act as a company limited by shares on May 17, 1984 and our shares were listed on the Taiwan Stock Exchange in 1993. On June 7, 2000, we issued 30,000,000 ADSs, each representing five shares. Our ADSs have been listed on the NASDAQ National Market under the symbol “SPIL” since June 2, 2000. Our principal executive offices are located at No. 123, Sec. 3, Da Fong Road, Tantzu, Taichung, Taiwan, Republic of China, and our telephone number is 886-4-2534-1525. Our Internet website address iswww.spil.com.tw.

We are one of the world’s leading independent providers of semiconductor packaging and testing services. We offer a full range of both standard and customized packaging and testing solutions, including advanced lead-frame packages and substrate packages such as the flip-chip ball grid array, as well as testing for logic, mixed signal and embedded memory devices. We also offer our customers turnkey solutions from packaging and testing to direct shipment of semiconductor devices to end users designated by our customers.

Our headquarters and packaging facilities are located in Taichung, Taiwan, where we had 3,961 wire bonders as of December 31, 2005. In addition, we had 273 testers in Hsinchu and Taichung, Taiwan as of the same date. Taiwan is home to the world’s largest independent wafer foundries and as such is home to one of the world’s leading suppliers of outsourcing semiconductor manufacturing. Our close proximity to and relationships with Taiwan’s leading wafer foundries allow us to benefit significantly from the trend towards outsourcing in the semiconductor industry and to quickly respond to our customers’ needs. Our location in Taiwan also enables our customers to secure seamless services within Taiwan for all of their manufacturing needs, thereby minimizing the time required to deliver finished semiconductor devices to the market.

We provide packaging and testing services to more than 100 customers worldwide. For 2005, our top customers included the following leading semiconductor suppliers: ATI Technologies, Inc., Broadcom Corporation, Intel Corporation, LSI Logic Corporation, Marvell Semiconductor Inc., MediaTek, NVIDIA, SanDisk Corporation, VIA Technologies Inc. and Xilinx, Inc. We currently target customers in the personal computer, communications, consumer ICs and non-commodity memory semiconductor markets. We strive to provide the highest level of customer service to meet and anticipate our customers’ current and future requirements. We have established technical and sales teams near major customer facilities, including the Hsinchu Science Park, to work with our customers on developing and implementing new packaging and testing technologies as semiconductors become smaller and more sophisticated.

Our objective is to be the leading worldwide, full service independent provider of semiconductor packaging and testing services. Key elements of our strategy include:

	•		providing a full range of packaging and testing services including turnkey capabilities to simplify our customers’ supply chain management;

	•		offering leading packaging and testing technology to attract and retain customers;

	•		focusing on customer service and working with our customers on developing and fulfilling their current and future semiconductor packaging and testing needs;

	•		leveraging our existing foundry relationships and Taiwan location to enable our customers to easily integrate all of their outsourced semiconductor manufacturing needs;

	•		diversifying and expanding our customer base geographically, by customer type and by end-market application to capitalize on growing markets including communications and increased outsourcing from vertically integrated semiconductor device manufacturers and systems original equipment manufacturers; and

	•		expanding in the PRC to remain competitive and position ourselves to achieve greater market share as some of our customers and foreign competitors have expanded their operations in the PRC.

For information relating to our capital expenditure, see “¾ B. Business Overview¾ Capital Expenditures and Divestitures”.

B. Business Overview

Our Business

We offer semiconductor packaging and testing services to the semiconductor industry for applications in communications, computing, consumer, automotive and industrial end markets. We offer full back-end turnkey services from wafer probe to final test and drop shipment. The services we offer are customized to the needs of our individual customers. In 2005, 87.3% of our net operating revenues were from packaging services and 12.7% of our net operating revenues were from testing and other services.

The following table shows, for the periods indicated, the amount of our packaging and testing revenues by product type and the product’s revenues as a percentage of our total net operating revenues:


	Year Ended December 31,
	2003				2004				2005
	NT$		%		NT$		%		NT$		%
	(audited) (consolidated)
	(in millions, except for percentages)
Ball grid array packages		11,698		42.7		16,416		46.6		21,963		50.5
Quad flat packages		8,635		31.5		9,435		26.7		8,823		20.3
Small outline packages		3,160		11.5		3,800		10.8		3,911		9.0
Other packages		956		3.5		1,467		4.2		3,259		7.5

Total packaging revenues		24,449		89.2		31,118		88.3		37,956		87.3

Testing and other revenues		2,962		10.8		4,134		11.7		5,532		12.7

Total net operating revenues		27,411		100.0		35,252		100.0		43,488		100.0

Our Packaging Services

We offer a broad range of package formats designed to provide our customers with a full array of packaging solutions. The packaging solutions we currently offer to our customers include lead-frame packages and substrate packages, which include ball grid array and module packages (incorporating multiple semiconductor chips) and flip-chip ball gird array packages. Our flip-chip ball grid array packages, which we began to offer in the first quarter of 2001, are based on the proprietary Flex-On-Cap wafer bumping and redistribution technologies we licensed from Flip Chip Technologies L.L.C., or Flip Chip. Semiconductor packaging serves to protect semiconductor chips, to facilitate their integration into electronic systems and to enable the dissipation of heat produced by the final product. The packaging process begins when patterned silicon wafers received from our customers are diced using diamond saws into separate die. Each die is attached to a lead-frame or substrate either directly in a substrate package or first to a die-attached pad in a lead-frame package, by silver paste made with epoxy resin. Leads on the lead-frame or substrate are then connected by extremely fine gold wires to the input/output terminals on the chip, using machines called wire 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. To complete the packaging process, excess molding compound is eliminated from the packaged semiconductor chip and the leads are trimmed and formed into various shapes.

Semiconductor packages have evolved from lead-frame packages to substrate packages in response to the increasing demands of today’s high-performance electronics products. The differentiating characteristics of these packages include:

	•		the size of the package;

	•		the number of electrical connections the package can support; and

	•		the thermal and electrical requirements of the package.

As modern applications for semiconductor devices require smaller chips, the size of packages has also decreased. In leading-edge packages, the size of the package is reduced to just slightly larger than the size of the individual chip itself through a process known as chip scale packaging.

As semiconductor devices increase in complexity, the number of required electrical connections also increases. Our lead-frame products have electrical connections from the semiconductor device to the electronic product through leads on the perimeter of the package. Our substrate products have balls on the bottom of the package that create the electrical connections with the electronic system and can support larger numbers of electrical connections.

New methods of packaging have also enhanced the thermal and electrical characteristics of semiconductor packages to meet the high-bandwidth, high-speed and high-power demands of modern semiconductor devices. Substrate packages with cavity design considerably enhance heat-dissipation without necessitating a change in the substrate or chip layout. Flip-chip packages enable direct interconnection from the chip to the substrate. Electrical connection is first deposited on one side of a chip; then, the chip is flipped onto the substrate. Flip-chip technology eliminates the need for wire bonding and provides superior electrical performances. Chip scale packages have been designed for devices which require reduced height, board space and weight by reducing the size of the package to be only slightly larger than the size of the die and are ideally suited for the latest generation of wireless and consumer electronics. Multi-chip module packages allow for the combination of multiple chips into a single packages, enabling increased application functionality while minimizing overall size.

We price our packaging products on a per unit basis, taking into account the complexity of the product, the prevailing market conditions, the order size, the strength and history of our relationship with the customer and our capacity utilization at the time.

Lead-Frame Packages

Lead-frame packages are the most widely used package category and are characterized by a semiconductor chip encapsulated in a plastic molding compound with metal leads on the perimeter. This package category has evolved from a design where the leads are plugged into holes on the circuit board to a design where the leads are soldered to the surface of the circuit board. Lead-frame packages are divided into two general types of packages: quad flat packages and small outline packages.

To satisfy the demand for miniaturization of portable electronic products, we are developing increasingly smaller versions of lead-frame packages to keep pace with continually shrinking semiconductor device sizes. Our advanced lead-frame packages are similar in design to our older lead-frame packages. However, our advanced lead-frame packages generally are thinner and smaller, have more leads and have advanced thermal and electrical characteristics. As a result of continued product development, we offer lead-frame products with a wide range of lead counts and body sizes to satisfy variations in the size of customers’ semiconductor devices.

The following diagram presents the basic component parts of a standard lead-frame package:

The following tables present our standard quad flat packages and small outline packages, including the number of leads in each package, a description of each package and the end uses of each package.

Quad Flat Packages


Package	Lead-count	Major Applications	End Uses
Quad Flat Package	100-256	Package with leads on four sides designed for advanced processors, consumer and industrial controllers, digital signal processors and application specific integrated circuits	Desktop personal computers, consumer and industrial products, commercial and office equipment, automotive systems

Low-Profile Quad Flat Package	32-256	Low-profile and lightweight package designed for application specific integrated circuits, digital signal processors, microprocessors/controllers, graphic processors, gate arrays, static random access memory and personal computer chipsets	Wireless communication products, laptop computers, digital cameras, cordless/radiofrequency devices


Package	Lead-count	Major Applications	End Uses
Thin Quad Flat Package	44-176	Designed for lightweight, portable electronics requiring broad performance characteristics	Laptop computers, personal computers, disk drives, office equipment, audio and video products, wireless communication products

Very Thin Quad Flat Package	80-100	Designed for lightweight, portable electronics requiring low profile packages	Laptop computers, personal computers, disk drives, office equipment, audio, video products, wireless communication products

Quad Flat No-lead Package	5-88	Small and light package with improved thermal and electrical performance makes it suitable for wireless transmitters RF front end, hard disk devices and micro-controllers	Wireless communication products, disk drives, portable products, consumer products

Thin Quad Flat No-lead Package	48-56	This device offers similar features to those of Quad Flat No-lead Package, but can process smaller and lighter packages	Wireless communication products, disk drives, portable products, consumer products

Small Outline Packages


Package	Lead-count	Major Applications	End Uses
Plastic Dual In-line Package	14-42	General purpose plastic package used in consumer electronic products	Games, telephones, televisions, audioequipment, computer peripherals

Small Outline Package	24-44	Small lead-frame package designed for applications requiring reduced height	Pagers, cordless telephones, fax machines, copiers, printers, computer peripherals, audio and video products, automotive systems

Shrink Small Outline Package	24-70	Small lead-frame package designed for applications requiring reduced height	Pagers, cordless telephones, fax machines, copiers, printers, computer peripherals, audio and video products, automotive systems

Small Outline J-Bend Package	20-44	Package designed for memory and low pin-count applications	Consumer (audio/video/entertainment), communications (pagers/cordless phones), radiofrequency devices, cable TV, office appliances (fax/copiers/printers/personal computer peripherals)


Package	Lead-count	Major Applications	End Uses
Thin Small Outline Package I	28-56	Package designed for high-volume production of low-lead count memory devices including flash memory, static random access memory and dynamic random access memory	Laptop computers, personal computers, still and video cameras and standard connections for peripherals to computers

Very Thin Small Outline Package I	48-56	Package designed for a variety of applications where small sized memory devices are required, such as static random access memory, flash memory and electrically erasable programmable read-only-memory	Memory module, mobile phones, PDAs, laptop computers, and digital still cameras

Dual Die TSOP I	48-56	Package designed for a variety of applications where small sized memory devices are required, such as static random access memory, flash memory and electrically erasable programmable read-only-memory	Memory module, mobile phones, PDAs, laptop computers and digital still cameras

Thin Small Outline Package II	32-86	Smaller version of Thin Small Outline Package I designed for logic and analog devices and memory devices including flash memory, static random access memory, erasable and electrically erasable programmable read only memory, and dynamic random access memory	Disk drives, recordable optical disks, audio and video products, consumer electronics, communication products

Substrate Packages

This category generally employs the ball grid array design which utilizes a plastic or tape laminate substrate rather than a lead-frame and places the electrical connections on the bottom of the package rather than around the perimeter.

The ball grid array format was developed to address the need for higher lead counts required by advanced semiconductor devices. Benefits of ball grid array packaging over leaded packaging include:

	•		smaller size;

	•		greater pin count;

	•		greater reliability;

	•		better electrical signal integrity; and

•

easier attachment to a printed circuit board.

As the number of leads surrounding the package increased, the proximity of the leads to one another became closer in an attempt to maintain the size of the package. The close proximity of one lead to another resulted in electrical shorting problems, and required the development of increasingly sophisticated and expensive techniques for producing circuit boards to accommodate the high number of leads.

The ball grid array format solved this problem by effectively creating leads on the bottom of the package in the form of solder balls. These balls can be evenly distributed across the entire bottom surface of the package, allowing greater distance between the individual leads. For the highest lead count devices, the ball grid array configuration can be manufactured less expensively and requires less delicate handling at installation.

The following diagram presents the basic component parts of a standard ball grid array packages:

To address the electronics market demand for higher frequency, higher input/output, and better thermal performance, we have made efforts to develop high value-added advanced packaging technologies, such as flip-chip and wafer bumping technologies. In addition to the development of the 8-inch wafer bumping technology, in order to meet the trend of wafer size moving to 12-inch from 8-inch, we have successfully established the first 12-inch wafer bumping technology in the world. Flip-chip ball grid array is a high-end, high-growth product typically used in advanced semiconductor products such as microprocessor units, micro peripherals, field programmable gate arrays and application specific ICs. The flip-chip technology enables direct interconnection from the chip to the substrate, eliminates the need for wire bonding and provides superior electrical performance. We licensed the flip-chip assembly technology from Flip-Chip to enhance our assembly process capability in flip-chip products. We have also developed thin and small package, or CSPs, on flexible or rigid substrates as well as lead-frames, which are suitable for the portable consumer market. Furthermore, we have developed module packages, with multiple chips integrated into one package, in order to meet the growing demand for “system-in-package,” or SIP, for applications in personal computers, communications devices and consumer products.

The following diagram presents the cross section of a flip-chip ball grid array package:

The following table presents our substrate packages, including the number of leads and the description of and uses for each package format:


Package	Lead-count	Major Applications	End Uses
Flip-Chip Ball Grid Array	256-2,304	Much higher electrical performance than traditional ball grid array for modern, more demanding applications	Workstations, networking, graphics, application specific integrated circuits, personal digital assistants, processors

Chip Scale Package	36-591	Low cost solution for low input/output count suitable for semiconductors that require a smaller package size than plastic ball grid array	Memory, analog, flash memory, application specific integrated circuits, radio frequency devices, personal digital assistants, communications, mobile phones, laptop computers, sub-notebooks, wireless systems

Stacked-Die Chip Scale Package	21-400	Low cost solution for low	Memory, analog, flash


Package	Lead-count		Major Applications	End Uses
			input/output count suitable for semiconductors that require a smaller package size than plastic ball grid array. This device offers double memory capacity with increased device functionality while allowing manufacturers to maintain size reduction roadmaps	memory, application specific integrated circuits, radio frequency devices, personal digital assistants, communications, mobile phones, laptop computers, sub-notebooks, wireless systems

Ball Grid Array		119-1,156	Ball grid array package designed for applications which require high performance	Laptop computers, disk drives, video cameras, global positioning systems, wireless communication products, standard connections for peripherals to computers

Thermal Enhanced Ball Grid Array		241-1,521	Optimum low cost solution for high speed, high power applications with multiple routing layers for high performance applications	Application specific integrated circuits, microprocessors, gate arrays, personal digital assistants, communications, mobile phones, laptops, sub-notebooks, boards

Low Profile Ball Grid Array		144-352	Low-profile and light-weight package designed for applications which require high performance	Laptop computers, wireless communication products, computer peripherals

Land Grid Array		7-190	Land grid array package designed for applications which require high performance	Laptop computers, disk drives, video cameras, global positioning systems, wireless communication products, standard connections for peripherals to computers

Organic Leadless Chip Carrier		28-48	Package designed for CMOS image sensor chip, which offers small and light-weight for image applications	Mobile phones, PDAs, laptop computers, digital still cameras, personal computer cameras, toys, automobile, security and surveillance

Ceramic Leadless Chip Carrier		48	Offers similar feature as organic leadless chip carrier, but only using ceramic substrate material	Mobile phones, PDAs, laptop computers, digital still cameras, personal computer cameras, toys, automobile, security and surveillance


Package	Lead-count		Major Applications	End Uses
Organic Leadless Grid Array		28-48	Offers small and light-weight for image sensor applications and is made of organic substrate designed for better thermal performance	Mobile phones, PDAs, laptop computers, digital still cameras, personal computer cameras, toys, automobile, security and surveillance

CMOS Image Sensor Module		n/a	Offers manufacturing flexibility for customized solutions for image sensor applications that require short time-to-market	Mobile phones, PDAs, laptop computers, digital still cameras, personal computer cameras, toys, automobile, security and surveillance

Testing and Other Services

Semiconductor testing measures and ensures the performance, functionality and reliability of a packaged semiconductor device. Testing semiconductor devices requires significant technical expertise and knowledge of the specific applications and functions of the device under testing. In addition to maintaining different types of advanced testing equipment which enable us to test a variety of semiconductor device functions, we work closely with our customers to develop and convert programs to test particular semiconductor products on multiple equipment platforms effectively. The cost of any specific test is dependent on the test time (usually measured in seconds) required to run a test which varies depending on the complexity of the semiconductor device and the customer’s specification with the percentage of fault coverage.

We also conduct wafer probing and final testing of digital logic and mixed signal products. In addition, many of our customers request drop shipment of their tested integrated circuits directly to designated final destinations.

Wafer Probing.Wafer probing is the step immediately before packaging of integrated circuits and involves sorting the processed wafer for defects to ensure that it meets customer acceptance criteria. Integrated circuits on an accepted wafer are then individually inspected visually under microscopes before packaging and final testing.

Logic and Mixed Signal Final Testing.We conduct final testing of a wide variety of logic and mixed signal integrated circuits, including complex, high-performance, as well as lower-performance integrated circuits. High-performance products include personal computer-related components such as CPU chipsets and graphic processors, while major lower performance products include integrated circuits used in consumer electronics products.

Other Testing Services.In addition to wafer probing and final testing services, we also provide “system-level testing” for testing products on motherboards with automatic load and unload features, “dynamic burn-in” service to screen out device infant mortality, “laser repair/laser trim” to modify device connection structure for specific product applications, “lead/ball scanner” to screen out abnormal products, including bent lead or ball defective devices from being shipped to end customers, “marking” to specify the unique customer logo and batch identification on product as for traceability and “tape and reel” to packing devices into one complete reel for surface mount operation.

We offer drop shipment services by providing for shipment of integrated circuits directly to final destinations designated by our customers. Since drop shipment eliminates the additional step of inspection by the customer before shipment to the customer, 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.

Customers

We currently have more than 100 customers worldwide, and our customers include many of the largest semiconductor companies in the world. In 2003, 2004 and 2005, 48.7%, 45.0% and 42.3% of our net operating revenues were derived from sales to our top five customers, respectively, and 66.8%, 64.8% and 62.6% of our net operating revenues were derived from sales to our top ten customers, respectively. In 2005, our top two customers provided approximately 11.0% and 10.0%, respectively, of our net operating revenues. Our representative customers as of December 31, 2005 include ATI Technologies, Inc., Broadcom Corporation, Intel Corporation, LSI Logic Corporation, Marvell Semiconductor Inc., MediaTek, NVIDIA Corp., SanDisk Corporation, VIA Technologies Inc. and Xilinx, Inc.

Industry-leading companies require early access to advanced packages because they manufacture products which have first-to-market technologies. Our close relationships with industry leading customers help us to further develop their technology and position us to benefit from the high unit volumes of these major semiconductor customers.

Set forth below is a geographic breakdown of our net operating revenues for the periods presented below:


	Year Ended December 31,
	2003				2004				2005
	NT$		%		NT$		%		NT$		%
	(audited) (consolidated)
	(in millions, except for percentages)
Taiwan		11,875		43.3		14,127		40.1		16,544		38.0
U.S. and Canada		14,775		53.9		20,001		56.7		24,349		56.0
Others⁽¹⁾		761		2.8		1,124		3.2		2,595		6.0


(1)		Includes primarily Japan, Germany, Singapore and Hong Kong.

Sales from outside of Taiwan accounted for 56.7%, 59.9% and 62.0% of our net operating revenues in 2003, 2004 and 2005, respectively. We primarily target U.S. and Canadian semiconductor companies that contract their wafer foundry services to major independent ROC foundries. Our U.S. and Canadian customers, including ATI Technologies, Inc. and NVIDIA Corp., are world-leading suppliers of graphic chipsets. Our U.S. customers mainly require quad flat packages and substrate packages. We also focus on marketing our packaging and testing services in Japan and expect sales to Japan to increase in the near future.

We believe we have benefited from our location in Taiwan where outsourced semiconductor manufacturing infrastructure is well established. Our long-term relationships with two of the world’s largest independent wafer foundries are important to the continued growth of our services. The majority of the semiconductor devices we package and test have been manufactured in Taiwan’s leading wafer foundries. As these wafer foundries grow, we expect that their demand for our services will continue to grow. Moreover, we believe that we can leverage these relationships to jointly market seamless outsourced semiconductor manufacturing services from design to drop shipment and remain at the forefront in semiconductor technology. We also believe that our close proximity and close relationships to wafer foundries enables our customers to more efficiently manage their supply chains and find comprehensive solutions to their semiconductor needs.

Due to the ever-changing technology and functionality of semiconductor chip design, customers requiring semiconductor packaging and testing services generally do not place purchase orders far in advance. However, we engage customers in advance of the placement of purchase orders based on each customer’s expected packaging and testing requirements. In addition, our customers generally agree to purchase from us any unused materials that we purchase to meet their forecasted demand. Although we have long-term sales relationships with a number of customers, our customers generally may cancel or reschedule orders without significant penalty. In the past, very few customers have cancelled firm orders for our packaging and testing services. This is due in part to the fact that firm orders usually immediately precede shipment of wafers to be packaged by us. Our customers do, however, routinely change their forecasts for future purchases from us, and we adjust our production plans accordingly. We do not maintain reserves for customer cancellations and variations in customer orders. Accordingly, our backlog as of any particular date may not be indicative of future sales.

In addition, packaging and testing service customers generally require that our facilities undergo a stringent “qualification” process during which the customer evaluates our operations and production processes. The qualification process can take many weeks. Due to this lengthy qualification process, we believe semiconductor manufacturers are generally reluctant to switch semiconductor packaging and testing companies once these companies have been qualified. For test qualification, 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 test criteria, information regarding process flow and sample semiconductors to be tested and either provides us with the test program or requests that we develop a new or conversion program. In some cases, the customer also provides us with a data log of results of any testing of the semiconductor that 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.

Sales and Marketing

Our sales and marketing strategy is focused on providing high-quality advanced semiconductor device packaging and testing services, consistent on-time delivery and competitive pricing. We believe that this strategy is best implemented by servicing a select number of customers whom we consider to have a high level of anticipated growth. We work on a cooperative basis with these customers so that we can best meet their needs.

We engage in semi-annual and quarterly reviews of all of our customers; we regularly collect data from different segments of the semiconductor industry and, when possible, we work closely with our customers to design and develop packaging and testing solutions for their new products. These “co-development” or “sponsorship” projects can be critical when customers seek large-scale, early market entry with a significant new product.

Our sales and marketing efforts are primarily carried out by our sales team in Taichung and Hsinchu near many of Taiwan’s leading domestic semiconductor companies. In addition, our subsidiary Siliconware U.S.A., with sales offices in San Jose and Huntington Beach, California, Chelmsford, Massachusetts, Tempe, Arizona, and Lewisville, Texas, is responsible for our sales in the United States.

We have signed annual or bi-annual contracts with our major domestic customers. These contracts normally provide that the quantities of products furnished by us are updated by the customer every month, generally through three-month non-binding rolling forecasts. We have such formal contracts with some of our overseas customers.

Quality Control

We employ quality control procedures at every critical manufacturing stage, with the aim of identifying and solving problems at the earliest possible stage of the production process. Our quality control procedures include statistical process control, which involves sampling tests to control and monitor the production process. Such tests include optical scanning and reliability tests, which include temperature and humidity tests, pressure and stress tests and test for resistance to solvents. If a problem is detected, failure analysis will be used to determine the cause. Visual inspection and optical scanning are performed on all assembled semiconductor devices to test for lead coplanarity and integrity. Final products are tested on a sample basis for open shorts in wire connections. To ensure that our quality control procedures are effectively applied, production line employees are provided with periodic training.

Our comprehensive quality control and environmental protection programs have received numerous accredited International Standards Organization certifications, including ISO 9002 in 1992, ISO 9001 in 1993, QS 9000 in 1999 and ISO 14001 in May 1999. We undergo periodic audits to maintain our ISO certifications. Although some semiconductor companies view the ISO certification as a basis for initiating contact with a potential subcontractor, they generally perform separate production and quality audits of the subcontractors themselves. We also received TS16949 certification for our quality control in August 2003 and OHSAS 18001 certification for safety and health management system in December 2004.

As a result of our ongoing focus on quality, we achieved average quarterly packaging yields of 99.84% for lead frame base, 99.8% for substrate base, 99.7% for flip-chip and 99.8% for wafer bumping products in 2005. Packaging yield, which is the industry standard for measuring production yield, is equal to the number of integrated circuit packages that are shipped for packaging divided by the number of individual integrated circuits that are attached to lead-frames or substrates.

As part of our overall focus on quality service, we also closely monitor our product delivery performance against scheduled delivery times.

Research and Development

We focus our research and development efforts on developing new package designs and improving the efficiency and capabilities of our production process technologies. Production process enhancements include:

	•		reduction of the size and thickness of semiconductor device packages;

	•		increasing input/output density of semiconductor device packages;

	•		enhancement of the electrical, thermal and reliability performance of semiconductor device packages;

	•		reduction of spacing between leads;

	•		reduction of the height of gold wire used in the wire bonding process;

	•		increasing packaging yields;

	•		shortening cycle times; and

	•		investigating the use of new or replacement raw materials.

We believe that technology development is one of the key success factors in the semiconductor packaging and testing industry. We work with our customers, equipment manufacturers and materials suppliers to develop advanced processing capabilities and materials for use in our production process. For example, we are currently conducting a research project with Kinsus Interconnect Technology Corp., a substrate developer in Taiwan, to develop the advanced flip-chip substrate technology. In addition, we and Sumitomo Bakelite Co., Ltd., a raw material supplier in Japan, are jointly developing low-cost and high-performance underfill materials. Moreover, we work with customers including Xilinx, Inc. early in the process of wafer design to ensure that their packaging needs are met and that our packaging products provide our customers with the flexibility they require when designing their products.

Our research and development personnel are divided among our design department, characterization department and product development department. In addition, our quality assurance and manufacturing personnel also participate in research and development activities. In 2003, 2004 and 2005, our research and development expenses amounted to NT$559 million, NT$753 million and NT$858 million (US$26.2 million), respectively.

We maintain laboratory facilities to analyze the characteristics of semiconductor device packages by computer simulation and verify their performance by measurement devices. The use of computer-aided engineering tools substantially reduces the time required to validate the proper function of packages, as compared to physical testing methods.

Supplies

Raw Materials

Our packaging operations require adequate supplies of materials and equipment on a timely basis. The principal raw materials used in packaging are lead-frames, substrate, gold wire and molding compound. We purchase materials based on customer forecasts and our customers are generally responsible for any unused materials in excess of the quantity that they indicated they would need.

Our major suppliers of raw materials, including Phoenix Precision Technology Corp., Sumitomo Metal Mining Asia Pacific Pte Ltd., Sumitomo Bakelite (Taiwan) Co., Ltd., Kinsus Interconnect Technology Corp., Chang Wah Electromaterials Inc. and Nan Ya Printed Circuit Board Corp. are leading companies in the types of materials they supply. We work closely with them, provide them with rolling forecasts, weekly requirement schedules and update them on the status of our new products. Due to the growth of substrate packaging products that are sold, our raw material costs have also increased. For 2003, 2004 and 2005, our raw material costs were 52.9%, 54.7% and 56.0%, respectively, of cost of goods sold. We expect that raw materials will continue to constitute a significant portion of our cost of goods sold as demand for substrate packaging products continues to increase.

We do not maintain large inventories of raw materials; we usually only maintain enough for one month’s production based upon regular estimates of orders from customers. Our principal suppliers usually dedicate portions of their inventories as reserves to meet our production requirements. Nevertheless, on occasion when customer orders have exceeded the supply of raw materials, we have typically been able to obtain extensions from our customers to allow sufficient supply to become available. Such arrangements help us remain cost competitive in today’s market. In the past, prices of our principal raw materials have not been volatile.

Equipment

In addition to raw materials, the availability of packaging and testing equipment is critical to our services. We generally seek to maintain equipment from different suppliers with broad functionality and flexibility for different packaging types to enhance capacity utilization. We purchase packaging equipment from major international manufacturers, including Apic Yamada Corporation, Kulicke & Soffa Industries Inc., ASM Technology Singapore PTE LTD. and TOWA Corporation. As of December 31, 2005, we operated 3,961 wire bonders. We also had 273 testers in Taichung and Hsinchu, Taiwan. We must order equipment in advance of customer demand to expand our capacity, based on our expectation of future demand for our packaging and testing services.

Testing equipment is one of the critical components of the wafer probing and device testing process. We generally seek to maintain testers from different vendors with similar functionality and the ability to test a variety of different semiconductors. In general, certain semiconductors can only be tested on a limited number of specially configured testers. Our major suppliers of testing equipment are Agilent Technologies, Inc., Advantest Taiwan Inc. and Teradyne Inc.

Competition

We face substantial competition from established packaging and testing service providers, including companies with greater manufacturing, financial and other resources. These companies include Advanced Semiconductor Engineering, Inc. (Taiwan), ASE Test Limited (Taiwan and Malaysia), Amkor Technology Inc. (USA), ASAT, Ltd. (Hong Kong), STATS ChipPAC Ltd. (Singapore), Hana Microelectronics Public Co. Ltd. (Thailand), Astra International (Indonesia), Carsem Bhd. (Malaysia) and Shinko Electric Industries Co., Ltd. (Japan). These companies have also established relationships with many large semiconductor companies that are our current or potential customers. To a lesser extent, we also compete with the internal semiconductor packaging and testing capabilities of many of our customers.

The principal elements of competition in the independent semiconductor packaging and testing market include:

	•		the breadth of package and test offerings;

	•		technical competence;

	•		manufacturing yields;

	•		manufacturing cycle times;

	•		customer service; and

	•		price.

Integrated Device Makers, or IDMs, that use our services continually evaluate our performance against their own in-house testing and assembly capabilities. These IDMs may have access to more advanced technologies and greater financial and other resources than we do. We believe, however, that we can offer greater efficiency and lower costs while maintaining an equivalent or higher level of quality for three reasons:

	•		we offer a broader and more complex range of services as compared to the IDMs, which tend to focus their resources on improving their front-end operations;

	•		we generally have lower unit costs because of our higher utilization rates; and

	•		we offer a wider range of services in terms of complexity and technology.

Strategic Investments

We, together with Siliconware Investment Company Ltd., our subsidiary, make equity joint ventures and strategic investments in companies located in Taiwan and the United States engaged in the semiconductor packaging and testing businesses. We believe that our participation in these companies allows us to enhance and complement our product offerings, secure access to raw materials and keep us up to date with technological changes in the semiconductor industry. We are able to maintain close relationships with these companies and influence strategic management decisions through representation on the boards of many of these companies. These participations include:

	•		ChipMOS.As of December 31, 2005, we held a 28.8% equity interest in ChipMOS, which is engaged in the business of semiconductor packaging and testing and LCD driver and IC manufacturing. We acquired this equity interest in 1997 as part of a joint-venture arrangement with Mosel Vitelic Inc., Mr. Frank Lee, one of our officers, is a director of ChipMOS.

	•		Sigurd Microelectronics Corp.As of December 31, 2005, we held, directly and indirectly, a 24.0% equity interest in Sigurd Microelectronics Corp. Sigurd provides lower-end packaging and testing services. Mr. Byron Chiang, one of our officers, is a director of Sigurd.

	•		Double Win Enterprise Co. Ltd.As of December 31, 2005, we held a 24.1% equity interest in Double Win Enterprise Co. Ltd., which is engaged in the business of printed circuit boards and surface mount technology. Mr. Frank Lee and Mr. Byron Chiang, two of our officers, are directors of Double Win Enterprise Co. Ltd. Mr. Chao-Hong Huang, one of our officers, is a supervisor of Double Win Enterprise Co. Ltd.

	•		Phoenix Precision Technology Corporation.As of December 31, 2005, we held, directly and indirectly, a 17.6% equity interest in Phoenix Precision, a supplier of semiconductor raw materials, including substrates. Mr. Bough Lin, our Chairman, Mr. Yen-Chun Chang, one of our directors, and Ms. Teresa Wang, one of our supervisors, are directors of Phoenix Precision. Ms. Teresa Wang is also the Chief Financial Officer of Phoenix Precision. Jerome Tsai, one of our directors, is supervisor of Phoenix Precision. Mr. Wen-Lung Cheng, one of our supervisors, is supervisor of Phoenix Precision.

	•		King Yuan Electronics Co., Ltd.As of December 31, 2005, we held a 8.8% equity interest in King Yuan, which is engaged in the business of semiconductor testing. Mr. Bough Lin, our Chairman, and Mr. Fu-Mei Tang, one of our supervisors, are directors of King Yuan.

In May 2004, we sold all of our interest in Taiwan Hi-tech Corporation, a company engaged in the business of solder plating, for NT$100 million (US$3.1 million).

In 2005, we sold all of our interest in ThaiLin Technology Corporation, which is engaged in the business of memory testing for NT$192 million (US$5.9 million).

On March 1, 2005, Universal Communication Technology Inc., or Universal Communication, merged with Sigurd Microelectronics Corp. and Universal Communication was subsequently liquidated.

Intellectual Property

As of December 31, 2005, we held 346 Taiwan patents and 238 U.S. patents and 41 PRC patents related to various semiconductor packaging technologies, including patents for improvements of thermal and electrical performance used in the semiconductor packaging process. As of December 31, 2005, we also had a total of 95 pending patent applications in the United States, 138 in Taiwan and 79 in the PRC. In addition, we had registered “SPIL” as a trademark and as a servicemark in Taiwan.

We have licensed from Freescale, formerly part of Motorola, the technology for ball grid array for which we make royalty payments based upon the number of pads or balls used in our packages. This license will expire in December 2010. In April 2004, Motorola spun off its semiconductor package business into Freescale and assigned our agreement with Motorola to Freescale, and Freescale has assumed all of its right, duties and obligations under the agreement. We have also implemented new packages by entering into other technology alliances and by licensing leading-edge package technologies, including:

	•		Flip Chip’s Wafer Bumping and Redistribution technology, which enables us to form and/or redistribute bumps on the chip to make a silicon die, is able to be directly attached to the substrate using the aforementioned bumps rather than wire bonding. This license will expire in November 2014.

	•		Flip Chip’s flip-chip wafer Level CSP technology, which enables us to produce a chip scale package at the stage of wafer level. This license will expire in January 2011.

	•		FujiTsu Limited’s electroplating bumping technology which enables us to produce a bumped wafer with cost-effective, fine-pitch and high-reliability features instead of screen printing bump to meet current market requirements. This license will expire in December 2007.

	•		LSI Logic Corporation’s packaging technology pertaining to flip-chips, which offer us a cost-effective solution for high performance ASIC and system-on-chip, or SoC, designs. We acquired this license in August 2001. This license will expire in January 2010.

	•		Tessera, Inc.’s TCC technology which enables us to produce micro ball grid array products. This license will terminate at the expiration of the patent.

	•		ITRI’s electrical enchanced-PBGA technology which enables us to produce a high electrical performance packages by consolidated power ring and ground ring. The license will expire in Dec 2007.

In 2003, 2004 and 2005, ongoing royalty expenses to the companies from which we license intellectual property were NT$161 million, NT$143 million and NT$195 million (US$5.9 million), respectively, which accounted for 0.6%, 0.4% and 0.4%, respectively, of our net operating revenues. With the increasing pace of technological change in the semiconductor industry, however, we expect that royalty expenses will increase in the future.

We expect to continue to file patent applications where appropriate to protect our proprietary technologies. We may need to enforce our patents or other intellectual property rights or to defend ourselves against claimed infringement of the rights of others through litigation, which could result in substantial cost and diversion of our resources.

Although we are not currently and have not been a party to any material litigation, the semiconductor industry is characterized by frequent claims regarding patent and other intellectual property rights. If a third party were to bring a valid legal claim against us, we could be required to:

	•		discontinue the use of disputed process technologies;

	•		pay substantial damages;

	•		develop non-infringing technologies; or

	•		acquire licenses to the technologies that we had allegedly infringed.

Environmental Matters

The principal pollutants produced during semiconductor packaging are waste water and gases from the processes including solder plating, wafer grinding and die dicing. During these processes, waste water is produced when water is used to cool and rinse wafers while they are being diced and ground, or to rinse semiconductor chips when lead-frames are being plated.

In addition, solid waste materials produced during the packaging process include scraps such as metal lead-frame, printed-circuit-board-like substrate and excess molding resin.

As for the newly developed bumping process, waste water is produced when water is used to rinse wafers in the processes of etching and solder deposition. Gases come from the emissions of solvents that are used to clean wafers during the bumping process.

To mitigate environmental claims, we maintain pollution control facilities in good conditions at all of our factories. We have installed various types of pollution control equipment dedicated to different properties of pollutants for the best treatment of gaseous waste and waste water in our facilities. As part of our pollution control programs, we also subcontract certain waste disposal and recycling work to suppliers qualified by the Environmental Protection Administration. Furthermore, we also actively monitor any changes in the international environmental requirements in the electronic and semiconductor industries. In order to respond quickly to such changes, we believe that we are in compliance with the existing environmental requirements of semiconductor industries and regulations in Taiwan in all respects

Insurance

Our insurance policies on buildings, equipment and inventories cover damages due to natural disasters, excluding earthquakes. We maintain insurance policies on both our old and new production facilities in Taichung and Hsinchu, Taiwan and on inland transit of inventories. Our property insurance covers replacement costs for our assets. Our insurance also includes protection from losses caused by business interruption for seven to fourteen consecutive working days. As of December 31, 2005, we had a maximum coverage of NT$72,420 million (US$2,207.9 million) and other specified limits and exclusions.

We also maintain insurance on the silicon wafers delivered to us. These insurance policies cover the risk of loss of the silicon wafers while they are in our possession or consigned by our customers and/or during inland transportation.

Employees

See “Item 6. Directors, Senior Management and Employees — D. Employees” for certain information relating to our employees.

Capital Expenditures and Divestitures

Our capital expenditures amounted to NT$4,885 million, NT$9,785 million and NT$8,245 million (US$251.4 million) in 2003, 2004 and 2005, respectively. Our initial budget for capital expenditures for 2006 is approximately US$373 million. We may adjust the amount of our capital expenditures upward or downward based on the progress of our capital projects, market conditions and our anticipation of future business outlook. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources.”

We have made, and expect to continue to make, capital expenditures in connection with the expansion of our production capacity. The table below sets forth our principal capital expenditures, paid or committed, for the periods indicated.


	Year Ended December 31,
	2003		2004		2005
	NT$		NT$		NT$		US$
	(in millions)
Equipment purchases		4,627		8,777		7,673		234.0
Land and building construction and purchases		258		1,008		572		17.4

Litigation (Tessera issue)

On March 1, 2006, we were notified of a civil lawsuit brought by Tessera Inc., a U.S. corporation, against us and our subsidiary, Siliconware USA, Inc. in the United States. Currently, we are unable to assess the potential liabilities arising out of this claim due to insufficient information provided in the scope of the infringement of patent rights caused by our services is specified in the bill of complaint. As such, we have not estimated or recognized any losses or expenses with regard to the lawsuit.

C. Organizational Structure

The following table sets forth certain information as of December 31, 2005 regarding certain companies in which we consolidated and the principal business of each such entity.

Total Paid-in

Direct/Indirect

Capital⁽¹⁾of

Equity

Company

Main Activities

Location

Such Entity

Interest

(in millions)

SPIL (B.V.I.) Holding Limited

Investment activities

British Virgin Islands

US$

62.8

100.0

Siliconware Investment Company Ltd.

Investment activities

Taipei, Taiwan

NT$

1,770.0

100.0

Siliconware U.S.A. Inc.

Sales, solicitation, marketing and order collection ordering in North America

San Jose, CA, USA

US$

1.3

100.0

SPIL (Cayman) Holding Limited

Investment activities

Cayman Islands

US$

35.1

100.0

Siliconware Technology (Suzhou) Limited

Manufacturing of DRAM modules, flash memory cards, transistor and other electronic components

Suzhou, Jiangsu, China

US$

35.0

100.0


(1)		Aggregate par value of all issued shares.

The following table sets forth certain information regarding our equity investees that are accounted for under equity method and cost method as of December 31, 2005.


			Total Paid-in	Direct/Indirect
			Capital⁽¹⁾ of	Equity
Company	Main Activities	Location	Such Entity	Interest
			(in millions)
ChipMOS Technologies Inc.	Testing and assembly of integrated circuits	Hsinchu, Taiwan	NT$8,934.4		28.8	%

Sigurd Microelectronics Corp	Testing and assembly of integrated circuits	Hsinchu, Taiwan	NT$1,857.6		24.0	%

Double Win Enterprise Co., Ltd	PCB, SMT process and hand insert	Taoyuan, Taiwan	NT$280.0		24.1	%

Phoenix Precision Technology Corp	Researching, developing, manufacturing and selling ball grid array substrate	Hsinchu, Taiwan	NT$5,793.9		17.6	%

King Yuan Electronics Co., Ltd.	IC testing	Hsinchu, Taiwan	NT$9,154.0		8.8	%


(1)		Aggregate par value of all issued shares.

D. Property, Plants and Equipment

We provide packaging services through our three facilities in Taichung, Taiwan. In addition, we provide testing services through our facilities in Hsinchu and Taichung, Taiwan. We own all of our packaging and testing facilities.

The following table shows the location, size and wire bonding or testing capacity of each of our facilities and the property on which each facility is located as of December 31, 2005.

Wire Bonding or

Facility

Location of Facility

Size of Facility

Size of Land⁽¹⁾

Testing Capacity

(square meters)

Facility I

Taichung, Taiwan

6,755

7,881

1,900 wire bonders

Facility II

Taichung, Taiwan

81,146

26,246

418 wire bonders

Facility III

Taichung, Taiwan

134,620

39,455

113 testers, 1,643 wire bonders

Facility IV

Hsinchu, Taiwan

32,645

14,215

160 testers


(1)		We own all of our properties except otherwise noted.

Our principal executive offices are located at Facility II in Taichung, Taiwan. Our research and development activities are also located at this facility. Facility III, which was completed in the second half of 2004, is used for testing and 12-inch wafer bumping and other assembly purposes.

We also have plans to expand our operations to the PRC in anticipation of future market demand sourced from our existing and new customers based in China. Many of our customers and competitors have announced plans to begin operation in the PRC. We believe that, as a leading packaging and testing company, we are in a competitive position to gain a significant market share in this developing market. In December 2001 and June 2004, we obtained foreign investment approval from the Investment Commission of the ROC Ministry of Economic Affairs to invest up to US$50 million in aggregate in Suzhou, PRC. As of March 31, 2006, we had invested a total of US$50 million in this subsidiary. We are in the stage of ramping up our facilities in Suzhou for the manufacturing of DRAM modules, flash memory cards, transistors and other electronic components.

Item 4A. Unresolved Staff Comments

We received comments from the Staff on September 23, 2005 on our annual report for the year ended December 31, 2005. All of these comments have been resolved, and we have restated certain US GAAP reconciliation footnotes in relation to derivative instruments for the years ended December 31, 2002, 2003 and 2004, and included such restatements in this annual report.

Item 5. Operating and Financial Review and Prospects

Unless stated otherwise, the discussion and analysis of our financial condition and results of operations in this section apply to our financial information as prepared according to ROC GAAP. You should read the following discussion of our financial condition and results of operations together with the financial statements and the notes to these statements included in this annual report. Our financial statements are prepared according to ROC GAAP, which differ from US GAAP. For a discussion of the material differences, see note 30 to our financial statements included elsewhere in this annual report.

A. Operating Results

Overview

We are one of the world’s leading independent providers of semiconductor packaging services. We also provide semiconductor testing services to our customers. We offer a complete portfolio of packaging and testing solutions, including advanced lead-frame and substrate packages such as flip-chip ball grid packages, and testing services for logic, mixed signal and embedded memory devices. We also offer our customers complete turnkey solutions, including packaging, testing and direct shipment of semiconductor devices to end users designated by our customers.

The semiconductor industry experienced moderate recovery in 2003, 2004 and 2005, and we recorded operating income of NT$2,521 million, NT$4,333 million and NT$7,249 million (US$221 million) in 2003, 2004 and 2005, respectively. Increases in our operating income were also attributable to increases in our offering more advanced packaging services and testing of high-performance semiconductor products.

Intense competition in the semiconductor industry worldwide resulted in decreases in the average selling prices of our products. We expect that average selling prices for most of our semiconductor packages to continue to decline in the future. A decline in average selling prices of our semiconductor packages, coupled with high depreciation cost resulting from our purchase of additional equipment during the previous periods, if not offset by reductions in the other cost of producing those packages, would decrease our gross margins.

To counter the effects of decreasing average selling prices, we will continue to attempt to:

	•		negotiate better pricing terms with our suppliers, including quantity discounts;

	•		find alternative, less expensive sources of raw materials;

	•		maximize production efficiency of our employees; and

	•		engage in utility conservation programs.

We do not maintain reserves for cancellations or variations in customer orders.

Consolidation

Under ROC GAAP prior to January 1, 2005, we were required to include in our consolidated financial statements direct and indirect subsidiaries with total assets or total operating revenues that individually comprised at least 10% of our total assets or total operating revenues. For subsidiaries that did not individually exceed such threshold, we calculated whether the aggregate of either the total assets or total operating revenues of such subsidiaries exceeded 30% of our respective non-consolidated amounts. Each of such subsidiaries was required to be consolidated only if its total assets or total operating revenues constituted at least 3% of our non-consolidated total assets or total operating revenues, respectively. However, effective January 1, 2005, the scope of consolidation has been expanded to include all investees that are not majority-owned, but over which we can exercise significant control. For each of 2003, 2004 and 2005, we consolidated five subsidiaries: Siliconware Investment Company Ltd., SPIL (B.V.I.) Holding Limited, Siliconware U.S.A. Inc., SPIL (Cayman) Holding Limited and Siliconware Technology (Suzhou) Limited, each in which we own a 100% equity interest.

Upon adoption of the amended ROC GAAP Statement of Financial Accounting Standards, or ROC SFAS, No. 1 “Consolidated Financial Statements” and ROC SFAS No. 7, which became effective on January 1, 2005, we are required to prepare consolidated financial statements on a semiannual basis. Such consolidated financial statements should include all entities over which we hold more than 50% of voting shares or has effective control as defined under ROC SFAS No. 7.

Delay in Recognition of Investment Income in Certain Investee Companies Accounted for Under Equity Method

ChipMOS

As of March 31, 2006, we owned a 28.8% equity interest in ChipMOS, a semiconductor packaging and testing and LCD driver integrated circuit manufacturing company, located in Hsinchu, Taiwan.

We entered into a joint venture agreement with Mosel Vitelic in July 1997 to establish ChipMOS. We contributed NT$1,400 million in the form of cash and NT$100 million in the form of packaging technology know-how in exchange for a 30% equity interest in ChipMOS. Mosel Vitelic received a 48% interest in ChipMOS, and the remaining ownership interests in ChipMOS were allocated to several institutions and individuals selected by Mosel Vitelic. We are entitled to appoint two out of the seven-member board of directors of ChipMOS. Pursuant to the joint venture agreement, we are required to maintain a minimum 18% equity interest in ChipMOS for five years from the date of any initial public listing of ChipMOS. If ChipMOS requires guarantees of its indebtedness to obtain financing, we and Mosel Vitelic are required under the joint venture agreement to provide these guarantees in the ratios of 30% and 70%, respectively. As of December 31, 2005, we had not provided any guarantees with respect to ChipMOS’s indebtedness.

The ROC SFB has allowed us to delay our recognition of investment income in certain investee companies accounted for under the equity method. In 2002, because ChipMOS did not provide its financial statements to us in time to enable us to recognize its financial results for such period, prior to January 1, 2005, we were permitted by the ROC SFB to delay the recognition of the investment loss of ChipMOS in our financial results until June 30 of the following year. As a result, we did not recognize investment loss of ChipMOS for 2002 in our financial results under ROC GAAP until the first quarter of 2003. For the first three months ended March 31, 2003, we recognized an investment loss amounting to NT$366 million for ChipMOS’s financial results in 2002. If this investment loss had been included in our results for 2002, our non-operating income, income before income tax and net income for 2002 would have been reduced by the same amount and our basic and diluted earnings (loss) per share in 2002 would have been reduced by NT$0.2. In 2003 and 2004, we also experienced delays in recognition of investment income. For the first three months ended March 31, 2004, we recognized an investment income of NT$247 million from ChipMOS’s financial results in 2003. From January 1, 2005, we adopted the amended ROC Statement of Financial Accounting Standards No. 5, “Accounting for Long-term Equity Investment”, pursuant to which we ceased to defer the recognition of investment income of investees accounted for under the equity method until the subsequent year and recognized investment income from all investees accounted for under the equity method based on investees’ audited financial statements for the corresponding periods. Therefore, for the three months ended March 31, 2005, we recorded our investment income of NT$667 million from ChipMOS in 2004 as cumulative effects of changes in accounting principles and recognized an investment income of NT$433 million from ChipMOS’s financial results in 2005.

Under US GAAP, however, there is no provision that allows us to delay recognition of ChipMOS’s financial results. In 2003, 2004 and 2005, our investment income from ChipMOS were NT$250 million, NT$664 million and NT$469 million (US$14.3 million) under US GAAP. As a result, our financial results under US GAAP would not provide meaningful year-to-year comparison to our financial results under ROC GAAP.

Universal Communication

Our investment income (loss) from Universal Communication Technology Inc., or Universal Communication, was accounted for under the cost method in 2001. In 2002, as a result of increasing our stake in Universal Communication from 16.2% to 42.8%, we changed our method of recognizing investment income (loss) from the cost method to the equity method. At the same time, we delayed the recognition of the income (loss) of Universal Communication until 2003 because we were not able to obtain the statements of Universal Communication for the same period of time and hence our financial results for 2002 do not reflect the performance of Universal Communication in 2002. In 2003, following the appointment of three directors to the board of Universal Communication, we are no longer eligible for a delay in recognition of investment income (loss) of this investee. For 2003, we recognized investment loss of Universal Communication of NT$47 million, which was based on the financial statements of the investee for the years ended December 31, 2002 and 2003 and in accordance with the preference of the preferred stock of Universal Communication. On March 1, 2005, Universal Communication merged with Sigurd Microelectronics Corp. and Universal Communication was subsequently liquidated.

Double Win and Taiwan High-tech

Recognition of our investment income (loss) in Double Win Enterprise Co., Ltd. and Taiwan Hi-tech Corporation has consistently been recorded in the subsequent year on a delayed basis. Accordingly, the combined investment income of NT$3 million and NT$5 million from investments in these two companies for 2003 and 2004, respectively, and the combined investment loss of NT$17 million (US$0.5 million) for 2005 were based on the audited financial statements of the investee companies for 2002, 2003 and 2004, respectively.

CAESAR

CAESAR was dissolved on December 26, 2001. At the time of its dissolution, we owned a 34.65% equity interest in CAESAR, the financial results of which were accounted for under the equity method. We incurred investment loss of NT$716 million for 2001 for CAESAR. Under ROC GAAP, we were required to recognize a one-time write-off of our investment loss on the day of dissolution subject to further write off or reversal, depending on the residual value of CAESAR upon the completion of the liquidation procedure, which was completed in 2003.

Under US GAAP, we are required to review the carrying value of an asset for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. When such an event occurs, we estimate the future discounted cash flows expected to result from the use of the asset and our eventual disposition. If the discounted expected future cash flows are less than the carrying amount of the asset, an impairment loss is recognized. Accordingly, US GAAP has also required that an impairment review be performed for our investment in CAESAR in 2001 and an impairment loss could also be recognized for the amount not recoverable.

Change in Product Mix

Beginning in 2004, our substrate packages accounted for a majority of our net operating revenues in relation to our packaging business. Our lead-frame products (including quad flat packages), which had been our major packaging products since January 1998, still account for a substantial percentage of our net operating revenues.

The following table shows, for the periods indicated, the amount of our packaging and testing revenues by product type (which are more fully described in Item 4. “Information on the Company—B. Business Overview—Our Business”) and each product’s revenues as a percentage of our total net operating revenues:


	Year Ended December 31,
	2003				2004				2005
	NT$		%		NT$		%		NT$		%
	(audited) (consolidated)
	(in millions, except for percentages)
Ball grid array packages		11,698		42.7		16,416		46.6		21,963		50.5
Quad flat packages		8,635		31.5		9,435		26.7		8,823		20.3
Small outline packages		3,160		11.5		3,800		10.8		3,911		9.0
Other packages		956		3.5		1,467		4.2		3,259		7.5

Total packaging revenues		24,449		89.2		31,118		88.3		37,956		87.3

Testing and other revenues		2,962		10.8		4,134		11.7		5,532		12.7

Total net operating revenues		27,411		100.0		35,252		100.0		43,488		100.0

Expansion and Utilization Rate

In 2000, we expanded our packaging capacity significantly, increasing the number of wire bonders to 1,829, and added testing capacity to our operations through our acquisition of Siliconware Corp., through which acquisition we acquired 140 testers. However, in 2001, our capacity utilization rate declined significantly due to a downturn in the semiconductor industry and, as a result, we expanded less aggressively than we did in 2000. Our wire bonders further increased to 2,869 as of December 31, 2003 from 2,481 as of December 31, 2002, whereas our number of testers remains nearly the same at 196 as of December 31, 2003, compared to 198 as of December 31, 2002. Our number of wire bonders and testers increased to 2,999 and 249, respectively as of December 31, 2004 and 3,961 and 273, respectively, as of December 31, 2005 as we continue to expand our capacity in order to meet increasing demand from our clients.

Our operating results are affected by relatively high fixed costs. For example, a wire bonder typically costs between US$70,000 and US$75,000. As a result, capacity utilization rates can significantly affect margins as the unit cost of packaging and testing services generally decreases as fixed charges, including depreciation expenses on our equipment, are allocated over a larger number of units. Our utilization rates have varied from period to period as we have expanded our production capacity. We have been successful in minimizing the industry-wide fluctuation in capacity utilization rates by deploying flexible packaging equipment for use in the production of different packages and by utilizing our test equipment also for probing purposes. Our ability to maintain or enhance our margins will continue to depend in part on our ability to effectively manage capacity utilization rates. The capacity utilization of our facilities was 80%, 90% and 94% in 2003, 2004 and 2005, respectively.

Applications of Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included elsewhere in this annual report, which have been prepared in accordance with ROC GAAP. ROC GAAP vary in certain significant respects from US GAAP. These differences and their effects on our financial statements are described in note 30 to our audited consolidated financial statements included in this annual report. The preparation of our audited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, accounts receivable and allowance for doubtful accounts, inventory, marketable securities, deferred tax asset valuation allowance, employee bonuses, impairment of long-lived assets and goodwill impairment. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates using different assumptions or conditions.

We believe the following critical accounting policies involve significant judgments and estimates used in the preparation of our audited consolidated financial statements.

Revenue Recognition

We principally provide packaging and testing services of integrated circuits, which may be packaging only, test only or turnkey solutions. Revenues are recognized when services have been provided based on transaction terms and when collectibility is reasonably assured. If multiple services are negotiated in one contract, we recognize revenues based on their relative fair values when all of the revenue recognition criteria are met. As we are not engaged in product sales, we do not account for sales returns.

Accounts Receivable and Allowances for Doubtful Accounts

The allowances for doubtful accounts are provided based on evaluations of collectibility, aging analyses of the accounts and the management’s judgment. A considerable amount of judgment is required in assessing the ultimate realization of these receivable including the current credit worthiness and the past collection history of each customer. If the financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be recorded.

Inventory Reserves

In general, raw materials are purchased based on the customers’ forecasted demand. If our customers change their forecasted requirements and we are unable to cancel our excess raw material orders, we would experience a build up in our raw material inventory. We could either seek to recover the cost of the materials from our customers or utilize the inventory in production. However, we may not be successful in recovering the cost from our customers or in using such excess inventory in production, which we would consider as part of our reserve estimate. Our reserve for excess and obsolete inventory is based on forecasted demand we receive from our customers. When a determination is made that the inventory would not be utilized in production, it is written off and disposed of. Actual demand may differ from our forecast and may result in additional reserve.

We also recognize losses from declines in the market value of inventories. The market value of raw materials and supplies are determined on the basis of replacement cost. The market value of finished goods and work in progress are determined on the basis of net realizable value. If the market value of inventories further drops, additional loss may be recorded.

Impairment of Long-Lived Assets

We review equity investments and other long-lived assets for the purpose of determining the amount of impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying value of a long-lived asset is considered impaired when the anticipated cash flows are less than the asset’s carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. The estimate of fair value is generally based on quoted market prices or on the best available information, including prices for similar assets and the results of using other valuation techniques.

We evaluate our equity investments for impairment due to declines in the market value that are considered other than temporary. Such evaluations include an assessment of general economic and company-specific considerations, such as customer forecasts and regularly updated projections of operating results. In the event of a determination that a decline in market value is other than temporary, loss is recognized in the current year’s income. The evaluation of whether a decline in market value is other than temporary requires considerable management judgment. For an investee who resolves to liquidate or dissolve, a one-time write-off would be recorded to the extent that the estimated proceeds would be obtained and the amount of investment balance would not be recovered.

Artest Corporation, an investee accounted for under the equity method, incurred significant losses since the dates of our investments and there is no indication of recovery in the near future. During 2003, we concluded that the impairment loss was other than temporary. Accordingly, in 2003, we recorded an impairment charge of NT$157 million on this long-term equity investment to write off the carrying value of the investment to its fair value. The amount of the write off is determined as follows: (1) whether there is a quoted market value to determine its fair value; and (2) based on our evaluation, whether the carrying value of the assets and liabilities of the investee approximated

its fair value. If the fair value of the investee was lower than its carrying value, additional impairment may be recorded. We further recorded an impairment charge of NT$8 million during 2004 on our long-term equity investment in Artest Corporation to write down the carrying value of the investment to fair value. As of December 31, 2005, the carrying amount of our investment in Artest Corporation was nil.

In 2003, we also recognized an impairment charge of NT$132 million for packaging and testing assets to be disposed of to reduce the carrying value of the assets to their estimated fair value less cost of sale. The fair value of the assets to be disposed of was determined by the estimated net realizable value of the assets. We determined the estimated net realizable value of these assets to be disposed to be zero based on the condition and anticipated future cash flows. The impairment charge was mainly related to our decision to dispose certain machinery and equipment due to technology phase out and replacement in 2003.

In 2004, we recognized an impairment charge of NT$461 million for packaging and testing assets to be disposed of to reduce the carrying value of the assets to their estimated fair value less cost of sale. The fair value of the assets to be disposed of was determined by the estimated net realizable value of the assets. We determined the estimated net realizable value of these assets to be disposed to be zero based on the condition and anticipated future cash flows of these assets. The impairment charge was mainly related to our decision to dispose certain machinery and equipments due to technology phase out and replacement in 2004.

In 2005, we recognized an impairment charge of NT$69 million for packaging and testing assets to be disposed of to reduce the carrying value of the assets to their estimated fair value less cost of sale. The fair value of the assets to be disposed of was determined by the estimated net realizable value of the assets. We determined the estimated net realizable value of these assets to be disposed to be zero based on the condition and anticipated future cash flows of these assets. The impairment charge was mainly related to our decision to dispose certain machinery and equipments due to technology phase out and replacement in 2005.

Provision for Income Taxes and Deferred Tax Asset Valuation Allowances

As of December 31, 2005, we had approximately NT$2,469 million (US$75.3 million) of net deferred tax assets related principally to investment tax credits that expire at various dates through 2008, the unrealized loss on long-term investments and loss carryforwards. Valuation allowance was provided to reduce the deferred tax assets to the amount that we believe is more likely than not to be realized. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowances. In the event we determined that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to our deferred tax assets would increase income in the period such determination was made. Similarly, should we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment of our deferred tax assets would be charged to income in the period such determination was made.

Employee Bonuses

Some of our employees are entitled to bonuses in accordance with applicable provisions of our articles of incorporation. Employee bonuses are determined at 10% of distributable retained earnings. Distributable retained earnings are calculated as retained earnings after various reserves are made in accordance with ROC law and our articles of incorporation and after appropriation for remuneration to directors are made. Employee bonuses may be granted in cash, shares or a combination of both. Under ROC GAAP, such bonuses are appropriated from retained earnings during the accounting period during which such shareholders’ approval is obtained. If such employee bonuses are settled through the issuance of our shares, the amount charged against retained earnings would be based on the par value of the common shares issued. Under US GAAP, the employee bonus expense is initially accrued at the end of the period when services are rendered, at 10% of the distributable retained earnings. When bonuses are approved by the shareholders in the subsequent year, an additional compensation expense is recorded for the difference between the par value and the fair market value of shares granted to employees.

Goodwill

Goodwill arising from business combination is recognized under US GAAP as the difference between the fair market value of shares issued and the fair market value of net assets acquired. Effective January 1, 2002, SFAS No. 142 requires that we cease amortization of goodwill and perform an impairment review, at the “reporting unit” level, upon adoption and at least annually thereafter. Since we operate on an integrated basis, we have only one reporting unit. Based on the comparison of the fair value and carrying value of our company, we concluded that goodwill was not impaired as of the adoption of SFAS No. 142 and as of December 31, 2005.

Embedded Derivatives

Under US GAAP, the convertible or exchangeable option embedded in investments in convertible bonds or exchangeable bonds is separated from the host and accounted for as though it was a discrete derivative instrument when the embedded derivative meets the definition of a derivative instrument under SFAS No. 133 and are not clearly and closely related to the economic characteristics and risks of the host contract. The derivative instrument is measured at fair value, with changes in the fair value reported in earnings.

Under ROC GAAP, when an issuer issues convertible bonds, the entire instrument is recorded as a liability at an amount equal to the proceeds received. Any discount or premium to the par value of the convertible bond is amortized in the statement of operations by using the effective interest rate method. If the convertible bonds contain a redemption premium above their par value amount, the excess is accrued, using the effective interest rate method, over the period to redemption as a charge to interest expense. Upon conversion, the carrying value of the bond is credited to common stock at its par value and the difference between the carrying value of the bond and the par value of the stock is recorded to additional paid-in capital. No gain or loss is recognized.

Under US GAAP, in accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, the conversion feature embedded in a bond does not have to be separately accounted for as a derivative at fair value, if the feature is indexed only to the issuer’s own stock and would otherwise be classified in stockholders’ equity in the issuer’s statement of financial position (the “Scope Exception”).

We issued US$200 million zero coupon convertible bonds on January 28, 2002 (the “2002 Bonds”). The 2002 Bonds are denominated in US dollars and allows the bondholders to redeem at 105.9185% of its par value on July 29, 2004. The premium put option is considered mutually exclusive with the conversion option and must be analyzed as one unit. Under US GAAP, the embedded feature with the combination of mutually exclusive feature would exclude the convertible bonds indexed only to the issuer’s own stock. Additionally, our 2002 Bonds allow the bondholders to convert their bonds into either our common shares which are traded on the Taiwan Stock Exchange (denominated in New Taiwan dollars) or into our ADSs which are traded on NASDAQ (denominated in US dollars). The conversion terms contain a fixed foreign exchange feature which determines the rate at which the bonds will be converted into our shares denominated in New Taiwan dollars. As a result, the combination of the conversion option and the fixed foreign exchange rate would also make the 2002 Bonds not only indexed to our own stock. Under SFAS 133, the compound embedded derivative would require to be fair valued. We had issued US$200 million zero coupon convertible bonds on February 5, 2004 (the “2004 Bonds”). Similar to the 2002 Bonds, the 2004 Bonds contain a foreign exchange element which allows the bondholders to convert into our shares denominated in New Taiwan dollars or ADS, and hence the compound derivative instrument requires to be fair valued under the same foregoing reason. We recognized interest expense arising from the amortization of bond discount and gain (loss) on subsequent conversion and/or buyback of convertible bonds.

As of December 31, 2003, 2004 and 2005, the total amount of net gain (loss) recognized from applying derivative accounting amounting to NT$86.2 million, NT$(80.2) million and NT$(2,423) million (US$(73.9) million), respectively, based on the independent appraisal report.

Description of Revenue and Cost Items

Net Operating Revenues

We generate our net operating revenues primarily from semiconductor packaging and testing operations. Net operating revenues from our semiconductor packaging activities consist of our service fees and the cost of raw materials we purchase to provide semiconductor packaging services. Our net operating revenues do not include the cost of semiconductors, which are our customers’ property.

We price our packaging products on a per unit basis taking into account the complexity of the product, the prevailing market conditions, the order size, the strength and history of our relationship with the customer and our capacity utilization.

We charge our testing services based on the specific test and the time, usually measured in seconds, to run a test, taking into account the complexity of the semiconductor device and the customer’s test program.

We also generate net operating revenues from the provision of semiconductor turnkey services, which include packaging, testing and drop-shipment services.

Net operating revenues are recognized when services are rendered and the payment is realized or realizable. Our customers are generally invoiced at the time services are rendered, with varying terms of credit between 30 and 90 days from the time of billing.

Cost of Goods Sold

Our cost of goods sold consists principally of:

	•		cost of raw materials purchased for semiconductor packaging services;

	•		direct labor costs; and

	•		overhead including depreciation and maintenance of production equipment, indirect labor costs, indirect material costs, utilities and royalties.

Due to the growth of substrate packaging products, our raw material costs as a percentage of total cost of goods sold have increased significantly because of high cost of substrate. For 2003, 2004 and 2005, our raw material costs were 52.9%, 54.7% and 56.0%, respectively, of our cost of goods sold. Due to our capacity expansion, depreciation expense has increased significantly. For 2003, 2004 and 2005, depreciation, included in overhead, amounted to NT$4,732 million, NT$5,364 million and NT5,680 million (US$173 million), respectively, and was approximately 20.4%, 18.8% and 16.7%, respectively, of our cost of goods sold. The increases in depreciation expenses in 2003, 2004 and 2005 were the result of putting into operation additional 388, 130, and 962 wire bonders during 2003, 2004 and 2005, respectively. Increasing depreciation expense increases our cost of goods sold and decreases our gross profit and gross margin. Although we may not expand our packaging capacity as aggressively as we did before the recent downturn in the semiconductor industry, we expect our depreciation costs to increase in absolute terms in the future.

Operating Expenses

Our operating expenses consist of the following:

	•		Selling Expenses. Selling expenses consist primarily of salaries and related personnel expenses and other marketing expenses.

	•		General and Administrative Expenses. General and administrative expenses consist primarily of salaries for our executive, administrative, finance and human resource personnel, fees for professional services, and the cost of computers to support our operations.

•

Research and Development Expenses. Research and development expenses consist primarily of salaries, bonuses and related costs for product and technology development, technology license fees allocated to research and development, and depreciation on and maintenance of equipment and various materials used in our research and development processes. We expect our research and development expenses to grow as we hire additional staff and purchase additional equipment for research and development purposes.

Results of Operations

The following table shows some of our results of operations data as a percentage of our net operating revenues for the periods indicated.


	Year Ended December 31,
	2003			2004			2005
	%			%			%
	(audited) (consolidated)
Net operating revenues		100.0			100.0			100.0
Cost of goods sold		85.0			81.9			78.1

Gross profit		15.0			18.1			21.9

Operating expenses:
Selling expenses		1.5			1.6			1.3
General and administrative expenses		2.3			2.1			1.9
Research and development expenses		2.0			2.1			2.0

Operating expenses		5.8			5.8			5.2

Operating income		9.2			12.3			16.7

Investment income (loss)		(1.9	)		0.9			1.0
Net non-operating income (loss)		0.8			(2.3	)		(0.2	)

Income before income tax and minority interest		8.1			10.9			17.5
Income tax benefit		2.3			1.3			—

Income from continuing operations		10.4			12.2			17.5

Cumulative effects of changes in accounting principle		—			—			1.5
Net income (loss)		10.4			12.2			19.0

2005 Compared to 2004

Net operating revenues.Net operating revenues increased by 23.4% from NT$35,252 million in 2004 to NT$43,488 million (US$1,325.9 million) in 2005. Net operating revenues from our packaging business increased by 22.0% from 2004 to 2005, whereas net operating revenues from our testing and other services increased by 33.8% in the same periods. These increases were primarily due to the general growth in the semiconductor industry and the increase in demand for personal computers, mobile phones and wireless networks. Due to market competition, the prices of our package products generally declined during 2004 and 2005.

Ball grid array package sales increased by 33.8% from NT$16,416 million in 2004 to NT$21,963 million (US$669.6 million) in 2005. The increase in ball grid array package sales was attributable to the increase in sales of higher-end assembly and wafer level packaging services. In 2005, ball grid array package products accounted for 50.5% of our net operating revenues, up from 46.6% in 2004.

Quad flat package sales decreased by 6.5% from NT$9,435 million in 2004 to NT$8,823 million (US$269.0 million) in 2005. The increase in quad flat package sales was attributable to increase in unit sales of quad flat package products, which increased by 5.7% from 692.9 million units in 2004 to 732.5 million units in 2005. In 2005, quad flat package products accounted for 20.3% of our net operating revenues, down from 26.7% in 2004.

Small outline package sales increased by 2.9% from NT$3,800 million in 2004 to NT$3,911 million (US$119.2 million) in 2005. The increase in our small outline package sales was attributable to increase in unit sales of small outline package products, which increased by2.6% from 633.4 million units in 2004 to 650.1 million units in 2005. In 2005, small outline package products accounted for 9.0% of our net operating revenues, down from 10.8% in 2004.

Gross profit and gross margin.Our gross profit increased by 49.3% from NT$6,381 million in 2004 to NT$9,528 million (US$290.5 million) in 2005. Our gross margin (gross profit as a percentage of net operating revenues) increased from 18.1% in 2004 to 21.9% in 2005. Our cost of goods sold increased by 17.6% from NT$28,871 million in 2004 to NT$33,960 million (US$1,035.4 million) in 2005, primarily due to a greater emphasis on higher quality package and testing services as well as a continuing environment of rising variable costs such as for raw materials (in particular, the cost of substrate), labor and overhead. The increases in gross profit and gross margin were primarily due to higher equipment utilization, depreciation savings and cost control measures.

Operating expenses.Operating expenses increased by 11.3% from NT$2,048 million in 2004 to NT$2,279 million (US$69.5 million) in 2005. Operating expenses as a percentage of net operating revenues decreased from 5.8% in 2004 to 5.2% in 2005.

	•		Selling expenses.Selling expenses increased by 3.1% from NT$549 million in 2004 to NT$566 million (US$17.3 million) in 2005 mainly due to an increase in salaries.

	•		General and administrative expenses.General and administrative expenses increased by 14.6% from NT$747 million in 2004 to NT$856 million (US$26.1 million) in 2005 due primary to increased salaries paid to administrative personnel.

	•		Research and development expenses.Research and development expenses increased by 13.9% from NT$753 million in 2004 to NT$858 million (US$26.2 million) in 2005 due to increased salaries paid to R&D personnel and cost for developing new products.

Operating income and operating margin.We recorded an operating income of NT$4,333 million and an operating margin of 12.3% (operating income as a percentage of net operating revenues) in 2004 and generated operating income of NT$7,249 million (US$221.0 million) and operating margin of 16.7% in 2005. The increase in operating margin was primarily due to an increase of gross margin.

Net non-operating income (loss).Our net non-operating income (loss) increased from NT$(508) million in 2004 to NT$360 million in 2005. The increase in net non-operating income was primarily due to lower other non-operating loss and an increase in investment income. The decrease in other non-operating loss in 2005 was due to a decrease in the provision for the estimated liabilities arising in connection with our VAT-related tax assessment from NT$468 million in 2004 to NT$323 million in 2005 and a decrease in the recognition of impairment loss on idle property, plants and equipment from NT$461 million in 2004 to NT$69 million in 2005. The increase in investment income was due to our investment in ChipMOS. For 2005, we recognized an investment income of NT$433 million (US$13.2 million) from ChipMOS’s financial results in 2005, whereas for the three months ended March 31, 2004, we recognized an investment income of NT$247 million from ChipMOS’s financial results in 2003. If the investment loss and gain were recorded in their respective years, our net operating loss would have been different.

Cumulative effects of changes in accounting principles. From January 1, 2005, we ceased to defer the recognition of investment income of investees accounted for under the equity method. We recognized an investment income of NT$668 million (US$20.4 million) from ChipMOS’s 2004 financial results and an investment loss of NT$17 million (US$0.5 million) from Double Win’s 2004 financial results as cumulative effects of changes of accounting principles of total NT$651 million (US$19.8 million) in 2005.

Income tax (expense) benefit.We recognized an income tax benefit of NT$457 million primarily due to investment tax credits, the unrealized loss on long-term investments and loss carryforward in 2004. We recognized an income tax expense of NT$16 million (US$0.5 million) primarily due to a large increase of income from continuing operations before tax and a decrease of the investment tax credits available for us in 2005. A valuation allowance has been provided against the deferred tax assets to the extent that the tax benefit will more likely than not be realized.

Net income (loss).As a result of the factors discussed above, we recorded a net income of NT$4,282 million in 2004, compared with a net income of NT$8,244 million (US$251.3 million) in 2005.

2004 Compared to 2003

Net operating revenues.Net operating revenues increased by 28.6% from NT$27,411 million in 2003 to NT$35,252 million in 2004. Net operating revenues from our packaging business increased by 27.3% from 2003 to 2004, whereas net operating revenues from our testing and other services increased by 39.6% in the same periods. These increases were primarily due to the general growth in the semiconductor industry and the increase in demand for personal computers, mobile phones and wireless networks. Due to market competition, the prices of our package products generally declined during 2003 and 2004.

Ball grid array package sales increased by 40.3% from NT$11,698 million in 2003 to NT$16,416 million in 2004. The increase in ball grid array package sales was attributable to the increase in unit sales of ball grid array package products, which increased by 11.2% from 221.5 million units in 2003 to 246.3 million units in 2004. In 2004, ball grid array package products accounted for 46.6% of our net operating revenues, up from 42.7% in 2003.

Quad flat package sales increased by 9.3% from NT$8,635 million in 2003 to NT$9,436 million in 2004. The increase in quad flat package sales was attributable to increase in unit sales of quad flat package products, which increased by 29.2% from 536.1 million units in 2003 to 692.9 million units in 2004. In 2004, quad flat package products accounted for 26.7% of our net operating revenues, down from 31.5% in 2003.

Small outline package sales increased by 20.3% from NT$3,160 million in 2003 to NT$3,800 million in 2004. The increase in our small outline package sales was attributable to increase in unit sales of small outline package products, which increased by 0.3% from 631.7 million units in 2003 to 633.4 million units in 2004. In 2004, small outline package products accounted for 10.8% of our net operating revenues, down from 11.5% in 2003.

Gross profit and gross margin.Our gross profit increased by 55.1% from NT$4,114 million in 2003 to NT$6,381 million in 2004. Our gross margin (gross profit as a percentage of net operating revenues) increased from 15.0% in 2003 to 18.1% in 2004. Our cost of goods sold increased by 23.9% from NT$23,298 million in 2003 to NT$28,871 million in 2004, primarily due to a greater emphasis on higher quality package and testing services as well as a continuing environment of rising variable costs such as for raw materials (in particular, the cost of substrate), labor and overhead. The increases in gross profit and gross margin were primarily due to higher equipment utilization, depreciation savings and cost control measures.

Operating expenses.Operating expenses increased by 28.5% from NT$1,593 million in 2003 to NT$2,048 million in 2004. Operating expenses as a percentage of net operating revenues remained relatively the same at 5.8% in 2003 and 2004.

	•		Selling expenses.Selling expenses increased by 32% from NT$415 million in 2003 to NT$549 million in 2004 mainly due to commission fees paid to Siliconware USA Inc. for sales of our products in North America.

	•		General and administrative expenses. General and administrative expenses increased by 20.7% from NT$618 million in 2003 to NT$747 million in 2004 due primary to increased salaries paid to administrative personnel.

	•		Research and development expenses.Research and development expenses increased by 34.6% from NT$559 million in 2003 to NT$753 million in 2004 due to increased salaries paid to R&D personnel and cost for developing new products.

Operating income and operating margin.We recorded an operating income of NT$2,521 million and an operating margin of 9.2% (operating income as a percentage of net operating revenues) in 2003 and generated operating income of NT$4,333 million and operating margin of 12.3% in 2004. The increase in operating margin was primarily due to an increase of gross profit as a percentage of operating revenues.

Net non-operating loss.Our net non-operating loss increased by 59.4% from NT$318 million in 2003 to NT$508 million in 2004. The increase in net non-operating loss was primarily due to higher other non-operating loss, offset by a decrease in investment loss. The increase in other non-operating loss in 2004 was due to a provision of NT$468 million for the estimated liabilities arising in connection with our VAT-related tax assessment and increase in the recognition of impairment loss on idle property, plants and equipment from NT$132 million in 2003 to NT$461 million in 2004. The decrease in investment loss was due to our investment in ChipMOS. For the three months ended March 31, 2004, we recognized an investment income of NT$247 million from ChipMOS’s financial results in 2003, whereas for the three months ended March 31, 2003, we recognized an investment loss of NT$366 million from ChipMOS’s financial results in 2002. If the investment loss and gain were recorded in their respective years, our net operative loss would have been different. Under US GAAP, there is no provision that allows us to delay recognition of ChipMOS’s income or loss.

Income tax benefit.We recognized an income tax benefit of NT$636 million and NT$457 million in 2003 and 2004, respectively, primarily due to investment tax credits, the unrealized loss on long-term investments, and loss carryforward in both years. The decrease in income tax benefit was mainly due to the change in allowance taken in respect of deferred taxable assets. A valuation allowance has been provided against the deferred taxable assets to the extent that the tax benefit will more likely than not be realized.

Net income (loss).As a result of the factors discussed above, we recorded net income of NT$2,839 million in 2003, compared with net income of NT$4,282 million in 2004.

B. Liquidity and Capital Resources

We need cash primarily for capacity expansion, equipment purchases and working capital. We believe that our working capital is sufficient for our present requirements. Although we have historically been able to satisfy our working capital needs from cash flow from operations, our ability to expand our capacity has been largely dependent upon, and will continue to depend upon, our ability to finance these activities through the issuance of equity securities, long-term borrowings and the issuance of convertible and other debt securities. Our ability to meet our working capital needs from cash flow from operations will be affected by the demand for our services and products, which in turn may be affected by several factors, many of which are outside of our control, such as economic downturns and declines in the average selling prices of our products caused by oversupply in the market. To the extent that we do not generate sufficient cash flow from our operations to meet our cash requirements, we may rely on external borrowings and securities offerings. We have not historically relied, and we do not plan to rely in the foreseeable future, on off-balance sheet financing arrangements to finance our operations or expansion.

Liquidity

As of December 31, 2005, our primary source of liquidity was NT$12,341 million (US$376.3 million) of cash and cash equivalents. As of December 31, 2005, we had total availability under existing short-term lines of credit, short-term commercial paper and trade facilities of NT$5,508 million (US$167.9 million) available from seven domestic and foreign financial institutions, of which NT$1,478 million (US$45.1 million) were used as borrowings, letters of credit or guarantees. The weighted average interest rate for borrowings denominated in NT dollars under these facilities was 1.662% as of December 31, 2005 and ranged from 1.535% to 1.980% from January 1, 2005 to December 31, 2005. All of our short-term facilities are revolving facilities with a term of one year, which may be extended for terms of one year each with lender’s consent. None of our current short-term commercial paper facilities have received a credit rating. As of December 31, 2005, we had no short-term borrowing outstanding under these short-term commercial paper facilities.

The following table sets forth our cash flows with respect to operating activities, investing activities, financing activities and the effect of exchange rate changes on cash for the periods indicated.


	Year Ended December 31,
	2003			2004			2005
	NT$			NT$			NT$			US$
	(in millions)
Net cash provided by operating activities		8,053			8,767			13,215			402.9
Net cash used in investing activities		(4,228	)		(11,620	)		(6,397	)		(195.0	)
Net cash provided by (used in) financing activities		2,408			1,659			(5,435	)		(165.7	)
Effect of exchange rate changes on cash		—			(86	)		36			1.1

Net increase (decrease) in cash and cash equivalents		6,233			(1,280	)		1,419			43.3

Net Cash Provided by Operating Activities

In 2005, net cash provided by operations was NT$13,215 million (US$402.9 million) compared to NT$8,767 million in 2004. The increase in net cash provided by operating activities was primarily the result of a significant increase in net income. Our changes in accounts receivable increased from NT$405 million in 2004 to NT$3,767 million in 2005 and our changes in accounts payable also increased from a negative NT$35 million in 2004 to a positive NT$3,020 million in 2005, partly offset by a decrease in changes in other payables from NT$471 million in 2004 to NT$62 million in 2005. Our depreciation and amortization expenses increased from NT$6,153 million in 2004 to NT$6,572 million (US$200.4 million) in 2005. The increase in our depreciation and amortization expenses in 2005 compared to 2004 was due to additional equipment installed in connection with our capacity expansion program.

In 2003, net cash provided by operations was NT$8,053 million compared to NT$8,767 million in 2004. The increase in net cash provided by operating activities was primarily the result of an increase in net income (post adjustment for non-cash related expenses) despite an offset due to an increase in foreign currency exchange gains on bonds payable. Our changes in accounts receivable decreased from NT$1,221 million in 2003 to NT$405 million in 2004 and our changes in accounts payable also decreased from NT$781 million in 2003 to a negative NT$35 million in 2004, partly offset by an increase in changes in other payables from NT$60 million in 2003 to NT$471 million in 2004. Our depreciation and amortization expenses increased from NT$5,185 million in 2003 to NT$6,153 million in 2004. The increase in our depreciation and amortization expenses in 2004 compared to 2003 was due to additional equipment installed in connection with our capacity expansion program.

Net Cash Used in Investing Activities

In 2005, cash used in investing activities was NT$6,397 million (US$195 million) compared to NT$11,620 million in 2004. Net cash used in investing activities primarily reflected capital expenditures for property, plants and equipment. These capital expenditures were primarily funded with net cash provided by operating and financing activities. We are sometimes required to prepay our purchases of land and equipment. As of December 31, 2004 and 2005, we did not have any outstanding balance of any prepayments for purchases of land. Prepayments for purchases of equipment result from contractual agreements involving down payments to suppliers when we place an order for the equipment. As of December 31, 2004 and 2005, outstanding balances of prepayments for purchases of equipment amounted to NT$1,024 million and NT$2,277 million (US$69.4 million), respectively. We have entered into agreements with third parties in connection with our expansion plans. We do not have any written options on non-financial assets. We made short-term investments of NT$4,774 million (US$145.5 million) in 2005, compared to NT$4,760 million in 2004.

In 2003, cash used in investing activities was NT$4,228 million compared to NT$11,620 million in 2004. Net cash used in investing activities primarily reflected capital expenditures for property, plants and equipment. These capital expenditures were primarily funded with net cash provided by financing activities. We are sometimes required to prepay our purchases of land and equipment. As of December 31, 2003 and 2004, we did not have any outstanding balance of any prepayments for purchases of land. Prepayments for purchases of equipment result from contractual agreements involving down payments to suppliers when we place an order for the equipment. As of December 31, 2003 and 2004, outstanding balances of prepayments for purchases of equipment amounted to NT$2,327 million and NT$1,024 million, respectively. We have entered into agreements with third parties in connection with our expansion plans. As of December 31, 2004, we had outstanding obligations of approximately NT$181 million under these agreements. We do not have any written options on non-financial assets. We made short-term investments of NT$4,760 million in 2004, compared to nil in 2003.

Net Cash Provided by (Used in) Financing Activities

In 2005, net cash used in financing activities was NT$5,435 million (US$165.7 million) as compared to cash provided by financing activities of NT$1,659 million in 2004. In 2004, net cash provided by financing activities reflected primarily our long-term borrowings of NT$6,300 million, repayment of long-term borrowings of NT$9,149 million and proceeds from our issuance of NT$6,646 million zero-coupon convertible bonds due 2009. In 2005, net cash used in financing activities reflected primarily our repayment of long-term borrowings of NT$3,217 million (US$98.1 million).

In 2003, net cash provided by financing activities was NT$2,408 million as compared to cash provided by financing activities of NT$1,659 million in 2004. In 2003, net cash provided by financing activities reflected primarily our long-term borrowings of NT$5,129 million and the repayment of long-term borrowings of NT$2,330 million.

Capital Resources

We have made, and expect to continue to make, substantial capital expenditures in connection with the expansion of our production capacity in Taichung, Hsinchu and Suzhou. See “Item 4. Information on the Company — B. Business Overview — Capital Expenditures and Divestitures.” Our initial budget for capital expenditures for 2006 is approximately US$373 million. We expect to increase our long-term borrowings in order to meet our capital expenditures. We believe that our cash on hand, existing credit facilities, new borrowings and anticipated cash flows from operations will be sufficient to meet our currently anticipated capital requirements as well as our capital lease and debt service repayment obligations for 2006.

If our anticipated market outlook changes, we may need to adjust the amount of our capital expenditures upward or downward. As a result, we may need to invest in new capacity to improve our economies of scale and reduce our production cost, which would 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. The sale of additional equity or equity-linked securities may result in additional dilution to our shareholders.

As of December 31, 2005, we had outstanding long-term borrowings (including current portion but excluding convertible bonds of NT$11,310 million) of NT$5,124 million (US$156.2 million) owed to foreign and domestic financial institutions. The interest rates of these long-term borrowings dollars are at fixed and variable rates, which were and as of December 31, 2005 ranged from 2.1% to 5.2% per year. We have pledged a substantial portion of our assets, with a carrying value of NT$92 million (US$2.8 million) as of December 31, 2005, to secure our obligations under two facilities. Our material long-term borrowings (excluding convertible bonds) as of December 31, 2005 consist of the following:

	•		A multiple-purpose credit facility entered into on December 26, 2001 in the aggregate principal amount of NT$3,470 million for the purposes of (i) refinancing certain of our long-term indebtedness at a lower interest rate and (ii) buying back the convertible bonds due 2004 in any amount at any time after the closing of the offering of our convertible bonds due 2007, or meeting our cash requirement in the event that holders of the convertible bonds due 2004 exercise their put options on July 21, 2002. This facility consists of: (i) secured corporate bonds due 2005 in the aggregate amount of NT$800 million issued between January 16, 2002 and January 18, 2002, which are guaranteed by several banks, including ABN-AMRO Rothschild, Taiwan branch, each with the maturity date of January 18, 2005, (ii) a medium-term loan facility in the amount of NT$1.17 billion, and (iii) a NIF commercial paper facility in the amount of NT$1.5 billion renewable until January 18, 2005, each for a period not to exceed 180 days. The extent to which we will draw on this facility will depend on interest rates, exchange rates and other relevant factors, including whether we should exhaust the proceeds of our convertible bonds due 2007 before we apply the proceeds of the credit facility in the event that certain of the holders of the convertible bonds due 2004 exercise their put options on July 21, 2002.

	•		A multiple-purpose credit facility led by China Trust Commercial Bank entered into on July 14, 2004 in the aggregate principal amount of NT$5.0 billion for the purposes of refinancing certain of our long-term indebtedness at a lower interest rate. This facility is a mid-term credit facility. As of December 31, 2005, we had drawn NT$4.8 billion (US$146.3 million) from the credit facility to refinance our exiting indebtedness.

In addition, we entered into a multiple-purpose credit facility led by Citibank on June 5, 2003 in the aggregate principal amount of NT$5.2 billion for the purposes of (i) refinancing certain of our long-term indebtedness at a lower interest rate and (ii) funding our operating capital. This facility is a mid-term credit facility. We had repaid all of the borrowings under the facility on August 30, 2004.

Our credit facilities for long-term borrowings include certain provisions that would trigger a requirement for early payment. Under the terms of our credit facilities for long-term borrowings, we are also required to comply with financial covenants, including current ratio and debt-equity ratio and other technical requirements. Our debt under these facilities may be accelerated if there is a default, including defaults triggered by failure to comply with these financial covenants and other technical requirements. As of December 31, 2005, we complied with all financial covenants of existing facilities.

Our long-term bonds payable consists of US$200 million zero coupon convertible bonds due 2007 that we issued in 2002 and US$200 million zero coupon convertible bonds due 2009 that we issued in 2004:

	•		On January 28, 2002, we issued convertible bonds in the amount of US$200 million due 2007, the proceeds of which were used to purchase raw materials and to finance the exercise of the put options by bondholders on July 21, 2002 with respect to, and for our repurchase of, certain convertible bonds due 2004, which we issued in 1997 and are no longer outstanding. The zero coupon convertible bonds due 2007 are convertible into our shares or ADSs. As of December 31, 2005, US$30.2 million of these convertible bonds had been converted. We had repurchased US$33.7 million of these convertible bonds and had redeemed US$7.2 million of these convertible bonds at the option of the bondholders.

	•		On February 5, 2004, we issued another series of convertible bonds in the amount of US$200 million due 2009, the proceeds of which were used to purchase equipment and raw materials. The zero coupon convertible bonds due 2009 are convertible into our shares or ADSs. None of these convertible bonds had been converted as of December 31, 2005. These bonds are scheduled to mature in February 2009 and will be redeemable by us on February 5, 2008 at the option of the bondholder.

Transactions with Related Parties

We have not extended any loans or credit to any of our directors, supervisors or executive officers, and we have not provided guarantees for borrowings by any of these persons. We have not entered into any fee-paying contract with any of these persons to provide services not within the capacity of director, supervisor or executive officer of our company.

We have, from time to time, purchased raw materials and sold our services and products to our affiliated companies. We believe that these transactions with related parties have been conducted either on arm’s-length terms or on terms more favorable to us than arm’s-length terms. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions.”

Inflation/Deflation

The inflation rate in Taiwan was (0.3)% in 2003, 1.6% in 2004 and 2.3% in 2005. We do not believe that inflation in Taiwan has had a material impact on our results of operations.

Taxation

The corporate income tax rate in Taiwan which applies to us is 25%. Based on our status as a company engaged in the semiconductor packaging business in Taiwan, we have been granted exemptions from income taxes in Taiwan because we used the proceeds raised through the offering of global depository receipts in 1995 to purchase packaging equipment. As permitted by Taiwan tax regulation, we can use these exemptions for five years from the date when we begin to generate income from the use of this packaging equipment. As a result, we began to use these exemptions in 1998. These tax exemptions resulted in tax savings of approximately NT$160 million in 2000. Because we incurred net loss for income tax return purposes in 2001 and 2002, we cannot take advantage of these tax exemptions for years 2001 and 2002. These tax

exemptions expired at the end of 2002. The ROC government enacted new tax regulations applicable to several industries, including the semiconductor industry. The new regulations exclude certain products in the semiconductor industry, including some of our products, from these tax exemptions. We continue to use this tax exemption since 2004.

For example, our quad flat packaging products, certain fine pitch products and small outline packaging products would no longer be tax-exempt. However, our other products and services, including our substrate packaging products and testing services, are expected to continue to enjoy tax exemptions under the new regulations. We are also entitled to apply for exemptions from income taxes in 2003 from the proceeds of ADSs we issued in early 2000.

We also benefit from other tax incentives generally available to technology companies, including tax credits of no more than 35% for research and development and employee training expenses and tax credits ranging from 10% to 20% for investment in automation equipment and technology and certain qualifying investments. According to the amended Statute for Upgrading Industries and relevant regulations effective in 2002, the tax credit for research and development and employee training expenses is 30%. Historically, these tax incentives have resulted in decreases of income tax payable by approximately NT$399 million, NT$436 million and NT$1,450 million (US$44.2 million) in 2003, 2004 and 2005, respectively. In 2003, 2004 and 2005, our effective income tax rates were (28.89)%, (11.95)% and 0.2%, respectively, as tax benefits more than offset income taxes payable. According to the ROC tax credit rules, we currently enjoy a tax credit of 11% for the purchase of equipment.

In 1997, the ROC Income Tax Law was amended to integrate the corporate income tax and shareholder dividend tax to eliminate the double taxation effect for resident shareholders of ROC companies. Under the amendment, all retained earnings generated beginning January 1, 1998 and not distributed to shareholders as dividends in the following year are assessed a 10% retained earnings tax. As a result, if we do not distribute all of our annual retained earnings as dividends in the following year, our effective tax rate would exceed 25%.

US GAAP Reconciliation

Our financial statements have been prepared in accordance with ROC GAAP, which differs in certain significant respects from US GAAP. The US GAAP information in note 30 to the consolidated financial statements summarize the principal differences between the amounts determined in accordance with our accounting policy, which is based on ROC GAAP, and determined in accordance with US GAAP together with reconciliation of net income and shareholders’ equity from a ROC GAAP basis to a US GAAP basis. The following table shows a comparison of our net income and stockholders’ equity according to ROC GAAP and US GAAP for the periods indicated.

Reconciliation of Consolidated Net Income


	For the Years Ended December 31,
	2003			2004			2005
	NT$			NT$			NT$			US$
	[Restated]			[Restated]
	(in millions)
Net income as reported under ROC GAAP		2,839			4,282			8,244			251.3
US GAAP adjustments:
Compensated absences		(2	)		1			(10	)		(0.3	)
Compensation		(341	)		(699	)		(1,235	)		(37.6	)
Impairment on long-term investments		—			—			13			0.4
Embedded derivative		86			(80	)		(2,422	)		(73.9	)
Adjustment to the gain on disposal of available for sale marketable securities		—			(2	)		—			—
Trading marketable securities		6			—			—			—
Treasury stock transferred to employee		(154	)		(193	)		—			—
Equity investments:
Timing difference		631			399			(658	)		(20.0	)
Net income/(loss) variance between US GAAP and ROC GAAP		(30	)		(8	)		37			1.1


	For the Years Ended December 31,
	2003			2004			2005
	NT$			NT$			NT$			US$
	[Restated]			[Restated]
	(in millions)
Accounting for income (loss) in preferred stock		87			(29	)		—			—
Technology and know-how contributed to a joint venture investee		(6	)		—			—			—

Total US GAAP adjustments		277			(611	)		(4,275	)		(130.3	)
Taxation effect		(19	)		—			2			—

Net income under US GAAP	$	3,097		$	3,671		$	3,971		$	121.0

Reconciliation of Consolidated Shareholders’ Equity

The following are the most significant differences between ROC GAAP and US GAAP as they relate to our net income and shareholders’ equity. For other GAAP differences, please refer to note 30 to our consolidated financial statements included elsewhere in this annual report.


	As of December 31,
	2003			2004			2005
	NT$			NT$			NT$			US$
	[Restated]			[Restated]
	(in millions)
Total shareholders’ equity as reported under ROC GAAP		29,698			33,493			40,825			1,245
US GAAP adjustments:
Compensated absences		(21	)		(20	)		(30	)		(1	)
Compensation		(342	)		(438	)		(881	)		(27	)
Impairment on long-term investments		(213	)		(213	)		(199	)		(6	)
Embedded derivative		87			7			(2,416	)		(74	)
Available for sale marketable securities		2,072			852			9,177			280
Equity investments:
Timing difference		259			658			—			—
Net income variance between US GAAP and ROC GAAP		97			88			125			4
Accounting for income in preferred stock		29			—			—			—
Technology and know-how contributed to a joint venture investee		(210	)		(210	)		(210	)		(6	)
Siguard merged Universal		—			—			117			4
Acquisition of Siliconware Corp.		4,874			4,874			4,874			148
Taxation effect		7			7			9			—


Shareholders’ equity under US GAAP		36,337			39,098			51,391			1,567

Employee Bonuses

Certain employees of our company are entitled to bonuses in accordance with applicable provisions of our articles of incorporation. Employee bonuses are determined at 10% of distributable retained earnings. Distributable retained earnings are calculated as retained earnings after various reserves in accordance with ROC regulations and our articles of incorporation and after appropriation for remuneration to directors. Employee bonuses may be granted in cash, shares or a combination of both. Under ROC GAAP, such bonuses are appropriated from retained earnings in the accounting period during which such shareholders’ approval is obtained. If such employee bonuses are in the form of our shares, the amount charged against retained earnings is based on the par value of the shares issued. Under US GAAP, any employee bonus expense is initially accrued at the end of the period when services are rendered, at 10% of the distributable retained earnings. When bonuses are approved by the shareholders in the subsequent year, an additional compensation expense is recorded for the difference between the par value and the fair market value of shares granted to employees. The difference between US GAAP and ROC GAAP in this area would result in adjustments to net income and shareholders’ equity as shown in the above schedules. In addition to the adjustments to net income and shareholders’ equity as shown in the above schedules, application of US GAAP on employee bonuses would also result in a reclassification from retained earnings to additional paid-in capital.

Equity Investments

Under the equity method, our proportionate share of the income (loss) of the investee is generally recognized in the year the income (loss) is earned. However, under ROC GAAP, if financial statements of an investee are not sufficiently timely for us to apply the equity method in the current period and such equity interests are below certain materiality threshold, we are permitted to delay the recognition of income (loss) until the subsequent year. From January 1, 2005, we adopted the amended ROC Statement of Financial Accounting Standards No. 5, “Accounting for Long-term Equity Investment”, pursuant to which we ceased to defer the recognition of investment income of investees accounted for under the equity method until the subsequent year and recognized investment income from all investees accounted for under the equity method based on investees’ audited financial statements for the corresponding periods. US GAAP, however, does not allow the investor company to delay recognition of its equity in the investee’s income or loss. The US GAAP adjustment deducts the delayed income from prior year’s net income and adds back delayed income to the subsequent year to arrive at net income under US GAAP.

Our proportionate share of the income (loss) from an equity investee may differ if the equity investee’s net income (loss) under ROC GAAP differs from US GAAP. Any difference would be recognized if and when we sell the equity investment.

Under ROC GAAP, when an investment is made in non-accumulative, convertible preferred shares, investment income is recognized for the amount of actual dividends when dividends are declared. Investment loss is recognized to the extent that the investee’s net book value is less than our liquidation preference. Under US GAAP, we recognize the proportionate share of both the investee’s income and loss.

Under a joint venture agreement with Mosel Vitelic Inc., we contributed cash as well as technological know-how in exchange for an equity interest in ChipMOS. Under ROC GAAP, we recognized as initial cost of investment for cash and the value of know-how contributed. Under US GAAP, the technological know-how transfer is not valued and not recognized as cost of investment.

Taxation Effect

Under ROC GAAP, a 10% tax on undistributed earnings is recognized as a tax expense in the period when the amount of undistributed earnings is determined. In addition, the effect of the 10% tax on temporary differences is not recognized for ROC GAAP purposes. Under US GAAP, the 10% tax on undistributed earnings is accrued in the period during which related income is generated and the impact of the 10% tax is measured for both current and deferred tax perspectives.

Goodwill Acquired through Acquisition

The fair value of the net assets we received was used as the value of the consideration for the acquisition of the remaining interests in Siliconware Corp. on December 31, 2000 and reflected in the common stock and capital reserve in our balance sheet. As the consideration is equal to the fair value of the net assets received, no goodwill is recorded under ROC GAAP. Under US GAAP, the acquisition has been accounted for using the purchase method of accounting, and the purchase price was determined using the market value of our shares issued in connection with the acquisition. The difference between the fair value of our shares issued in connection with the acquisition and the fair value of the net assets acquired results in goodwill. Goodwill is amortized on a straight-line basis over ten years.

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” we no longer amortize goodwill beginning 2002. We have elected to perform our annual impairment review in each fiscal year. We have completed our annual goodwill impairment test for fiscal 2004 and 2005 and concluded that there was no impairment.

Impairment of Long-lived Assets

Before ROC SFAS No. 35 “Asset Impairment” is effective on January 1, 2005, there was no specific standards under ROC GAAP that address impairment of long-lived assets. US GAAP, however, requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Embedded Derivatives

Under ROC GAAP, investment in convertible or exchangeable bonds is carried at the lower of cost or market value. Under US GAAP, the convertible or exchangeable option is considered an embedded derivative instrument and must be separated from the host contract and accounted for as though it was a discrete derivative instrument. The derivative instrument is measured at fair value, with changes in the fair value reported in earnings. Such adjustments to the carrying amount of the embedded derivative would remain part of the carrying amount of that asset until the asset is sold, at which time the entire carrying amount of the embedded derivative would be recognized as the cost of the item sold in determining earnings. If an entity were unable to reliably identify and measure the embedded derivative instrument for separation from the host contract, the entire contract would have to be measured at fair value, with gains and losses recognized in earnings.

Under ROC GAAP, when an issuer issues convertible bonds, the entire instrument is recorded as a liability in the amount of the proceeds received. Any discount or premium to the par value of the convertible bonds is amortized in the statement of operations by using the effective interest rate method. If the convertible bonds contain a redemption premium above their par value amount, the excess is accrued, using the effective interest rate method, over the period to redemption as a charge to interest expense. Upon conversion, the carrying value of the bonds is credited to common stock at its par value and the difference between the carrying value of the bond and the par value of the common stock is recorded to additional paid-in capital. No gain or loss is recognized.

Under US GAAP, in accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities”, convertible bonds, with the feature of the combination of mutually exclusive conversion of the debt to equity or redemption at a multiple of the bonds par value, are required to be accounted for as embedded derivative instruments. In addition, if the bonds are denominated in foreign currency and conversion terms contain a fixed foreign exchange feature determining the rate at which the bonds are to be converted into local currency stock, the combination of the conversion option and the fixed foreign exchange forward contract makes the bonds dual indexed and therefore the conversion right should be bifurcated. The embedded derivatives separated from the book value of bonds are measured at fair value and changes in fair value are recognized as unrealized gain (loss) in the income statement for each accounting period.

Stock Dividends

Under ROC GAAP, an issuance of stock dividends is recorded at par with a charge to retained earnings. Under US GAAP, if the ratio of distribution is less than 25% of shares of the same class outstanding, the fair value of the shares issued should be charged to retained earnings. This different treatment will result in, under US GAAP, a reclassification from retained earnings to additional paid-in capital of NT$24,810 million (US$756.4 million) on December 31, 2005. This adjustment has no effect on our shareholders’ equity.

Marketable Securities

Under ROC GAAP, marketable equity securities and long-term equity investments in which the company owns less than 20% of the voting rights of a publicly listed investee company are carried at the lower of cost or market value, and debt securities at cost. The market value of listed stocks is determined by the average closing price during the last month of the accounting period. Under US GAAP FAS 115, “Accounting for Certain Investments in Debt and Equity Securities”, debt and equity securities that have readily determinable fair values are to be classified as either trading, available-for-sale or held-to-maturity securities. Debt securities that the company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and traded for short-term profit are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as either held-to-maturity or trading are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders’ equity. The fair value of listed stock under US GAAP is generally determined by the closing price at the balance sheet date. For individual securities classified as either available-for-sale or held-to-maturity, the company performs analysis to determine whether a decline in fair value below the cost is other than temporary. No such impairment has been identified during the periods presented.

Treasury Stock Transferred to Employees

Under ROC GAAP, treasury shares transferred to employees are recorded as capital contribution for the cash amount received from the employees. Under US GAAP, in addition to the capital contribution recorded for the cash amount received from the employees, compensation expense would be recorded, for the difference between the shares transfer price and the fair market value of the shares issued at the issuance date, during the period when such transfers were made.

Calculation of EPS

In calculating weighted average number of shares outstanding for EPS purposes under ROC GAAP, employee bonus shares have been treated as outstanding for all periods, in a manner similar to a stock split or dividend and are retroactively adjusted to previous years’ calculation of weighted-average outstanding shares. Under US GAAP, employee bonus shares have been considered separately from the stock dividend or split and have been treated as outstanding from the date when they were issued. The numbers of employee bonus shares issued in 2003, 2004 and 2005 were nil, 21,049,700 and 1,876,500 shares, respectively.

In computing the dilutive effect of convertible bonds when calculating net income available to common stockholders for diluted EPS, the after-tax results of compensated interest expenses, unrealized foreign exchange gain/loss, amortization of bond issuance costs are taken into consideration under ROC GAAP. However, under US GAAP, in addition to the above three items, the after tax result of mark-to-market gain or loss on embedded derivatives bifurcated from the host bonds is also taken into consideration. Anti-dilutive effect is considered both under ROC GAAP and under US GAAP.

Merger between Equity-Method Investees

Under ROC GAAP, we recognize our change of proportional interest in our equity-method acquired investee based on the fair value of our equity-method acquired investee’s net assets as of the acquisition date. However, under US GAAP, we recognized our change of proportional interest in our equity-method acquired investee based on the fair value of such investee’s newly issued stocks at the acquisition date.

Recent Accounting Pronouncements

In March 2004, the FASB approved the consensus reached on the EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary

Impairment and Its Application to Certain Investments” providing the guidelines for the identification of other-than –temporary impaired investments and the new disclosure requirements for the temporary impairment. In September 2004, the FASB issued a FASB Staff Position (FSP) –EITF Issue No. 03-01 to delay the effective date for the recognition and measurement guidance previously discussed in EITF Issue No. 03-01 as included in paragraphs 10-20 until further notice. In November 2005, the FASB issue a FASB Staff Position FAS 115-1 and FAS 124-1 to address the issues related to the determination and measurement of impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and disclosure requirements for the unrealized losses that have not been recognized as other-than-temporary impairments. The Company has evaluated the effect of these two FSP issues on its financial position and results of operations and does not expect the adoption of the accounting provisions of EITF 03-01 will have a significant impact on the Company.

In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 151, Inventory Costs – an amendment of ARB No. 43, Chapter 4. SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS No. 151 requires that abnormal amounts be recognized as current period charges regardless of whether they meet the criterion of “so abnormal.” In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This standard does not affect the Company’s financial position, cash flows or results of operations.

In December 2004, the FASB issued FAS No. 123(R), “Share-Based Payment,” (FAS 123 (R)). FAS 123(R) requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair-value method, and eliminates the use of the intrinsic-value method prescribed by APB Opinion No. 25, which was allowed under the original provisions of FAS 123. FAS 123(R) requires the use of an option-pricing model for estimating fair value amortized to expenses over the requisite periods. The requirements of FAS 123(R) were effective for interim periods beginning after June 15, 2005. The Securities and Exchange Commission (SEC) has postponed the effective date of FAS 123(R), giving companies more time to develop their implementation strategies. Under the SEC’s rule, FAS 123(R) is now effective for public companies for annual, rather than interim, periods that begin after June 15, 2005. We adopted FAS 123(R) beginning in fiscal 2006 and is currently evaluating the various transition methods allowed under FAS 123(R).

On December 31, 2004, the FASB issued SFAS No. 153, “Exchanges of Non-Monetary Assets, an Amendment of APB Opinion No. 29,” effective for non-monetary asset exchanges occurring in the fiscal year beginning January 1, 2006. SFAS No. 153 requires that exchanges of productive assets be accounted for at fair value and any gain or loss should be recognized from the similar non-monetary asset exchange unless fair value cannot be reasonably determined or the transaction lacks commercial substance. The statement is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company is currently evaluating the effects on the Company’s financial statements.

In May 2005, FASB issued SFAS No. 154 “Accounting Changes and Error Corrections” to replace APB Opinion No. 20,”Accounting Changes”, and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and change the requirements for the accounting for and reporting of a change in accounting principle. This statement is applied to all voluntary changes in accounting principle and changes required by an accounting pronouncement in the unusual instance without specific transition provisions. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

In June 2005, the FASB ratified the 05-2 consensus reached by the Emerging Issues Task Force “The Meaning of “Conventional Convertible Debt Instrument” in Issue No. 00-19” (EITF 05-2). The Task Force reached a consensus on that the exception to the requirements of paragraphs 12-33 of Issue 00-19 for “conventional convertible debt instruments” should be retained. The Task Force also reached a consensus that instruments that provide the holder with an option to convert into a fixed number of shares (or equivalent amount of cash at the discretion of the issuer) for which the ability to exercise the option is based on the passage of time or a contingent event should be considered “conventional” for purposes of applying Issue 00-19. Instruments that contain “standard” anti-dilution provisions would not preclude a conclusion that the instrument is convertible into a fixed number of shares. The Task Force also reached a consensus that convertible preferred stock with a mandatory redemption date may qualify for the exception included in paragraph 4 of Issue 00-19 if the economic characteristics indicate that the instrument is more akin to debt than equity. The Company has evaluated the impact of this Issue and concludes that the Company’s currently outstanding convertible bonds are not “conventional” ones. If the Company decides to issue convertible bonds in the future, the Company will analyze its terms to see if the convertible bonds are conventional, and apply applicable pronouncements and this Issue to account for its convertible bonds.

In February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments- an amendment of FASB Statements No. 133 and 140”. This statement allows financial instruments that have embedded derivatives requiring bifurcation from the host to be accounted for as a whole, if the holder irrevocably elects to account for the whole instrument on a fair value basis. Subsequent changes in the fair value of the instrument would be recognized in earnings. This statement is effective for all financial instruments acquired, issued, or subject to a remeasurement (new basis) event occurring after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company currently believes that there is no material effect after adopting SFAS No. 155.

In September 2005, Accounting Research and Development Foundation issued ROC SFAS No. 34, “Accounting for Financial Instruments”. This statement eliminates the use of the phrase of short-term investment and lower of cost or fair value for the valuation of financial instruments. Instead, financial instruments are measured at fair value, except held-to-maturity securities, equity securities without an active market or relative fair values, and financial assets or derivatives linked to and settled in the aforementioned exceptions. For financial instruments classified as trading, subsequent changes in their fair values are recognized as earnings at each balance sheet date. For financial instruments classified as available-for-sale, subsequent changes in their fair values are recognized as shareholders’ equity. The requirements of SFAS No. 34 were effective for fiscal periods beginning after January 1, 2006. The changes in accounting principles above increased our total assets and total shareholders’ equity before changes in accounting principles as of January 1, 2006 both by NT$7,566,973 and NT$8,912,555 and have no significant impact on our net income and earnings per share for the three months ended March 31, 2006.

C. Research and Development, Patents and Licenses, etc.

See “Item 4. Information on our Company — B. Business Overview — Research and Development” and “Item 4. Information on our Company — B. Business Overview — Intellectual Property.”

D. Trend Information

Please refer to “— A. Operating Results — Overview” for a discussion of the most significant recent trends in our production, sales and inventory, costs and selling prices since the end of 2005. In addition, please refer to discussions included in this Item for a discussion of known trends, uncertainties, demands, commitments or events that we believe are reasonably likely to have a material effect on our net sales or operating revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.

E. Off-Balance Sheet Arrangements

As of December 31, 2005, we had unused letters of credit for imported machinery and equipment in the aggregate amount of approximately NT$427.5 million (US$13.0 million). See note 26 to our consolidated financial statements included in this annual report. We do not engage in trading activities involving non-exchange traded contracts or enter into any other off-balance sheet arrangements.

F. Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations and commitments with definitive payment terms which will require significant cash outlays in the future as of December 31, 2005.


	Payments Due by Period
			Less Than						More Than
Contractual Obligations	Total		1 Year		1-3 Years		4-5 Years		5 Years
	(in NT$ millions) (consolidated)
Long-term debt
Secured long-term loans		—		—		—		—		—

Unsecured long-term loans⁽³⁾		5,124.2		1,790.9		3,333.3		—		—

Secured bonds		—		—		—		—		—
Unsecured bonds		—		—		11,310		—		—
Operating leases⁽¹⁾		—		—		—		—		—
Purchase obligations⁽²⁾		—		—		—		—		—

Total contractual cash obligations		5,124.2		1,790.9		14,643.3		—		—


(1)		Represents our obligations to make lease payments to use the land on which our facilities are located, primarily in Taichung and Hsinchu in Taiwan.

(2)		Represents the agreements to purchase goods or services that are enforceable and legally binding on us that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.

(3)		Excludes interest payments because our interest rates on these loans are variable.

Item 6. Directors, Senior Management and Employees

A. Directors and Senior Management

The following table shows information regarding all of our directors, supervisors and executive officers as of March 31, 2006. The business address of our directors, supervisors and executive officers is the same as our registered address.

Years

with

Principal Business Activities

Name

Age

Position

Performed Outside Our Company

Bough Lin

Chairman

Director of Phoenix Precision Technology,King Yuan Electronics, Premier Image Technology, SPIL’s subsidiary Supervisor of ITE Tech. EVP of SPIL

Chi-Wen Tsai

Vice Chairman; President

President of SPIL Director of SPIL’s subsidiary

Wen-Lung Lin

Director;

Chairman of Ku-Ming Investment Co.

Yen-Chun Chang

Director; Senior Vice President

SVP of SPIL Director of PPT Director of SPIL’s subsidiary

Wen-Jung Lin

Director

None

Jerome Tsai⁽¹⁾

Director

Director of ChipMOS(Bermuda) Supervisor of Phoenix Precision Technology

Years

with

Principal Business Activities

Name

Age

Position

Performed Outside Our Company

Hsiu-Li Liu

Independent Director⁽³⁾

Chairman of So Dar Investment

Ing Dar Liu

Independent Director⁽³⁾

Director of Sercomm Corp., AME Inc., Cando Corp., Socle Technology Corp.

Jing-Shan Aur

Independent Director⁽³⁾

None

Wen-Lung Cheng

Supervisor

Chairman of Joinwin Investment Supervisor of Phoenix Precision Technology Director of SPIL’s subsidiary

Fu-Mei Tang

Supervisor

Director of King Yuan Electronics

Teresa Wang⁽²⁾

Supervisor

Director of Phoenix Precision Technology CFO of Phoenix Precision Technology

Johnson Tien

Senior Vice President

None

Kuo-Jui Tai

Vice President

None

Chien-An Chen

Vice President

None

Chien-Hua Chen

Vice President

None

Michael Chang

Vice President

None

Eva Chen

Chief Financial Officer

None


(1)		Representing Pei-Sheng Cultural Educational Foundation.

(2)		Representing Siliconware Investment Company Ltd.

(3)		Our independent directors’ independency complies with SEC’s and Nasdaq’s independency requirements.

Bough Linis our Chairman and Executive Vice President. He has been our Director since August 1984. Mr. Lin is also currently a director of Phoenix Precision Technology Corporation, King Yuan Electronics and Premier Image Technologies, a director of our subsidiary, SPIL (B.V.I.) Holding Ltd. and Siliconware Investment Co. Ltd. as our representative, and a supervisor of ITE Tech as our representative. He graduated from National Chiao Tung University in Taiwan in 1973 with a Bachelor’s degree in electronic physics. In addition, Mr. Lin is the brother-in-law of Wen Lung Cheng, who is one of our supervisors.

Chi-Wen Tsaiis currently our Vice Chairman and President. He has been our Director since August 1984. Mr. Tsai is also a director of our subsidiary, SPIL (Cayman) Holding Ltd. and Siliconware Technology (Suzhou) Ltd. as our representative. He received a Bachelor’s degree in electrical engineering from National Taipei Institute of Technology in Taiwan in 1969.

Wen-Lung Linhas been our Director since June 2005. He graduated from Taichung Commercial College in Taiwan.

Yen-Chun Changhas been our Director since August 1984. He is also our Senior Vice President and a director of our subsidiary, Siliconware Technology (Suzhou) Ltd., as our representative. Mr. Chang received a Bachelor’s degree in electrical engineering from Nan Tai College in Taiwan in 1976.

Wen-Jung Linhas been our Director since June 1991. He received a Bachelor’s degree in architecture from Feng Chia University in Taiwan in 1970.

Jerome Tsaihas been our Director since June 2005. He received a Bachelor’s degree in statistics from National Cheng Kung University and a Master’s degree in technology management from National Chiao Tung University. He was previously the president of Grand Cathay Securities Co., Ltd.

Hsiu-Li Liuhas been our Director since June 1991. She received a Bachelor’s degree in international trade from Ming Chuang College in Taiwan in 1975. Ms. Liu is also the chairman of So Dar Investment Corporation.

Ing-Dar Liuhas been our Independent Director since June 2005. He received a Master’s degree in electronic from National Chiao Tung University in Taiwan. He was the vice chairman of AU Optronics Corp in 2001.

Jing-Shan Aurhas been our Independent Director since June 2005. He received a Bachelor’s degree in in National Taiwan Ocean University. He was previously the chairman of APTOS Corp. in 2001.

Wen-Lung Chenghas been our supervisor since June 2002. Mr. Cheng received a Bachelor’s degree in bank and insurance from Tamkang University in Taiwan in 1969. He is the brother-in-law of Mr. Bough Lin, our Chairman.

Fu-Mei Tanghas been our supervisor since June 2005. Mr. Tang graduated from Kuang-Hwa Technology School in Taiwan. He was our chief audit officer previously.

Teresa Wanghas been our supervisor since June 2002. Ms. Wang is a director and the chief financial officer of Phoenix Precision Technology Corporation. She received a Bachelor’s degree in accounting and statistics from Ming Chuang College in 1978.

Johnson Tienis our Senior Vice President in charge of the Sales and Marketing Group. He received a Bachelor’s degree in industrial engineering from ChungYuan Christian University in 1976.

Kuo-Jui Taihas been a Vice President of since 2003. Before joining us, Mr. Tai was the vice-general manager of You Li Co. Mr. Tai received a Bachelor’s degree in electrical engineering from ChungYuan Christian University.

Chien-An Chenhas been a Vice President since 2000. Mr. Chen received an MBA from University of Warwick in England.

Chien-Hua Chenhas been our Vice President since 1999. Before joining us, Mr. Chen was the general manager of Ling Sheng Co. Mr. Chen received a Master’s degree in electrical engineering from Arizona State University.

Michael Changhas been our Vice President since 2005. Mr. Chang received a Bachelor’s degree in Industrial Engineering from ChungYuan Christian University in Taiwan 1984.

Eva Chenhas been our Chief Financial Officer since 2005. Ms. Chen received a Bachelor’s degree in Accounting from FuJen Catholic University in Taiwan in 1981.

B. Compensation of Directors, Supervisors and Executive Officers

The aggregate compensation paid and in-kind benefits granted to our directors, supervisors and executive officers in 2005 was NT$210 million (US$6.4 million). According to our articles of incorporation, 2% of the balance of net income after the payment of income taxes, recovery of past losses and deduction of 10% as legal reserve may be provided as remuneration to our directors and supervisors. The remaining amount may be distributed or reserved in a ratio of 10% and 90% as bonuses to our employees and as dividends to our shareholders, respectively.

C. Board Practices

All of our directors and supervisors were elected on June 13, 2005 for a term of three years. Neither we nor any of our subsidiaries have entered into a contract with any of our directors and supervisors by which our directors or supervisors are expected to receive benefits upon termination of their employment.

Audit Committee

At the date of this filing, we have three independent directors to constitute an audit committee. We require our audit committee members to be financially literate with accounting or related financial management expertise in accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our audit committee charter is in accordance with Rule 10A-3 of the Exchange Act and NASD Marketplace Rule 4350. We have been in compliance with the requirements thereunder since July 27, 2005.

Difference between NASDAQ Requirement and Home Country Practices

In general, corporate governance principles for Taiwanese companies are set forth in the Company Act of the Republic of China, or ROC Company Act, the ROC Securities and Exchange Act and, to the extent they are listed on the Taiwan Stock Exchange, listing rules of the Taiwan Stock Exchange. Corporate governance principles under provisions of ROC law may differ in significant ways to corporate governance standards for U.S. NASDAQ-listed companies. Under the latest amendment to the NASD Marketplace Rule 4350(a)(1), foreign private issuers are permitted to follow certain home country corporate governance practices in lieu of the requirements of Rule 4350. Under the amendment, foreign private issuers must disclose alternative home country practices they follow. The following are the requirements of Rule 4350 we do not follow and the home country practices we follow.

Under the Rule 4350(c)(1),a majority of the board of directors must comprise of independent directors.We have three independent directors out of a total of nine directors on our board. Our standards in determining director independence substantially comply with the NASDAQ requirements, which include detailed tests for determining director independence. In Taiwan, to strengthen corporate governance of Taiwanese companies, the ROC Securities and Exchange Act Article 14-2 requires public companies to have no less than two in number and no less than one-fifth of their board of directors be comprised of independent directors.

Under Rule 4350(c)(2), the company is required to have regularly scheduled meetings at which only independent directors are present.We do not hold executive sessions of non-management directors as the election of independent directors is not required by the ROC Company Act. However, once our independent directors are elected, they will participate in committee meetings of which they are committee members. In particular, we expect our independent directors to serve on our audit committee. Our audit committee will meet regularly.

Rule 4350(c)(3) requires that compensation of the chief executive officer of the company must be determined, or recommended to the board, either by a majority of the independent director or an independent compensation committee.We currently follow the practice under ROC Company Act, which requires that the compensation of directors be approved by shareholders. In addition, we also follow Article 29 of the ROC Company Act, which provides that the compensation of executive officers of the company shall be decided by resolutions adopted by the majority of the board at a meeting satisfying a quorum of more than one-half of the directors.

Under Rule 4350(c)(4), director nominees must either be selected, or recommended for the Board’s selection, either by a majority of the independent directors or an independent nominations committee.The ROC Company Act expressly grants the power of nomination to the shareholders, as well as to the board of directors. Under the ROC Company Act and the interpretations thereof, candidates to serve as directors are nominated either by the board of directors prior to the shareholders’ meeting or by the shareholders during the election of the director. In addition, the Legislative Yuan of the ROC has approved an amendment to the ROC Company Act specially granting director nomination powers to holders of at least one percent of the total issued and outstanding shares of the company. Therefore, the requirement of a nominations committee is in conflict with the ROC Company Act. We currently follow the home country practice.

Under the Rule 4350(h), each issuer shall conduct a review of all related party transactions on an ongoing basis and all such transactions shall be approved by the company’s audit committee or another comparable independent body.Prior to the formation of our audit committee, our board of directors reviewed and approved the company’s related party transactions. After the formation of our audit committee, we have required that our audit committee review related party transactions in accordance with the NASDAQ requirement.

Under Rule 4350(i)(1)(A), each issuer shall require shareholder approval when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees, or consultants.Under the corresponding domestic requirements in the ROC Company Act and the ROC Securities and Exchange Act, shareholders’ approval is required for the distribution of employee bonuses in the form of stock, while the board of director has authority, subject to the approval of the ROC SFB, to approve employee stock option plans and to grant options to employees pursuant to such plans. We follow the home country practice. ROC law provides for specific safeguards on employee stock option grants. Options granted under the plans are subject to certain statutory volume limitations. Under the ROC Company Act, the directors of a company may not receive stock options because they are not considered “employees” of the company.

D. Employees

As of December 31, 2005, we had 12,971 full-time employees. Of these employees, 7,327 were engaged in packaging and testing production, 3,065 were engaged in engineering and other technical operations and 1,924 were engaged in finance, business management and administration. As of December 31, 2004 and 2003, we had 10,003 and 9,123 full-time employees, respectively.

Employee salaries are reviewed once or twice a year. Salaries are adjusted based on industry standards, inflation and individual performance. As an incentive, additional bonuses in cash may be paid at the discretion of the management based on the performance of individuals. In addition, ROC law requires that employees be given preemptive rights to subscribe to between 10% and 15% of any of our rights issues or share offerings.

According to ROC Labor Pension Act effective since July 1, 2005, we contribute 6% of our employees’ monthly salaries to the Bureau of Labor Insurance for those employees who choose to participate in the “portable” pension schemes. For our employees who choose to apply for the pension mechanism under the Labor Standards Act, we contribute 2% of their monthly incomes to the Workers’ Retirement Reserve Funds maintained by the Central Trust Bureau.

Our employees participate in our profit distribution under our articles of incorporation. Employees are entitled to receive bonus shares based on a percentage of our allocable surplus income. We paid employees stock in the aggregate amount of 18,765,500 shares and cash bonuses of NT$175.9 million in 2005.

In July 2002, we adopted the 2002 Employee Stock Option Plan that authorizes the grant of options to our full-time regular employees, including those of our domestic and overseas subsidiaries, for purchase up to an aggregate of 40,000,000 shares of our common shares. The exercise price for the options would be the closing price of our common shares on the Taiwan Stock Exchange on the day the options are granted, while the expiration date for such options is 5 years from the date of grant. In February and May 2003, we granted a total of 40,000 options to purchase up to 40,000,000 shares under the 2002 Employee Stock Option Plan, of which 2,950 options were granted to certain of our executive officers. Some of our executive officers receiving options are also directors of our company, and the options granted to our officers have an initial exercise price of NT$13.7. The options granted in February 2003 and May 2003 had an exercise price of NT$15.6 and NT$16.3 and a purchase price of nil. In August 2004, we adjusted the exercise price of the February 2003 and May 2003 options to NT$13.7 and NT$14.3, respectively, and the options will expire in five years from the date of grant if not previously exercised. In August 2005, we adjusted the exercise price of the February 2003 and May 2003 options to NT$11.9 and NT$12.4, respectively, and the options will expire 5 year from the date of grant if not previously exercised.


Number of shares issuable
upon exercise of options	Expiration Date		Exercise price
23,753,900		February 2008	NT$11.9
2,594,400		May 2008	NT$12.4

Under the 2002 Employee Stock Option Plan, an option holder may exercise an increasing portion of his or her options starting two years after the grant of the options. According to the vesting schedule, 30%, 70% and 100% of such option holder’s options shall vest two, three and four years after the grant of the options, respectively. Upon termination of employment, the option holder shall exercise his or her vested options within one month, subject to exceptions provided therein, and otherwise after the termination, such options shall terminate. If termination of employment was due to death, the heirs of such option holder have one year starting from the date of the death to exercise his or her vested options. If termination of employment was due to retirement or occupational casualty, the option holder or his or her heirs may exercise all his or her options within certain period as provided. The options are generally not transferable or pledgeable by the option holders.

We do not have any collective bargaining arrangement with our employees, and we have never experienced a work stoppage caused by our employees. We believe we have good relations with our employees. We do not have any labor union.

E. Share Ownership

Each of our directors, supervisors and executive officers holds our shares either directly for their own account or indirectly as the representative of another legal entity on our board of directors. The following table sets forth the share ownership of our directors, supervisors and executive officers as of April 14, 2006, our most recent record date.


				Number of
				Ordinary Shares		Per Share
			Percentage of	Issuable on		Exercise
	Number of		Shares	Exercise of		Price
Name	Shares Owned		Owned	Option		(NT$)		Exercisable Period
Bough Lin		60,121,979	2.40%		360,000		11.9	Feb. 2003 to Feb. 2008
Chi-Wen Tsai		33,059,323	1.32%		360,000		11.9	Feb. 2003 to Feb. 2008
Wen-Lung Lin		29,220,133	1.17%		—		—	—
Yen-Chun Chang		13,313,598	*		240,000		11.9	Feb. 2003 to Feb. 2008
Wen-Jung Lin		6,350,013	*		—		—	—
Jerome Tsai⁽¹⁾		8,780,659	*		—		—	—
Hsiu-Li Liu		12,493,662	*		—		—	—
Ing-Dar Liu		—	—		—		—	—
Jing-Shan Aur		129,580	*		—		—	—
Wen-Lung Cheng		6,303,277	*		—		—	—
Fu-Mei Tang		7,164,615	*		140,000		11.9	Feb. 2003 to Feb. 2008
Teresa Wang⁽²⁾		32,089,876	1.28%		—		—	—
Johnson Tien		677,125	*		72,000		11.9	Feb. 2003 to Feb. 2008
Kuo-Jui Tai		103,786	*		300,000		11.9	Feb. 2003 to Feb. 2008
Chien-An Chen		451,350	*		140,000		11.9	Feb. 2003 to Feb. 2008
Chien-Hua Chen		18,000	*		42,000		11.9	Feb. 2003 to Feb. 2008
Michael Chang		56,259	*		140,000		11.9	Feb. 2003 to Feb. 2008
Eva Chen		303,152	*		—		—	—


*		Less than 1%.

(1)		Representing Pei-Sheng Cultural Educational Foundation.

(2)		Representing Siliconware Investment Company.

See “—D. Employees” for a description of the 2002 Employee Stock Option Plan.

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

The following table presents information known to us concerning the record ownership of our shares as of December 31, 2004, December 31, 2005 and April 14, 2006 (our most recent record date) by (i) the ten largest shareholders of our company (as of April 14, 2006) and (ii) all directors, supervisors and executive officers as a group. Other than Citibank, as the record owner of our American Depositary Shares, we are not aware that any of our shareholders beneficially own more than 5% of our shares.


	December 31, 2004					December 31, 2005					April 14, 2006(4)
			Percentage of					Percentage
	Number of		Shares			Number of		of Shares			Number of		Percentage
Name of beneficial owner	Shares Owned		Owned			Shares Owned		Owned			Shares Owned		of Shares Owned
Citibank(1)		151,548,541		7.20	%		177,076,825		7.60	%		419,366,509		16.73	%

Bough Lin		44,479,265		2.11	%		53,721,979		2.31	%		60,121,979		2.40	%
Kuming Investment Company Ltd.(2)		48,583,204		2.31	%		46,019,524		1.98	%		49,693,552		1.98	%

Li-Ping Wang(3)		46,241,103		2.22	%		49,932,821		2.14	%		49,932,821		1.99	%
Government of Singapore Investment Corp. PFE. Ltd		7,409,400		0.35	%		19,617,600		0.84	%		40,772,428		1.63	%

Chi-Wen Tsai		34,049,299		1.62	%		33,059,323		1.42	%		33,059,323		1.32	%
Silinconware Investment Company Ltd.		29,717,353		1.41	%		32,089,876		1.38	%		32,089,876		1.28	%

Wen-Lung Lin		22,479,000		1.07	%		29,220,133		1.25	%		29,220,133		1.17	%
Chunghwa Post Co., Ltd.		36,215,470		1.72	%		17,436,985		0.75	%		28,462,888		1.14	%
Workers’ Retirement Fund Supervisory Committee		36,215,470		1.72	%		17,436,985		0.75	%		28,462,888		1.14	%
Directors and Supervisors as a group		25,972,255		1.23	%		32,836,480		1.41	%		24,443,294		0.98	%


(1)		As record owner of our shares

(2)		The president of Kuming Investment Company Ltd. is the husband of Ms. Li-Ping Wang.

(3)		Ms. Wang’s husband also serves as the president of Kuming Investment Company Ltd.

(4)		Our most recent record date.

Except for holders of our ADSs, none of our major shareholders have different voting rights from those of other shareholders.

As of May 31, 2006, a total of 79,959,828 ADSs and 2,506,056,714 of our shares (including the shares represented by these ADSs) were outstanding. With certain limited exceptions, holders of common shares that are not ROC persons are required to hold these commons shares through a brokerage or custodial account in the ROC. As of May 31, 2006, 399,799,140 common shares were registered in the name of a nominee of Citibank, N.A., the depositary of our ADS facility. Citibank, N.A. has advised us that, as of May 31, 2006, 397,140,050 common shares were held of record by Cede & Co. We have no further information as to common shares held, or beneficially owned, by U.S. persons.

None of our major shareholders have different voting rights from those of other shareholders.

B. Related Party Transactions

Related Party Transactions Policies

We from time to time have engaged in a variety of transactions with our affiliates. We conduct transactions with our affiliates on terms substantially as favorable to us as would be obtainable at the time in a comparable arm’s-length transaction with non-affiliates.

Sigurd Microelectronics Corp.

From 2002 to 2004, we didn’t have any transactions with Sigurd. For 2005, we had total sales of packing services to Sigurd of NT$31 million.

ChipMOS Technologies Inc.

Prior to 2002, we provided packaging services to ChipMOS. These packaging services were rendered directly to ChipMOS’s customers through customer referrals from ChipMOS. For 2002 and 2004, we had no sales to ChipMOS. For 2003, we had total sales to ChipMOS of NT$102 million.

•

We are obligated under a joint venture agreement with Mosel Vitelic to severally guarantee up to 30% of ChipMOS’s indebtedness if ChipMOS requires a guarantee to secure financing. We currently do not guarantee any of ChipMOS’s indebtedness. Mr. Frank Lee, one of our officers, is a director of ChipMOS.

Phoenix Precision Technology Corporation

We purchased semiconductor raw materials from Phoenix Precision Technology totaling NT$2,610 million, NT$2,876 million and NT$3,600 million (US$109.8 million) in 2003, 2004 and 2005, respectively. The purchase price and payment terms for such purchases were generally comparable to those provided by non-related parties. The average payment period is approximately 30 days from the date of completion of service or purchase. As of December 31, 2003, 2004 and 2005, we owed NT$302 million, NT$231 million and NT$694 million (US$21.2 million), respectively, in accounts payable, to Phoenix Precision Technology.

•

Mr. Bough Lin, our Chairman, Mr.Yen-Chun Chang, one of our officers, and Ms. Teresa Wang, one of our supervisors, are directors of Phoenix Precision. Ms. Teresa Wang is also the Chief Financial Officer of Phoenix Precision. Jerome Tsai, one of our directors, is a supervisor of Phoenix Precision. Wen-Lung Cheng, one of our supervisors, is a supervisor of Phoenix Precision.

C. Interests of Experts and Counsel

Not applicable.

Item 8. Financial Information

A. Consolidated Statements and Other Financial Information

Please refer to Item 18 for a list of all financial statements filed as part of this annual report on Form 20-F.

Litigation

On March 1, 2006, we were notified of a civil lawsuit brought by Tessera Inc., a U.S. corporation, against us and our subsidiary, Siliconware USA, Inc. in the United States. Currently, we are unable to assess the potential liabilities arising out of this claim due to insufficient information provided in the scope of the infringement of patent rights caused by our services is not specified in the bill of complaint. As such, we have not estimated or recognized any indemnity amount regarding the lawsuit.

Dividend Policy and Distributions

As for our policy on dividend distributions, see “Item 10. Additional Information — Memorandum and Articles of Association — Dividends and Distributions.” The following table sets forth the stock dividends per Share as a percentage of Shares outstanding paid during each of the years indicated in respect of Shares outstanding at the end of each such year, except as otherwise noted.


				Total Number
	Stock			of Shares						Outstanding
	Dividend Per			Issued as Stock						Shares
	Share⁽¹⁾			Dividend⁽²⁾		Stock Dividend Amount				at Year End
						NT$⁽³⁾		US$⁽⁴⁾
	(in thousands)
1995		40.0	%		70,048,800		6,059,221		234,581		280,668,000
1996		60.0	%		168,400,800		6,432,911		233,245		457,800,000
1997		40.0	%		183,120,000		17,213,280		618,738		654,200,000
1998		36.0	%		235,512,000		11,752,049		341,928		904,162,000
1999		23.0	%		207,957,260		12,269,478		378,805		1,127,092,402
2000		14.0	%		157,793,537		5,964,596		190,684		1,449,882,870
2001		14.5	%		235,421,212		4,237,582		122,793		1,852,761,683
2002⁽⁵⁾		—			—		—		—		1,853,668,683
2003⁽⁶⁾		—			—		—		—		1,876,625,683
2004		13.5	%		189,447,578		3,788,952		119,375		2,105,073,060
2005		15.5	%		168,889,805		5,733,809		174,811		2,328,919,337


(1)		Our stock dividend is declared in NT dollar amount per Share. The number of Shares received by a shareholder equals to the NT dollar amount per share of dividend declared multiplied by the number of Shares owned by the shareholder and divided by the par value of NT$10 per Share.

(2)		Total number of Shares issued as stock dividends include Shares issued from retained earnings and from capital reserve.

(3)		The NT dollar amount of stock dividends paid is calculated based upon the closing price per Share on the Taiwan Stock Exchange on the date when the Shares issued as stock dividends commenced trading.

(4)		The US dollar amount of stock dividends paid is calculated based upon the noon buying rate announced by the Federal Reserve Bank of New York on the date when shareholders possessed the right to ownership of the stock dividends.

(5)		We did not declare a dividend in 2002 because we incurred a net loss in 2001.

(6)		We did not declare a dividend in 2003 because our shareholders did not elect to declare such dividend, even though we generated net income in 2002.

B. Significant Changes

Our net operating revenues on an unconsolidated basis for the three months ended March 31, 2006 amounted to NT$13,439 million, representing a 68.4% increase from NT$7,982 million of our net operating revenues on an unconsolidated basis for the three months ended March 31, 2005. Our net operating revenues for the first three months of 2006 are not indicative of our financial performance on either an unconsolidated or a consolidated basis for the remaining months of 2006. In addition, we cannot predict whether the demand for our products and services will continue to improve in the near future.

Item 9. The Offer and Listing

A. Offer and Listing Details

Market Price Information for Our Shares

Our shares have been listed on the Taiwan Stock Exchange since April 7, 1993. The table below shows, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the Taiwan Stock Exchange for our shares and the highest and lowest of the daily closing values of the Taiwan Stock Exchange Index.


	Closing Price for
	Each Share⁽¹⁾						Taiwan Stock Exchange Index
					Average Daily
					Trading
Period	High		Low		Volume		High		Low
					(in thousands of
	NT$		NT$		shares)
2000		81.5		17.8		13,921		10,202.20		4,555.91
2001		32.0		14.0		16,058		6,104.24		3,446.26
2002		39.6		15.3		18,277		6,462.30		3,850.04
2003		37.4		15.3		19,698		6,182.20		4,044.73
2004		42.4		19.8		20,556		7,135.00		5,255.06
First Quarter		42.4		31.5		20,997		7,135.00		5,907.15
Second Quarter		38.2		21.5		21,247		6,916.31		5,450.72
Third Quarter		27.5		19.8		19,258		5,970.29		5,255.06
Fourth Quarter		28.4		22.6		21,036		6,160.96		5,597.80
2005		70.8		21.9		20,048		6,267.32		5,565.41
First Quarter		29.6		21.9		21,717		6,267.52		5,734.87
Second Quarter		32.9		26.8		17,325		6,373.86		5,715.16
Third Quarter		35.8		29.3		17,502		6,455.57		5,925.54
Fourth Quarter		46.9		29.1		25,098		6,575.53		5,632.97
November		35.6		29.9		21,249		6,203.84		5,798.41
December		46.9		35.7		30,044		6,575.53		6,179.82
2006 (up to June 15)		48.5		36.5		23,860		7,474.5		6,331.81
First Quarter		48.5		38.2		28,477		6,742.39		6,364.60
January		41.9		48.5		36,950		6,742.39		6,381.97
February		45.9		39.9		28,897		6,720.08		6,474.69
March		42.8		38.2		21,537		6,642.96		6,364.60
Second Quarter (up to June 15)		47.2		36.5		18,609		7,474.05		6,331.81
April		43.0		47.1		19,164		7,171.77		6,660.76
May		47.2		39.8		16,970		7,474.05		6,843.98
June (up to June 15, 2006)		37.8		36.5		20,780		6,959.64		6,331.81


Sources:		Taiwan Stock Exchange Statistical Data 1999-2006, Taiwan Stock Exchange and Bloomberg.

(1) As reported.

There is no public market outside Taiwan for our shares. The Taiwan Stock Exchange has experienced significant fluctuations in the prices of listed securities and there are currently limits on the range of daily price movements.

Market Price Information for Our American Depositary Shares

Our ADSs have been listed on the NASDAQ Stock Market’s National Market since June 7, 2000. The table below shows, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the NASDAQ Stock Market’s National Market.


	Closing Price				Average Daily
	for Each ADS(1)				Trading Volume
Period	High		Low
	US$		US$
2000 (from June 7)		5.62		2.18		431,433
2001		4.30		1.88		247,542
2002		5.48		2.23		394,006
2003		5.27		1.98		730,026
2004		6.00		2.83		1,047,141
First Quarter		6.00		4.24		2,040,297


	Closing Price				Average Daily
	for Each ADS(1)				Trading Volume
Period	High		Low
	US$		US$
Second Quarter		5.21		2.83		1,052,894
Third Quarter		3.85		2.84		551,108
Fourth Quarter		4.40		3.23		544,267
2005		6.95		3.08		719,177
First Quarter		4.32		3.08		461,689
Second Quarter		4.87		3.82		520,471
Third Quarter		5.38		4.55		821,256
Fourth Quarter		6.95		4.39		1,030,962
November		5.28		4.50		877,963
December		6.95		5.50		1,285,579
2006 (up to June 15)		7.88		5.45		1,793,394
First Quarter		7.88		6.07		1,967,287
January		7.34		6.81		1,985,841
February		7.53		6.23		2,080,178
March		6.86		6.07		1,857,895
Second Quarter (up to June 15)		7.45		5.45		1,586,060
April		7.40		6.67		1,841,409
May		7.45		6.08		1,335,540
June (up to June 15)		6.27		5.45		1,646,042


Source:		NASDAQ Stock Exchange.

(1) As reported.

B. Plan of Distribution

Not applicable.

C. Markets

Our shares are listed on the Taiwan Stock Exchange and our ADSs are quoted on the NASDAQ National Market.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

Item 10. Additional Information

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

The following statements summarize the material elements of our capital structure and the more important rights and privileges of our shareholders conferred by Taiwan law and our articles of incorporation.

Objects and Purpose

The scope of business of our company as set forth in Article 2 of our articles of incorporation includes:

(a) The production, processing and purchase and sale of products, including integrated circuit, transistors, light emitting diode digital displays, light emitting diode display lamps, liquid crystal clock cores, photo diodes, hybrid circuits, thin film circuits and thick film circuits; and

(b) The import and export of the products mentioned in the preceding paragraph.

Directors

The ROC Company Act and our articles of incorporation provide that our board of directors is elected by shareholders and is responsible for the management of our services. Our board of directors is composed of nine directors. The Chairman of our board is elected by our directors. The Chairman presides at all meetings of our board of directors and also has the authority to represent us. The term of office for our directors is three years and our directors are elected by our shareholders by means of cumulative voting. The next election for all of the directors and supervisors is expected to be held in June 2008. In addition, our shareholders also elect three supervisors whose duties include investigating our services and financial condition, inspecting corporate records, calling shareholders’ meetings when our board of directors does not or cannot convene a shareholders’ meeting or when such a meeting is necessary for our benefit, representing us in negotiations with our directors and notifying our board of directors to cease acting in contravention of law, our articles of incorporation or the resolutions of our shareholders’ meetings. The supervisors cannot concurrently serve as our directors or officers. A person may serve as our director or supervisor in his personal capacity or as the representative of one of our shareholder entities. A director or supervisor who serves as the representative of a legal entity may be removed or replaced at any time, and the replacement director or supervisor may serve the remainder of the term of office of the replaced director or supervisor. Our audit committee consists of three independent auditors, including Jing-Shan Aur, Ing-Dar Liu and Hsiu-Li Liu. In order to facilitate the function of our board of directors, our audit committee and board of directors have established procedures for the complaints pursuant to Rule 10A-3(b)(3) under the Exchange Act and have established a means for communicating with the non-management members of our board of directors.

According to the ROC Company Act, a director who has a personal interest in a matter to be discussed at the meeting of the board of directors, the outcome of which may impair the company’s interests, shall abstain from voting on such matter. Our articles of incorporation also provide that the traveling expenses for all directors and supervisors shall be determined at the board of directors’ meeting based on common practice regardless of the profit or loss to our company. In addition, according to our articles of incorporation, we should distribute 2.0% of the balance of our earnings after deduction of payment of all taxes and dues, deduction of any past losses and allocation of 10% of our net income as a legal reserve as remuneration to directors and supervisors. Our articles of incorporation do not impose a mandatory retirement age limit for our directors. Furthermore, our articles of incorporation do not impose a shareholding qualification for each director; however, our articles of incorporation require that our directors and supervisors hold our issued shares at the ratios as required by the regulatory authority.

Shares

As of May 31, 2006, our authorized share capital was NT$ 31.5 billion, divided into 3.15 billion shares, of which NT$ 25,062,567,140, divided into 2,506,256,714 shares, were issued and outstanding. We issued US$200 million of convertible bonds due 2007 in January 2002, of which an aggregate amount of US$9.8 million remained outstanding as of May 31, 2006. We issued US$200 million of convertible bonds due 2009 in February 2004, of which an aggregate amount of US$182.6 million remained outstanding as of May 31, 2006. We issued 40,000 option rights to employees according to our 2002 Employee Stock Option Plan, of which 16,586.9 option rights remained outstanding as of May 31, 2006. Other than our shares, ADSs, our convertible bonds and employee stock option rights, we do not have any other equity interests outstanding, including any preferential subscription rights, exchangeable debt securities or warrants as of May 31, 2006.

All shares presently issued are fully paid and in registered form, and existing shareholders are not obligated to contribute additional capital. The shares underlying the ADSs are fully paid, in registered form and will not be obligated by any capital calls. We generally are not permitted to directly acquire our shares, except under limited circumstances as permitted by ROC law.

According to our 2002 Employee Stock Option Plan, options may be granted to our full-time regular employees, including those of our domestic and overseas subsidiaries, for purchase up to an aggregate of 40,000,000 shares. The exercise price for the options would be the closing price of our common shares on the Taiwan Stock Exchange on the day the options are granted, while the expiration date for such options is 5 years from the date of grant. In February and May 2003, we granted a total of 35,828 options to purchase up to 35,828,000 shares under our 2002 Employee Stock Option Plan, of which 2,950 options to purchase up to 2,950,000 shares were granted to our executive officers. Some of our executive officers receiving options are also directors of our company.

Under our 2002 Employee Stock Option Plan, an option holder may exercise an increasing portion of his or her options starting two years after the grant of the options. According to the vesting schedule, 30%, 70% and 100% of such option holder’s options shall vest two, three and four years after the grant of the options, respectively. Upon termination of employment, the option holder shall exercise his or her vested options within one month, subject to exceptions provided therein, and otherwise after the termination, such options shall terminate. If termination of employment was due to death, the heirs of such option holder have one year starting from the date of the death to exercise his or her vested options. If termination of employment was due to retirement or occupational casualty, the option holder or his or her heirs may exercise all his or her options within certain period as provided. The options are generally not transferable or pledgeable by the option holders.

New Shares and Preemptive Rights

New shares may only be issued with the prior approval of our board of directors. If our issuance of any new shares will result in any change in our authorized share capital, we are required under ROC law to amend our articles of incorporation and obtain approval of our shareholders in a shareholders’ meeting. We must also obtain the approval of, or submit a registration with, the ROC SFB and the Ministry of Economic Affairs. According to the ROC Company Act, when a company issues capital stock for cash, 10% to 15% of the issue must be offered to its employees. In addition, if a listed company intends to offer new shares for cash, at least 10% of the issue must also be offered to the public pursuant to the Securities and Exchange Law. This percentage can be increased by a resolution passed at a shareholders’ meeting, which will reduce the number of new shares in which existing shareholders may have preemptive rights. Unless the percentage of the shares offered to the public is increased by a resolution, existing shareholders of the company have a preemptive right to acquire the remaining 75% to 80% of the issue in proportion to their existing shareholdings.

Shareholders

We only recognize persons registered in our register as our shareholders. We may set a record date and close our register of shareholders for specified periods to determine which shareholders are entitled to various rights pertaining to our shares.

Transfer of Shares

Under the ROC Company Act, a public company, such as us, may issue individual share certificates, one master certificate or scripless shares to evidence common shares. Shares in registered form are transferred by endorsement and delivery of the related share certificates. Transferees must have their names and addresses registered on our register in order to assert shareholders’ rights against us. Our shareholders are required to file their respective specimen seals with our share registrar, Chinatrust Commercial Bank.

Shareholders’ Meetings

We are required to hold an annual ordinary shareholders’ meeting once every fiscal year and within six months after the end of each fiscal year. Our board of directors may convene an extraordinary meeting whenever the directors think fit, and they must do so if requested in writing by shareholders holding not less than 3% of our paid-in share capital who have held these shares for more than a year. In addition, any of our supervisors may convene a shareholders’ meeting when our board of directors do not or cannot convene a shareholders’ meeting and/or when such a meeting is necessary for our benefit. At least 15 days advance written notice must be given of every extraordinary shareholders’ meeting and at least 30 days advance written notice must be given of every annual ordinary shareholders’ meeting. Unless otherwise required by law or by our articles of incorporation, voting for an ordinary resolution requires an affirmative vote of a simple majority of those present. A distribution of cash dividends would be an example of an ordinary resolution. The ROC Company Act also provides that in order to approve certain major corporate actions, including any amendment of our articles of incorporation, dissolution, merger or spin-off, the transfer of the whole of the business or assets to any other company which would have a significant impact in our operations, removing directors or the distribution of any stock dividend, a special resolution may be adopted by the holders of at least two-thirds of our shares represented at a meeting of shareholders at which holders of at least a majority of our issued and outstanding shares are present. However, if we are the controlling company and hold not less than 90% of our subordinate company’s outstanding shares, our merger with the subordinate company can be approved by a board resolution adopted by majority consent at a meeting with two-thirds of our directors present without shareholders’ approval.

Voting Rights

Except for treasury shares, each share is generally entitled to one vote. Except as otherwise provided for by law or by our articles of incorporation, a resolution can be adopted by the holders of a simple majority of the total issued and outstanding shares represented at a shareholders’ meeting. The quorum for a shareholders’ meeting to discuss the ordinary resolutions is a majority of the total issued and outstanding shares. The election of directors and supervisors by our shareholders may be conducted by means of cumulative voting or other voting mechanisms adopted in our articles of incorporation. In all other matters, a shareholder must cast all his votes in the same manner when voting on any of these matters.

Our shareholders may be represented at an ordinary or extraordinary shareholders’ meeting by proxy if a valid proxy form is delivered to us five days before the commencement of the ordinary or extraordinary shareholders’ meeting. Voting rights attached to our shares exercised by our shareholders’ proxy are subject to the proxy regulation promulgated by the ROC SFB.

Any shareholder who has a personal interest in a matter to be discussed at our shareholders’ meeting, the outcome of which may impair our interests, shall not vote or exercise voting rights on behalf of another shareholder on such matter.

Any holder of our ADSs generally will not be able to exercise voting rights on the shares underlying its holding of ADSs on an individual basis.

Dividends and Distributions

We may distribute dividends in any year in which we have current or retained earnings (excluding reserves). Before distributing a dividend to shareholders, we must recover any past losses, pay all outstanding taxes and set aside a legal reserve equivalent to 10% of our net income until our legal reserve equals our paid-in capital.

At the shareholders’ annual ordinary meeting, our board of directors submits to the shareholders for their approval proposals for the distribution of a dividend or the making of any other distribution to shareholders from our net retained earnings or reserves. Dividends are paid to shareholders proportionately. Dividends may be distributed either in cash or in shares or a combination of cash and shares, as determined by the shareholders at such meeting. Distribution of stock dividends requires approvals from the ROC SFB and the Ministry of Economic Affairs, as necessary.

Beginning in 1999, our articles of incorporation provide that our earnings after payment of all income taxes and deduction of any past losses shall be distributed as follows:

	•		allocation of 10% of our net income as legal reserve; and

	•		payment of 2% of the balance after deducting the 10% legal reserve as remuneration to our directors and supervisors. The remaining amount may be distributed or reserved in a ratio of 10% and 90%, respectively, to our employees as their bonuses and to our shareholders as their dividends.

Before 1999, our articles of incorporation provided that our earnings after payment of all income taxes, deduction of any past losses, allocation of 10% of our net income as legal reserve and allocation of an interest on our capital at a rate not to exceed 3% shall be distributed as follows:

	•		10% is distributable as bonus shares for employees.

	•		4% is set aside as remuneration of directors and supervisors.

	•		86% is allocated as a dividend to shareholders.

In addition to permitting dividends to be paid out of net income, we are permitted under the ROC Company Act to make distributions to our shareholders of additional shares by capitalizing reserves, including the legal reserve and capital surplus of premiums from issuing stock and earnings from gifts received if we do not have losses. However, the capitalized portion payable out of our legal reserve is limited to 50% of the total accumulated legal reserve and is payable only if and to the extent the accumulated legal reserve exceeds 50% of our paid-in capital.

Acquisition of Our Shares by Us

An ROC company may not acquire its own common shares except under certain exceptions provided in the ROC Company Act or the ROC Securities and Exchange Law.

Under Article 28-2 of the Securities and Exchange Law, we may, by a board resolution adopted by majority consent at a meeting with two-thirds of our directors present, purchase up to 10% of our issued shares on the Taiwan Stock Exchange or by a tender offer, in accordance with the procedures prescribed by the ROC SFB, for the following purposes:

	•		to transfer shares to our employees;

	•		to transfer upon conversion of bonds with warrants, preferred shares with warrants, convertible bonds, convertible preferred shares or certificates of warrants issued by us; and

	•		if necessary, to maintain our credit and our shareholders’ interests; provided that the shares so purchased shall be cancelled thereafter.

In addition, we may not spend more than the aggregate amount of the retained earnings, the premium from issuing stock and the realized portion of the capital reserve to purchase our shares.

We may not pledge or hypothecate any purchased shares. In addition, we may not exercise any shareholders’ rights attaching to such shares. In the event that we purchase our shares on the Taiwan Stock 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 purchase our shares.

Liquidation Rights

In the event of our liquidation, the assets remaining after payment of all debts, liquidation expenses, taxes and distributions to holders of preferred shares, if any, will be distributed pro rata to our shareholders in accordance with the ROC Company Act.

Other Rights of Shareholders

Under the ROC Company Act, dissenting shareholders are entitled to appraisal rights in the event of a spin-off or a merger and various other major corporate actions. Dissenting shareholders may request us to redeem all their shares at a fair price to be determined by mutual agreement. If no agreement can be reached, the valuation will be determined by a court. Subject to applicable law, dissenting shareholders may, among other things, exercise their appraisal rights by notifying us before the related shareholders’ meeting and/or by raising and registering their dissent at the shareholders’ meeting.

One or more shareholders who have held more than 3% of the issued and outstanding shares for more than one year may require our board of directors to call an extraordinary shareholders’ meeting by sending a written request to our board of directors.

Voting of Deposited Securities

A holder may direct the exercise of voting rights regarding the shares represented by the ADSs only pursuant to the deposit agreement as described below and applicable ROC law. See “Risk factors—Holders of our ADSs will not have the same voting rights as the holders of our shares, which may affect the value of your investment.”

Except as described below, a holder will not be able to exercise voting rights attaching to the shares on an individual basis. According to the ROC Company Act, a shareholder’s voting rights must, as to all matters brought to a vote of shareholders, other than the election of directors and/or supervisors, be exercised as to all shares held by the shareholder in the same manner. Accordingly, the voting rights of the shares represented by ADSs must be exercised collectively in the same manner, except in the case of an election of directors and/or supervisors, which may be conducted by means of cumulative voting or other mechanisms adopted in our articles of incorporation. Pursuant to ROC Company Act and our articles of incorporation, the election of directors and/or supervisors is by means of cumulative voting.

By accepting and continuing to hold ADSs or any interest therein, a holder will authorize and direct the depositary to appoint our chairman or the chairman’s designee as his representative to exercise the voting rights attaching to the shares underlying the ADSs.

Once notified of a shareholders’ meeting, the depositary will, subject to the terms of the deposit agreement, fix a record date for determining the owners entitled to receive information about this meeting. The depositary will mail to the owners:

	•		the notice of the meeting sent by us; and

	•		a statement that the owners will be entitled to instruct the depositary or its nominee as to the exercise of the voting rights.

If the depositary timely receives voting instructions from holders of at least 51% of the outstanding ADSs to vote in the same manner on a resolution, including election of directors and/or supervisors, the depositary will cause all of the shares underlying the outstanding ADSs to be voted in the manner instructed. If for any reason, other than our failure to provide timely notice to the depositary of a shareholders’ meeting, the depositary does not receive timely instructions from holders of at least 51% of all ADSs outstanding to vote in the same manner on a resolution, including a resolution for the election of directors and/or supervisors, the holders of all ADSs outstanding shall be deemed, subject to our satisfying the applicable requirements of the deposit agreement, to have authorized and directed the depositary to give a discretionary proxy to the chairman of our board of directors, or the chairman’s designee, to vote the shares on deposit in respect of their ADSs in his discretion, which may not be in the interest of the holders of ADSs.

An ADS holder will not be able to exercise cumulative voting rights on an individual basis in the elections of directors and/or supervisors under the deposit agreement. This means that if at least 51% of the votes represented by outstanding ADSs are cast for a particular director or supervisor for a particular open position in an election, the depositary shall, subject to the terms of the deposit agreement, cause all of the shares underlying the outstanding ADSs to be voted in favor o f the director or supervisor.

By accepting and continuing to hold ADSs or any interest therein, a holder will be deemed to have agreed to the voting provisions set forth in the deposit agreement, as such provisions may be amended from time to time to comply with applicable ROC law.

There can be no assurance that a holder will receive notice of shareholders’ meetings sufficiently prior to the date established by the depositary for receipt of instructions to enable him to give timely voting instructions.

C. Material Contracts

Immunity Agreement with Motorola, Inc.

We entered into a license agreement with Motorola in November 1996 under which Motorola licensed to us the technology for ball grid array as well as any future technology relating to ball grid array. Under the terms of the agreement, we make royalty payments based on the number of pads or balls used in our packages. This agreement will expire in December 2010.

In April 2004, Motorola spun off its semiconductor product business into a subsidiary Freescale Semiconductor, Inc. Motorola has assigned this agreement to Freescale Semiconductor, Inc., and Freescale Semiconductor, Inc. has assumed all of its rights, duties and obligations under the agreement, in connection with the spin-off.

License Agreement with Flip Chip Technologies, L.L.C.

We entered into a license agreement with Flip Chip in November 1999, under which Flip Chip licensed to us the package design technology that enables us to attach silicon dies directly to substrates using solder bumping rather than wire bonding technology. This license will expire in November 2009.

Joint Venture Agreement with Mosel Vitelic, Inc.

We entered into a joint venture agreement with Mosel Vitelic in 1997 to create ChipMOS, a company concentrating on the packaging and testing of memory chips. Under the joint venture agreement, we must maintain a minimum 18% equity interest in ChipMOS for five years from the date of any initial public listing of ChipMOS. If ChipMOS requires guarantees of its indebtedness to obtain financing, we and Mosel Vitelic are required under the joint venture agreement to provide these guarantees in the ratios of 30% and 70%, respectively. Under the terms of the joint venture agreement, we are entitled to nominate two of the seven board members of ChipMOS.

D. Exchange Controls

ROC Foreign Exchange Control Statute and regulations provide that all foreign exchange transactions must be executed by banks designated to handle such business by the Ministry of Finance or by the Central Bank of China. Current regulations favor trade-related foreign exchange transactions. Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters, and all foreign currency needed for the importation of merchandise and services may be purchased freely from the designated foreign exchange banks.

Aside from trade-related foreign exchange transactions, ROC companies and resident individuals may, without foreign exchange approval, remit outside the ROC foreign currency of up to US$50 million (or its equivalent) and US$5 million (or its equivalent), respectively, in each calendar year. In addition, ROC companies and resident individuals may, without foreign exchange approval, remit 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. Furthermore, any remittance of foreign currency into ROC by an ROC company or resident individual in a year will be offset by the amount remitted out of ROC by the company or individual (as applicable) within its annual quota and will not use up its annual inward remittance quota to the extent of such offset. The above limits apply to remittances involving a conversion of NT dollars to a foreign currency and vice versa. A requirement is also imposed on all enterprises to register medium- and long-term foreign debt with the Central Bank of China.

In addition, foreign persons may, subject to certain requirements but without foreign exchange approval of the Central Bank of China, remit outside and into the ROC foreign currencies of up to US$100,000 (or its equivalent) for each remittance. The above limit applies to remittances involving a conversion of NT dollars to a foreign currency and vice versa. The above limit does not, however, apply to the conversion of NT dollars into other currencies, including US dollars, in respect of the proceeds of sale of any underlying shares withdrawn from a depositary receipt facility.

E. Taxation

ROC Tax Considerations

The following summarizes the principal Taiwan tax consequences of owning and disposing of ADSs and shares for non-residents of Taiwan. Investors in our ADSs are advised to consult their own tax advisers as to United States, Taiwan or other tax consequences of the purchase, ownership and disposition of ADSs.

The following is a general summary of the principal ROC tax consequences of the ownership and disposition of ADSs representing common shares to a non-resident individual or entity. The summary description applies only to a holder that is:

	•		an individual who is not an ROC citizen, who owns ADSs and who is not physically present in the ROC for 183 days or more during any calendar year; or

	•		a corporation or a non-corporate body that is organized under the laws of a jurisdiction other than the ROC for profit-making purposes and has no fixed place of business or other permanent establishment in the ROC.

Holders of ADSs are urged to consult their own tax advisors as to their particular ROC tax consequences from owning the ADSs.

Dividends

Dividends declared by us out of our retained earnings and distributed to the holders 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 common shares in the case of stock dividends. However, a 10% ROC retained earnings tax paid by us on our undistributed after-tax earnings, if any, would provide a credit of up to 10% of the gross amount of any dividends declared out of those earnings that would reduce the 20% ROC tax imposed on those distributions.

It is currently unclear whether dividends paid by us out of our capital reserves are subject to ROC withholding tax.

Capital Gains

Under ROC law, capital gains on transactions in the common shares are currently exempt from income tax. In addition, transfers of ADSs are not regarded as a sale of an ROC security and, as a result, any gains on such transactions are not subject to ROC income tax.

Securities Transaction Tax

A securities transaction tax, at the rate of 0.3% of the sales proceeds, will be withheld upon a sale of common shares in the ROC. Transfers of ADSs are not subject to ROC securities transaction tax. Withdrawal of common shares from the deposit facility is not subject to ROC securities transaction tax.

Estate and Gift Tax

ROC estate tax is payable on any property within the ROC of a deceased who is an individual, and ROC gift tax is payable on any property within the ROC donated by an individual. Estate tax is currently payable at rates ranging from 2% of the first NT$600,000 to 50% of amounts over NT$100,000,000. Gift tax is payable at rates ranging from 4% of the first NT$600,000 to 50% of amounts over NT$45,000,000. Under ROC estate and gift tax laws, common shares issued by ROC companies are deemed located in the ROC regardless of the location of the holder. It is unclear whether a holder of ADSs will be considered to hold common shares for this purpose.

Tax Treaty

The ROC does not have a double taxation treaty with the United States. On the other hand, the ROC has double taxation treaties with Indonesia, Singapore, South Africa, Australia, Vietnam, New Zealand, Malaysia, Macedonia, Swaziland, Gambia, The Netherlands, the United Kingdom, Senegal and Sweden which may limit the rate of ROC withholding tax on dividends paid with respect to common shares in ROC companies. It is unclear whether ADS holders will be considered holders of common shares for the purposes of these treaties. Accordingly, if the holders may otherwise be entitled to the benefits of the relevant income tax treaty, the holders should consult their tax advisors concerning their eligibility for the benefits with respect to the ADSs.

U.S. Federal Income Tax Considerations For U.S. Persons

The following is a summary of the material U.S. federal income tax consequences for beneficial owners of our shares or ADSs that have purchased such shares or ADSs, that hold the shares or ADSs as capital assets, and that are U.S. holders and non-residents of the ROC. You are a U.S. holder if you are, for U.S. federal income tax purposes, any of the following:

	•		an individual citizen or resident of the United States;

	•		a corporation (or other entity treated as a corporation) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

	•		an estate the income of which is subject to U.S. federal income taxation regardless of its source;

	•		a trust that is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust; or

	•		a trust that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions thereunder as of the date hereof, and such authorities may be replaced, revoked or modified so as to result in U.S. federal income tax consequences different from those discussed below. It is for general purposes only and you should not consider it to be tax advice. In addition, it 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. This summary does not represent a detailed description of all the U.S. federal income tax consequences to you in light of your particular circumstances and does not address the effects of any state, local or non-U.S. tax laws (or other U.S. federal tax consequences, such as U.S. federal estate or gift tax consequences). In addition, it does not represent a detailed description of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:

•

a dealer in securities or currencies;

	•		a trader in securities if you elect to use a mark-to-market method of accounting for your securities holdings;

	•		a financial institution or an insurance company;

	•		a tax-exempt organization;

	•		a regulated investment company;

	•		a real estate investment trust;

	•		a person liable for alternative minimum tax;

	•		a person holding shares or ADSs as part of a hedging, integrated or conversion transaction, constructive sale or straddle;

	•		a partnership or other pass-through entity for U.S. federal income tax purposes;

	•		a person owning, actually or constructively, 10% or more of our voting stock; or

	•		a U.S. holder whose “functional currency” is not the United States dollar.

We cannot assure you that a later change in law will not alter significantly the tax considerations that we describe in this summary.

If a partnership holds our shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our shares or ADSs, you should consult your tax advisor.

You should consult your own tax advisor concerning the particular U.S. federal income tax consequences to you of the ownership and disposition of the shares or ADSs, as well as the consequences to you arising under the laws of any other taxing jurisdiction.

In general, for U.S. federal income tax purposes, a U.S. person who is the beneficial owner of an ADS will be treated as the owner of the shares underlying its ADS. However, the U.S. Treasury has expressed concerns that parties involved in transactions in which depositary shares are pre-released may be taking actions that are inconsistent with the claiming of foreign tax credits by the holders of ADSs. Such actions would also be inconsistent with the claiming of the reduced rate of tax, described below, applicable to dividends received by certain non-corporate holders. Accordingly, the analysis of the creditability of ROC taxes and the availability of the reduced tax rate for dividends received by certain non-corporate holders, each described below could be affected by future actions taken by parties to whom the ADSs are released. Deposits or withdrawals of shares by U.S. holders for ADSs generally will not be subject to U.S. federal income tax.

Taxation of Dividends

Except as discussed below with respect to the passive foreign investment company rules, the amount of distributions (other than certain pro rata distributions of shares to all shareholders) you receive on your shares or ADSs, including net amounts withheld in respect of ROC withholding taxes, will generally be treated as dividend income to you if the distributions are made from our current and accumulated earnings and profits as calculated according to U.S. federal income tax principles. In determining the net amounts withheld in respect of ROC taxes, any

reduction in the amount withheld on account of a ROC credit in respect of the 10% retained earnings tax imposed on us is not considered a withholding tax and will not be treated as distributed to you or creditable by you against your U.S. federal income tax. Such income will be includible in your gross income as ordinary income on the day you actually or constructively receive it, which in the case of an ADS will be the date actually or constructively received by the depositary. The amount of any distribution of property other than cash will be the fair market value of such property on the date it is distributed. You will not be entitled to claim a dividend received deduction with respect to distributions you receive from us.

With respect to U.S. holders who are individuals, certain dividends received from a foreign corporation before January 1, 2011, on shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States may be subject to reduced rates of taxation. U.S. Treasury Department guidance indicates that our ADSs, which are listed on the NASDAQ, but not our shares, are readily tradable on an established securities market in the United States. Thus, we do not believe that dividends that we pay on our shares that are not backed by ADSs currently meet the conditions required for these reduced tax rates. There can be no assurance that our ADSs will continue to be readily tradable on an established securities market in later years (or that our shares will be readily tradable on an established securities market in any given year). Individuals that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of the trading status of our shares or ADSs. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. Holders should consult their own tax advisors regarding the application of these rules given their particular circumstances.

The amount of any dividend paid in a currency other than the United States dollar, such as NT dollars, which we refer to as “foreign currency,” will equal the US dollar value of the foreign currency you receive, calculated by reference to the exchange rate in effect on the date you actually or constructively receive the dividend, which in the case of an ADS will be the date actually or constructively received by the depositary, regardless of whether the foreign currency is actually converted into US dollars. If the foreign currency received as a dividend is not converted into US dollars on the date of receipt, you will have a basis in the foreign currency equal to its US dollar value on the date of receipt. Any gain or loss you realize if you subsequently sell or otherwise dispose of the foreign currency will be ordinary income or loss from sources within the United States for foreign tax credit limitation purposes.

Subject to certain limitations under the Code, you may be entitled to a credit or deduction against your federal income taxes for the net amount of any ROC taxes that are withheld from dividend distributions made to you. The election to receive a credit or deduction must be made annually, and applies to all foreign taxes for the applicable tax year. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends we pay with respect to shares or ADSs will generally be considered passive income from sources outside the U.S. Furthermore, you will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on shares or ADSs if you (1) have held shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss or, (2) are obligated to make payments related to the dividends. The rules governing the foreign tax credit are complex. We therefore urge you to consult your tax advisor regarding the availability of the foreign tax credit under your particular circumstances.

To the extent that the amount of any distribution you receive exceeds our current and accumulated earnings and profits for a taxable year as determined under U.S. federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in your adjusted basis in the shares or ADSs and thereby increasing the amount of gain, or decreasing the amount of loss, you will recognize on a subsequent disposition of the shares or ADSs. The balance in excess of adjusted basis, if any, will be taxable to you as capital gain recognized on a sale or exchange. However, we do not expect to keep earnings and profits in accordance with U.S. federal income tax principles. Therefore, you should expect that a distribution will generally be treated as a dividend, as discussed above.

It is possible that pro rata distributions of shares or ADSs to all shareholders may be made in a manner that is not subject to U.S. federal income tax. In the event that such distributions are tax-free, the basis of any new shares or ADSs so received will generally be determined by allocating the U.S. holder’s basis in the old share or ADSs s between the old shares or ADSs and the new shares or ADSs, based on their relative fair market values on the date of distribution. For U.S. tax purposes, any such tax-free share or ADS distribution and any distributions in excess of current and accumulated earnings and profits generally would not result in foreign source income to you. Consequently, you may not be able to use the foreign tax credit associated with any ROC withholding tax imposed on such distributions unless you can use the credit against United States tax due on other foreign source income in the appropriate category for foreign tax credit purposes. You should consult your own tax advisors regarding all aspects of the foreign tax credit.

Taxation of Capital Gains

Except as discussed below with respect to the passive foreign investment company rules, when you sell or otherwise dispose of your shares or ADSs, you will generally recognize capital gain or loss in an amount equal to the difference between the U.S. dollar value of the amount realized for the shares or ADSs and your basis in the shares or ADSs, determined in U.S. dollars. For foreign tax credit limitation purposes, such gain or loss will generally be treated as U.S. source. If you are an individual, and the shares or ADSs being sold or otherwise disposed of are capital assets that you have held for more than one year, your gain recognized will be eligible for reduced rates of taxation. Your ability to deduct capital losses is subject to limitations.

If you pay any ROC securities transaction tax, such tax is not treated as an income tax for U.S. federal income tax purposes, and therefore will not be a creditable foreign tax for U.S. federal income tax purposes. However, subject to limitations under the Code, such tax may be deductible. You are urged to consult your tax advisors regarding the U.S. federal income tax consequences of these taxes.

Passive Foreign Investment Company

Based on the composition of our income and valuation of our assets, including goodwill, we do not believe we were a passive foreign investment company (“PFIC”) for 2005 and do not expect to become one in the future, although there can be no assurance in this regard.

In general, a company is considered a PFIC for any taxable year if either:

	•		at least 75% of its gross income is passive income, which generally includes income derived from certain dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business or not derived from a related person), annuities or property transactions; or

	•		at least 50% of the value of its assets is attributable to assets that produce or are held for the production of passive income.

The 50% of value test is based on the average of the value of our assets for each quarter during the taxable year. If we own at least 25% by value of another company’s stock, we will be treated, for purposes of the PFIC rules, as owning our proportionate share of the assets and receiving our proportionate share of the income of that company.

In determining that we do not expect to be a PFIC, we are relying on our projected capital expenditure plans and projected revenue for the current year and for future years. In addition, our determination is based on a current valuation of our assets, including goodwill. In calculating goodwill, we have valued our total assets based on our total market value, which is based on the market value of our shares and is subject to change. In addition, we have made a number of assumptions regarding the amount of this value allocable to goodwill. We believe our valuation approach is reasonable. However, it is possible that the Internal Revenue Service will challenge the valuation of our goodwill, which may also result in us being classified as a PFIC.

In addition, the determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may become a PFIC in the current or any future taxable year due to changes in our asset or income composition. Because we have valued our goodwill based on the market value of our shares, a decrease in the price of our shares may result in our becoming a PFIC.

If we are a PFIC for any taxable year during which you hold our shares or ADSs, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of our shares or ADSs. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for our shares or ADSs will be treated as excess distributions. Under these special tax rules:

•

the excess distribution or gain will be allocated ratably over your holding period for our shares or ADSs;

	•		the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income; and

	•		the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

If you hold our shares or ADSs in any year in which we are a PFIC, you are required to file Internal Revenue Service Form 8621.

If we are a PFIC for any taxable year and any of our foreign subsidiaries is also a PFIC, a U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.

In certain circumstances, a U.S. holder, in lieu of being subject to the PFIC rules discussed above, may make an election to include gain on the stock of a PFIC as ordinary income under a mark-to-market method provided that such stock is regularly traded on a qualified exchange. Under this method, any difference between the stock’s fair market value and its adjusted basis at the end of the year is accounted for by either an inclusion in income or a deduction from income, as described below. Under current U.S. Treasury Department guidance, the mark-to-market election may be available to you because the ADSs are listed on the NASDAQ Stock Market’s National Market which constitutes a qualified exchange, although there can be no assurance that the ADSs will be “regularly traded” for the purposes of the mark-to-market election. You should also note that only the ADSs and not the shares are listed on the NASDAQ Stock Market’s National Market. The shares are listed on the Taiwan Stock Exchange and must meet certain trading, listing, financial disclosure and other requirements to be treated as a qualified exchange under applicable U.S. Treasury regulations for purposes of the mark-to-market election, and no assurance can be given that the shares will be “regularly traded” for purposes of the mark-to-market election.

If you make an effective mark-to-market election, you will include in income each year as ordinary income the excess of the fair market value of your PFIC shares or ADSs at the end of the year over your adjusted tax basis in the shares. You will be entitled to deduct as an ordinary loss each year the excess of your adjusted tax basis in the shares or ADSs over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.

Your adjusted tax basis in PFIC shares or ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. If you make a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years, unless the shares or ADSs are no longer regularly traded on a qualified exchange or the Internal Revenue Service consents to the revocation of the election. You should consult your tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable in your particular circumstances.

Alternatively, a U.S. holder of shares or ADSs in a PFIC can sometimes avoid the rules described above by electing to treat us as a “qualified electing fund” under section 1295 of the Code. This option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election.

U.S. holders who are individuals will not be eligible for reduced rates of taxation on any dividends received from us prior to January 1, 2011, if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year. You should consult your own tax advisors concerning the U.S. federal income tax consequences of holding our shares or ADSs if we are considered a PFIC in any taxable year.

Information Reporting and Backup Withholding

In general, unless you are an exempt recipient such as a corporation, information reporting will apply to dividends in respect of the shares or ADSs and to the proceeds from the sale, exchange or redemption of your shares or ADSs that are paid to you within the United States (and in some cases, outside of the United States). Additionally, if you fail to provide your taxpayer identification number, or fail either to report in full dividend and interest income or to make the necessary certifications of other exempt status, you may be subject to backup withholding.

Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, provided you furnish the required information to the Internal Revenue Service.

Inheritance and Gift Tax

Certain ROC inheritance and gift taxes may be imposed on holders of ADSs. You should consult your own tax advisor regarding the effect of such taxes on your particular situation.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We have filed this annual report on Form 20-F, including exhibits, with the SEC. As allowed by the SEC, in Item 19 of this annual report, we incorporate by reference certain information we filed with the SEC. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this annual report.

You may read and copy this annual report, including the exhibits incorporated by reference in this annual report, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 and at the SEC’s regional offices in New York, New York, and Chicago, Illinois. You can also request copies of this annual report, including the exhibits incorporated by reference in this annual report, upon payment of a duplicating fee, by writing to the SEC’s Public Reference Room for information.

The SEC also maintains a website atwww.sec.govthat contains reports, proxy statements and other information regarding registrants that file electronically with the SEC. Our annual report and some of the other information submitted by us to the SEC may be accessed through this website.

I. Subsidiary Information

Not applicable.

Item 11. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss related to adverse changes in market prices, including interest rates and foreign exchange rates, of financial instruments. We are exposed to various types of market risks, including changes in interest rates and foreign currency exchange rates, in the normal course of business.

Foreign Exchange Risk

Substantial portions of our revenues and expenses are denominated in currencies other than the NT dollar. In 2005, sales in the amount of US$858.5 million were denominated in US dollars. In 2005, material purchases from our overseas vendors in the amounts of US$232.1 million and ¥5,625.5 million were denominated in US dollars and Japanese yen, respectively. As of December 31, 2005, we had certificates of deposit, bank deposits and accounts receivable denominated in US dollars of US$414.0 million. As of December 31, 2005, we also had accounts payable, bonds payable and other liabilities denominated in US dollars and the Japanese yen of US$413.6 million and of ¥2,683.5 million, respectively. We adopt natural hedge as our risk management strategy for the currency exchange risk. Therefore, we possessed the equivalent portion of foreign currency assets and liabilities on December 31, 2005, which minimized the influence on fluctuation of foreign exchange. We did not utilize any derivative financial instrument to hedge our currency exposure.


									Expected Maturity Date
Expressed in NT$ amount (in millions)	2006		2007			2008			2009		2010		Thereafter		Total			Fair value
On-balance sheet financial instruments

Assets
Marketable Securities
Time Deposit (US$)		7,799		—			—			—		—		—		7,799			7,799
Liabilities
Long-term Debt:
Fixed Rate (US$)		—		4,227			6,560			—		—		—		10,787			21,574
Variable Rate (US$)		—		—			—			—		—		—		—			—
Average interest rate		—		0	%		0	%		—		—		—		0	%		—

Interest Rate Risk

Our major market risk exposure is changing interest rates. Our exposure to market risk for changes in interest rates relates primarily to our long-term debt obligations. We primarily enter into debt obligations to support general corporate purposes including capital expenditures and working capital needs. We have not entered into any interest rate swaps, caps or any contracts hedge to modify our exposure to interest rate movements.

The table below presents annual principal amounts due and related weighted average interest rates by year of maturity for our debt obligations outstanding as of December 31, 2005.


											2010 and
Debt Obligations	2006			2007			2008		2009		thereafter
				(in millions, except percentages)
US$-denominated debt:
Fix rate		—			4,730			6,580		—		—
Interest rate		—			—			—		—		—
NT$-denominated debt:
Variable rate		1,467			3,333			—		—		—
Average interest rate		2.1	%		2.1	%		—		—		—
Fix rate		—			—			—		—		—
Interest rate		—			—			—		—		—
RMB-denominated debt:
Variable rate		324			—			—		—		—
Average interest rate		4.7	%		—			—		—		—
Fair value		1,791			10,952			7,910		—		—

Item 12. Description of Securities Other Than Equity Securities

Not applicable.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None of these events occurred in any of the years ended December 31, 2003, 2004 and 2005.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged.

Item 15. Controls and Procedures

Subsequent to the filing of our consolidated financial statements on Form 20-F for the year ended December 31, 2004 and through the process of addressing financial statement comments raised by the SEC, we determined that our controls over the processes and procedures related to the recording and review of convertible bonds and embedded derivatives were not adequate to ensure that such accounts were completely and accurately recorded, due primarily to inadequate US GAAP experience in relation to such accounting matters. As a result of this control material weakness, we restated our consolidated financial statements for the years ended December 31, 2002, 2003, and 2004 with respect to certain US GAAP financial information disclosed in note 30 and elsewhere in our consolidated financial statements.

In connection with the restatement, we evaluated our disclosure controls and procedures. Our management has concluded that our disclosure controls and procedures were not effective at the reporting date.

However, we have taken actions to strengthen the internal control over financial reporting with respect to convertible bonds and embedded derivative accounting, including an increase in our internal resources to address US GAAP issues and an increase in the level of management review and oversight of our financial reporting process. We believe that, as of the date of this annual report, we have fully remedied this material weakness in our internal control over financial reporting with respect to our accounting for the derivative instruments.

In preparation for certain internal control reporting requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002, we have continued to perform the necessary system and process evaluation and testing required (and any necessary remediation) to comply with such section by the effective date for compliance. Our efforts to implement standardized internal control procedures and develop internal tests necessary to verify the proper application of the internal control procedures are a key area of focus for our board of directors and our senior management.

Except as disclosed herein, there were no changes in our internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 16A. Audit Committee Financial Expert

Jing-Shan Aur is our audit committee financial expert and an independent director. See “Item 6. Directors, Senior Management and Employees-C. Board Practices-Audit Committee.”

Item 16B. Code of Ethics

We have adopted a code of ethics which applies to our directors, employees and officers, including our Chief Executive Officer and Chief Financial Officers (our principal accounting officer). No changes have been made to the code of ethics since its adoption and no waivers have been granted therefrom to our directors or employees. We have filed this code of ethics as an exhibit to our annual report on Form 20-F for the fiscal year ended December 31, 2003, which exhibit is incorporated by reference as an exhibit to this annual report, and a copy is available to any shareholder upon request.

Item 16C. Principal Accountant Fees and Services

PricewaterhouseCoopers has served as our independent public accountant for each of the fiscal years in the three-year period ended December 31, 2005, for which audited financial statements appear in this annual report.

The following table presents the aggregate fees for professional services and other services rendered by PricewaterhouseCoopers to us in 2004 and 2005.


	2004		2005
	NT$		NT$		US$
	(in thousands
Audit Fees⁽¹⁾	$	6,683		7,490		228.4
Audit-related Fees⁽²⁾		830		1,231		37.5
Tax Fees⁽³⁾		900		900		27.4
All Other Fees⁽⁴⁾		404		140		4.3

Total	$	8,817		9,761		297.6


(1)		Audit fees consist of fees billed for the annual audit of the company’s consolidated financial statements and the statutory financial statements of the company’s subsidiaries. They also include fees billed for other audit services, which are those services that only the external auditor reasonably can provide, and include the provision of comfort letters and consents and the review of documents filed with the SEC.

(2)		Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the company’s financial statements or that are traditionally performed by the external auditor, and include consultations concerning financial accounting and reporting standards; internal control reviews; review of security controls and operational effectiveness of systems.

(3)		Tax fees include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for refund; tax consultations, such as assistance and representation in connection with tax audits and appeals, transfer pricing, and requests for rulings or technical advice from taxing authorities; tax planning services; and expatriate tax compliance, consultation and planning services.

(4)		All other fees include fees billed for occasional training services.

Pre-approval Policies and Procedures

Our audit committee is responsible for the oversight of our independent accountants’ work. The policy of our audit committee is to pre-approve all audit and non-audit services provided by PricewaterhouseCoopers, including audit services, audit-related services, tax services and other services, as described above.

Item 16D. Exemptions from the Listing Standards for Audit Committees

None.

Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers

None.

PART III

Item 17. Financial Statements

We have elected to provide the financial statements and related information specified in Item 18.

Item 18. Financial Statements

The following is a list of the audited financial statements and reports of independent accountants included in this annual report beginning on page F-1.


		Page
SILICONWARE PRECISION INDUSTRIES CO., LTD.
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2003, 2004 and 2005		F-4
Consolidated Statements of Income for the Years Ended December 31, 2003, 2004 and 2005		F-6
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2003, 2004 and 2005		F-8
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2004 and 2005		F-10
Notes to Consolidated Financial Statements		F-12

CHIPMOS TECHNOLOGIES INC.
Report of Independent Registered Public Accounting Firm		F-84
Consolidated Balance Sheets as of December 31, 2003, 2004, and 2005		F-85
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2004 and 2005		F-87
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2003, 2004 and 2005		F-89
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2004 and 2005		F-90
Notes to Consolidated Financial Statements		F-92

Item 19. Exhibit Index


Exhibit
Number		Description of Exhibits

1.1		Articles of Incorporation of Siliconware Precision Industries Co., Ltd. (English translation)(1)

2.1		Form of the Second Amended and Restated Deposit Agreement among Siliconware Precision Industries Co., Ltd., Citibank, N.A. and Holders and Beneficial owners of American Depositary Shares issued thereunder, including the form of American Depositary Receipts(2)

4.1		Immunity Agreement with Motorola, Inc. (effective from November 5, 1996 to December 31, 2010)(3)

4.2		License Agreement with Flip Chip Technologies, L.L.C. (effective from November 28, 1999 to November 27, 2009)(4)

4.3		Joint Venture Agreement with Mosel Vitelic, Inc. (English translation)(5)

*8.1		List of Significant Subsidiaries of Siliconware Precision Industries Co., Ltd.

11.1		Code of Ethics (6)

*12.1		Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*12.2		Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*13.1		Certification by our Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*13.2		Certification by our Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*15.1		Consent of Independent Registered Public Accounting Firm


*		filed herewith.

1		Incorporated by reference to Exhibit 3.1 to our Year 2001 Form 20-F filed with the SEC on June 25, 2002.

2		Incorporated by reference to Exhibit 4.1 to our Registration Statement on Form F-1 (File No. 333-11812) filed with the SEC on April 29, 2000.

3		Incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 (File No. 333-11812) filed with the SEC on April 29, 2000.

4		Incorporated by reference to Exhibit 10.5 to our Registration Statement on Form F-1 (File No. 333-11812) filed with the SEC on April 29, 2000.

5		Incorporated by reference to Exhibit 10.6 to our Registration Statement on Form F-1 (File No. 333-11812) filed with the SEC on April 29, 2000.

6		Incorporated by reference to Exhibit 11.1 to our Year 2003 Form 20-F filed with the Commission on June 28, 2004.

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.



	SILICONWARE PRECISION INDUSTRIES CO., LTD.

	By:	/s/ Eva Chen

	Name: Title:	Eva Chen Chief Financial Officer
Date: June 29, 2006

INDEX TO THE FINANCIAL STATEMENTS


		Page
SILICONWARE PRECISION INDUSTRIES CO., LTD.
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets as of December 31, 2003, 2004 and 2005		F-4
Consolidated Statements of Income for the Years Ended December 31, 2003, 2004 and 2005		F-6
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2003, 2004 and 2005		F-8
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2004 and 2005		F-10
Notes to Consolidated Financial Statements		F-12

CHIPMOS TECHNOLOGIES INC.
Report of Independent Registered Public Accounting Firm		F-84
Consolidated Balance Sheets as of December 31, 2003, 2004 and 2005		F-85
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2004 and 2005		F-87
Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2003, 2004 and 2005		F-89
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2004 and 2005		F-90
Notes to Consolidated Financial Statements		F-92

SILICONWARE PRECISION INDUSTRIES CO., LTD.

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND

REPORT OF INDEPENDENT ACCOUNTANT

DECEMBER 31, 2003, 2004 AND 2005

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Siliconware Precision Industries Co., Ltd.

We have audited the accompanying consolidated balance sheets of Siliconware Precision Industries Co., Ltd. and its subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, of changes in stockholders’ equity and of cash flows for each of the three years ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of ChipMOS Technologies Inc., an investee accounted for under the equity method, which statements reflect total assets of $28,094,559 thousand and $28,241,171 thousand as of December 31, 2005 and 2004, respectively, and total revenues of $14,756,523 thousand, $14,867,877 thousand, and $8,468,665 thousand for the years ended 2005, 2004, and 2003. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for ChipMOS Technologies Inc., is based solely on the report of the other auditors.

We conducted our audits in accordance with the “Rules Governing Examination of Financial Statements by Certified Public Accountants”, generally accepted auditing standards 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 and the reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the accompanying consolidated financial statements referred to above present fairly, in all material respects, the financial position of Siliconware Precision Industries Co., Ltd. and its subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years ended December 31, 2005 in conformity with the “Guidelines Governing the Preparation of Financial Reports by Securities Issuers” and accounting principles generally accepted in the Republic of China.

F-2

Accounting principles generally accepted in the Republic of China vary in certain significant respects from accounting principles generally accepted in the United States. Information relating to the nature and effect of such differences, after giving effect to the restatement described in Note 30, is presented in Note 30 and 31 to the consolidated financial statements.

As discussed in Note 3, commencing from January 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 35 “Accounting for Impairment of Assets” and amended Statement of Financial Accounting Standards No. 5, “Accounting for Long-term Equity Investment”, under which the Company ceased to delay recognition of investment income of investees accounted for under the equity method until the subsequent year, and recognized investment income from all investees accounted for under the equity method based on investees’ audited financial statements for the same periods then ended.

As discussed in Note 8, before January 1, 2005, the Company delayed recognition of investment income (loss) for certain investee companies accounted for under the equity method until the subsequent year under ROC GAAP. Accordingly, the investment amounts of $3,924,937 thousand and $2,995,619 thousand at December 31, 2005 and 2004 were based on the investees’ financial statements for the year ended December 31, 2005 and 2003, respectively. The investment income of $1,100,044 thousand, recognized for these investee companies for the year ended December 31, 2005, was based on the investees’ financial statements for the years ended December 31, 2005 and 2004. The investment income of $247,328 thousand, recognized for these investee companies for the year ended December 31, 2004, was based on the investees’ financial statements for the year ended December 31, 2003.

Taichung, Taiwan, Republic of China

February 17, 2006 (except for the information in Note 27, 30, and 31 for which the date is May 29, 2006)

F-3

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN THOUSANDS OF DOLLARS)


	December 31,
	2004			2005
	NT$			NT$			US$
							(Note 2)
ASSETS
Current Assets
Cash and cash equivalents (Note 4)	$	10,922,393		$	12,340,833		$	376,245
Short-term investments (Note 5)		1,942,970			—			—
Notes receivable, net		72,083			156,899			4,784
Accounts receivable, net (Notes 6 and 23)		5,720,274			9,516,426			290,135
Other financial assets — current		407,087			823,295			25,100
Inventories (Note 7)		1,977,001			2,805,287			85,527
Deferred income tax assets — current (Note 20)		709,093			759,226			23,147
Other current assets — other		533,924			540,185			16,469

		22,284,825			26,942,151			821,407

Long-term Investments (Note 8)
Long-term investments under the equity method		3,952,489			4,653,136			141,864
Long-term investments under the cost method		2,863,849			2,547,540			77,669

		6,816,338			7,200,676			219,533

Property, Plant and Equipment (Notes 9, 24)
Cost:
Land		2,128,476			2,128,476			64,892
Buildings		6,609,819			7,158,668			218,252
Machinery and equipment		34,710,602			39,596,050			1,207,197
Utility equipment		696,662			785,110			23,936
Furniture and fixtures		507,134			638,432			19,464
Other equipment		1,417,708			1,562,453			47,636

		46,070,401			51,869,189			1,581,377
Accumulated depreciation		(19,905,800	)		(23,894,328	)		(728,486	)
Construction in progress and prepayments for equipment		1,024,283			2,277,389			69,433

		27,188,884			30,252,250			922,324

Other Assets
Refundable deposits		11,557			10,112			308
Deferred charges		826,984			804,700			24,534
Deferred income tax asset — noncurrent (Note 20)		1,600,223			1,709,675			52,124
Other assets — other (Note 10)		233,529			255,649			7,794

		2,672,293			2,780,136			84,760

TOTAL ASSETS	$	58,962,340		$	67,175,213		$	2,048,024

The accompanying notes are an integral part of these consolidated financial statements.

(Continued)

F-4

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(EXPRESSED IN THOUSANDS OF DOLLARS)


	December 31,
	2004			2005
	NT$			NT$			US$
							(Note 2)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Short-term loans	$	—		$	93,768		$	2,859
Notes payable		984			5,493			168
Accounts payable (Note 23)		2,104,797			5,124,110			156,223
Income tax payable (Note 20)		36,352			153,016			4,665
Accrued expenses		1,077,473			1,657,575			50,536
Other payables (Note 11)		1,508,061			2,532,728			77,217
Current portion of long-term loans (Notes 12 and 13)		4,013,376			1,790,895			54,600
Other current liabilities		51,486			109,860			3,349

		8,792,529			11,467,445			349,617

Long-term Liabilities
Bonds payable (Note 12)		11,533,146			11,310,300			344,826
Long-term loans (Note 13)		5,106,346			3,333,300			101,625

		16,639,492			14,643,600			446,451


Other Liabilities		37,276			239,161			7,291

Total Liabilities		25,469,297			26,350,206			803,359


Stockholders’ Equity
Capital stock (Notes 1 and 15)		21,050,731			23,289,193			710,036
Capital reserve (Note 16)
Additional paid in capital		6,339,617			6,863,226			209,245
Premium arising from merger		1,951,563			1,951,563			59,499
Others		14,652			38,590			1,177
Retained earnings (Note 17)
Legal reserve		750,886			1,179,104			35,948
Special reserve		—			141,053			4,300
Unappropriated earnings		4,320,831			8,241,034			251,251
Unrealized loss on long-term investment		—			(737	)		(22	)
Cumulative translation adjustments		(141,053	)		(47,463	)		(1,447	)
Net loss not recognized as pension cost		—			(1,828	)		(56	)
Treasury stock (Note 18)		(794,184	)		(828,728	)		(25,266	)

Total Stockholders’ Equity		33,493,043			40,825,007			1,244,665


Commitments and Contingencies (Note 25)


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	58,962,340		$	67,175,213		$	2,048,024

The accompanying notes are an integral part of these consolidated financial statements.

F-5

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)


	For the years ended December 31,
	2003			2004			2005
	NT$			NT$			NT$			US$
										(Note 2)
Net Operating Revenues	$	27,411,427		$	35,252,156		$	43,487,877			1,325,850
Cost of Goods Sold (Note 23)		(23,297,669	)		(28,871,540	)		(33,959,940	)		(1,035,364	)

Gross Profit		4,113,758			6,380,616			9,527,937			290,486

Operating Expenses
Selling expenses		(415,433	)		(548,694	)		(565,765	)		(17,249	)
General and administrative expenses		(618,397	)		(746,695	)		(855,917	)		(26,095	)
Research and development expenses		(559,076	)		(752,473	)		(857,730	)		(26,150	)

		(1,592,906	)		(2,047,862	)		(2,279,412	)		(69,494	)

Operating Income		2,520,852			4,332,754			7,248,525			220,992

Non-operating Income and Gain
Interest income		88,379			157,015			304,237			9,275
Investment income accounted for under the equity method		—			307,728			447,950			13,657
Gain on disposal of investments		344,385			—			—			—
Others		448,763			575,965			548,813			16,732

		881,527			1,040,708			1,301,000			39,664

Non-operating Expenses and Losses
Interest expenses		(375,111	)		(353,321	)		(241,578	)		(7,365	)
Impairment loss (Note 19)		—			—			(163,650	)		(4,989	)
Investment loss accounted for under equity method		(533,061	)		—			—			—
Others (Note 11)		(291,783	)		(1,194,922	)		(535,386	)		(16,323	)

		(1,199,955	)		(1,548,243	)		(940,614	)		(28,677	)

Income Before Income Tax		2,202,424			3,825,219			7,608,911			231,979
Income Tax (Expense) Benefit (Note 20)		636,292			456,958			(15,517	)		(473	)

Income from Continuing Operations		2,838,716			4,282,177			7,593,394			231,506
Cumulative Effects of Changes in Accounting Principles (Note 3)		—			—			650,508			19,832

Net Income	$	2,838,716		$	4,282,177		$	8,243,902		$	251,338

The accompanying notes are an integral part of these consolidated financial statements.

(Continued)

F-6

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)

Earnings Per Share (in dollars) (Note 21)


	For the years ended December 31,
	2003		2004		2005
	NT$		NT$		NT$		US$
Basic Earnings Per Share
Income from continuing operations	$	1.01	$	1.72	$	3.31	$	0.10
Cumulative effects of changes in accounting principles		—		—		0.28		0.01

Net Income (Before Tax)	$	1.01	$	1.72	$	3.59	$	0.11

Net Income (After Tax)	$	1.30	$	1.93	$	3.59	$	0.11

Diluted Earnings Per Share
Income from continuing operations	$	0.92	$	1.31	$	3.14	$	0.10
Cumulative effects of changes in accounting principles		—		—		0.24		0.01

Net Income (Before Tax)	$	0.92	$	1.31	$	3.38	$	0.11

Net Income (After Tax)	$	1.18	$	1.51	$	3.38	$	0.11


Pro forma information as if the investment gain/loss in equity investees was not deferred in the subsequent
Net income	$	3,493,355	$	4,681,037	$	7,593,394	$	231,506

Basic Earnings Per Share (in dollars)	$	1.60	$	2.11	$	3.31	$	0.10

Diluted Earnings Per Share (in dollars)	$	1.44	$	1.80	$	3.13	$	0.10

The accompanying notes are an integral part of these consolidated financial statements.

F-7

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(EXPRESSED IN THOUSANDS OF DOLLARS)


																Unrealized
	Capital Stock Issued							Retained Earnings								Loss on Long -			Cumulative
	Shares									Special			Unappropriated			term			Translation
	(Thousand)		Capital Stock		Capital Reserve			Legal Reserve		Reserve			Earnings			Investments			Adjustments			Treasury Stock			Total
			NT$		NT$			NT$		NT$			NT$			NT$			NT$			NT$			NT$
2003
Balance at January 1, 2003		1,885,174	$	18,851,737	$	8,087,113		$	424,495	$	—		$	425,195		($	302,780	)	$	35,683		($	1,342,891	)	$	26,178,552
Appropriation for legal reserve		—		—		—			42,519		—			(42,519	)		—			—			—			—
Appropriation for special reserve		—		—		—			—		302,780			(302,780	)		—			—			—			—
Reversal of unrealized loss on long-term investments		—		—		—			—		—			—			302,780			—			—			302,780
Long-term investment adjustments for investee company’s additional paid in capital		—		—		617			—		—			—			—			—			—			617
Long-term investment adjustments for investee company’s cummulative translation adjustment		—		—		—			—		—			—			—			(32,405	)		—			(32,405	)
Net income		—		—		—			—		—			2,838,716			—			—			—			2,838,716
Transfer of treasury stock to employees		—		—		11,380			��		—			—			—			—			398,569			409,949

Balance at December 31, 2003		1,885,174	$	18,851,737	$	8,099,110		$	467,014	$	302,780		$	2,918,612		$	—		$	3,278		($	944,322	)	$	29,698,209


2004
Balance at January 1, 2004		1,885,174	$	18,851,737	$	8,099,110		$	467,014	$	302,780		$	2,918,612		$	—		$	3,278		($	944,322	)	$	29,698,209
Appropriation for legal reserve		—		—		—			283,872		—			(283,872	)		—			—			—			—
Reversal of special reserve to unappropriated earnings		—		—		—			—		(302,780	)		302,780			—			—			—			—
Remuneration to directors and supervisors		—		—		—			—		—			(57,153	)		—			—			—			(57,153	)
Employees’ cash bonus		—		—		—			—		—			(73,674	)		—			—			—			(73,674	)
Employees’ stock bonus		21,050		210,497		—			—		—			(210,497	)		—			—			—			—
Cash dividends		—		—		—			—		—			(663,066	)		—			—			—			(663,066	)
Stock dividends		189,447		1,894,476		—			—		—			(1,894,476	)		—			—			—			—
Conversion of Euro convertible bonds		9,402		94,021		213,140			—		—			—			—			—			—			307,161
Long-term investment adjustments for investee company’s additional paid in capital		—		—		(10,862	)		—		—			—			—			—			—			(10,862	)
Long-term investment adjustments for investee company’s cumulative translation adjustment		—		—		—			—		—			—			—			(144,331	)		—			(144,331	)
Cash dividends for treasury stock held by subsidiaries		—		—		9,455			—		—			—			—			—			—			9,455
Net income		—		—		—			—		—			4,282,177			—			—			—			4,282,177
Transfer of treasury stock to employees		—		—		(5,011	)		—		—			—			—			—			150,138			145,127

Balance at December 31, 2004	$	2,105,073	$	21,050,731	$	8,305,832		$	750,886	$	—		$	4,320,831		$	—		($	141,053	)	($	794,184	)	$	33,493,043

The accompanying notes are an integral part of these consolidated financial statements.

(Continued)

F-8

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(EXPRESSED IN THOUSANDS OF DOLLARS)


														Unrealized
														Loss
	Capital Stock Issued						Retained Earnings							on Long-			Cumulative			Net Loss Not
	Shares								Special		Unappropriated			term			Translation			Recognized As
	(Thousand)		Capital Stock		Capital Reserve		Legal Reserve		Reserve		Earnings			Investments			Adjustments			Pension Cost			Treasury Stock			Total
			NT$		NT$		NT$		NT$		NT$			NT$			NT$			NT$			NT$			NT$
2005
Balance at January 1, 2005	$	2,105,073	$	21,050,731	$	8,305,832	$	750,886	$	—	$	4,320,831		$	—		$	(141,053	)	$	—		$	(794,184	)	$	33,493,043
Appropriation for legal reserve		—		—		—		428,218		—		(428,218	)		—			—			—			—			—
Appropriation for special reserve		—		—		—		—		141,053		(141,053	)		—			—			—			—			—
Remuneration to directors and supervisors		—		—		—		—		—		(74,258	)		—			—			—			—			(74,258	)
Employees’ cash bonus		—		—		—		—		—		(175,927	)		—			—			—			—			(175,927	)
Employees’ stock bonus		18,766		187,655		—		—		—		(187,655	)		—			—			—			—			—
Cash dividends		—		—		—		—		—		(1,583,342	)		—			—			—			—			(1,583,342	)
Stock dividends		168,890		1,688,898		—		—		—		(1,688,898	)		—			—			—			—			—
Unrealized loss on long-term investment		—		—		—		—		—		—			(737	)		—			—			—			(737	)
Conversion of Euro convertible bonds		26,934		269,342		494,719		—		—		—			—			—			—			—			764,061
Employee stock option exercised		9,257		92,567		28,890		—		—		—			—			—			—			—			121,457
Long-term investment adjustment for investee company’s additional paid-in capital		—		—		1,696		—		—		(41,705	)		—			—			—			—			(40,009	)
Long-term investment adjustment for investee company’s cumulative translation adjustment		—		—		—		—		—		(2,643	)		—			93,590			—			—			90,947
Long-term investment adjustment for investee company’s unrecognized pension cost		—		—		—		—		—		—			—			—			(1,828	)		—			(1,828	)
Long-term investment adjustment for investee company’s treasury stock variances		—		—		—		—		—		—			—			—			—			(34,544	)		(34,544	)
Cash dividends for treasury stock held by subsidiaries		—		—		22,242		—		—		—			—			—			—			—			22,242
Net income		—		—		—		—		—		8,243,902			—			—			—			—			8,243,902

Balance at December 31, 2005	$	2,328,919	$	23,289,193	$	8,853,379	$	1,179,104	$	141,053	$	8,241,034		$	(737	)	$	(47,463	)	$	(1,828	)	$	(828,728	)	$	40,825,007

The accompanying notes are an integral part of these consolidated financial statements

F-9

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(EXPRESSED IN THOUSANDS OF DOLLARS)


	December 31,
	2003			2004			2005
	NT$			NT$			NT$			US$
										(Note 2)
Cash flows from operating activities
Net income	$	2,836,716		$	4,282,177		$	8,243,902		$	251,338
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		4,854,558			5,727,223			6,053,840			184,568
Amortization		330,768			425,383			518,024			15,793
Bad debts expense		4,834			—			2,911			89
Recovery of decline in market value of short-term investments		(6,349	)		(12	)		—			—
Provision for (recovery of) reserve for sales allowance		27,294			36,082			(25,457	)		(776	)
Gain on disposal of investments and recovery of decline in market value of short-term investments		(340,950	)		(69,584	)		(37,173	)		(1,133	)
Provision for (recovery of) loss on obsolescence and decline in market value of inventory		(109,910	)		(12,746	)		5,603			171
Long-term investment (income) loss under the equity method		313,010			(307,728	)		(1,098,458	)		(33,490	)
Long-term investment loss under the cost method		189,454			17,803			39,000			1,189
Impairment loss on long-term investment under the cost method		—			—			163,650			4,989
Cash dividend received from long-term investment under the equity method		12,684			27,832			198,805			6,061
Loss on decline in market value upon reclassification of long-term / short-term investment		30,597			—			—			—
(Gain) loss on disposal of property, plant and equipment		(39,395	)		52,291			(26,792	)		(817	)
Provision for loss on idle assets		131,828			460,539			68,766			2,097
Amortization of discount on commercial paper		2,762			—			—			—
Amortization of discount on long-term notes		6,385			2,367			1,712			52
Compensation interest on bonds payable		204,873			172,127			137,367			4,188
Foreign currency exchange loss (gain) on bonds payable		(163,751	)		(668,742	)		408,777			12,463
(Gain) loss on redemption of bonds payable		—			8,117			—			—
Reversal of deferred credit account		(23,506	)		—			—			—
(Increase) decrease in assets:
Notes receivable		8,706			46,448			(84,816	)		(2,586	)
Accounts receivable		(1,220,618	)		(405,172	)		(3,767,018	)		(114,848	)
Other financial assets — current		17,566			14,937			(435,260	)		(13,270	)
Inventories		(414,850	)		(68,977	)		(831,822	)		(25,360	)
Other current assets		(128,401	)		16,989			(20,433	)		(623	)
Deferred income tax assets		(631,184	)		(464,386	)		(159,586	)		(4,865	)
Increase (decrease) in liabilities:
Notes payable		1,071,607			(1,071,912	)		4,509			137
Accounts payable		780,972			(34,962	)		3,020,326			92,083
Income tax payable		(9,362	)		(4,256	)		116,664			3,557
Accrued expenses		106,157			255,763			593,046			18,081
Other payables		60,611			471,388			61,747			1,883
Other current liabilities		148,890			(168,362	)		60,690			1,850
Other liabilities		(1,288	)		(4,987	)		193			6
Accrued pension liabilities		—			31,008			1,900			58

Net cash provided by operating activities		8,050,708			8,766,648			13,214,617			402,885

The accompanying notes are an integral part of these consolidated financial statements.

(Continued)

F-10

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(EXPRESSED IN THOUSANDS OF DOLLARS)


	December 31,
	2003			2004			2005
	NT$			NT$			NT$			US$
										(Note 2)
Cash flows from investing activities
Payment for pledged time deposits	$	(44,800	)	$	(503,500	)	$	(405,839	)	$	(12,373	)
Refund of pledged time deposits		304,400			425,300			440,134			13,419
Purchase of short-term investments		—			(4,759,999	)		(4,774,000	)		(145,549	)
Proceeds from disposal of short-term investments		54,097			2,830,000			6,730,250			205,191
Purchase of long-term investments		(219,292	)		(265,156	)		(6,334	)		(193	)
Proceeds on capital reduction from equity investee		—			16,900			—			—
Purchase of long-term investments in bonds		(295,000	)		—			—			—
Proceeds from disposal of long-term investments		1,155,114			736,118			303,477			9,252
Acquisition of property, plant and equipment		(4,884,707	)		(9,784,816	)		(8,244,928	)		(251,370	)
Proceeds from disposal of property, plant and equipment		116,853			259,587			58,090			1,771
Payment for deferred charges		(380,103	)		(578,977	)		(502,050	)		(15,306	)
Payment for refundable deposits		(2,094	)		(1,825	)		(1,151	)		(35	)
Proceeds from refundable deposits		4,995			5,995			5,394			164
Acquisition of other assets		(37,416	)		—			—			—
Proceeds from disposal of other assets		12			—			—			—

Net cash used in investing activities		(4,227,941	)		(11,620,373	)		(6,396,957	)		(195,029	)


Cash flows from financing activities
Proceeds from short-term loans		2,875,700			—			93,768			2,859
Repayment of short-term loans		(3,177,700	)		—			—			—
Proceeds from issuance of commercial paper		2,397,441			—			—			—
Repayment of commercial paper		(2,900,000	)		—			—			—
Proceeds from long-term loans		5,128,639			6,300,000			—			—
Repayment of long-term loans		(2,329,760	)		(9,149,169	)		(3,216,965	)		(98,078	)
Proceeds from issuance of bonds payable		—			6,646,000			—			—
Proceeds from deposit-in		334			110			200,990			6,128
Repayment of deposit-in		(371	)		—			(1,045	)		(32	)
Increase (decrease) in deferred credit accounts		4,028			(5,562	)		—			—
Proceeds from the exercise of employee stock option								121,457			3,703
Redemption of bonds payable		—			(1,483,391	)		(800,000	)		(24,390	)
Proceeds from disposal of treasury stock		409,877			145,128			—			—
Remuneration to directors and supervisors		—			(57,153	)		(74,258	)		(2,264	)
Remuneration of employees’ cash bonuses and dividents		—			(736,712	)		(1,759,232	)		(53,635	)

Net cash provided by (used in) financing activities		2,408,188			1,659,251			(5,435,285	)		(165,709	)

Effect on foreign currency exchange		—			(85,734	)		36,065			1,100

Net (decrease) increase in cash and cash equivalents		6,230,955			(1,280,208	)		1,418,440			43,245
Cash and cash equivalents at beginning of year		5,969,646			12,202,601			10,922,393			333,000

Cash and cash equivalents at end of year	$	12,200,601		$	10,922,393		$	12,340,833		$	376,245


Supplemental disclosures of cash flow information:
Cash paid for interest (excluding capitalized interest)	$	170,287		$	324,148		$	162,849		$	4,965

Cash paid for income tax	$	5,279		$	17,242		$	14,978		$	457


Supplemental disclosures of partial cash paid for investing activities
Acquisition of property, plant and equipment	$	5,572,254		$	9,320,818		$	9,200,968		$	280,516
Add: Payable at beginning of the year		482,790			1,170,337			706,339			21,535
Less: Payable at end of the year		(1,170,337	)		(706,339	)		(1,662,379	)		251,370

Cash paid	$	4,884,707		$	9,784,816		$	8,244,928		$	553,421

The accompanying notes are an integral part of these consolidated financial statements.

F-11

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

1.History and Organization

(1)

Siliconware Precision Industries Co., Ltd. (the “Company”) was incorporated as a company limited by shares under the Company Law of the Republic of China (ROC) in May 1984 and was listed on the Taiwan Stock Exchange in April 1993. As of December 31, 2005, issued common stock was $23,289,193. The Company is mainly engaged in the assembly, testing and turnkey services of integrated circuits. As of December 31, 2005, the Company has 12,971 employees.

(2)Consolidated subsidiaries


			% of shares held
			by the Company
Name of investor	Name of subsidiaries	Main operating activities	as of December 31, 2005
The Company	Siliconware Investment Company Ltd.	Investment activities		100	%

The Company	SPIL (B.V.I.) Holding Limited	Investment activities		100	%

SPIL (B.V.I.) Holding Limited	Siliconware USA, Inc.	Providing promotion and marketing services		100	%

SPIL (B.V.I.) Holding Limited	SPIL (Cayman) Holding Limited	Investment activities		100	%

SPIL (Cayman) Holding Limited	Siliconware Technology (Suzhou) Limited	Manufacturing of memory card, DRAM module, transistor and electronic component		100	%

(3)Non-consolidated subsidiaries

None.

2.Summary of Significant Accounting Policies

The accompanying financial statements have been prepared in conformity with the “ Guidelines Governing the Preparation of Financial Reports by Securities Issuers” and accounting principles generally accepted in the Republic of China. Accounting principles generally accepted in the Republic of China vary in certain significant respects from accounting principles generally accepted in the United States. The application of accounting principles in the United States would have affected the determination of consolidated net income expressed in New Taiwan dollars, for each of the three years ended December 31, 2005 and the determination of consolidated shareholders’ equity and consolidated financial position also expressed in New Taiwan dollars, as of December 31, 2004 and 2005 to the extent summarized in Note 30 to the consolidated financial statements.

F-12

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

The Company’s significant accounting policies are summarized as follows:

Basis of Consolidation

The Company adopted the amended Statement of Accounting Standards No. 7 “Consolidated Financial Statements,” which requires an entity to consolidate all subsidiaries which it owns, directly or indirectly, more than 50% of the voting rights and which it owns, directly or indirectly, less than 50% of the voting rights but has effective control. Retrospective adoption is not required. Inter-company transactions, balances and unrealized gains (losses) on transactions between group companies are eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingencies at the date of the financial statements and the reported amounts of revenues, costs of revenue and expenses during the reporting period. Actual results may differ from those estimates.

Translation of Foreign Currency Transactions on Subsidiaries’ Financial Statements

The financial statements of foreign subsidiaries and investees are translated into New Taiwan dollars using the spot rate as of each financial statement date for asset and liability accounts, average exchange rate for profit and loss accounts, spot rate for dividend and historical exchange rates for equity accounts. The cumulative translation effects for subsidiaries and investees using functional currencies other than the New Taiwan dollar are proportionally recognized in the cumulative translation adjustment in stockholders’ equity.

Foreign Currency Transactions

The Company maintains its accounts in New Taiwan dollars. Transactions denominated in foreign currencies are translated into New Taiwan dollars at the exchange rates prevailing on the transaction dates. Receivables, other monetary assets and liabilities denominated in

F-13

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

foreign currencies are translated into New Taiwan dollars at the exchange rates prevailing at the balance sheet date. Exchange gains or losses arising from the aforementioned translations are recognized in the current year’s results.

Convenience Translation into US Dollars

The Company maintains its accounting records and prepares its financial statements in New Taiwan (“NT”) dollars. The United States (“US”) dollar amounts disclosed in the 2005 financial statements are presented solely for the convenience of the reader and were translated at the rate of NT$ 32.80 (in dollars) to US$1.00 (in dollars), the U.S. Federal Reserve Bank of New York noon buying exchange rate on December 30, 2005. Such translation amounts are unaudited and should not be construed that the NT dollar amounts represent, or have been, or could be, converted into US dollars at that or any other rate.

Cash and Cash Equivalents

Cash includes cash deposits in banks, certificates of deposits and time deposits. Cash equivalents are short-term, highly liquid investments which are readily convertible to known amounts of cash and with maturity dates that do not present significant risk of changes in value because of changes in interest rates.

Short-term Investments

Short-term investments are recorded at cost when acquired and are stated at the lower of aggregate cost or market value at the balance sheet date. The market value of listed stocks and close-end mutual funds is determined by the average closing price of the last month of the accounting period. The market value of open-end funds is determined by the equity per unit at the balance sheet date. The market value of open-end funds is determined by the equity per unit at the balance sheet date. The excess of aggregate cost over market value is recorded as a loss in the current year. In subsequent periods, recovery of market value is recognized as gain to the extent that the market value does not exceed the original cost of the investment.

Allowance for Doubtful Accounts

F-14

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

The allowance for doubtful accounts is provided based on the evaluation of collectibility and aging analysis of notes receivable, accounts receivables and other receivables.

Allowance for Sales Discounts

The allowance for sales discounts is provided based on the estimated allowance to be incurred and is recorded as deduction of accounts receivable.

Inventories

Inventories are recorded at cost when acquired and are stated at the lower of aggregate cost, determined by the weighted-average method, or market value at the balance sheet date. The market values of raw materials and supplies are determined on the basis of replacement cost, while market values of finished goods and work in processes are determined on the basis of net realizable value. The allowance for loss on obsolescence and decline in market value is provided based on management’s analysis on inventory aging and obsolescence, when necessary.

Long-term Investments

	A.		Long-term equity investments in which the Company owns less than 20% of the voting rights of and has no significant influence over the investee companies are accounted for (a) at cost, if the investee company is not listed or (b) at the lower of cost or market value, if the investee company is listed. Valuation allowance for the unrealized loss under this method is shown in the stockholders’ equity. When it becomes evident that there has been a permanent impairment in value and the chance of recovery is minimal, loss is recognized in the current year. However, if there is evidence that the Company has significant influence over the investee company, the investment is accounted for under the equity method.

	B.		Long-term equity investments in which the Company owns at least 20% of the voting rights of the investee companies are accounted for under the equity method, unless the Company cannot exercise significant influence over the investee company, under which circumstance, the investment is accounted for as indicated in A above. The excess of the acquisition cost over the investee’s net book value is capitalized and amortized over 10 years.

F-15

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

	C.		Unrealized gains and losses from transactions between the Company and investee companies accounted for under the equity method are deferred. Profit (loss) from sales of depreciable assets between the investee and the Company is amortized to income or expense over the assets’ economic service lives. Profit (loss) from other types of intercompany transactions is recognized when realized.

	D.		When the Company’s proportional interest in an equity investee changes after the equity investee issues new shares, the effect of change in the Company’s holding ratio on long-term investment is adjusted first to capital reserve. If capital reserve account is insufficient, the effect is then charged to retained earnings.

	E.		The Company’s proportionate share of the foreign investee’s cumulative translation adjustments related to the translation of the foreign investee’s financial statements into New Taiwan dollars is recognized as “Cumulative Translation Adjustment.” in the stockholders’ equity.

	F.		When the Company’s equity-method investees are merged, the carrying amount of the long-term investment in the acquired company is treated as the cost, while the market value at the acquisition date of the newly issued stocks of the acquiring company is treated as an addition to the long-term investment in the acquiring company. The difference is recognized as gain or loss in the current year.

Property, Plant and Equipment

	A.		Property, plant and equipment are stated at historical cost. Interest incurred relating to the construction of property, plant and equipment is capitalized and depreciated accordingly.

	B.		Depreciation is provided on the straight-line method over the assets’ estimated economic service lives, plus one additional year as the salvage value. Salvage values of fixed assets which are still in use after reaching their estimated economic service lives are depreciated over their new estimated remaining service lives. The service lives of fixed assets are 3 to 15 years, except for buildings, which are 35 to 55 years.

F-16

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

	C.		Maintenance and repairs are expensed as incurred. Significant renewals and improvements are capitalized and depreciated accordingly. When fixed assets are disposed of, their original cost and accumulated depreciation are removed from the corresponding accounts with gain or loss recorded as non-operating income or loss.

	D.		Idle assets are stated at the lower of book value or net realizable value and are reclassified to other assets.

	E.		According to the regulation of the People’s Republic of China, depreciation of the property, plant and equipment of Siliconware Technology is provided on the straight-line method over 5 years with one-tenth of the cost as salvage value.

Deferred Charges

The costs of computer software system purchased externally and tooling cost are recognized as deferred charges and amortized on the straight-line basis over the estimated useful lives of 2 to 5 years. Convertible bonds issuance costs are amortized over the period of the bonds.

Land Use Right

The rental cost for Siliconware Technology to lease the land from the local government is recognized as land use right and amortized on the straight-line method over the contract period of 50 years.

Convertible Bonds

	A.		The excess of the stated redemption price over the par value is recognized as interest expense and compensation interest payable using the effective interest method during the period from the issuance date to the last day of redemption period.

	B.		When a bondholder exercises his/her conversion rights, the book value of bonds is credited to common stock at an amount equal to the par value of the stock and the excess is credited to capital reserve; no gain or loss is recognized on bond conversion.

F-17

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

	C.		The related issuance costs for convertible bonds are recorded as deferred charges, and are amortized over the period of the bonds.

	D.		For convertible bonds with redemption options, the right of redemption becomes invalid if the bondholder fails to exercise his/her redemption right upon expiration. The balance of the compensation interest payable is amortized over the period from the date following the expiration date to the maturity date using the effective interest method.

	E.		The convertible bonds with redemption options are classified as current or non-current liabilities based on the date of redemption.

Pension Cost

The Company has a defined benefit plan funded in conformity with the Labor Standards Act and a defined contribution plan funded in conformity with the Labor Pension Act. Under defined benefit plan, the net pension cost is computed based on an actuarial valuation, which takes service cost, interest cost, expected return on plan assets, and unrecognized net asset or net obligation at transition into accounts. The unrecognized net asset or net obligation at transition is amortized over 15 years on a straight-line basis. Under defined contribution plan, the Company shall make monthly contribution, determined at no less than 6% of employees’ monthly wages, to employees’ individual pension accounts. These contributions are recorded as pension costs in the current period.

Income Tax

In accordance with ROC FAS No. 22, “Accounting for Income Taxes”, the income tax effect resulting from temporary differences and investment tax credits is recorded as income tax assets or liabilities using the asset and liability method. Deferred tax assets or liabilities are further classified as current or noncurrent and carried at net balance. Valuation allowance on deferred tax assets is provided to the extent that it is more likely than not that the tax benefit will not be realized.

F-18

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

	B.		The Company adopted ROC FAS No. 12 “Accounting for Investment Tax Credits” in determining the investment tax credit. The investment tax credits relating to the acquisition cost of qualifying machinery and technology, qualifying research and development expenditure, qualifying personnel training expenditure and qualifying investments in significant technology companies are recognized as income tax adjustment in the period the tax credits arise.

	C.		Over or under provisions of prior years’ income tax liabilities are included in the current year’s income tax expense.

	D.		The Taiwan imputation tax system requires that any undistributed earnings be subject to an additional 10% corporate income tax, which is recognized as expense at the time the stockholders resolve to retain the earnings.

Revenue Recognition

Revenues are recognized when services are provided based on transaction terms and when collectibility is reasonably assured.

Research and Development

Research and development costs are expensed as incurred.

Treasury Stock

	A.		The Company records treasury stock purchases under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock and as a reduction of stockholders’ equity.

	B.		Upon subsequent disposal of the treasury stock, the excess of the proceeds from disposal over the book value, determined by the weighted-average method, is credited to capital reserve. However, if the book value of the treasury stock exceeds the proceeds from disposal, the excess is first charged against capital reserve arising from treasury stock and the remainder, if any, is charged against retained earnings.

F-19

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

Earnings Per Share

	A.		Basic earnings per share is calculated by dividing net income by the weighted average number of shares outstanding during the period after considering the retroactive effect of stock dividend, capitalization of capital reserve, and stock bonus to employees. Diluted earnings per share is calculated by taking into consideration additional common shares that would have been outstanding if the dilutive potential common shares had been issued.

	B.		The company’s dilutive potential common shares are employee stock options and convertible bonds. In computing the dilutive effects of the employee stock options and convertible bonds, the Company applies the treasury stock method and if-converted method, respectively.

Impairment loss

	A.		The Company recognizes impairment loss whenever event occurs or evidence indicates the carrying amount of an asset exceeds its recoverable amount. Recoverable amount is measured as the higher of net selling price and value in use. Net selling price is the amount obtainable from the sale of an asset in an arm’s-length transaction between knowledgeable, willing parties, after deducting any direct incremental disposal costs. The value in use is the present value of estimated future cash flows expected to arise from continuing use of an asset and from its disposal at the end of its useful life.

	B.		An impairment loss recognized in prior years is reversed if there has been a change in the estimates used to determine recoverable amount since the last impairment loss was recognized, or the impairment loss caused by a specific external event of an exceptional nature that is not expected to recur. However, an impairment loss is reversed only to the extent that it does not increase the carrying amount of an asset above the carrying amount that would have been determined for the asset (net of amortization or depreciation) had no impairment loss been recognized in prior years. Impairment loss for goodwill is not reversed.

3.Effects of Changes in Accounting Principle

F-20

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

	A.		Effective January 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 35 “Accounting for Impairment of Assets” in the Republic of China. The adoption of this new accounting principle resulted in a decrease in the Company’s total assets, shareholders’ equity and net income by $163,650 as of December 31, 2005 and for the year then ended. The basic earnings per share was therefore decreased by $0.07.

	B.		Effective January 1, 2005, the Company ceased to delay in recognizing investment income (loss) from certain equity-method investees in accordance with the amended Statement of Financial Accounting Standards No. 5 “Accounting for Long-term Equity Investment” in the Republic of China. The cumulative effect attributable to this change in accounting principle for the year ended December 31, 2005 was $650,508, which was based on the investees’ financial statements for the year ended December 31, 2004.


	December 31,
	2004			2005
	NT$			NT$
Cash
Cash on hand	$	1,293		$	1,809
Savings accounts		610,091			3,064,569
Checking accounts		(653,132	)		10,092
Time deposits		7,498,947			9,264,363

		7,457,199			12,340,833

Cash equivalent
Notes with re-purchase options		158,300			—
Commercial paper		3,306,894			—

	$	10,922,393		$	12,340,833

4.Cash and Cash Equivalents

	A.		As of December 31, 2005 and 2004, the interest rates for time deposits ranged from 0.85% to 4.36% and from 0.8% to 2.53%, respectively.

	B.		As of December 31, 2004, checking accounts had credit balance because the Company credited checking accounts based on the due date of the notes payable issued while the notes payable were still uncashed.

F-21

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

5.Short-term Investment


	December 31,
	2004		2005
	NT$		NT$

Investment in bond fund	$	1,942,970	$	—

6.Accounts Receivable


	December 31,
	2004			2005
	NT$			NT$
Accounts receivable	$	5,822,281		$	9,595,886
Less: Allowance for sales discounts		(92,638	)		(67,180	)
Allowance for doubtful accounts		(9,369	)		(12,280	)

	$	5,720,274		$	9,516,426

7.Inventories


	December 31,
	2004			2005
	NT$			NT$
Raw materials and supplies	$	1,675,384		$	2,418,288
Work in process		211,004			336,923
Finished goods		136,062			100,769

		2,022,450			2,855,980

Less: Allowance for loss on obsolescence and decline in market value of inventory		(45,449	)		(50,693	)

	$	1,977,001		$	2,805,287

F-22

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

8.Long-term Investments

Details of long-term investments were summarized as follows:


	December 31,
	2004					2005
			% of						% of
Investee company	Amount		ownership			Amount			ownership
	NT$					NT$
Equity methods:
Sigurd Microelectronics Corp.	$	617,264		24.75	%	$	728,199			24.03	%
Double Win Enterprise Co., Ltd.		101,712		24.14	%		84,450			24.14	%
ChipMOS Technologies Inc.		2,995,619		28.73	%		3,924,937			28.75	%
Universal Communication Technology Inc.		237,894		42.82	%		—			—
Artest Corporation		—		30.09	%		—			30.09	%

		3,952,489					4,737,586
Less : Accumulated impairment loss		—					(84,450	)

		3,952,489					4,653,136


Cost methods:
Phoenix Precision Technology Corporation		1,429,939		18.03	%		1,468,939			17.56	%
ThaiLin Semiconductor Corp.		190,512		3.15	%		—			—
King Yuan Electronics Co., Ltd.		910,270		9.08	%		910,270			8.77	%
Others		333,128		—			168,331			—

		2,863,849					2,547,540

	$	6,816,338				$	7,200,676

The recognition of investment income (loss) for ChipMOS Technologies Inc. (“ChipMOS”), an investee accounted for under the equity method, was based on the financial statements of the investee for the same period in 2001 and before. Commencing from January 1, 2002, with the approval from ROC SFB, recognition of investment income (loss) has been delayed until the subsequent year. Therefore, the Company recognized investment loss of NT$365,669 and investment income of NT$247,238 for the years ended December 31, 2003 and 2004, based on ChipMOS’s audited financial statements for the years ended December 31, 2002 and 2003, respectively. Commencing from January 1, 2005, the Company ceased to delay in recognition of investment income. Therefore, the Company recognized investment income of NT$432,715 for the year ended December 31, 2005. The deferred recognition of the investment income of NT$667, 770, which was based on ChipMOS’s audited financial statements for the year ended December 31, 2004, was added to the cumulative effects of changes in accounting principles in 2005 in accordance with SFAS No.5.

F-23

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

	C.		During 2002, the Company made an investment in Universal Communication Technology Inc. (“Universal”), an investee accounted for under the equity method. The Company’s investment in Universal consists of cumulative preferred stock and common stock, both with voting right. The holders of the preferred stock are entitled to receive cumulative dividends at the rate of 10% per annum. In the event of any liquidation of the investee, the holders of the preferred stock shall be entitled to receive, in preference to the holders of the common stock, an amount equal to original investment amount plus any undeclared and unpaid dividends. The recognition of investment income (loss) for Universal has been delayed until the subsequent year. Commencing from January 2003, the Company recognizes the investment income for Universal based on the financial statements of the investee for the same period. For the years ended December 31, 2003 and 2004, the Company recognized investment income of NT$15,471 and NT$7,600 for preferred stock in accordance with the preference of the preferred stock of Universal. As for the common stock investment in Universal, in 2003, the investment loss of $62,135 was recognized based on the audited financial statements of Universal for the years ended December 31, 2003 and 2002. In 2004, the investment loss of $23,825 for common stock was recognized based on Universal’s audited financial statements for the year ended December 31, 2004. At March 1, 2005, Universal merged with Sigurd Microelectronics Corp. (“Sigurd”). Universal was dissolved as a result of this transaction and the Company obtained 6,595 thousand shares of Sigurd’s common shares. For the three months ended March 31, 2005, the investment loss of $9,775 was recognized based on Universal’s unaudited financial statements for the two months ended February 28, 2005.

	D.		Recognition of investment income has been consistently delayed until the subsequent year for Taiwan Hi-tech Corporation and Double Win Enterprise Co., Ltd. Accordingly, the combined investment income of NT$3,000 and NT$4,585 in these two companies for the years ended December 31, 2003 and 2004, were based on the audited financial statements of the investee companies for the years ended December 31, 2002 and 2003, respectively. The deferred recognition of the investment loss of NT$17,262 from Double Win’s 2004 financial results was added to the cumulative effects of changes in accounting principles in 2005.

	E.		For the years ended December 31, 2003, 2004 and 2005, the Company recognized investment income (loss) of NT$69,560, NT$(11,523) and NT$62,563, respectively, for all other investees accounted for under the equity method based on investees’ audited financial statements for the same periods.

	F.		For Artest Corporation, the Company owns non-cumulative preferred stock with voting right. According to ROC FAS No. 5, “Accounting For Long-term Investments”, the recognition of investment income (loss) for investments in preferred stock are based

F-24

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

on the right to the earning distribution. Since the preferred stock is non-cumulative, investment income (loss) is recognized upon dividend declaration. No dividend was declared in 2002, 2003 and 2004. Therefore, no investment income was recognized in 2003, 2004 and 2005. However, for the years ended December 31, 2003, 2004 and 2005, Artest Corporation, has incurred significant losses since our investments and there is no indication of recovery in the near future, we concluded that the impairment loss was other than temporary. Accordingly, we recorded impairment charges of NT$157,328 and NT$7,720 in 2003 and 2004 on this long-term equity investment to write off the carrying value of the investment to its fair value. As of December 31, 2004, the carrying amount of investment in Artest was written down to $0.

9. Property, Plant and Equipment


	December 31 , 2004
			Accumulated
	Cost		depreciation			Book value
	NT$		NT$			NT$
Land	$	2,128,476	$	—		$	2,128,476
Buildings		6,609,819		(1,384,875	)		5,224,944
Machinery and equipment		34,710,602		(17,251,132	)		17,459,470
Utility equipment		696,662		(299,735	)		396,927
Furniture and fixtures		507,134		(273,446	)		233,688
Other equipment		1,417,709		(696,612	)		721,097
Construction in progress and prepayments for equipment		1,024,282		—			1,024,282

	$	47,094,684	$	(19,905,800	)	$	27,188,884


	December 31 , 2005
			Accumulated
	Cost		depreciation			Book value
	NT$		NT$			NT$
Land	$	2,128,476	$	—		$	2,128,476
Buildings		7,158,668		(1,735,422	)		5,423,246
Machinery and equipment		39,596,050		(20,639,321	)		18,956,729
Utility equipment		785,110		(362,988	)		422,122
Furniture and fixtures		638,432		(338,418	)		300,014
Other equipment		1,562,453		(818,179	)		744,274
Construction in progress and prepayments for equipment		2,277,389		—			2,277,389

	$	54,146,578		($23,894,328	)	$	30,252,250

For the years ended December 31, 2003, 2004 and 2005, total interest expense amounted to NT$414,607, NT$364,347 and NT$261,252, respectively, of which NT$39,496, NT$11,026 and NT$19,674 was capitalized to property, plant and equipment. The interest rates used to calculate the capitalized interest were ranged from 2.92% to 4.54%, 0.73% and 1.22 % in the respective periods.

F-25

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

10.Other Assets — Others


	December 31,
	2004		2005
	NT$		NT$
Land	$	108,087	$	108,087
Land use right		86,961		90,778
Others		38,481		56,784

	$	233,529	$	255,649

The Company designated one of its officers to purchase the parcel of land, Da-Pu-Chu No. 123-2, and registered the title of the land under the officer’s personal name. As of December 31, 2005, the land purchase has been completed and payments been made in full. The Company has entered into a trust contract with the designated officer, which provides the Company with land use right for nil consideration. The trust contract prohibits the title owner from transferring the land and/or land use right under any circumstances.

11.Other Payables


	December 31,
	2004		2005
	NT$		NT$
Payables for equipment	$	706,339	$	1,662,380
Accrued value-added tax payable		468,000		232,307
Other payables		333,722		638,041

	$	1,508,061	$	2,532,728

The accrued value-added tax payable was due to certain revenues previously applied zero percent of value-added tax deemed taxable by the Tax Authority. The case has been closed.

F-26

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

12.Bonds Payable


	December 31,
	2004			2005
	NT$			NT$
Euro convertible bonds payable	$	11,121,558		$	10,819,494
Secured bonds payable		800,000			—
Add: Compensation interest payable		411,588			490,806

		12,333,146			11,310,300
Less: Current portion of long-term bonds payable		(800,000	)		—

	$	11,533,146		$	11,310,300

On January 28, 2002, the Company issued five-year (from January 28, 2002 to January 28, 2007) zero coupon Euro Convertible bonds amounting to US$200,000 (thousands) listed on the Luxembourg Stock Exchange. Major terms of the issue are as follows:

	(1)		The Company may redeem the bonds at any time on or after July 29, 2004 and prior to December 29, 2006 at their principal amount together with accrued interest, if (i) the market price of the shares of the Company for 20 out of 30 consecutive trading days is at least 130% of the conversion price or (ii) at least 90% in principal amount of the bonds has already been redeemed, repurchased and cancelled or converted.

	(2)		Redemption at the option of the bondholders:

			The Company will, at the option of the bondholders, redeem such bonds on July 28, 2004 at 105.9185% of its principal amount, or on January 28, 2007 at 111.837% of its principal amount.

	(3)		Conversion period:

			At any time between April 16, 2002 and December 29, 2006.

	(4)		Conversion price and adjustment:

			The conversion price was established on the issuance date at NT$32.9 (in dollars) per share. The conversion price is subject to adjustment for bonus issues, right issues, distributions of cash and stock dividends and other dilutions. As of December 31, 2005, the conversion price was NT$27.27 (in dollars) per share.

F-27

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

(5)

As of December 31, 2005, the convertible bonds with the principal amount of US$30,155 (in thousands) have been converted into 36,336 thousand shares, which resulted in an increase of capital reserve of $707,858. Also, as of December 31, 2005, the Company repurchased and cancelled the bonds with the principal amount of US$40,985 (in thousands) from open market.

On February 5, 2004, the Company issued five-year (from February 5, 2004 to February 5, 2009) zero coupon Euro Convertible bonds amounting to US$200,000 (thousands) listed on the Luxembourg Stock Exchange. Major terms of the issue are as follows:

	(1)		The Company may redeem the bonds at any time on or after February 5, 2006 and prior to January 29, 2009 at their principal amount, if (i) the market price of the shares of the Company for 20 out of 30 consecutive trading days is at least 120% of the conversion price or (ii) at least 90% in principal amount of the bonds has already been redeemed, repurchased and cancelled or converted.

	(2)		Redemption at the option of the bondholders:

			The Company will, at the option of the bondholders, redeem such bonds on February 5, 2008 at the principal amount.

	(3)		Conversion period:

			At any time between March 17, 2004 and January 29, 2009.

	(4)		Conversion price and adjustment:

			The conversion price was established on the issuance date at NT$47.035 (in dollars) per share. The conversion price will be subject to adjustment for bonus issues, right issues, distributions of cash and stock dividends and other dilutions. As of December 31, 2005, the conversion price was NT$39.10 (in dollars) per share.

F-28

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

13.Long-term Loans


		December 31,
Nature of loans	Repayment period	2004			2005
		NT$			NT$
Credit loans	Repayable in 3 semi-annual installments from July 2006	$	4,800,000		$	4,800,000
Secured loans	Repayable in 8 semi-annual installments from April 2002		236,000			—
Secured loans	Repayable in January 2005		1,170,000			—
Commercial papers	Repayable in January 2005		1,500,000			—
Commercial papers	Repayable in 7 semi-annual installments from April 2002		250,000			—
Credit loans	Repayable in October and November 2005		57,376			—
Credit loans	Repayable in February to July 2006		308,058			324,195

			8,321,434			5,124,195
Less: Current portion of long-term loans			(3,213,376	)		(1,790,895	)
Discount on commercial paper			(1,712	)		—

		$	5,106,346		$	3,333,300


Interest rates			1.79% ~5.18	%		2.06%~5.18	%

The loan agreements require, among other things, the maintenance of specific financial covenants and consent by the banks on important transactions, such as merger, changes in operations and significant asset transfer. As of December 31, 2005, the Company was in compliance with all such financial covenants.

14.Pension Plan and Net Pension Cost

In accordance with the Labor Standards Act, SPIL has a funded defined benefit pension plan covering all eligible employees prior to the enforcement of the Labor Pension Act (“the Act”), effective on July 1, 2005 and employees choosing to continue to be subject to the pension mechanism under the Labor Standards Act after the enforcement of the Act. Under the funding policy of the plan, SPIL contributes monthly an amount equal to 2% (5% before July 2005) of the employees’ monthly salaries and wages to the pension fund deposited with the Central Trust of China, the custodian. Pension benefits are generally based on service years (two units earned per year for the first 15 years of service and one unit earned for each additional year of service with a maximum of 45 units). One unit represents the six-month average wages and salaries before retirement of the employees. Retirement benefits are paid form the pension fund.

F-29

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE)

	B.		In accordance with the Labor Pension Act, effective from July 1, 2005, the Company has a defined contribution pension plan covering employees (excluding foreign employees) who chose to be subject to the pension mechanism under this Act. The Company makes monthly contributions to the employees’ individual pension accounts on a basis no less than 6% of each employee’s monthly salary or wage. The principal and accrued dividends from an employee’s personal pension account are claimed monthly or in full at one time. Under this pension plan, net pension cost amounting to $101,629 was recognized for the six months ended December 31, 2005.

	C.		The following tables set forth the actuarial assumptions, funded status and amounts recognized for SPIL’s defined benefit pension plan:

(1)

Assumptions used in actuarial calculations as of December 31, 2003, 2004 and 2005:


	2003			2004			2005
Discount rate		4.00	%		2.50	%		3.00	%


Long-term rate of compensation increase		2.00	%		2.00	%		2.00	%


Expected rate on plan assets		4.00	%		2.50	%		3.00	%


	2004			2005
	NT$			NT$
Vested benefit	$	(13,499	)	$	(19,968	)


Vested benefit obligation	$	(13,157	)	$	(19,444	)


Accumulated benefit obligation	$	(779,075	)	$	(903,265	)

(2)

Changes in benefit obligation during the years ended December 31, 2004 and 2005:


	2004			2005
	NT$			NT$
Projected benefit obligation at beginning of year	$	(1,046,896	)	$	(1,041,495	)
Service cost		(145,610	)		(85,852	)
Interest cost		(26,172	)		(32,987	)
Loss on projected benefit obligation		175,500			(46,193	)
Benefit paid		1,683			12,628

Projected benefit obligation at end of year	$	(1,041,495	)	$	(1,193,899	)

F-30

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3)

Changes in plan assets during the years ended to December 31, 2004 and 2005:


	2004			2005
	NT$			NT$
Fair value of plan assets at the beginning of year	$	670,396		$	808,825
Actual return on plan assets		8,526			12,298
Employer contributions		131,586			97,036
Benefits paid		(1,683	)		(12,628	)

Fair value of plan assets at the end of year	$	808,825		$	905,531

(4)

Funded status at December 31, 2004 and 2005:


	2004			2005
	NT$			NT$
Fair value of plan assets	$	808,825		$	905,531
Projected benefit obligation		(1,041,495	)		(1,193,899	)

Funded status		(232,670	)		(288,368	)
Unrecognized transition assets		(5,477	)		(4,564	)
Unrecognized net actuarial loss		207,249			260,133

Accured pension cost	$	(30,898	)	$	(32,799	)

(5)

Components of net periodic cost for the years ended December 31, 2003, 2004 and 2005:


	2003			2004			2005
	NT$			NT $			NT$
Service cost	$	100,276		$	145,610		$	85,852
Interest cost		27,500			26,172			32,987
Expected return on plan assets		(22,080	)		(16,760	)		(25,150	)
Recognition of transition assets		(913	)		(913	)		(913	)
Recognition of actuarial loss		3,819			14,201			6,160

Net periodic pension cost	$	108,602		$	168,310		$	98,936

	D.		SUI has established a 401(k) profit-sharing plan covering substantially all employees. The plan provides for voluntary salary reduction contributions by eligible participants in accordance with Section 401(k) of the Internal Revenue Code, as well as discretionary matching and profit sharing contributions from SUI. Profit-sharing and 401(k) matching contributions are determined annually by SUI’s Board of Directors.

	E.		Under the Provisional Act of SPF, Siliconware Technology (Suzhou) Limited is required to pay fixed contributions to SIP Provident Fund Management Center each month.

F-31

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.Capital Stock

	A.		As of December 31, 2005, the authorized capital of the Company was $31,500,000 represented by 3,150,000,000 common shares with par value of NT$10 (in dollars) per share. As of December 31, 2005, issued common stock was $23,289,193 represented by 2,328,919,337 shares.

	B.		On June 13, 2005, the stockholders of the Company resolved to capitalize the unappropriated earnings of $1,688,898 and the employee bonus of $187,655 by issuing 187,655 thousand new shares. The Securities and Futures Bureau (SFB) has approved this capital increase, and registration has been completed.

	C.		The Company issued $1,500,000 American Depositary Shares (“ADSs”), represented by 30,000,000 units of ADSs, in June 2000. Each ADS represents five shares of common stock of the Company with an offering price of US$8.49 (in dollars) per ADS. As of December 31, 2005, the outstanding ADSs amounted to 49,067,383 units. Major terms and conditions of the ADSs are summarized as follows:

	(1)		Voting Rights

			ADS holders will have no rights to vote directly in shareholders’ meetings with respect to the Deposited Shares. The Depositary shall provide voting instruction to the Chairman of the Company and vote on behalf of the Deposited shares evidenced by ADSs. If the Depositary receives voting instructions from holders of at least 51% of the outstanding ADSs to vote in the same direction on a resolution, the Depositary will vote in the manner as instructed.

	(2)		Distribution of Dividends

			ADS holders are deemed to have the same rights as holders of common shares with respect to the distribution of dividends.

In July 2002, the Board of directors of the Company resolved to issue up to 40,000 units of employee stock option. Each unit of employee stock option is entitled to subscribe 1,000 shares of the Company’s common stock. The Company has to issue additional 40,000,000 shares of common stock if all of the employee stock options are exercised. The exercise price of the employee stock option is subject to adjustment for distribution of cash dividend or changes in capital stock in accordance with certain formula. The granted employee stock option will expire in five years and graded vested after two years of service in accordance with the employee stock option plan.

F-32

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

For the year ended December 31, 2005, details of the employee stock option granted, exercised and cancelled and exercise price of the employee stock option were as follows:


				Weighted
				average
	Number			exercise price
	of shares			(in NT dollars)
Outstanding options at January 1, 2003		—		$	—
Granted		40,000			15.66
Forfeited/cancelled		(2,489	)		15.60

2003		37,511			15.67
Granted/cancelled		—			—
Forfeited		(1,683	)		13.76

Outstanding options at December 31, 2004		35,828			13.76
Exercised		(9,257	)		13.12
Forfeited/cancelled		(223	)		15.10

Outstanding options at December 31, 2005		26,348			11.97

(2)

As of December 31, 2005, the details of the outstanding employee stock option were as follows:

Options granted

Options vested

Exercise

Weighted

price

average

(in NT

Number

remaining

exercise price

Number

exercise price

dollars)

of options

contractual life

(in NT dollars)

of options

(in NT dollars)

$11.9~$12.4

26,348

2.13 Years

11.95

1,425

11.97

16.Capital Reserve

	A.		According to the Company Law of the ROC, the capital reserve arising from paid-in capital in excess of par on the issuance of stocks, from merger, from the conversion of convertible bonds or from donation shall be exclusively used to cover accumulated deficit or be transferred to capital. Other capital reserve shall be exclusively used to cover accumulated deficit. The capital reserve can only be used to cover accumulated deficit when the legal reserve is insufficient to cover the deficits.

	B.		According to the Company Law of the ROC, the capital reserve arising from paid-in capital in excess of par on the issuance of stocks can only be transferred to capital once every year. The transfer of capital reserve to capital can not be made in the year the company issued new shares and the amount to be capitalized is subject to certain limitation.

F-33

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.Retained Earnings

According to the Company’s Articles of Incorporation, current year’s earnings before tax, if any, shall be distributed in the following order:

	(1)		Pay all taxes and dues;

	(2)		Offset prior years’ operating losses, if any;

	(3)		Set aside 10% of the remaining amount after deducting (1) and (2) as legal reserve;

	(4)		Set aside 2% of the remaining amount after deducting items (1), (2), and (3) as directors’ and supervisors’ remunerations.

	(5)		After items (1), (2), (3), and (4) were deducted, 10% of the remaining amount may be allocated as employee bonus and 90% as stockholders’ dividend. The distributed amount is subject to the resolution adopted by the Board of Directors and approved at the stockholders’ meeting.

	B.		Legal reserve can only be used to offset deficits or increase capital. The legal reserve can be used to increase capital when and only when the reserve balance exceeds 50% of the capital stock, and the amount capitalized should be limited to 50% of the legal reserve.

	C.		In accordance with the ROC SFB regulation, in addition to legal reserve and prior to distribution of earnings, the Company should set aside a special reserve in an amount equal to the net change in the reduction of prior year’s stockholders’ equity, resulting from adjustments such as cumulative foreign currency translation adjustment and unrealized losses on long-term investments. Such special reserve is not available for dividend distribution. In the subsequent year(s), if the year-end balances of the cumulative foreign currency translation adjustment and unrealized losses on long-term investments no longer result in a net reduction in the stockholders’ equity, the special reserve previously set aside will then be available for distribution.

	D.		The Taiwan imputation tax system requires that any undistributed current earnings of a company derived on or after January 1, 1998 be subject to an additional 10% corporate income tax if the earnings are not distributed in the following year. This 10% additional tax on undistributed earnings can be used as tax credit by the stockholders, including foreign stockholders, against the withholding tax on dividends. In addition, the domestic shareholders can claim a proportionate share in the Company’s corporate income tax as tax credit against its individual income tax liability effective 1998. As of December 31, 2005, the undistributed earnings derived on or after January 1, 1998 was $8,241,034.

F-34

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	E.		As of December 31, 2005, the balance of stockholders’ imputation tax credit account of the Company was $31,794. The rate of stockholders’ imputation tax credit to undistributed earnings is approximately 0.40%. However, the actual stockholders’ imputation rate is subject to change since the actual stockholders’ tax credit rate is based on the rate on the dividend allocation day. In 2005, the stockholders’ imputation rate on the distributed earnings is 0.51%.

	F.		On June 13, 2005 and June 11, 2004, the stockholders of the Company resolved to distribute cash dividends of $0.75 and $0.35 (in dollars) per share, and stock dividends of $0.8 and $1 (in dollars) per share, respectively.

	G.		As of February 17, 2006, the board of directors of SPIL has not resolved the distribution of the year 2005 earnings. Therefore, any information in relation to the year 2005 earnings will be posted to the website of the Taiwan Stock Exchanges after the Board’s resolution and the Shareholders’ approval is obtained.

	H.		The Company’s earnings distribution of 2004 for employee bonuses and directors’ and supervisors’ remunerations were as follow:

F-35

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	The amount of the actual
	earnings distributions
	approved by the board of
	directors and shareholders in 2005
(a) The amount of the retained earnings distributed
1. Employees’ cash bonuses	$	175,927

2. Employees’ stock bonuses
(i) Shares (in thousands of shares)		18,766

(ii) Amounts	$	187,655

(iii)As a percentage of outstanding common shares		0.90	%

3. Directors’ and supervisors’ remunerations	$	74,258

(b) Informations regarding earnings per common share
1. Original earnings per common share (note 1)	$	2.09

2. Adjusted earnings per common share (note 2)	$	1.87

18.TREASURY STOCK


	2004
Reason for acquisition	Beginning		Additions		Reductions			Ending
	Number of shares (in thousand)
Transfer to employees		8,548		—		(8,548	)		—


	2005
Reason for acquisition	Beginning		Additions		Reductions		Ending
	Number of shares (in thousand)
Transfer to employees		—		—		—		—

	A.		According to the ROC Securities Exchange Act, the number of treasury shares shall not exceed 10% of the Company’s total outstanding common shares. The cost of the treasury stocks shall not exceed the total of retained earnings, paid-in capital in excess of par value and realized capital reserve. In addition, treasury stock shall not be used as collateral and shall not have the stockholders’ rights until transferred.

	B.		According to the ROC Securities Exchange Act, treasury shares should be sold to the Company’s employees within three years from the date of acquisition. Any unsold treasury stock after three years shall be considered unissued shares, and shall be charged against contributed capital and capital reserve.

F-36

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2005, Siliconware Investment Company Ltd., the subsidiary of the Company, holds 32,090thousand shares of the Company’s stock, with book value of NT$24.75 (in dollars) per share. The average closing price of the Company’s stock was NT$40.95 (in dollars) per share in December 2005.

19.IMPAIRMENT OF ASSETS


	Amounts recognized in
	Income from
	continuing operations		Shareholders’ equity
Impairment loss on long-term investment	$	163,650	$	—

Effective January 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 35 “Accounting for Impairment of Assets” in Republic of China. During 2005, the Company recognized impairment loss of $163,650 as follows:

	A.		Impairment loss of $79,200 for long-term investment in Universal, which was triggered by the merger with Sigurd and the investment’s carrying amount exceeded the recoverable amount.

	B.		Impairment loss of $84,450 for long-term investment in Double Win. The management believed the impairment loss was triggered by the downturn of the overall market and industry where Double Win operated, as well as the fact that Double Win withdrew from public trading in 2005.

F-37

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.Income Tax

SPIL and its subsidiaries file separate income tax returns. Reconciliation between the income tax calculated on pre-tax financial statement income based on the statutory tax rate and the income tax benefit is as follows:


	2003			2004			2005
	NT$			NT$			NT$
Income tax expense calculated at the statutory tax rate (25%)	$	550,877		$	963,892		$	2,083,671
Tax exempt income and other permanent differences		217,377			(367,301	)		(780,039	)
Investment tax credits		(720,436	)		(1,434,949	)		(834,025	)
Tax on interest income separately taxed		873			3,671			1,006
Changes in valuation allowance for deferred tax assets		(677,818	)		366,341			(579,627	)
Prior year’s under (over) provision		(10,282	)		(3,935	)		112,570

Income tax benefit for current year		(639,409	)		(472,281	)		3,556
Additional 10% tax on undistributed earnings		3,117			15,323			11,961

Income tax expense (benefit)		(636,292	)		(456,958	)		15,517
Adjustments:
Net change of deferred tax assets		631,184			464,386			272,156
Prior year’s (under) over provision		10,282			3,935			(112,570	)
Tax on interest income separately taxed		(873	)		(3,671	)		(1,006	)
Prepaid income tax		(7,725	)		(20,957	)		(25,176	)
Subsidiary’s tax payable		(4,255	)		(6,565	)		(12,510	)

Income tax refund receivable	$	(7,679	)	$	(19,830	)	$	136,411

Income tax payable carried over from prior year	$	40,608		$	36,352		$	16,605

A.		For the years ended December 31, 2003, 2004 and 2005, significant portion of the permanent differences derived from gain on disposal of investments and long-term investment income (loss) accounted for under the equity method and revenue from assembly and testing of certain integrated circuit products which is exempted from income tax.

B.		As of December 31, 2004 and 2005, deferred tax assets and liabilities were as follows:


	December 31,
	2004			2005
	NT$			NT$
Deferred tax assets — current	$	709,093		$	759,226
Deferred tax liabilities — current		—			—

		709,093			759,226
Valuation allowance for deferred tax assets		—			—

		709,093			759,226


Deferred tax assets — noncurrent		2,873,540			2,232,063
Deferred tax liabilities — noncurrent		(390,403	)		(219,101	)

		2,483,137			2,012,962
Valuation allowance for deferred tax assets		(882,914	)		(303,287	)

	$	1,600,223		$	1,709,675

F-38

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The details of deferred tax assets and liabilities as of December 31, 2004 and 2005 were as follows


	December 31,
	2004						2005
	Amount			Tax effect			Amount			Tax effect
	NT$			NT$			NT$			NT$
Current
Temporary differences
Unrealized loss on obsolescence and decline in market value of inventories	$	54,195		$	13,548		$	55,803		$	13,951
Unrealized loss on sales allowance		92,638			23,160			67,180			16,795
Unrealized foreign exchange loss		165,540			41,385			155,641			38,910
Bad debts expense		—			—			12,280			3,070
Investment tax credit					631,000						686,500

				$	709,093					$	759,226


Noncurrent
Temporary difference
Unrealized loss on long-term investments	$	628,009		$	157,002		$	667,009		$	166,753
Depreciation expense		(761,056	)		(190,264	)		(669,724	)		(167,431	)
Unrealized foreign currency exchange gain arising from bonds payable		(800,556	)		(200,139	)		(206,678	)		(51,670	)
Compensation interest from bonds payable		442,090			110,523			490,806			122,702
Unrealized loss on idle assets		484,413			121,103			322,543			80,636
Loss carryforwards		25,513			6,378			25,513			6,378
Investment tax credit					2,478,534						1,855,594

					2,483,137						2,012,962
Valuation allowance for deferred tax assets-noncurrent					(882,914	)					(303,287	)

				$	1,600,223					$	1,709,675

Valuation allowance for deferred tax assets relates primarily to unrealized loss on long-term investments and allowance for investment tax credit.

The Company’s income tax returns have been assessed and approved by the Tax Authority through 2003. However, the Company did not accept the reason and result of the reassessment and has petitioned to the government against the decision of the Tax Authority of its 2000 income tax returns. In addition, the Company did not accept the reason and result of the assessment of the Tax Authority and has requested for reassessment of its 2001 and 2002 income tax return. The Company believes that if it fails on the petition or reassessment, the result will not have a significant adverse impact on the Company. The Company has accrued the tax liabilities for the tax assessments.

The income tax returns of Siliconware Investment Company Ltd. have been assessed and approved by the Tax Authority through 2004.

F-39

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

According to the “Income Tax Law of the People’s Republic of China for Enterprises with Foreign Investment and Foreign Enterprises”, Siliconware Technology is entitled to two years’ exemption from income taxes followed by three years of a 50% tax reduction, commencing from the first cumulative profit-making year net of losses carried forward. In addition, any foreign investor of an enterprise with foreign investment which reinvests its share of profit obtained from the enterprise directly into that enterprise by increasing its registered capital, or uses the profit as capital investment to establish other enterprises with foreign investment to operate for a period of not less than five years shall, upon approval by the tax authorities, be refunded 40% of the income tax already paid in relation to the reinvested amount.

G. As of December 31, 2005, the Company’s unused portion of investment tax credits, under the “Statute for Upgrading Industries”, were as follows:


Nature of investment tax credit	Deductible amount		Unused amount		Expiration Years
	NT$		NT$		NT$
Acquisition cost of qualifying machinery and equipment	$	2,951,116	$	1,854,614		2005 to 2009
Qualifying research and development expenditure		637,159		514,450		2005 to 2009
Qualifying investments in significant technology companies		224,296		173,030		2005 to 2009

	$	3,812,571	$	2,542,094

The Company is exempted from income tax for revenues arising from the assembly and testing of certain integrated circuit products under the “Statute for Upgrading Industries”, for five years through December 2008.

F-40

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21.Earnings Per Share


	For the year ended December 31, 2003
					Weighted
					average
	Income				outstanding		Earnings per share
	Before tax		After tax		common stock		Before tax		After tax
	NT$		NT$		(in thousand)		NT$		NT$
Basic earnings per share	$	2,202,424	$	2,838,716		2,182,101	$	1.09	$	1.40


Dilutive effect of employee stock option		—		—		13,741
Dilutive effect of 2nd Euro convertible bonds		52,384		39,288		252,260

Diluted earnings per share	$	2,254,808	$	2,878,004	$	2,448,102	$	0.99	$	1.27


	For the year ended December 31, 2004
							Weighted
							average
	Income						outstanding		��	Earnings per share
	Before tax			After tax			common stock			Before tax		After tax
	NT$			NT$			(in thousand)			(in dollars)
Basic earnings per share	$	3,825,219		$	4,282,177			2,216,468		$	1.72	$	1.93


Dilutive effect of employee stock option		—			—			27,681
Dilutive effect of 2nd Euro convertible bonds		(116,658	)		(134,373	)		190,836
Dilutive effect of 3rd Euro convertible bonds		(286,427	)		(214,820	)		168,668

Diluted earnings per share	$	3,422,134		$	3,932,984		$	2,603,653		$	1.31	$	1.51


	For the year ended December 31, 2005
					Weighted
					average
	Income				outstanding		Earnings per share
	Before tax		After tax		common stock		Before tax		After tax
	NT$		NT $		(in thousand)		(in dollars)
Basic EPS:
Income from continuing operations	$	7,608,911	$	7,593,394			$	3.31	$	3.31
Cumulative effects of changes in accounting principles		650,508		650,508				0.28		0.28

Net income		8,259,419		8,243,902		2,294,413	$	3.59	$	3.59

Dilutive effect of employee stock option		—		—		18,312
Dilutive effect of 2nd Euro convertible bonds		396,552		424,053		186,113
Dilutive effect of 3rd Euro convertible bonds		368,262		349,696		170,793

Diluted EPS		9,024,233		9,017,651		2,669,631	$	3.38	$	3.38

F-41

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The weighted average treasury stock held by SPIL and the subsidiary has been deducted in the calculation of weighted average outstanding common stock for the years ended December 31, 2003, 2004 and 2005.

22.PERSONNEL COSTS, DEPRECIATION AND AMORTIZATION


	For the year ended December 31, 2003
	Operating costs		Operating expenses		Total
Personnel costs
Payroll	$	2,901,902	$	777,646	$	3,679,548
Labor and health insurance		199,009		59,358		258,367
Pension expense		85,843		28,431		114,274
Others		231,629		43,782		275,411

	$	3,418,383	$	909,217	$	4,327,600

Depreciation	$	4,746,598	$	107,960	$	4,854,558

Amortization	$	178,074	$	94,748	$	272,822


	For the year ended December 31, 2004
	Operating costs		Operating expenses		Total
	NT$		NT $		NT $
Personnel costs
Payroll	$	3,490,892	$	1,006,299	$	4,497,191
Labor and health insurance		232,279		70,448		302,727
Pension expense		132,973		41,254		174,227
Others		347,540		53,985		401,525

	$	4,203,684	$	1,171,986	$	5,375,670

Depreciation	$	5,586,033	$	141,190	$	5,727,223

Amortization	$	270,576	$	108,338	$	378,914


	For the year ended December 31, 2005
	Operating costs		Operating expenses		Total
	NT$		NT $		NT $
Personnel Cost
Payroll	$	4,097,484	$	1,145,219	$	5,242,703
Labor and health insurance		289,956		80,644		370,600
Pension expense		160,601		46,144		206,745
Other		493,121		72,690		565,811

	$	5,041,162	$	1,344,697	$	6,385,859

Depreciation	$	5,896,261	$	157,579	$	6,053,840

Amortization	$	342,091	$	141,039	$	483,130

F-42

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

23.Related Party Transactions

1. Name and Relationship with Related Parties:


Name of related parties		Relationship with the Company
ChipMOS Technologies Inc.		Investee company under the equity method
Sigard Microelectronics Corp.		Investee company under the equity method
Phoenix Precision Technology Corporation		The Company holds directorship
King Yuan Electronics Co., Ltd.		The Company holds directorship

2. Significant Transactions with Related Parties

(1)Sales


	For the years ended December 31,
	2003				2004				2005
			% of				% of				% of
	Amount		net sale		Amount		net sale		Amount		net sale
	NT$				NT $				NT $
ChipMOS
Technologies Inc.	$	101,960		—	$	—		—	$	—		—
Sigurd		—		—		—		—		31,218		—

Corporation	$	101,960		—	$	—		—	$	31,218		—

The selling prices and collection terms offered to the related parties were generally comparable to those offered to non-related parties. The collection period is approximately three months from the date of sale.

(2)Purchases


	For the years ended December 31,
	2003				2004				2005
			% of net				% of net				% of net
	Amount		purchase		Amount		purchase		Amount		purchase
	NT$				NT$				NT $
Phoenix Precision Technology Corporation	$	2,610,008		19	$	2,875,934		18	$	3,600,039		18

The purchase prices and payment terms provided by the related parties were generally comparable to those provided by non-related parties. The average payment period is approximately three months from the date of purchase.

F-43

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3)Accounts Receivable


	December 31,
	2004				2005
			% of				% of
			accounts				accounts
	Amount		receivable		Amount		receivable
	NT$				NT $
Sigurd Microelectronics Corporation	$	—		—	$	9,695		—

(4)Accounts payable


	December 31,
	2004				2005
			% of				% of
			accounts				accounts
	Amount		payable		Amount		payable
	NT $				NT $
Phoenix Precision Technology Corporation	$	231,044		11	$	694,261		14

24.Assets Pledged as Collaterals

As of December 31, 2004 and 2005 the following assets have been pledged as collaterals against certain obligations of the Company:


	December 31,
Assets	2004		2005		Subject of collateral
	NT$		NT $
Buildings	$	1,144,896	$	—	Long-term loans and bonds payable
Machinery and other		818,788		92,208	Loan-term loans
Time deposits (shown in other financial assets — current)		250,200		215,905	Guarantees for custom duties and income tax liabilities

	$	2,213,884	$	308,113

25.Commitments and Contingencies

As of December 31, 2005, the Company’s issued but unused letters of credit for imported machinery and equipment were $427,503.

F-44

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company entered into contracts with five foreign companies for the use of certain technologies and patents related to packaging system of integrated circuit products. The Company agreed to pay royalty fees based on the total number of certain products sold. Four contracts are valid through December 2007, November 2009, December 2010 and January 2011, respectively. For the other two contracts, one is valid through when all patents included in the contract expire; the other is valid until both parties agree to terminate the contract.

26.Significant Disaster Loss

None.

27.Significant Subsequent Event

On March 1, 2006, we were notified of a civil lawsuit brought by Tessera Inc., a U.S. corporation, against us and our subsidiary, Siliconware USA, Inc. in the United States. Currently, we are unable to assess the potential liabilities arising out of this claim due to insufficient information provided in the scope of the infringement of patent rights caused by our services is not specified in the bill of complaint. As such, we have not estimated or recognized any indemnity amount regarding the lawsuit.

F-45

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

28.Other

1. Disclosure on Financial Instruments:


	December 31,
	2004				2005
	Book value		Fair value		Book value		Fair value
	NT$		NT$		NT$		NT$
Non-derivative financial instruments:
Financial assets Financial assets with book value equal to fair value	$	17,133,394	$	17,133,394	$	22,847,565	$	22,847,565
Short-term investment		1,942,970		1,950,180		—		—
Long-term investment in stocks		6,816,338		8,465,122		7,200,676		16,923,883

	$	25,892,702	$	27,548,696	$	30,048,241	$	39,771,448


Financial liabilities
Financial liabilities with book value equal to fair value	$	8,741,676	$	8,741,676	$	11,642,928	$	11,642,928
Bonds payable		11,533,146		11,245,337		11,310,300		15,528,396
Long-term loans		5,106,146		5,106,146		3,333,300		3,333,300
accrued pension cost		30,898		232,670		32,799		288,368

	$	25,411,866	$	25,325,829	$	26,319,327	$	30,792,992

	(1)		Financial assets and liabilities with book value equal to fair value are cash and cash equivalents, notes receivable, accounts receivable, other current financial assets, refundable deposits, notes payable, accounts payable, income tax payable, accrued expenses, other payables, current portion of long-term loans and other liabilities because of their short maturities.

	(2)		The fair value of short-term investments and long-term investments in stocks is based on the market value. If the market value of long-term investments is unavailable, the net equity of the investee companies or other financial information is used as fair value.

	(3)		The fair value of bonds payable is based on market value.

	(4)		The book value of long-term loans is used as fair value because the loans bear floating interest rate.

F-46

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5)

The fair value of accrued pension cost is equal to the funded status as shown in the actuarial report measured at December 31, 2005 and 2004.

F-47

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. Eliminated transactions between parent company and subsidiaries


	Name of the counter party and amount
				Siliconware
	Siliconware Precision			Investment			SPIL (B.V.I.)
Transactions	Industries Co., Ltd			Company Ltd.			Holding Limited		Siliconware USA Inc.
	NT$			NT$			NT$		NT$
For the year ended December 31, 2003
Eliminate long-term investment and stockholders’ equity	$	(2,278,920	)	$	957,052		$	1,321,868	$	—
Eliminate subsidiary’s long-term investment on parent company		794,184			(794,184	)		—		—
Eliminate accrued expense and accounts receivable		42,259			—			—		(42,259	)
Eliminate commission expense and revenue		(288,869	)		—			—		288,869

For the year ended December 31, 2004
Eliminate long-term investment and stockholders’ equity	$	(2,586,396	)	$	932,002		$	1,654,394	$	—
Eliminate subsidiary’s long-term investment on parent company		758,684			(758,684	)		—		—
Eliminate accrued expense and accounts receivable		42,078			—			—		(42,078	)
Eliminate commission expense and revenue		(414,501	)		—			—		414,501

For the year ended December 31, 2005
Eliminate long-term investment and stockholders’equity	$	(2,754,682	)	$	960,363		$	1,794,319	$	—
Eliminate subsidiary’s long-term investment on parent company		794,184			(794,184	)		—		—
Eliminate accrued expense and accounts receivable		63,003			—			—		(63,003	)
Eliminate commission expense and revenue		(417,418	)		—			—		417,418

F-48

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

29.Segment Information

	A.		Operation in Different Industries

			The Company principally operates in one industry. The Company’s operation involves assembly, testing and turnkey services of integrated circuits.

	B.		Operations in Different Geographic Areas

			The Company has no significant foreign operations. Therefore, ROC FAS No. 20, “Segmental Information Disclosure”, is not applicable.

	C.		Export Sales

			Sales by geographic region are identified by the location where the revenue is generated.


Geographic areas	2003		2004		2005
	NT$		NT$		NT$
Taiwan		11,875,508		14,127,011		16,535,182
U.S.		12,176,500		17,097,454		19,925,903
Canada		2,598,424		2,903,942		4,423,182
Other Countries		760,995		1,123,749		2,603,610

		27,411,427		35,252,156		43,487,877

	D.		Major Customers

			A major customer is identified as the party that accounts for more than 10% of the Company’s net sales in any given year. No identity of segment for each major customer listed below is applicable due to the Company’s unclassified segment operation.


	2003				2004				2005
			% of				% of				% of
Customers	Amount		net sale		Amount		net sale		Amount		net sale
	NT$				NT$				NT$
Customer A	$	3,652,541		13	$	4,065,553		12	$	4,125,562		10
Customer B		3,533,487		13		3,002,669		9		2,559,125		5
Customer C		2,619,265		10		4,068,676		12		4,762,838		11

	$	9,805,293		36	$	11,136,898		33	$	11,447,525		26

F-49

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

30.US GAAP Reconciliation

The accompanying consolidated financial statements have been prepared in conformity with “ Guidelines Governing the Preparation of Financial Reports by Securities Issuers” and accounting principles generally accepted in the Republic of China (“ROC GAAP”), which differ in certain material respects from generally accepted accounting principles in the United States (“US GAAP”). Such differences involve methods for measuring the amounts shown in the financial statements, as well as additional disclosures required by US GAAP.

Subsequent to the filing of our initial consolidated financial statements on Form 20-F for the year ended December 31, 2004, we determined that our accounting for the derivative instruments, embedded in our convertible bonds, was incorrect, because we did not bifurcate the embedded derivatives and mark to market. The correct accounting for such embedded derivatives is described in footnote (10) below. We have corrected our U.S. GAAP reconciliation for the years ended December 31, 2003 and 2004 accordingly.

The effects of the amendments to the consolidated financial statements under US GAAP are summarized as follows:


	For the year ended December 31, 2003
	As reported		Restatement			As restated
Net Income		3,247,880		(150,561	)		3,097,319
Basic earning per share (in dollars)		1.49		(0.07	)		1.42
Diluted earning per share (in dollars)		1.32		0.02			1.34


	As of December 31, 2003
	As reported		Restatement			As restated
Total Assets		61,755,948					61,755,948
Total Liabilities		25,321,956		96,569			25,418,525
Shareholders’ equity		36,433,992		(96,569	)		36,337,423


	For the year ended December 31, 2004
	As reported		Restatement			As restated
Net Income		3,667,147		3,894			3,671,041
Basic earning per share (in dollars)		1.65		0.00			1.65
Diluted earning per share (in dollars)		1.41		(0.14	)		1.27


	As of December 31, 2004
	As reported		Restatement			As restated
Total Assets		65,118,245					65,118,245
Total Liabilities		25,927,437		92,675			26,020,112
Shareholders’ equity		39,190,808		(92,675	)		39,098,133

F-50

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As the correction of our accounting error regarding the embedded derivatives, we recalculated the diluted earnings per share (diluted EPS) in accordance with SFAS No. 128. We first use the if-converted method to measure the dilutive effects of potential conversion of our overseas convertible bonds. We also use treasury method to calculate the dilutive effects of our employee stock option plans. The total adjustment amount, after taking into account of compensated interest expenses, unrealized foreign exchange gain/loss, amortization of bond issuance costs, and mark-to-market gain or loss on embedded derivatives bifurcated from the host bonds, to the numerator was NT$178,303, NT$(597,289), and NT$ 0 in 2003, 2004, and 2005. The denominator, weighted average number of shares outstanding, was increased by the additional shares, which are assumed to be issued as if our overseas convertible bonds were converted and employee stock option exercised, and retroactively adjusted for the 8% stock dividend distributed in 2005 to 2,448,550 thousand shares, 2,421,661 thousand shares, and 2,294,938 thousand shares in 2003, 2004, and 2005, respectively. The dilutive effects of our overseas convertible bonds and employee stock option on EPS are summarized as follows:


	2003			2004			2005
	[Restated]			[Restated]
Net Income		3,247,880			3,667,147			3,971,302
Restate		(150,561	)		3,894			—
Total Adjustments		178,303			(597,289	)		—

Numerator of diluted EPS calculation⁽¹⁾		3,275,622			3,073,752			3,971,302
Shares(without retroactive adjustment):
Basic		2,020,464			2,060,474			2,276,626
Employee stock option		12,723			25,631			18,312
2nd Euro convertible bonds⁽²⁾		233,989			—			—
3rd Euro convertible bonds⁽³⁾		—			156,174			—

Total shares(without retroactive adjustment)⁽⁴⁾:		2,267,176	⁽⁵⁾		2,242,279	⁽⁵⁾		—

Total shares		2,448,550			2,421,661			2,294,938
Diluted EPS		1.34			1.27			1.73

Note:

(1) SFAS No. 128 Paragraph 26 and 29 adjustment

(2) 2nd ECB was anti-dilutive in 2004 and 2005

(3) 3rd ECB was anti-dilutive in 2003 and 2005

(4) SFAS No. 128 Paragraph 28 and 29 adjustment

(5) Retroactive adjustment for the 8% stock dividend distributed in 2005

The following is a summary of the material adjustments to net income (loss) and shareholders’ equity, which would be required in reconciling the significant differences between ROC GAAP and US GAAP:

F-51

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reconciliation of consolidated net income:


	For the years ended December 31,
	2003			2004			2005
	NT$			NT$			NT$			US$
	[Restated]			[Restated]
Net income as reported under ROC GAAP	$	2,838,716		$	4,282,177		$	8,243,902		$	251,338
US GAAP adjustments:
Compensated absences		(1,400	)		800			(9,800	)	$	(299	)
Compensation		(341,324	)		(699,072	)		(1,234,862	)	$	(37,648	)
Impairment on long-term investments		—			—			13,260		$	404
Embedded derivative		86,231			(80,154	)		(2,422,617	)	$	(73,860	)
Adjustment to the gain on disposal of available for sale marketable securities		—			(1,431	)		—			—
Trading marketable securities		5,536			—			—			—
Treasury stock transferred to employee		(154,342	)		(192,498	)		—			—
Equity investments:
Timing difference		630,697			398,686			(657,851	)	$	(20,057	)
Net income (loss) variance between US GAAP and ROC GAAP		(29,515	)		(8,322	)		36,820		$	1,123
Accounting for income (loss) in preferred stock		87,291			(28,885	)		—			—
Technology and know-how contributed to a joint venture investee		(6,000	)		—			—			—
Total US GAAP adjustments		277,174			(610,876	)		(4,275,050	)	$	(130,337	)
Taxation effect		(18,571	)		(260	)		2,450		$	75

Net income under US GAAP	$	3,097,319		$	3,671,041		$	3,971,302		$	121,076


Earnings (loss) per share under US GAAP (in dollars)
Basic	$	1.42		$	1.65		$	1.74		$	0.05

Diluted	$	1.34		$	1.27		$	1.73		$	0.05


Weighted average number of common stock outstanding (in thousands)
Basic		2,182,101			2,225,312			2,276,626			2,276,626
Effect of dilutive securities
Employee stock option		13,741			27,681			18,312			18,312
2nd Euro convertible bonds		252,708			168,668
3rd Euro convertible bonds		—

Diluted		2,448,550			2,421,661			2,294,938			2,294,938

F-52

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reconciliation of consolidated shareholders’ equity


	For the years ended December 31,
	2003			2004			2005
	NT$			NT$			NT$			US$
	[Restated]			[Restated]
Total shareholders’ equity as reported under ROC GAAP	$	29,698,209		$	33,493,043			40,825,007		$	1,244,665
US GAAP adjustments:
Compensated absences		(21,100	)		(20,300	)		(30,100	)		(918	)
Compensation		(341,324	)		(437,841	)		(880,403	)		(26,842	)
Impairment on long-term investments		(212,569	)		(212,569	)		(199,309	)		(6,077	)
Embedded derivative		87,331			7,177			(2,415,440	)		(73,641	)
Available for sale marketable securities		2,072,151			852,678			9,177,049			279,788
Equity investments:											—
Timing difference		259,167			657,853			—			—
Net income (loss) variance between US GAAP and ROC GAAP		96,732			88,411			125,160			3,816
Accounting for income (loss) in preferred stock		28,885			—			—			—
Technology and know-how contributed to a joint venture investee		(210,417	)		(210,417	)		(210,417	)		(6,415	)
Siguard merged Universal								116,662			3,557
Acquisition of Siliconware Corp.		4,873,500			4,873,500			4,873,500			148,582
Taxation effect		6,858			6,598			9,048			276

Shareholders’ equity under US GAAP	$	36,337,423		$	39,098,133		$	51,390,757		$	1,566,791

Movements in shareholders’ equity in accordance with US GAAP:


	2004			2005
	NT$			NT$			US$
	[Restated]
Balance at January 1, as reported	$	36,433,992		$	39,098,133		$	1,192,016
Restatement		(96,569	)
as restated	$	36,337,423
Net income under US GAAP		3,671,041			3,971,302			121,076
Employee stock bonus		471,729			542,114			16,528
Adjustment for investee companies’ capital reserve		(10,862	)		(40,009	)		(1,220	)
Gain on disposal of long-term investment					(71	)		(2	)
Cumulative translation adjustment on long-term investment		(144,331	)		90,947			2,772
Reverse of (Unrealized loss) on long-term investments					(737	)		(22	)
Change in fair value of available for sale marketable securities		(1,218,042	)		8,324,370			253,792
Employee stock option exercised					121,457			3,703
Conversion of Euro convertible bonds		307,161			764,061			23,295
Sigurd merged Universal					116,662			3,557
Treasury stock		337,625			—			—
Cash Dividends		(663,066	)		(1,583,342	)		(48,273	)
Adjustment for investee company’s unrecognized pension cost					(1,828	)		(56	)
Adjustment for investee company’s treasury stock variances					(34,544	)		(1,053	)
Cash dividends for treasury stock held by subsidiaries		9,455			22,242			678

Balance at December 31	$	39,098,133		$	51,390,757		$	1,566,791

F-53

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The balance sheet accounts under US GAAP is as follows:


	2004		2005
	NT$		NT$		US$
	[Restated]
Current Assets
Cash and cash equivalents	$	10,722,351	$	12,274,391	$	374,219
Short-term investments		2,143,012		66,442		2,026
Notes receivable, net		72,083		156,899		4,783
Accounts receivable, net		5,720,274		9,516,426		290,135
Inventories		1,977,001		2,805,287		85,527
Other current assets		1,672,166		2,145,608		65,415

	$	22,306,887	$	26,965,053	$	822,105


Long-term investments		8,092,145		16,309,673		497,246
Property, plant and equipment		27,188,884		30,252,250		922,325
Intangible assets		4,873,500		4,873,500		148,582
Other assets		2,656,829		2,766,281		84,338

Total Assets	$	65,118,245	$	81,166,757	$	2,474,596


Current liabilities		10,458,068		15,770,704		480,814
Long-term liabilities		15,524,768		13,766,135		419,699
Other liabilities		37,276		239,161		7,292

Total Liabilities		26,020,112		29,776,000		907,805
Total Stockholders’ Equity		39,098,133		51,390,757		1,566,791

Total Liabilities and Stockholders’ Equity	$	65,118,245	$	81,166,757	$	2,474,596

Stock-based Compensation

The Company has elected to measure stock-based compensation expense using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (APB 25), as interpreted, with pro-forma disclosure of net income (loss) and earnings (loss) per share, as if the fair-value method of accounting defined in FAS No. 123 “Accounting for Stock-Based Compensation,” (FAS 123) were used. SFAS 123 establishes a fair-value-based method of accounting for stock-based employee compensation plans. Under the fair-value method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. Had the Company determined the stock-based compensation expense for the Company’s stock options based upon the fair-value as determined by Black-Scholes option-pricing model at the grant date for the years ended December 31, 2003, 2004 and 2005, the Company’s net income (loss) and earnings (loss) per share would have been the pro-forma amount indicated as follows:

F-54

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


	For the years ended December 31,
	2003			2004			2005
	NT$			NT$			NT$			US$
	(Restated)			(Restated)
Net income	$	3,097,319		$	3,671,041		$	3,971,302		$	121,076
Less: Stock compensation expense		(91,224	)		(95,870	)		(64,825	)	$	(1,976	)
Pro forma	$	3,006,095		$	3,575,171		$	3,906,477		$	119,100


	For the years ended December 31,
	2003		2004		2005
	NT$		NT$		NT$		US$
Basic earnings per share
As reported	$	1.42	$	1.65	$	1.74	$	0.05

Pro forma	$	1.38	$	1.61	$	1.72	$	0.05


Diluted earnings per share
As reported	$	1.34	$	1.27	$	1.73	$	0.05

Pro forma	$	1.30	$	1.23	$	1.70	$	0.05

The fair value of the Company’s stock options used to compute the 2003, 2004, and 2005 pro forma net income and earnings per share disclosure is the estimated present value at grant date using the Black-Scholes option pricing model with the following weighted average assumptions:


Volatility		59.96% ~67.12 %
Risk-free interest rate		1.70% ~3.04 %
Expected holding period		3 -5 years
Dividend yield		0%

No options granted in year 2005.

The significant accounting policies for the reconciliation from ROC GAAP to US GAAP is as follows:

(1) Compensated Absences

Under ROC GAAP, the Company is not required to accrue for unused vacation at the end of each year. However, under US GAAP, unused vacation that can be carried over to the next year has to be accrued for at each balance sheet date to properly match the expense with the period in which the employee provided the services.

F-55

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(2) Compensation


Net income impact of	For the years ended December 31,
compensation adjustment	2003		2004		2005
	NT$		NT$		NT$		US$
US GAAP adjustment:
Remuneration to directors	$	57,153	$	74,258	$	149,324	$	4,553

Employee bonuses accrual		284,171		363,583		731,079		22,289
Adjustment to fair market value		—		261,231		354,459		10,807

Total employee bonuses		284,171		624,814		1,085,538		33,096

Total net income adjustment to compensation	$	341,324	$	699,072	$	1,234,862	$	37,649


Shareholders’ equity	December 31,
adjustment	2003		2004		2005
	NT$		NT$		NT$		US$
US GAAP adjustment:
Remuneration to directors	$	57,153	$	74,258	$	149,324	$	4,553
Employee bonuses		284,171		363,583		731,079	$	22,289

Total shareholders’ equity relating to compensation	$	341,324	$	437,841	$	880,403	$	26,842

	(i)		Remuneration to Directors

			The Company’s Articles of Incorporation require a cash remuneration payment to its directors. Under ROC GAAP, such payments are charged directly to retained earnings for the period in which shareholders approve such payment. Under US GAAP, such cash payments should be recorded as compensation expense in the period when services are rendered.

F-56

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	(ii)		Employee Bonuses

			Certain employees of the Company are entitled to bonuses in accordance with applicable provisions of the Company’s Articles of Incorporation. Employee bonuses are set at 10% of distributable retained earnings. Distributable retained earnings are calculated as retained earnings after various reserves have been made in accordance with ROC regulations and the Company’s Articles of Incorporation and after appropriation for remuneration to directors. Employee bonuses may be granted in cash, shares, or a combination of both. Regardless of the form of the bonus, however, the shareholders are required by the Article of Incorporation to approve a minimum 10% of distributable earnings as the employee bonus whenever there is a dividend distribution. Under ROC GAAP, such bonuses are appropriated from retained earnings in the period shareholders’ approval is obtained. If such employee bonuses are settled through the issuance of shares of the Company, the amount charged against retained earnings is based on the par value of the common shares issued. Under US GAAP, employee bonus expense is initially accrued at the end of the period when services are rendered, at 10% of the distributable retained earnings, which is considered the minimum liability the Company has to pay. When bonuses are approved by the shareholders in the subsequent year, an additional compensation expense is recorded for the difference between the par value and the fair market value of shares granted to employees. The difference between US GAAP and ROC GAAP in this area would result in adjustments to the Company’s net income and shareholders’ equity as shown in reconciliation tables set forth at the beginning of this note. This accounting treatment for employees is based on the guidance of the International Reporting and Disclosure Issues in the Division of Corporate Finance dated November 1, 2004. In 2003, the Board of Directors of the Company resolved to retain the 2002 earnings after setting aside the legal reserve and special reserve and not to pay employee bonuses. The Board of Directors of the Company resolved to distribute employee bonuses of NT$284,171 from 2003 earnings in 2004 and NT$363,583 from 2004 earnings in 2005. In addition to the adjustments to net income and shareholders’ equity as shown in the above schedules, the application of US GAAP to employee bonuses would also result in a reclassification from retained earnings to additional paid-in capital of NT$4,335 million and NT$4,690 million for the years ended December 31, 2004 and 2005, respectively.

	(3)		Equity Investments

			Under both ROC and US GAAP, investments representing at least twenty percent of the voting interest of each investee for which the Company exercises significant influence over operating and financial policies are generally accounted for under the equity method. However, there are the following differences in applying equity accounting under ROC and US GAAP.

F-57

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	(i)		Timing difference

			Under the equity method, the Company’s proportionate share of the income (loss) of the investee is generally recognized in the year the income (loss) is earned. Under ROC GAAP, if financial statements of an investee are not prepared in a sufficiently timely manner to enable the Company to apply the equity method currently and such equity interests are below certain materiality thresholds, the Company is permitted to delay the recognition of income (loss) until the subsequent year. However, effective January 1, 2005, the Company ceased to delay in recognizing investment income (loss) from certain equity-method investees in accordance with the amended Statement of Financial Accounting Standards No. 5 “Accounting for Long-term Equity Investment” in the Republic of China. Under US GAAP, there are no provisions that allow the investor company to delay recognition of its equity in the investees’ income or loss. The US GAAP adjustment is to adjust the timing difference by deducting the delayed income/loss recognized under ROC GAAP and adding the current year’s investment income/loss to arrive the net income under US GAAP. No timing difference will occur for the year 2006 and thereafter.

	(ii)		Net income (loss) variance between US GAAP and ROC GAAP

			The Company’s proportionate share of the income (loss) from an equity investee may differ if the equity investee’s net income (loss) under ROC GAAP differs from US GAAP, resulting in differences in the carrying amount of the equity investment reported under ROC GAAP and US GAAP. The differences between ROC GAAP and US GAAP for the equity investees include, but are not limited to, accounting for compensation, joint venture accounting, investment in marketable securities, embedded derivatives, deferred tax, and compensated absences. Such differences would be recognized when the Company sells the equity investment.

	(iii)		Accounting for income in preferred stock

			Under ROC GAAP, when an investment is made in non-accumulative, convertible preferred shares, investment income is recognized for the amount of actual dividends when the dividend is declared. Investment loss is recognized to the extent the investee’s net book value is less than the Companies liquidation preference. Under US GAAP, if the preferred shareholders own at least 20% of the voting rights, the investment is accounted for under the equity method and an equity investor recognizes its proportionate share of both the investee’s income and losses.

F-58

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	(iv)		Technology and know-how contributed to a joint venture investee

			In 1997, the Company established a joint venture, ChipMOS. Both SPIL and its joint venture partner contributed cash as well as “technological know-how” to the joint venture. The Company contributed cash in the amount of NT$1.4 billion. The technological know-how contributed was not carried on the Company’s balance sheet and was valued at NT$0.1 billion, a deemed value agreed to by both parties.

			Under ROC GAAP, the Company recognized an initial cost of investment for NT$1.5 billion for cash and the value of know-how contributed. The value of know-how was recognized as a deferred gain under other liabilities and was amortized over a period during which the know-how transfer was completed and implemented.

			Under US GAAP, generally, an investor initially records its joint venture investment at cost (i.e. the amount of cash contributed or net book value of non-cash assets contributed) and a gain should not be recognized on receipt of an interest in a joint venture if some or all of the investors’ interest was received for the know-how contributed. Therefore, under US GAAP, the Company initially recorded its joint venture investment of NT$1.4 billions, the amount of cash contributed, and did not recognize the deemed value for the know-how contributed. In addition, the excess of the Company’s cost of investment of NT$1.4 billion over the Company’s proportionate share of fair value of ChipMOS’ identifiable net assets is being amortized over a period of 5 years under US GAAP. Effective January 1, 2002, Statement of Financial Accounting Standards (“SFAS”) No. 142 requires that we cease amortization for the difference between the cost of an investment accounted for under the equity method and the amount of underlying equity in net assets of the investee. The difference between the cost of the investment and the amount of underlying equity in net assets of ChipMOS was fully written off in 2002.

F-59

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	(4)		Taxation Effect

			Under ROC GAAP, a 10% tax on undistributed earnings is recognized as a tax expense in the period when the amount of undistributed earnings is determined. In addition, the effect of the 10% tax on temporary differences is not recognized for ROC GAAP purpose. Under US GAAP, the 10% tax on undistributed earnings is accrued in the period during which related income is generated and the impact of the 10% tax is measured for both current and deferred tax perspectives.

			Separately, under US GAAP, deferred taxation is recognized for US GAAP adjustments that are taxable or tax-deductible. Such adjustments relate to accruals for compensated absences.

	(5)		Earnings Per Share (EPS)

			In calculating weighted average number of shares outstanding for EPS purposes under ROC GAAP, employee bonus shares have been treated as outstanding for all periods, in a manner similar to a stock split or dividend, and are retroactively adjusted to previous years’ calculation of weighted-average outstanding shares. Under US GAAP, employee bonus shares have been considered separately from the stock dividend or split and have been treated as outstanding from the date when they were issued. The numbers of employee bonus shares issued in 2003, 2004 and 2005 were 0 shares, 21,049,700 shares, and 18,765,500 shares, respectively.

			In computing the dilutive effect of convertible bonds when calculating net income available to common stockholders for diluted EPS, the after-tax results of compensated interest expenses, unrealized foreign exchange gain/loss, amortization of bond issuance costs are taken into consideration under ROC GAAP. However, under US GAAP, in addition to the above three items, the after tax result of mark-to-market gain or loss on embedded derivatives bifurcated from the host bonds is also taken into consideration. Anti-dilutive effects are not adjusted for both under ROC GAAP and under US GAAP.

F-60

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	(6)		Marketable Securities

			Under ROC GAAP, marketable equity securities and long-term equity investments in which the Company owns less than 20% of the voting rights of a publicly listed investee company are carried at the lower of cost or market value, and debt securities at cost. The market value of listed stocks is determined by the average closing price during the last month of the accounting period. Under US GAAP FAS 115, “Accounting for Certain Investments in Debt and Equity Securities”, debt and equity securities that have readily determinable fair values are to be classified as either trading, available-for-sale or held-to-maturity securities. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and traded for short-term profits 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. The fair value of listed stock under US GAAP is generally determined by the closing price at the balance sheet date. For individual securities classified as either available-for-sale or held-to-maturity, the Company performs an analysis to determine whether a decline in fair value below cost is other than temporary. No such impairment has been identified during the periods presented.

	(7)		Goodwill Acquired from Merger

			In connection with acquisition of Siliconware Corporation in 2000, the Company recorded net assets and goodwill of NT$5,415,439, respectively, based on independent appraisal report. Prior to the adoption of SFAS No. 142, goodwill was amortized on straight-line basis over ten years. Effective January 1, 2002, we adopted SFAS No. 142 and ceased amortization of goodwill and performed the annual impairment analysis using a fair value approach. As of December 31, 2005, the net carrying amount of goodwill was NT$4,873,500 and no impairment of goodwill was identified during 2003 to 2005.

	(8)		Stock Dividends

			Under ROC GAAP, an issuance of stock dividend is recorded at par with a charge to retained earnings. Under US GAAP, if the ratio of distribution is less than 25 percent of shares of the same class outstanding, the fair value of the shares issued should be charged to retained earnings. This different treatment results, under US GAAP, in a reclassification from retained earnings to additional paid-in capital of NT$21,619,660 and NT$ 24,809,988 at December 31, 2004 and 2005, respectively. These adjustments have no effect on shareholders’ equity.

F-61

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	(9)		Impairment of Long-lived Assets

			The ROC recently released an accounting standard to account for impairment of long-lived assets which is effective for financial statements issued for fiscal years ending on and after December 31, 2005 and interim periods within the fiscal year. Prior to the adoption of this new accounting standard, the Company applied US GAAP to evaluate whether long-lived assets were subject to impairment. Under US GAAP, long-lived assets are required to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flows are less than the asset’s carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived assets. The estimate of fair value is generally based on quoted market prices or on the best available information, including prices for similar assets and the results of using other valuation techniques. During 2002, certain investees accounted for under the equity method, including ChipMOS Technologies Inc., Double Win Enterprise Co., Ltd., and Artest Corporation, incurred significant losses in the period following our investments and there is no indication of recovery in the near future. Accordingly, we concluded that the impairment loss was other than temporary and we recorded impairment charges totaling NT$212,569 on these long-term equity investments to write off the carrying value of the investments to their fair value. During 2005, the Company adopted ROC SFAS 35, “Accounting for Impairment of Assets”, and recognized impairment loss for Double Win of NT$84,450 and brought the investment balance down to nil. Therefore, the impairment loss of NT$13,260 of Double Win, which was recognized during 2002 under US GAAP, is reversed in 2005.

	(10)		Embedded Derivative

(i) The Company’s Accounting as an Issuer

F-62

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company issued zero-coupon convertible bonds on January 28, 2002 amounting to US$200,000 (the “2002 Bonds”). The 2002 Bonds are denominated in US dollars and allow the bondholders to redeem at 105.9185% of their par value on July 29, 2004. The premium put option and the conversion option are treated as a single-compound derivative instrument. Further, under US GAAP, the embedded feature with the combination of mutually exclusive choices, i.e., conversion of the debt to equity or redemption at a multiple of the 2002 Bonds par value, does not qualify for the Scope Exception. Additionally, our 2002 Bonds allow bondholders to convert into either the Company’s common stock which is traded on the Taiwan Stock Exchange (denominated in New Taiwan Dollar) or into the Company’s ADSs, which are traded on NASDAQ (denominated in US Dollars). The conversion terms contain a fixed foreign exchange feature determining the rate at which the bonds are to be converted into New Taiwan Dollar stock. As a result of the combination of the conversion option and the fixed foreign exchange rate, the 2002 Bonds are dual indexed and therefore not eligible for the Scope Exception. On February 5, 2004, the Company issued zero-coupon convertible bonds amounting to US$200,000 (the “2004 Bonds”). Similar to the 2002 Bonds, the 2004 Bonds permit the bondholders to convert those bonds into either the Company’s New Taiwan Dollar shares or ADSs resulting in those bonds being dual indexed and also not eligible for the Scope Exception. Both the compound embedded derivative in the 2002 Bonds and the embedded conversion option in the 2004 Bonds are accounted for as derivative instruments in accordance with FAS 133 with changes in fair value recognized in the income statement. The Company also recognized interest expense of NT$222,949 thousands, NT$461,114 thousands, and NT$431,962 thousands arising from the amortization of bond discount and gain (loss) of NT$0 thousands, NT$(193,684) thousands, and NT$(4,442) thousands on subsequent conversion and/or buyback of convertible bonds in Year 2003, 2004 and 2005.

F-63

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 2003, 2004 and 2005, the net gain (loss) recognized from applying derivative accounting amounting to NT$(150,561) thousands, NT$3,894 thousands and NT$(2,422,617), respectively.

(ii) The Company’s Accounting as an Investor

F-64

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	(11)		Treasury Stock Transferred to Employee

			Under ROC GAAP, treasury shares transferred to employees are recorded as capital contributions for the cash amount received from the employees. Under US GAAP, in addition to the capital contribution recorded for the cash amount received from the employees, compensation expense would be recorded, for the difference between the shares transfer price and the fair market value of the shares issued at the issuance date, during the period when such transfers were made.

	(12)		Merger between Sigurd and Universal

			Universal Communication technology Inc. (Universal), an equity-method investee of the Company, was merged into Sigurd Microelectronics Corp (Sigurd), another equity-method investee of the Company, on March 1, 2005. Under ROC GAAP, the Company recognized its change of proportional interest in Sigurd based on the fair value of Universal’s net assets at the acquisition date. However, under US GAAP, the Company recognized its change of proportional interest in Sigurd based on the fair value of Sigurd’s newly issued stocks at the acquisition date.

31.Additional disclosure required by US GAAP

	(1)		Risks and Uncertainties

			The Company is a provider of subcontract IC assembly and testing services. The Company’s revenues are derived primarily from precision dicing of silicon wafers into individual ICs, mounting and wirebonding ICs to lead frames, and sealing ICs in molded plastic packages. The Company’s other products include a variety of turnkey services, including the grinding of wafers to specified thickness, function testing of packaged ICs, and drop shipment to customers of the IC manufactures. The Company distributes its products on a global basis but mainly to customers in Taiwan of 38% and North America of 56%. The Company’s largest customer accounted for 12% and 11 % for 2004 and 2005, respectively, and its five largest customers accounted for 45% and 42% of the Company’s total sales in 2004 and 2005, respectively.

			In 2004 and 2005, significant portion of the Company’s net operating revenue were denominated in U.S. dollars. On the other hand, in 2004 and 2005, significant portion the Company’s purchase were incurred in U.S. dollars and in Japanese Yen. The Company’s capital expenditures are generally denominated in U.S. dollars and Japanese Yen. The Company did not hedge any portion of the resulting net foreign exchange position and would be affected by the fluctuations in U.S. dollar, the Japanese Yen and other currencies.

F-65

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

			Substantially all of the Company’s accounts receivables are due from companies in high technology industries located primarily in Asia and North America. Further, the five largest receivables amounted to NT$2,481,758 and NT$4,141,102 as of December 31, 2004 and 2005, respectively. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. Receivables are generally due within 90 days.

			Other factors that could affect the Company’s future operating results and cause actual results to vary materially from historical results include, but are not limited to, dependence on the highly cyclical nature of both the semiconductor and the personal computer industries, competitive pricing and declines in average selling prices, availability of manufacturing capacity, dependence on raw materials and competition.

	(2)		Impairment of Long-lived Assets

			Property, plant and equipment are subject to review for impairment whenever events or changes in circumstances indicate that the recoverability of the carrying amount of an asset may be impaired. Measurement of an impairment loss for assets that the Company expects to hold and use is based on the fair value of the asset. Idle assets and long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. As of December 31, 2004 and 2005, the carrying amounts of property, plant and equipment held for disposal were NT$460,539 and NT$68,766, respectively. These assets held for disposal consist of die bonder, auto-molding machine, laser marker, die saw and bar code workstation, which were mainly used for production purposes. The factors leading to disposal include, among others, obsolete technology, low efficiency and high repair cost. The Company periodically reviews the status of idle assets and disposes such assets as buyers are identified. The impairment losses on assets held for disposal for the years ended December 31, 2003, 2004 and 2005 were NT$131,828, NT$460,539 and NT$ 68,766, respectively. The impairment charge in 2005 was mainly related to the Company’s decision to dispose certain machinery and equipment due to technology phase out and replacement.

F-66

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	(3)		Maturity of Long-term Liabilities

			Aggregate maturities for the Company’s bonds payable and long-term loans as of December 31, 2005 are as follows:


Years ending December 31,	Amounts
	NT$		US$
2006	$	1,790,895		54,600
2007		7,922,266		241,533
2008		5,843,868		178,167

	$	15,557,029	$	474,300

	(4)		Cash and Cash Flow Statement

			Under ROC GAAP, all certificates of deposit are classified as cash and cash equivalents. Under US GAAP, cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. Summarized cash flow information under US GAAP would be presented as follows:


	For the years ended December 31,
	2004			2005
	NT$			NT$			US$
Net cash provided by operating activities	$	8,766,648		$	13,214,617		$	402,885
Net cash used in investing activities		(8,635,564	)		(6,263,357	)		(190956.00	)
Net cash provided by financing activies		1,659,251			(5,435,285	)		(165710.00	)
Effect on foreign exchange		(85,734	)		36,065			1100.00

Net increase in cash and cash equivalents		1,704,601			1,552,040			47318.00
Cash and cash equivalents at beginning of the		9,017,750			10,722,351			326901.00

Cash and cash equivalents at the end of the year	$	10,722,351		$	12,274,391		$	374,219

F-67

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	(5)		Comprehensive Income

			Comprehensive income under ROC GAAP for the years ended December 31, 2003, 2004, and 2005 and accumulated other comprehensive income balances as of December 31, 2004 and 2005 are summarized as follows:


	As of December 31,
	2003			2004			2005
	NT$			NT$			NT$			US$
Net income	$	2,838,716		$	4,282,177		$	8,243,902		$	251,338
Other comprehensive income (loss), net of taxes
Cumulative translation adjustment on equity investment		(32,405	)		(144,331	)		90,947			2,773
Remuneration to directors and supervisors		—			(57,153	)		(74,258	)		(2,264	)
Employees’ cash bonus		—			(73,674	)		(175,927	)		(5,364	)
Adjustment for unrealized loss on long-term investment		302,780			—			(737	)		(22	)
Adjustment for investee companies’ capital reserve		617			(10,862	)		(40,009	)		(1,220	)
Adjustment for investee companies’ unrecognized pension liabilities		—			—			(1,828	)		(56	)

Comprehensive income	$	3,109,708		$	3,996,157		$	8,042,090		$	245,186


	As of December 31,
	2004			2005
	NT$			NT$			US$
Accumulated other comprehensive income balances	$	(141,053	)	$	(50,106	)	$	(1,528	)
Adjustment for investee companies’ capital reserve		(10,245	)		(50,254	)	$	(1,532	)
Remuneration to directors and supervisors		(57,153	)		(131,411	)	$	(4,006	)
Employees’ cash bonus		(73,674	)		(249,601	)	$	(7,610	)
Adjustment for unrealized loss on long-term investment		—			(737	)	$	(22	)
Adjustment for change in equity investment holding ratio		15,063			15,063		$	459
Adjustment for investee companies’ unrecognized pension		—			(1,828	)	$	(56	)

Accumulated other comprehensive income	$	(267,062	)	$	(468,874	)	$	(14,295	)

	(6)		Employers’ disclosure about pension benefit

			Additional disclosures under FAS132 (R) regarding pension benefits are as follows:

	A.		Estimated future benefit payments:

			The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:


	Amounts
	NT $		US$
2006	$	3,998	$	122
2007		3,248	$	99
2008		6,497	$	198
2009		13,521	$	412
2010		9,358	$	285
Year 2011 to 2015		233,407	$	7,116

F-68

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	B.		Contributions

			The Company expects to contribute NT$ 52,962 to its pension plan in 2006.

	(7)		Indirect guarantees of indebtedness of others

			In July 1997, the Company entered a joint venture agreement with Mosel Vitelic, the primarily shareholders of ChipMOS, to establish ChipMOS. Under the joint venture agreement, if ChipMOS requires guarantees of its indebtedness to obtain financing, SPIL and Mosel Vitelic are required to provide these guarantees in the ratios of 30% and 70%, respectively. As of December 31, 2005, SPIL had not provided any guarantees with respect to ChipMOS’s indebtedness.

	(8)		Inventory provision

			The Company evaluates its inventory based on the lower of cost or market value. Under ROC GAAP, the recovery of write-downs from the lower of cost or market (LCM) is allowed. Under US GAAP, no recovery from the LCM is permitted. There is no such recovery recognized in 2005 ROC GAAP financial statements. The company’s recovery results from the disposal and sales of idle inventory, which has no impact on US GAAP reconciliation. Therefore, no adjustment is required for the restoration of write-downs in 2005.

	(9)		Revenue recognition accounting policy

			The Company derives its revenues from the provision of independent assembly and testing services, and recognizes service revenues upon shipment based upon transaction terms and when collection is reasonable assured. If multiple services are negotiated in one contract, the Company recognizes revenues based on their relative fair values when all of the revenue recognition criteria are met.

F-69

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	(10)		Sales returns

			The Company derives revenues only from providing independent testing and assembly services to semiconductor companies. As the company does not engage in product sales, it does not account for sales returns.

	(11)		Major debt covenants

			The major covenants of the Company’s long-term loans are as follows:

	a.		Current ratio should be larger than 100%.

	b.		Liability to equity ratio should be lower than 100%.

	c.		Interest coverage ratio should be larger than 400%.

	(12)		Valuation and Qualifying Accounts and Reserves

			The information about our valuation and qualifying accounts and reserves are as follows:


			Additions
	Balance at		Charges to				Balance at
	beginning of		costs and				end of
Description	period		expenses		Deductions		period
For the year ended 2003

Allowance for doubtful accounts		7,928		4,834		3,393		9,369
Allowance for sales discounts		29,262		27,294		0		56,556
Allowance for loss on obsolescence and decline in market value		168,105		0		109,910		58,195

For the year ended 2004

Allowance for doubtful accounts		9,369		0		0		9,369
Allowance for sales discounts		56,556		92,638		56,556		92,638
Allowance for loss on obsolescence and decline in market value		58,195		0		12,746		45,449

For the year ended 2005

Allowance for doubtful accounts		9,369		14,269		11,358		12,280
Allowance for sales discounts		92,638		184,159		209,617		67,180
Allowance for loss on obsolescence and decline in market value		45,449		73,672		69,775		49,346

F-70

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(13)

Recent Accounting Pronouncements

	A.		In March 2004, the FASB approved the consensus reached on the EITF Issue No. 03-01, ”The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments¡¨providing the guidelines for the identification of other-than-temporary impaired investments and the new disclosure requirements for the temporary impairment. In September 2004, the FASB issued a FASB Staff Position (FSP) –EITF Issue No. 03-01 to delay the effective date for the recognition and measurement guidance previously discussed in EITF Issue No. 03-01 as included in paragraphs 10-20 until further notice. In November 2005, the FASB issue a FASB Staff Position FAS 115-1 and FAS 124-1 to address the issues related to the determination and measurement of impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and disclosure requirements for the unrealized losses that have not been recognized as other-than-temporary impairments. The Company has evaluated the effect of these two FSP issues on its financial position and results of operations and does not expect the adoption of the accounting provisions of EITF 03-01 will have a significant impact on the Company.

	B.		In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 151, Inventory Costs – an amendment of ARB No. 43, Chapter 4. SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS No. 151 requires that abnormal amounts be recognized as current period charges regardless of whether they meet the criterion of “so abnormal.” In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This standard does not affect the Company’s financial position, cash flows or results of operations.

F-71

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	C.		In December 2004, the FASB issued FAS No. 123(R), “Share-Based Payment,” (FAS 123 (R)). FAS 123(R) requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair-value method, and eliminates the use of the intrinsic-value method prescribed by APB Opinion No. 25, which was allowed under the original provisions of FAS 123. FAS 123(R) requires the use of an option-pricing model for estimating fair value amortized to expenses over the requisite periods. The requirements of FAS 123(R) were effective for interim periods beginning after June 15, 2005. The Securities and Exchange Commission (SEC) has postponed the effective date of FAS 123(R), giving companies more time to develop their implementation strategies. Under the SEC’s rule, FAS 123(R) is now effective for public companies for annual, rather than interim, periods that begin after June 15, 2005. The Company adopts FAS 123(R) beginning in fiscal 2006 and is currently evaluating the various transition methods allowed under FAS 123(R).

	D.		On December 31, 2004, the FASB issued SFAS No. 153, “Exchanges of Non-Monetary Assets, an Amendment of APB Opinion No. 29,” effective for non-monetary asset exchanges occurring in the fiscal year beginning January 1, 2006. SFAS No. 153 requires that exchanges of productive assets be accounted for at fair value and gain or loss be recognized from the similar non-monetary asset exchange unless fair value cannot be reasonably determined or the transaction lacks commercial substance. The statement is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company is currently evaluating the effects on the Company’s financial statements.

	E.		In May 2005, FASB issued SFAS No. 154 “Accounting Changes and Error Corrections” to replace APB Opinion No. 20,”Accounting Changes”,and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and change the requirements for the accounting for and reporting of a change in accounting principle. This statement is applied to all voluntary changes in accounting principle and changes required by an accounting pronouncement in the unusual instance without specific transition provisions. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

F-72

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	F.		In June 2005, the FASB ratified the 05-2 consensus reached by the Emerging Issues Task Force “The Meaning of “Conventional Convertible Debt Instrument” in Issue No. 00-19” (EITF 05-2). The Task Force reached a consensus on that the exception to the requirements of paragraphs 12-33 of Issue 00-19 for “conventional convertible debt instruments” should be retained. The Task Force also reached a consensus that instruments that provide the holder with an option to convert into a fixed number of shares (or equivalent amount of cash at the discretion of the issuer) for which the ability to exercise the option is based on the passage of time or a contingent event should be considered “conventional” for purposes of applying Issue 00-19. Instruments that contain “standard” anti-dilution provisions would not preclude a conclusion that the instrument is convertible into a fixed number of shares. The Task Force also reached a consensus that convertible preferred stock with a mandatory redemption date may qualify for the exception included in paragraph 4 of Issue 00-19 if the economic characteristics indicate that the instrument is more akin to debt than equity. The Company has evaluated the impact of this Issue and concludes that the Company’s currently outstanding convertible bonds are not “conventional” ones. If the Company decides to issue convertible bonds in the future, the Company will analyze its terms to see if the convertible bonds are conventional, and apply applicable pronouncements and this Issue to account for its convertible bonds.

	G.		In February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments- an amendment of FASB Statements No. 133 and 140”. This statement allows financial instruments that have embedded derivatives requiring bifurcation from the host to be accounted for as a whole, if the holder irrevocably elects to account for the whole instrument on a fair value basis. Subsequent changes in the fair value of the instrument would be recognized in earnings. This statement is effective for all financial instruments acquired, issued, or subject to a remeasurement (new basis) event occurring after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company currently believes that there is no material effect after adopting SFAS No. 155.

F-73

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In September 2005, Accounting Research and development Foundation issued SFAS No. 34, “Accounting for Financial Instruments”. This statement eliminates the use of the phrase of short-term investment and lower of cost or fair value for the valuation of financial instruments. Instead, financial instruments are measured at fair value, except held-to-maturity securities, equity securities without an active market or relative fair values, and financial assets or derivatives linked to and settled in the aforementioned exceptions. For financial instruments classified as trading, subsequent changes in their fair values are recognized in earnings at each balance sheet date. For financial instruments classified as available-for-sale, subsequent changes in their fair values are recognized in shareholders’ equity. The requirements of SFAS No. 34 were effective for fiscal periods beginning after January 1, 2006. The changes in accounting principles above increased the Company’s total assets and total shareholders’ equity as of January 1, 2006 both by $8,912,555.

F-74

(4)		Securities of which total buying or selling exceeds the lower of NT$100,000 or 20 percent of the capital stock:

		For the years ended December 31, 2005:


					The
			Name		relationship		Beginning balance				Addition				Disposal									Ending balance
			of		of the																Gain
		General	the		issuers		Number				Number				Number						(loss)			Number
	Name of	ledger	counter		with the		of shares/unit				of shares/unit				of shares/unit						from			of shares/unit
Investor	the security	accounts	party		Company		(in thousands)		Amount		(in thousands)		Amount		(in thousands)		Sale price		Book value		disposal			(in thousands)		Amount
Siliconware Precision Industries Co., Ltd.	Sigurd Microelectronics Corp. stock	Long-term investment		—		—		35,121	$	617,264		(Note 1) 6,595	$	133,879		—	$	—	$	—	$	—			44,428	$	(Note 3) 724,140
Siliconware Precision Industries Co., Ltd.	Universal Communication stock	Long-term investment		—		—		32,975		237,894		—		—		32,975		133,879		226,330		(Note 2) (92,452	)		—		—
Siliconware Precision Industries Co.,Ltd.	SPIL (B.V.I.) Holding Limited stock	Long-term investment		—		—		57,800		1,654,394		5,000		157,050		—		—		—		—			62,800		(Note 3) 1,794,319
Siliconware Precision Industries Co., Ltd.	Phoenix Precision Technology Corporation stock	Long-term investment		—		—		6,691		190,512		—		—		7,170		192,060		190,512		1,548			—		—
Siliconware Precision Industries Co., Ltd.	JP Morgan Fleming Taiwan Bond Fund	Short-term investment		—		—		15,997		237,051		103,456		1,541,000		119,453		1,779,917		1,778,051		1,866			—		—
Siliconware Precision Industries Co., Ltd.	JP Morgan Fleming First Bond Fund	Short-term investment		—		—		2,980		40,558		—		—		2,980		40,834		40,558		277			—		—
Siliconware Precision Industries Co., Ltd.	ABN AMRO Bond Fund	Short-term investment		—		—		26,811		391,836		91,988		1,353,500		118,799		1,747,643		1,745,336		2,307			—		—
Siliconware Precision Industries Co., Ltd.	ABN AMRO Selected Bond Fund	Short-term investment		—		—		44,388		488,295		99,848		1,104,500		144,236		1,595,991		1,592,795		3,196			—		—
Siliconware Precision Industries Co., Ltd.	The First Global Investment Trust Duo Li Bond Fund	Short-term investment		—		—		12,420		200,000		—		—		12,420		201,546		200,000		1,546			—		—
Siliconware Precision Industries Co., Ltd.	The First Global Investment Trust Duo Li-2 Bond Fund	Short-term investment		—		—		6,370		90,230		46,494		665,000		52,864		756,141		755,230		911			—		—
Siliconware Precision Industries Co., Ltd.	Fuhwa Bond Fund	Short-term investment		—		—		38,287		495,000		8,441		110,000		46,728		608,178		605,000		3,178			—		—

Note (1): Sigurd merged with Universal at March 1, 2005. SPIL obtained 6,595 thousand shares of Sigurd as a result of this merger transaction.

Note (2): The loss from disposal of investment in Universal represented the excess of the investment carrying amounts over its net selling price of Sigurd’s shares obtained by SPIL.

Note (3): The ending balance includes the investment gain and loss accounted for under the equity method .

F-75

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5)		Acquisition of real estate with an amount exceeding the lower of NT$100,000 or 20 percent of the capital stock:

		For the years ended December 31, 2005:

Related party as counter party

Original

The

owner which

relationship

Relation-

sold the

of the

ship with

property to

original

Date of the

Date of

Transaction

Status of

the

the counter

owner with

original

Name of the properties

transaction

amount

payment

Counter party

Company

party

the Company

transaction

Amount

Construction in progress

December 2003

354,430

Chin-Biau Construction Corporation Ltd.

—

Construction in progress

January 2004

322,800

Chung-Rui Construction Corporation Ltd.

—

Construction in progress

August 2004

207,000

Sheng-Hui Construction Corporation Ltd.

—

(6)		Disposal of real estate with an amount exceeding the lower of NT$100,000 or 20 percent of the capital stock:

		For the years ended December 31, 2005: None.

F-76

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7)		Related party transactions with purchases and sales amounts exceeding the lower of NT$100,000 or 20 percent of the capital stock:

		For the years ended December 31, 2005:

Description of

and reasons for

difference in

transaction terms

compared to

non-related

Notes or accounts

Description of the transaction

party transactions

receivable / payable

Percentage

Percentage of

Relationship

of net

notes or accounts

Purchase / sales

Name of

with the

Purchases

purchases

Credit

Unit

Credit

receivable /

company

the counter parties

counter parties

/ sales

Amount

/ sales

terms

price

terms

Amount

payable

Siliconware

Phoenix Precision

The Company

Accounts

Precision

Technology

holds

Three

payable

Industries Co., Ltd.

Corporation

directorship

Purchase

3,600,039

months

—

694,261

(8)		Receivables from related parties exceeding the lower of NT$100,000 or 20 percent of the capital stock:

		As of December 31, 2005: None.

(9)		Transaction of derivative financial instruments:

		For the years ended December 31, 2005: None.

F-77

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Related Information on Investee Companies

	(1)		Basic information on investee companies:

			For the years ended December 31, 2005:


				Original investments				The Company / majority owned subsidiary owns							Current period
								Shares							Net income			Income (loss)
				December 31,		December 31,		(in		Ownership			Book		(loss) of			recognized by
Investor	Name of Investee	Location	Main activities	2005		2004		thousands)		Percentage			value		investee			the Company			Note
																		(Note 3)
Siliconware Precision Industries Co., Ltd.	Siliconware Investment Company Ltd.	Taipei	Investment activities	$	1,770,000	$	1,770,000		177,000		100.00	%	$	960,363	$	37,816		$	6,119		(Note1,2,7)
Siliconware Precision Industries Co., Ltd.	Sigurd Microelectronics Corp.	Chu-tung, Hsin-Chu	Testing and assembly of integrated circuits		459,274		325,395		44,428		23.92	%		724,140		280,863			62,563		(Note1)
Siliconware Precision Industries Co., Ltd.	Double Win Enterprise Co., Ltd.	Ping-chen City, Taoyuan	SMT process and hand insert		152,100		152,100		6,760		24.14	%		—		—			—		(Note1)
Siliconware Precision Industries Co., Ltd.	ChipMOS Technologies Inc.	Science-based Industrial Park, Hsin - Chu	Testing and assembly of integrated circuits		2,332,768		2,332,768		254,863		28.75	%		3,924,937		2,108,036			432,715		(Notes 1)
Siliconware Precision Industries Co., Ltd.	SPIL(B.V.I.) Holding Limited	British Virgin Islands	Investment activities		2,133,819		1,976,769		62,800		100.00	%		1,794,319		(105,691	)		(105,691	)	(Note 1,2,7)
Siliconware Precision Industries Co., Ltd.	Universal Communication Technology Inc.	Hsin - Chu	RFIC test		—		329,750		—		—			—		(28,283	)		(9,775	)	(Note 1)
SPIL(B.V.I.) Holding Limited	Siliconware USA, Inc.	San Jose, CA, USA	Providing promotion and marketing services		68,464		68,464		1,250		100.00	%		75,455		13,057			13,057		(Note 4,7)
SPIL (B.V.I.)Holding Limited	SPIL(Cayman) Holding Limited	Cayman Islands, British West India	Investment activities		1,157,575		998,954		35,100		100.00	%		826,252		(144,303	)		(144,303	)	(Note 5,7)
SPIL(Cayman) Holding Limited	Siliconware Technology (Suzhou) Limited	Suzhou Jiangsu, China	Manufacturing of memory stick, DRAM module, transistor and electronic component		1,154,330		997,280	(Note 6)			100.00	%		824,617		(143,834	)		(143,834	)	(Note 5,7)

Note (1): The Company’s investee accounted for under the equity method.

Note (2): The Company’s majority owned subsidiary.

Note (3): Amortization of premium or discount is not included.

Note (4): An investee accounted for under the equity method of SPIL (B.V.I.) Holding Limited, a 100% owned subsidiary of the Company.

Note (5): An investee accounted for under the equity method of SPIL (Cayman) Holding Limited, a 100% owned subsidiary of SPIL (B.V.I) Holding Limited.

Note (6): The contributed capital was US$35,000 thousand dollars.

Note (7): Eliminated under consolidation.

F-78

(2)		The ending balance of securities held by investee companies:

		As of December 31, 2005:

The relationship

General

Number of

Market value

Type of

Name of

of the issuers with

ledger

Book value

Ownership

per share

Investor

securities

the Company

accounts

(in thousands)

(Note 2)

percentage

(in dollar)

Siliconware Investment Company Ltd.

Stock

Siliconware Precision Industries Co., Ltd.

The Company

Long-term investments

32,090

794,184

1.38

46.05

Siliconware Investment Company Ltd.

Stock

Others (Note 1)

—

Long-term investments

20,798

254,644

—

SP IL (B.V.I.) Holding Limited

Stock

Siliconware USA, Inc.

Indirect subsidiary of the Company

Long-term investments

1,250

75,455

100.00

52.69

(Note 2,4)

SP IL (B.V.I.) Holding Limited

Stock

SP IL (Cayman) Holding Limited

Indirect subsidiary of the Company

Long-term investments

35,100

826,252

100.00

23.54

(Note 2,4)

SP IL (Cayman) Holding Limited

Stock

Siliconware Technology (Suzhou) Limited

Indirect subsidiary of the Company

Long-term investments

(Note 3)

824,617

100.00

—

Note (1): Combined amount for individual securities less than $100,000.

Note (2): The market value is not available; therefore, the net equity per share as of December 31, 2005 was used.

Note (3): The contributed capital was US$35,000 thousand dollars.

Note (4): Eliminated under consolidation.

F-79

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3)

Securities of which total buying or selling amount exceed the lower of NT$100,000 or 20 percent of the capital stock:

For the years ended December 31, 2005:

The

Beginning balance

Addition

Disposal

Ending balance

Name of

relationship

Gain

General

the

of the

Number of

(loss)

Number of

ledger

counter

issuers with

Sale

Book

from

Amount

Investor

Name of the security

accounts

party

the Company

(in thousands)

Amount

(in thousands)

Amount

(in thousands)

price

value

disposal

(in thousands)

SPIL (B.V.I.)
Holding Limited

SPIL (Cayman)
Holding Limited

Long-term investment

(Note 1)

—

30,050

756,445

5,050

158,621

—

35,100

(Note 5,6)
$826,252

SPIL (Cayman)
Holding Limited

Siliconware Technology
(Suzhou) Limited

Long-term investment

(Note 1)

—

(Note 2

)

755,987

(Note 3

)

157,050

—

(Note 4

)

(Note 5,6)
824,617

Note (1): Paid in capital.

Note (2): The contributed capital was US$30,000 thousand dollars.

Note (3): The contributed capital was US$5,000 thousand dollars.

Note (4): The contributed capital was US$35,000 thousand dollars.

Note (5): The ending balance includes the investment gain and loss under the equity method.

Note (6): Eliminated under consolidation.

F-80

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information of investment in Mainland China:

(1) Information of investment in Mainland China:

Accumulated

Remitted or

Accumulated

Name of investee

Main activities

Investment

remittance as of

(collected)

remittance as of

in Mainland China

of investee

Capital

method

December 31 ,2004

this period

December 31 , 2005

Siliconware Technology (Suzhou) Limited

Manufacture memory stick , DRAM module, transistor and electronic component

1,148,000

(Note 1)

984,000

164,000

1,148,000

(Note 2

)

(Note 2

)

(Note 2

)

(Note 2

)

Investment

Ownership

income (loss)

The investment

Accumulated

The investment balance

The ceiling of investment

held by

recognized by

income (loss)

remittance

approved by

in Mainland China according to

the Company

Ending balance

remitted back as of

from Taiwan to

Investment Commissions,

(Direct and indirect

during the period

of investment

December 31 , 2005

Mainland China

Ministry of Economic Affairs

100.00%

($143,834

)

824,617

—

1,148,000

1,640,000

9,665,001

(Note 3

)

(Note 2

)

Note1: The Company set up a subsidiary in Cayman Island to invest in Mainland China.

Note2: Transactions denominated in foreign currencies are translated into New Taiwan dollars at the exchange rate prevailing on the balance sheet date.

Note3: Eliminated under consolidation.

(1)

Material transactions occurred directly between the Company and its Mainland China investee companies and material transactions occurred indirectly between the Company and its Mainland China investee companies via enterprises in other areas: None.

F-81

SILICONWARE PRECISION INDUSTRIES CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Business relationships and significant transactions and amounts between Parent Company and Subsidiary Company:

RELATED PARTY TRANSACTIONS

Name of

Name of the Company

Relationship with

% of consolidated revenues

NO.

Related Parties

Transactions

Related Parties

Account

Amount

Term

or total assets

SPIL

Siliconware USA, Inc.

Commission expense

$417, 418

as contract

F-82

ChipMOS TECHNOLOGIES INC. and Subsidiaries

Consolidated Financial Statements for the Years Ended
December 31, 2003, 2004 and 2005
Together with Report of Independent Registered Accounting Firm

F-83

MOORE STEPHENS

CERTIFIED PUBLIC ACCOUNTANTS

7 Fl., 53 Nanjing E. Rd., Sec.2,
Taipei 10464, Taiwan

Tel: 886 2 25629889
Fax: 886 2 25815955
E-Mail: tpe@moorestephens.com.tw

The Board of Directors and Shareholders
ChipMOS TECHNOLOGIES INC.

We have audited the accompanying consolidated balance sheets of ChipMOS TECHNOLOGIES INC. and subsidiaries (collectively the “Company”) as of December 31, 2004 and 2005, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005, 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 auditing standards generally accepted in the Republic of China and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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, 2004 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the Republic of China.

Accounting principles generally accepted in the Republic of China vary in certain significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of net income (loss) for each of the three years in the period ended December 31, 2005, and the determination of shareholders’ equity and financial position as of December 31, 2004 and 2005, to the extent summarized in Note 25.

Moore Stephens
February 15, 2006
Taipei, Taiwan
Republic of China

F-84

ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2005
(In Thousands of New Taiwan and U.S. Dollars, Except Par Value)


	December 31
	2004			2005
	NT$			NT$			US$
							(Note 3)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 2)		2,818,156			3,154,097			96,015
Restricted cash and cash equivalents (Note 19)		87,041			123,947			3,773
Short-term investments — net (Notes 2 and 4)		2,815,127			186,136			5,666
Notes receivable		62,205			30,581			931
Accounts receivable — net of allowance for doubtful receivables and sales return allowances of NT$262,399 in 2004 and NT$373,597 in 2005 (Notes 2 and 5)		1,825,845			2,401,045			73,091
Receivables from related parties (Notes 2, 5 and 18):
Notes and accounts — net of allowance for doubtful receivables and sales return allowances of NT$13,353 in 2004 and NT$9,429 in 2005		1,419,319			1,419,976			43,226
Others receivable — net of allowance for doubtful receivables of NT$5,914 in 2004 and NT$8,520 in 2005		31,575			5,315			162
Other receivable — net of allowance for doubtful receivables of NT$10,385 in 2004 and NT$9,754 in 2005 (Notes 2 and 5)		169,680			169,337			5,155
Inventories — net (Notes 2 and 6)		607,213			540,422			16,451
Deferred income tax — net (Notes 2 and 17)		590,475			239,202			7,282
Prepaid expenses and other current assets (Note 18)		121,991			60,807			1,851

Total Current Assets		10,548,627			8,330,865			253,603


LONG-TERM INVESTMENTS (Notes 2 and 7)		663,040			413,125			12,576


PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 8)
Cost
Land		530,862			530,268			16,142
Buildings and auxiliary equipment		4,251,564			4,626,061			140,824
Machinery and equipment		22,159,513			23,510,371			715,689
Furniture and fixtures		502,681			579,390			17,638
Transportation equipment		21,667			30,351			924
Tools		1,359,212			1,390,087			42,316
Leasehold improvements		50,574			3,167			96

Total cost		28,876,073			30,669,695			933,629
Accumulated depreciation		(14,451,706	)		(15,029,981	)		(457,534	)
Construction in progress and advance payment		2,289,058			3,346,985			101,887

Net Property, Plant and Equipment		16,713,425			18,986,699			577,982


INTANGIBLE ASSETS — NET (Notes 2 and 9)		102,297			103,371			3,147


OTHER ASSETS
Employee dormitory building — net of accumulated depreciation of NT$50,611 in 2004 and NT$64,911 in 2005 (Note 2)		112,208			165,380			5,034
Refundable deposits		14,858			17,846			543
Idle assets		27,011			—			—
Restricted cash and cash equivalents (Note 19)		59,705			1,500			46
Goodwill		—			75,773			2,307

Total Other Assets		213,782			260,499			7,930


TOTAL ASSETS		28,241,171			28,094,559			855,238

(Forward)

F-85

ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2005
(In Thousands of New Taiwan and U.S. Dollars, Except Par Value)


	December 31
	2004			2005
	NT$			NT$			US$
							(Note 3)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Bank loans (Note 10)		800,593			467,834			14,242
Commercial paper payable (Note 11)		—			149,413			4,548
Notes payable		49,072			3,927			120
Accounts payable		526,003			657,963			20,029
Payables to related parties (Note 18):
Accounts payable		17,428			2,214			67
Others		61,031			45,490			1,385
Payables to contractors and equipment suppliers		312,561			372,329			11,334
Accrued expenses and other current liabilities		916,889			884,930			26,939
Current portion of long-term liabilities (Notes 12 and 13)		3,026,974			2,300,916			70,043

Total Current Liabilities		5,710,551			4,885,016			148,707


LONG-TERM LIABILITIES
Long-term bonds payable (Note 12)		333,195			—			—
Long-term loans (Note 13)		4,601,747			4,433,851			134,973

Total Long-Term Liabilities		4,934,942			4,433,851			134,973


OTHER LIABILITIES
Deferred income tax — net (Notes 2 and 17)		546,050			148,951			4,534
Accrued pension cost (Notes 2 and 14)		102,674			81,658			2,486
Deferred credits(Note 18)		626,196			593,666			18,072
Guarantee deposits		1,124			1,454			44

Total Other Liabilities		1,276,044			825,729			25,136


Total Liabilities		11,921,537			10,144,596			308,816


Minority Interests		3,204,177			3,494,210			106,369


COMMITMENTS AND CONTINGENCIES (Note 20)
SHAREHOLDERS’ EQUITY (Notes 2 and 16)
Capital stock — NT$10 par value
Authorized - 970,000 thousand shares
Issued - 887,227 thousand shares in 2004 and 893,442 thousand shares in 2005		8,872,272			8,934,423			271,976
Capital surplus		2,288,950			2,145,998			65,327
Retained earnings:
Appropriated as legal reserve		424,007			577,474			17,579
Unappropriated earnings		1,534,667			2,921,486			88,934
Unrealized loss on long-term investments		(805	)		(1,673	)		(51	)
Cumulative translation adjustments		(3,634	)		(1,803	)		(55	)
Treasury stock (Note 15)		—			(120,152	)		(3,657	)

Total Shareholders’ Equity		13,115,457			14,455,753			440,053

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		28,241,171			28,094,559			855,238

The accompanying notes are an integral part of the condolidated financial statements.

F-86

ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
December 31, 2003, 2004 and 2005
(In Thousands of New Taiwan and U.S. Dollars, Except Par Value)


	Year Ended December 31
	2003		2004		2005
	NT$		NT$		NT$		US$
							(Note 3)
NET REVENUES (Notes 2 and 18)
Related parties		4,693,771		4,847,570		4,614,013		140,457
Third parties		3,774,894		10,020,307		10,142,510		308,752

Total Net Revenues		8,468,665		14,867,877		14,756,523		449,209


COST OF REVENUE (Note 18)
Related parties		3,405,646		3,236,183		3,435,771		104,589
Third parties		3,505,392		7,508,045		7,401,916		225,325

Total Cost of Revenue		6,911,038		10,744,228		10,837,687		329,914


GROSS PROFIT		1,557,627		4,123,649		3,918,836		119,295


OPERATING EXPENSES (Note 18)
Research and development		295,033		295,777		274,433		8,354
General and administrative		219,101		480,596		557,983		16,986
Marketing		127,990		323,300		228,329		6,951

Total Operating Expenses		642,124		1,099,673		1,060,745		32,291


INCOME FROM OPERATIONS		915,503		3,023,976		2,858,091		87,004


NON-OPERATING INCOME
Gain on sales of investments (Note 2)		91,017		—		—		—
Rental (Note 16)		24,960		28,467		27,698		843
Interest		50,844		31,463		45,584		1,388
Subsidy income		12,057		6,100		9,769		297
Cash dividends		—		—		16,897		514
Recovery of allowance for loss on inventory		—		67,002		74,581		2,270
Recovery of allowance for loss on short-term investment		—		—		85,958		2,617
Investments income recognized by equity method — net (Notes 2 and 7)		22,364		—		—		—
Gain on disposal of property, plant and equipment (Note 2)		100,101		45,520		41,511		1,264
Gain on disposal of idle assets		—		—		29,846		909
Foreign exchange gain — net (Note2)		—		—		61,501		1,872
Other		36,042		96,094		117,596		3,580

Total Non-Operating Income		337,385		274,646		510,941		15,554

(Forward)

F-87

ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
December 31, 2003, 2004 and 2005
(In Thousands of New Taiwan and U.S. Dollars, Except Par Value)


	Year Ended December 31
	2003		2004			2005
	NT$		NT$			NT$			US$
									(Note 3)
NON-OPERATING EXPENSES
Loss on sales of investments (Note 2)		—		6,561			33,024			1,005
Interest		237,357		257,144			223,389			6,800
Allowance for loss on short-term investments (Note 4)		24,902		52,274			—			—
Investments loss recognized by equity method — net (Notes 2 and 7)		—		29,160			126,802			3,860
Other investment loss		—		49,833			4,854			148
Impairment loss (Notes 2 and 7)		—		214,403			320,293			9,750
Financing cost		14,623		15,369			6,474			197
Loss on disposal of property, plant and equipment (Note 2)		16,283		21,447			24,231			738
Foreign exchange loss — net (Note 2)		93,940		141,496			—			—
Other		10,776		43,278			156,370			4,760

Total Non-Operating Expenses		397,881		830,965			895,437			27,258


INCOME BEFORE INCOME TAX AND MINORITY INTERESTS		855,007		2,467,657			2,473,595			75,300
INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 17)		5,550		132,599			(44,665	)		(1,359	)
INCOME FOR MINORITY INTERESTS		—		(305,151	)		(320,894	)		(9,769	)
PRE-ACQUISITION EARNINGS		—		27,655			—			—


NET INCOME		860,557		2,322,760			2,108,036			64,172


EARNINGS PER SHARE
Based on weighted-average number of shares outstanding of 887,227 thousand shares in 2003 and 2004 and 885,686 thousand shares in 2005		0.97		2.62			2.38			0.07

Based on weighted-average number of shares outstanding — retroactively adjusted		0.97		2.62			2.38			0.07

The accompanying notes are an integral part of the consolidated financial statements.

F-88

]

ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
December 31, 2003, 2004 and 2005
(In Thousands of New Taiwan and U.S. Dollars, Except Par Value)


					CAPITAL SURPLUS (Notes 2 and 16)										RETAINED EARNINGS (Note 16)
																													UNREALIZED
																							CUMULATIVE						LOSS ON
	CAPITAL STOCK ISSUED				Additional												Unappropriated						TRANSLATION			TREASURY			LONG-TERM			TOTAL
	Shares				Paid-in				Long-term						Legal		Earnings (Accumulated						ADJUSTMENT			STOCK			INVESTMENT			SHAREHOLDERS’
	(Thousand)		Amount		Capital		Merger		investments			Total			Reserve		Deficits)			Total			(Note 2)			(Note 15)			(Note 2)			EQUITY
			NT$		NT$		NT$		NT$			NT$			NT$		NT$			NT$			NT$			NT$			NT$			NT$
BALANCE, JANUARY 1, 2003		887,227		8,872,272		2,084,757		—		1,655			2,086,412			424,007		(1,648,057	)		(1,224,050	)		(734	)		—			—			9,733,900
Net income in 2003		—		—		—		—		—			—			—		860,557			860,557			—			—			—			860,557
Adjustment of equity method for long-term investment		—		—		—		—		12,008			12,008			—		(593	)		(593	)		—			—			—			11,415
Translation adjustments		—		—		—		—		—			—			—		—			—			115			—			—			115


BALANCE, DECEMBER 31, 2003		887,227		8,872,272		2,084,757		—		13,663			2,098,420			424,007		(788,093	)		(364,086	)		(619	)		—			—			10,605,987
Net income in 2004		—		—		—		—		—			—			—		2,322,760			2,322,760			—			—			—			2,322,760
Adjustment of equity method for long-term investment		—		—		—		—		190,530			190,530			—		—			—			—			—			—			190,530
Cumulative translation adjustments		—		—		—		—		—			—			—		—			—			(3,015	)		—			—			(3,015	)
Unrealized loss on market value decline of long-term investments		—		—		—		—		—			—			—		—			—			—			—			(805	)		(805	)


BALANCE, DECEMBER 31, 2004		887,227		8,872,272		2,084,757		—		204,193			2,288,950			424,007		1,534,667			1,958,674			(3,634	)		—			(805	)		13,115,457
Appropriations of 2004 earnings:
Appropriated as legal reserve		—		—		—		—		—			—			153,467		(153,467	)		—			—			—			—			—
Cash dividend		—		—		—		—		—			—			—		(532,336	)		(532,336	)		—			—			—			(532,336	)
Remuneration paid to directors and supervisors		—		—		—		—		—			—			—		(27,624	)		(27,624	)		—			—			—			(27,624	)
Employees bonus		—		—		—		—		—			—			—		(138,120	)		(138,120	)		—			—			—			(138,120	)
Adjustment of equity method for long-term investment		—		—		—		—		(170,713	)		(170,713	)		—		130,330			130,330			—			—			—			(40,383	)
Cumulative translation adjustment		—		—		—		—		—			—			—		—			—			1,831			—			—			1,831
Purchase of treasury stock		—		—		—		—		—			—			—		—			—			—			(115,402	)		—			(115,402	)
Outstanding shares owned by subsidiaries		—		—		—		—		—			—			—		—			—			—			(4,750	)		—			(4,750	)
Unrealized loss on market value decline of long-term investments		—		—		—		—		—			—			—		—			—			—			—			(868	)		(868	)
Issuance of new stocks for merger		6,215		62,151		—		27,761		—			27,761			—		—			—			—			—			—			89,912
Net income in 2005		—		—		—		—		—			—			—		2,108,036			2,108,036			—			—			—			2,108,036

BALANCE, DECEMBER 31, 2005		893,442		8,934,423		2,084,757		27,761		33,480			2,145,998			577,474		2,921,486			3,498,960			(1,803	)		(120,152	)		(1,673	)		14,455,753

The accompanying notes are an integral part of the consolidated financial statements.

F-89

ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, 2004 and 2005
(In Thousands of New Taiwan and U.S. Dollars, Except Par Value)


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
CASH FLOWS FROM OPERATING ACTIVITIES
Net income		860,557			2,322,760			2,108,036			64,172
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation		2,614,137			3,353,537			4,087,487			124,429
Amortization		52,287			104,150			132,702			4,039
Investment loss(gain)–net		(22,364	)		78,993			131,656			4,008
Allowance for loss on short-term investments		24,902			52,274			(85,958	)		(2,617	)
Loss on sales of investments		—			6,561			—			—
Gain on disposal of property, plant and equipment – net		(100,009	)		(60,997	)		(5,986	)		(182	)
Deferred income tax – net		(10,223	)		(174,527	)		(45,826	)		(1,395	)
Accrued pension cost		16,672			22,619			(21,016	)		(640	)
Deferred credits		91,785			534,412			(32,530	)		(990	)
Impairment losses		—			214,403			320,293			9,750
Changes in operating assets and liabilities:
Notes receivable and accounts receivable		(579,354	)		(420,188	)		(550,001	)		(16,743	)
Other receivables		(1,507,744	)		1,630,417			28,898			880
Inventories		(145,105	)		(55,812	)		66,753			2,032
Prepaid expenses and other current assets		206,779			286,919			61,899			1,884
Notes payable and accounts payable		184,279			(12,914	)		71,601			2,180
Other payables		16,098			(611,407	)		(15,541	)		(473	)
Accrued expenses and other current liabilities		187,476			222,988			(49,085	)		(1,494	)
Minority interest		—			139,575			181,769			5,533

Net Cash Provided by Operating Activities		1,890,173			7,633,763			6,385,151			194,373


CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in restricted cash and cash equivalents		396,234			146,632			21,299			648
Decrease (increase) in short-term investments		630,683			(1,976,291	)		2,740,805			83,434
Proceeds from sales of:
Property, plant and equipment		424,644			382,177			201,369			6,130
Long-term investments		—			869,421			—			—
Acquisitions of:
Long-term investments		(33,024	)		(140,788	)		(116,400	)		(3,543	)
Property, plant and equipment		(2,161,675	)		(7,568,722	)		(6,620,676	)		(201,543	)
Intangible assets		(46,205	)		(89,795	)		(125,117	)		(3,809	)
Employee dormitory building		—			(475	)		(3,304	)		(100	)
Decrease (increase) in refundable deposits		(338,835	)		52,160			(1,573	)		(48	)
Decrease (increase) in other financial assets		(339,700	)		339,700			—			—
Cash inflow from acquisition of subsidiary (Note 22)		—			94,337			7,261			221
Cash inflow from disposal of a subsidiary (Note 22)		—			—			48,035			1,462

Net Cash Used in Investing Activities		(1,467,878	)		(7,891,644	)		(3,848,301	)		(117,148	)

(Forward)

F-90


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on:
Bank loans		(718,586	)		(863,204	)		(314,968	)		(9,588	)
Commercial papers		(159,427	)		—			—			—
long-term bonds payable		—			—			(333,195	)		(10,143	)
Long-term loans		(352,133	)		—			(888,664	)		(27,052	)
Proceeds from:
Commercial papers		—			—			149,413			4,548
Long-term loans		—			2,784,163			—			—
Increase(Decrease) in guarantee deposits		132			(584	)		314			10
Employee bonus		—			—			(138,120	)		(4,205	)
Dividends		—			—			(532,336	)		(16,205	)
Remuneration paid to directors and supervisors		—			—			(27,624	)		(841	)
Purchase of treasury stock		—			—			(115,402	)		(3,513	)

Net Cash Provided by (Used in) Financing Activities		(1,230,014	)		1,920,375			(2,200,582	)		(66,989	)


Effect of Exchange Rate Changes		—			—			(327	)		(10	)


NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS		(807,719	)		1,662,494			335,941			10,226

CASH AND EQUIVALENTS, BEGINNING OF THE YEAR		1,963,381			1,155,662			2,818,156			85,789


CASH AND EQUIVALENTS, END OF THE YEAR		1,155,662			2,818,156			3,154,097			96,015


SUPPLEMENTAL INFORMATION
Income tax paid		469			834			2,351			72

Interest paid (excluding the amounts of NT$34,972 capitalized in 2004 and NT$73,641 capitalized in 2005)		237,567			259,947			210,327			6,403


NON-CASH INVESTING AND FINANCING ACTIVITIES
Current portion of long-term loans		650,090			3,026,974			2,300,916			70,043

Credit balances of long-term investments presented as part of other receivables from related parties		2,336			5,429			—			—

Reclassification of property, plant, and equipment into long-term investments		—			648,248			—			—

Reclassification of property, plant, and equipment into other assets		—			36,846			64,168			1,953

Reclassification of property, plant, and equipment into intangible assests		—			—			1,263			38

Reclassification of long-term investment into short-term investment		218,099			—			—			—

PARTIAL CASH PAID FOR INVESTING ACTIVITIES
Cash paid for acquisition of property, plant and equipment:
Total acquisitions		2,169,835			7,633,275			6,680,444			203,362
Increase in payables to contractors and equipment suppliers		(8,160	)		(64,553	)		(59,768	)		(1,819	)

		2,161,675			7,568,722			6,620,676			201,543

The accompanying notes are an integral part of the financial statements.

F-91

ChipMOS TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.		GENERAL

		ChipMOS TECHNOLOGIES INC. (ChipMOS Taiwan) was incorporated on July 28, 1997 as a joint venture company of Mosel Vitelic Inc. (MVI) and Siliconware Precision Industries Co. Ltd. (SPIL). Its operations, which began on August 12, 1997, consist of research, development, manufacturing, testing, and assembly of integrated circuits, LCD and other Flat-Panel Display Driver Semiconductors. ChipMOS Taiwan also provides semiconductor testing and assembly services on a turnkey basis, in which ChipMOS Taiwan purchases fabricated wafers and sells tested and assembled semiconductors to application and system manufacturers.

		On January 12, 2001, the holders of an aggregate of 583,419 thousand common shares of ChipMOS Taiwan executed a Purchase and Subscription Agreement whereby they transferred their shares to ChipMOS TECHNOLOGIES (Bermuda) LTD. (ChipMOS Bermuda) in exchange for 58,342 thousand newly issued common shares of ChipMOS Bermuda. The selling shareholders, who previously held in an aggregate 70.25% of the outstanding common shares of ChipMOS Taiwan, thus, became the holders of the entire outstanding common shares of ChipMOS Bermuda. As of December 31, 2005, ChipMOS Bermuda owned 69.85% of the outstanding common shares of ChipMOS Taiwan.

		As of December 31, 2005, ChipMOS Taiwan owned 100% of the outstanding shares of both ChipMOS Japan Inc. (ChipMOS Japan) and ChipMOS USA Inc. (ChipMOS USA), 34.13 % of ThaiLin Semiconductor Corp. (ThaiLin)

		ChipMOS Japan was incorporated in Japan in June 1999, and ChipMOS USA was incorporated in the United States of America in October 1999. The two companies engage in sales and customer services and all the expenses incurred from these activities are charged to current income. ChipMOS Japan began generating revenue in 2000, while ChipMOS USA began generating revenue in 2001.

F-92

		ThaiLin was incorporated on May 15, 1996 and is listed on the GreTai Securities Market in Taiwan. ThaiLin is engaged in wafer and semiconductor testing services. On December 31, 2002, ChipMOS Taiwan acquired an equity interest of 41.8% in ThaiLin. On December 1, 2003, ChipMOS Taiwan obtained controlling influence over ThaiLin’s decisions on its operations, personnel and financial policies. On December 1, 2005, ChipMOS Logic TECHNOLOGIES INC. (ChipMOS Logic) merged into ThaiLin pursuant to the merger agreement in August 2005. ChipMOS Logic stock was exchanged for ThaiLin stock at the ratio of 2.8 to 1. After the merger and as of December 31, 2005, ChipMOS Taiwan held a 34.13% (2004: 30.08%) equity interest in ThaiLin (see above).

		ChipMOS Logic was incorporated in Taiwan on January 28, 2004, with ChipMOS Taiwan holding 62.5% interest and ThaiLin holding 37.5% interest. On March 29, 2004, ChipMOS Logic issued additional shares to institutional investors. As a result, ChipMOS Taiwan’s interest in ChipMOS Logic was diluted to 44.44% and ThaiLin’s interest was diluted to 26.67%. ChipMOS Logic is engaged in logic testing services. On April 30, 2004, WORLD WIDE TEST Technologies Inc. (WWT) merged into ChipMOS Logic, with ChipMOS Logic as the surviving entity, in a stock-for-stock merger pursuant to which shareholders of WWT received one common share of ChipMOS Logic in exchange for 10 common shares of WWT. As of December 31, 2004, ChipMOS Taiwan and ThaiLin owned approximately 56.10% and 24.62%, respectively, of ChipMOS Logic. On December 1, 2005, ChipMOS Logic merged into ThaiLin (see above).

		CHANTEK ELECTRONIC CO., LTD. (CHANTEK) was incorporated in Taiwan in May 1989, and is listed on the GreTai Securities Market in Taiwan. It provides semiconductor assembly services for low-density volatile and non-volatile memory semiconductors, consumer semiconductors and microcontroller semiconductors. ChipMOS Taiwan acquired its 34% ownership interest in CHANTEK on September 16, 2002. On April 1, 2004, PlusMOS was merged into CHANTEK in a stock-for-stock merger pursuant to which shareholders of PlusMOS received 1.1 common shares of CHANTEK in exchange for one common share of PlusMOS. Upon consummation of this merger, ChipMOS Taiwan became the controlling shareholder of CHANTEK. ChipMOS Taiwan increased its ownership in CHANTEK during 2004 and held 68.04% interest as of December 31, 2004. On Nov ember 21, 2005, CHANTEK merged into ChipMOS Taiwan pursuant to the merger agreement entered into between ChipMOS Taiwan and CHANTEK in June 2005. CHANTEK stock was exchanged for ChipMOS Taiwan stock at the ratio of 3.6 to 1. As a result, ChipMOS Taiwan issued 6,215 thousand shares to CHANTEK shareholders, reducing ChipMOS Bermuda and SPIL’s interests in ChipMOS Taiwan from 70.34% and 28.73% to 69.85% and 28.53%, respectively.

		FIRST SEMICONDUCTOR TECHNOLOGY, INC. (FST) was incorporated in the United States of America in June 1998 and engaged in IC logic testing services. ChipMOS Taiwan acquired its 67.83% ownership interest in FST on November 1, 2004 and held 67.83% as of December 31, 2004. On April 29, 2005, ChipMOS Taiwan sold all its ownership of FST.

F-93

2.		SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

		Basis of presentation

		For 2005, the consolidated financial statements include the accounts of ChipMOS Taiwan and all subsidiaries (hereinafter, referred to individually or collectively as the “Company”), including ThaiLin, ChipMOS USA, ChipMOS Japan; CHANTEK and ChipMOS Logic up to their respective dates of merger, and FST up to the date of sale in which ChipMOS Taiwan holds a controlling interest or voting interests in excess of 50% in accordance with the requirements of ROC Statement of Financial Accounting Standards (“SFAS No. 7”) which was revised on December 9, 2004 and effective on January 1, 2005. For 2004, among aforementioned entities, the accounts of ChipMOS USA and ChipMOS Japan were too nominal, so they were not included in the consolidated financial statement. ¡@All significant intercompany accounts and transactions have been eliminated.

		The consolidated financial statements were prepared in conformity with Guidelines for Securities Issuers’ Financial Reporting, Commercial Accounting Law, accounting principles generally accepted in Republic of China (ROC), other relevant laws and regulations. The Company significant accounting policies are summarized as follows:

		Classification in the balance sheet

		A year is used to classify assets/liabilities as current or non-current in the balance sheet.

		Cash equivalents

		Commercial papers acquired under resale agreements with original maturity dates of less than three months are classified as cash equivalents.

		Short-term investments

		Short-term investments are stated at the lower of cost or market value. An allowance of losses is provided when the carrying value of the investments exceeds the total market value with the related provision for losses charged to income for the current year. Any recovery of the market value to the extent of the original carrying value is recognized as income.

		Costs of investments sold are determined using the weighted-average method.

		Allowance for doubtful receivables

F-94

		Allowance for doubtful accounts is provided based on evaluation of the collectibility of the receivables evaluated based upon the overall financial condition and payment history of the individual customers as well as the age of the receivables.

		Allowances for sales returns and discounts

		Allowances for sales returns and discounts are provided based on the sales returns from the past experience; such provisions are deducted from sales and the related costs of products are deducted from cost of products sold.

		Inventories

		Inventories are stated at the lower of standard cost (which approximates actual weighted average cost) or market value. Market value represents replacement cost for raw materials and net realizable value for other inventories.

		Long-term investments

		Investments in shares of stock of companies wherein the company exercises significant influence on their operating or financial decisions are accounted for using the equity method. Under the equity method, the investment are initially carried at cost and subsequently adjusted for the proportionate equity of the company in the net income or net loss of the investees.

		The Company will discontinue its recognition of its equity in the net loss of the investees when the carrying value of the investment (including advances) is reduced to zero. However, in cases where the Company exercises controlling interest over the investees; or guarantees the obligations or is committed to provide further financial support to an investee company, or if the investee’s losses are temporary and evidence sufficiently shows imminent return to profitability in the foreseeable future, then, the Company continues to recognize its share in the net loss of the investees. The resulting credit balances of the long-term investments are presented as part of other receivable from related parties.

		Translation adjustments resulting from the process of translating the investees’ financial statements into the functional currency of the company are recorded as cumulative translation adjustments in the statement of changes in shareholders’ equity.

		Gains or losses on transactions with investee companies wherein the Company owned at least 20% of the outstanding common stock but less than a controlling interest are deferred in proportion to ownership percentage until realized through a subsequent transaction with a third party. The entire amount of gains or losses on sales to majority-owned subsidiaries is deferred until such gains or losses are realized through the subsequent sale of the related products to third parties.

F-95

		Other stock investments (listed stocks or stocks traded over the counter) are accounted for using the cost method. These investments are stated at cost less temporary declines in market value, and a credit is made to an allowance for decline in value with a corresponding debit to shareholders’ equity. The allowance is then reduced for any subsequent recovery of the market value to the extent of the balance of the allowance. However, if the decline in value is considered irrecoverable, the decline in values is recorded as a charge to income.

		Cash dividends are recognized as income in the year received but are accounted for as a reduction in the carrying value of the long-term investments if the dividends are received in the same year that the related investments are acquired. Stock dividends are recognized only as an increase in the number of shares held on the ex-dividend date.

		The costs of investments sold are determined using the weighted average method.

		Property, plant and equipment and non-operating properties

		Property, plant and equipment and non-operating properties are stated at cost less accumulated depreciation. Major additions, renewals and betterment are capitalized, while maintenance and repairs are expensed currently.

		The initial estimate of the service lives of the property, plant and equipment is as follows: Machinery and equipment, 1 to 9 years; buildings and auxiliary equipment, 1 to 55 years; furniture and fixtures, 1 to 9 years; tooling, 1 to 5 years; transportation equipment, 5 to 6 years; and leasehold improvements, 1 to 10 years. The foregoing service lives plus one year to represent the estimated salvage value are used to depreciate the property, plant and equipment using the straight-line method. The carrying value of property, plant and equipment, which were fully depreciated using the foregoing service lives, but are still being used by the Company are depreciated over their remaining estimated service lives.

		Upon sale or disposal of items of properties, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is credited or charged to current income.

		Goodwill

		Goodwill arising on consolidation represents the excess of the cost of acquisition over the group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is recognized as an asset and amortized on a straight-line basis over its useful economic life.

		Goodwill arising on the acquisition of an associate or a jointly controlled entity is included within the carrying amount of the associate or jointly controlled entity. Goodwill arising on the acquisition of subsidiaries is presented separately in the balance sheet.

		Intangible assets

		Intangible assets are amortized using the straight-line method over the following periods:

F-96

		Technology know-how, 5 years; technology license fee, and deferred charges, 3 to 5 years.

		Revenue recognition

		Sales are recognized when titles of products and risks of ownerships are transferred to customers, primarily upon shipment.

		Pension costs

		Pension costs are recorded based on actuarial calculations. Unrecognized net transition obligation is amortized over 15 years.

		Retirement benefit contributions are made to independent pension funds, Contributions are made based on a percentage of the employees’ salaries, and are charged to current income as incurred.

		Income tax

		The Company adopts inter-period income tax allocation method. Deferred income tax assets are recognized for the tax effects of deductible temporary differences, unused tax credits, and operating loss carry forwards and those of taxable temporary differences are recognized as deferred income tax liabilities. Valuation allowance is provided for deferred tax assets that are not certain to be realized. A deferred tax asset or liability is classified as current or non-current based on the classification of the related asset or liability. However, if a deferred asset or liability cannot be related to an asset or liability in the financial statements, then it is classified as current or non-current based on the expected reversal dates of the temporary difference.

		Any tax credit arising from the purchase of machinery, equipment and technology, research and development expenditures, personnel training, investments in important technology-based enterprise are recognized by the flow-through method.

		Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

		Income taxes (10%) on unappropriated earnings generated are recorded as expense in the year when the stockholders have effectively resolved that earnings shall be retained.

		Derivative financial instruments

		Foreign currency forward exchange contracts (forward contracts), entered into for purposes other than trading, are recorded as follows: the differences in the New Taiwan dollar amounts translated using the spot rates as of the contract date and the amounts translated using the contracted forward rates are amortized over the terms of the forward contracts using the straight-line method. At the balance sheet dates, the receivables or payables arising from forward contracts are restated using the prevailing spot rates and the resulting differences are recognized in income. Also, the receivables and payables related to the forward contract are netted and the resulting net amount is presented as either an asset or liability.

F-97

		The aggregate amount of the foreign currency to be acquired or sold under European option contracts, entered into as hedge of anticipated transactions, is not recorded as assets or liabilities. The amounts received on options written and the amounts paid on options purchased are amortized using the straight-line method over the term of the contract. The gains arising from the exercise of the options or the losses arising from options not exercised are recognized as adjustments to the carrying values when the hedged transaction occurs.

		Treasury stock

		The Company adopted ROC SFAS No. 30, “Accounting for Treasury Stock”. The Company purchases its own outstanding shares and the shares of parent company held by its subsidiaries are regarded as treasury stock.

		Impairment losses of assets

		The Company adopted ROC SFAS No. 35, “Accounting for asset impairment” on January 1, 2005, which requires that certain assets, including properties, assets leased to others and deferred charges, are subject to an impairment review in order to look for any indication that the value of assets might be impaired on the balance date. An impairment loss should be recognized whenever the recoverable amount of the asset or the cash-generating unit is below the carrying value of an asset.

		The recoverability is determined by comparing the carrying amount of the asset (or asset group) on the date it is being tested for recoverability to the higher of the net fair value of the assets or the sum of the expected net present value of future cash flows generated by the assets and eventual disposal. A cash-generating unit, which includes allocation of goodwill, shall be tested for impairment on an annual basis. The impairment loss shall first credit to the portion of goodwill, then allocate to other assets according to the proportional ratio of their book value. The recognized impairment losses of goodwill cannot be reversed.

		If any evidence indicates that the impairment loss recognized in previous years has decreased, the Company shall re-perform the recoverability test and adjust the carrying value of the assets to the extent of recoverable amount. However, the adjusted carrying value of the assets due to loss reversal should not be in excess of the original book value, net of depreciation or amortization, had the impairment loss not been recognized.

		After the recognition of an impairment loss, the depreciation (amortization) charged on the assets shall be adjusted in future periods by the revised carrying values of the assets (net of accumulated impairment), less their salvage value, on a systematic basis over their

F-98

		remaining useful lives.

		Foreign-currency transactions

		Foreign-currency transactions, except derivative financial instruments, are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Gains or losses resulting from the application of different foreign exchange rates when cash in foreign currency is converted into New Taiwan dollars, or when foreign-currency receivables or payables are settled, are credited or charged to income in the year of conversion or settlement. On the balance sheet dates, the balances of foreign-currency assets and liabilities are restated at the prevailing exchange rates and the resulting differences are charged to current income except those foreign currency denominated investments in shares of stock where such differences are accounted for as translation adjustments under stockholders’ equity.

		Reclassifications

		Certain accounts in 2003 and 2004 have been reclassified to conform to 2005 classifications.

3.		TRANSLATION INTO U.S. DOLLAR AMOUNTS

		The Company maintains its accounts and expresses its consolidated financial statements in New Taiwan dollars. For convenience purposes, U.S. dollar amounts presented in the accompanying consolidated financial statements have been translated from New Taiwan dollars at the mid-price of the USD as quoted by Bank of Taiwan as of December 31, 2005, which was NT$32.85 to US$1.00. The convenience translations should not be construed as representations that the New Taiwan dollar amounts have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

SHORT-TERM INVESTMENTS


	December 31
	2004			2005
	NT$			NT$			US$
	(In Thousands)
Stocks		494,593			317,085			9,652
Open-ended funds		2,570,442			33,000			1,005
Allowance for loss on short-term investments		(249,908	)		(163,949	)		(4,991	)


		2,815,127			186,136			5,666


Market value		2,817,587			186,136			5,666

The market value of open-ended funds is based on the market price at year-end.

F-99

		During 2005, ChipMOS Taiwan sold its investment in common stock of MVI and of ProMOS Technologies Inc. (ProMOS) at a loss of NT$68,401 thousand and at a gain of NT$907 thousand, respectively.

		As of December 31, 2005, ChipMOS Taiwan held 2,069 thousand (2004: 7,780 thousand) shares of common stock of MVI and 701 thousand shares of common stock of ProMOS (2004: 7,559 thousand.)

5.		ALLOWANCE FOR DOUBTFUL RECEIVABLES


	Year Ended December 31
	2003		2004		2005
	NT$		NT$		NT$		US$
	(In Thousands)
Balance, beginning of year		44,856		97,288		292,051		8,890
Additions		52,432		194,763		109,249		3,326


Balance, end of year		97,288		292,051		401,300		12,216

INVENTORIES — NET


	December 31
	2004			2005
	NT$			NT$			US$
	(In Thousands)
Finished goods		25,876			25,672			781
Work in process		155,501			202,951			6,178
Raw materials		536,910			394,261			12,002

		718,287			622,884			18,961
Less — allowance for losses		(111,074	)		(82,462	)		(2,510	)


		607,213			540,422			16,451

The changes in the inventory valuation allowance are summarized as follows:


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
Balance, beginning of year		86,608			41,546			111,074			3,381
Additions		—			150,231			45,969			1,399
Reversals		(45,062	)		(67,002	)		(74,581	)		(2,270	)
Write offs		—			(13,701	)		—			—


Balance, end of year		41,546			111,074			82,462			2,510

F-100

LONG-TERM INVESTMENTS


	December 31
	2004					2005
	Carrying			% of		Carrying						% of
	Value			Ownership		Value						Ownership
	NT$					NT$			US$
	(In Thousands)
Equity method:
ChipMOS Japan		179			100		—			—			—
ChipMOS USA		(1,984	)		100		—			—			—
Ultima Technology Corp. (Ultima Technology)		374,625			30		246,434			7,502			30
Chantek International Investment Ltd. (Chantek International)		19,588			100		—			—			—
Hua Shen Investment Co. (Hua Shen)		922			100		—			—			—

Cost method:
G-Link Technology Corp., Taiwan		9,709			2		—			—			2
DigiMedia Technology Co., Ltd.		81,480			19		197,880			6,024			19
Best Home Corp. Ltd. (Best Home)		—			19		—			—			19
Sun Fund Securities Ltd. (Sun Fund)		165,950			17		148,121			4,509			17
CDIB High Tech Investment Inc. (CDIB)		9,000			2		9,000			274			2
Vigour Technology Corp. (Vigour)		—			4		—			—			—
Integrated Silicon Solution Inc.		1,587			—		—			—			—

		661,056					601,435			18,309

Credit balances of long-term investments (presented as part of other receivables from related parties) (Note 16)		1,984					—			—
Less: Accumulated impairment		—					(188,310	)		(5,733	)

		663,040					413,125			12,576

The equity in net income or loss of investee companies which is based on audited financial statements for the years ended December 31, 2003, 2004 and 2005 were as follows:

F-101


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
ChipMOS Japan		445			704			—			—
ChipMOS USA		1,776			4,584			—			—
PlusMOS Inc. (Plus MOS)		32,386			—			—			—
ThaiLin		29,127			—			—			—
CHANTEK		(36,618	)		—			—			—
AMCT		(4,752	)		(24,953	)		—			—
Hua Shen		—			(84	)		—			—
Chantek International		—			(9,411	)		—			—
Ultima Technology		—			—			(126,802	)		(3,860	)


		(22,364	)		(29,160	)		(126,802	)		(3,860	)

		Certain changes on the shareholders’ equity of investee companies result in the adjustments on ChipMOS Taiwan’s equity according to its ownership to the respective accounts, which in 2005 increased unappropriated earnings by NT$130,330 thousand and increased capital surplus by NT$227,402 thousand in 2004 and decreased NT$170,713 thousand in 2005 respectively.

		CHANTEK sold 3,846 thousand shares of AMCT during 2004. The gain from disposal of each investment was NT$8,803 thousand.

		The difference between the costs of the investment and ChipMOS Taiwan’s proportionate share in the net assets of the investees at the date of acquisition is amortized using the straight-line method over five years.

		During 2004, Sun Fund and CDIB reduced their issued capital by 17% and 50%, respectively. A loss of NT$49,833 thousand was recognized in respect of the reduction in capital in Sun Fund. The investment of NT$9,000 thousand was returned to ThaiLin in respect of the reduction in capital in CDIB.

		In 2005, G-Link reduced their issued capital. A loss of NT$4,854 thousand was recognized in respect of the reduction in capital.

		The company has been recognized impairment losses for the years ended December 31, 2004 and 2005, which were summarized as follow:


	December 31
	2004		2005
	NT$		NT$		US$
	(In Thousands)
Ultima Technology		—		188,310		5,732
G-Link		—		4,855		148
Sun Fund		83,217		17,830		543
Best Home		89,850		—		—
Vigour		41,336		—		—

		214,403		210,995		6,423

On May 5, 2004, ChipMOS Taiwan acquired a 30% interest in Ultima Technology for US$11,250 thousand (NT$374,625 thousand). In accordance with ROC SFAS 5, ChipMOS Taiwan deferred its recognition of the proportionate share of loss of Ultima Technology for one year to 2005. Therefore, the share of net loss of Ultima Technology in 2005 also included the share of 2004 loss of Ultima Technology.

F-102

The summarized financial information for equity investees is as follows:


	December 31
	2004		2005
	NT$		NT$		US$
	(In Thousands)
ChipMOS USA:
Current assets		3,021		—		—

Non-current assets		9,333		—		—

Current liabilities		14,323		—		—

Non-current liabilities		16		—		—

ChipMOS Japan:
Current assets		5,324		—		—

Non-current assets		1,280		—		—

Current liabilities		6,425		—		—

Non-current liabilities		—		—		—

Ultima Technology:
Current assets		1,411		2,216		67

Non-current assets		155,997		53,015		1,614

Current liabilities		608		317		10

Non-current liabilities		—		—		—

Hua Shen:
Current assets		3,900		—		—

Non-current assets		—		—		—

Current liabilities		—		—		—

Non-current liabilities		—		—		—

Chantek International:
Current assets		26,359		—		—

Non-current assets		—		—		—

Current liabilities		103		—		—

Non-current liabilities		—		—		—

F-103


	Year Ended December 31
	2004			2005
	NT$			NT$			US$
	(In Thousands)
ChipMOS USA:
Net revenue		36,765			—			—

Cost of revenue		—			—			—

Gross profit		36,765			—			—

Net income		4,584			—			—


ChipMOS Japan:
Net revenue		15,212			—			—

Cost of revenue		—			—			—

Gross profit		15,212			—			—

Net income		704			—			—


Ultima Technology
Net revenue		—			—			—

Cost of revenues		—			—			—

Gross loss		—			—			—

Net loss		(154,817	)		(111,624	)		(3,398	)

Hua Shen:
Net revenue		1			—			—

Cost of revenues		24,522			—			—

Gross loss		(24,521	)		—			—

Net loss		(25,442	)		—			—

Chantek International:
Net revenue		17,301			—			—

Cost of revenues		26,501			—			—

Gross loss		(9,200	)		—			—

Net loss		(11,189	)		—			—

8.		PROPERTY, PLANT AND EQUIPMENT – NET

		Accumulated depreciation consists of the following:


	December 31
	2004		2005
	NT$		NT$		US$
			(In Thousands)
Buildings and auxiliary equipment		1,315,342		1,543,312		46,981
Machinery and equipment		11,840,591		12,266,880		373,421
Furniture and fixtures		305,968		345,564		10,519
Transportation equipment		13,944		15,976		486
Tools		969,819		856,880		26,085
Leasehold improvements		6,042		1,369		42

		14,451,706		15,029,981		457,534

		In 2005, the investee companies, in accordance with FABS No.35, recognized impairment losses of NT$109,298 (US$3,327) for property, plant and equipment.

		As of December 31, 2005, certain of the above buildings and machinery were mortgaged as collateral for the bonds and the long-term loans (Note 13).

9.		INTANGIBLE ASSETS — NET

F-104


	December 31
	2004			2005
	NT$			NT$			US$
	(In Thousands)
Cost
Technology know-how		750,000			115,803			3,525
Technology license fee		67,081			—			—
Software and other deferred expense		173,899			314,330			9,569
Bond issuance costs		28,526			—			—
Goodwill		2,099			—			—

		1,021,605			430,133			13,094


Accumulated amortization
Technology know-how		(750,000	)		(105,402	)		(3,209	)
Technology license fee		(51,480	)		—			—
Software and other deferred expense		(102,459	)		(221,360	)		(6,738	)
Bond issuance costs		(15,369	)		—			—

		(919,308	)		(326,762	)		(9,947	)

Carrying value		102,297			103,371			3,147

		Pursuant to a Joint Venture Agreement entered into between MVI and SPIL on July 28, 1997, MVI and SPIL contributed, as payment for their subscription to shares of stock of ChipMOS Taiwan, technologies related to testing and packaging integrated circuits at an agreed valuation of NT$750,000 thousand.

10.		BANK LOANS


	December 31
	2004		2005
	NT$		NT$		US$
	(In Thousands)
Unsecured loan:
Working capital loans
NT$50,000 thousand, repayable by January 2005, annual interest at 1.65 - 1.9%		50,000		—		—
NT$52,000 thousand, repayable by April 2005, annual interest at 4.595%		52,000		—		—
NT$60,000 thousand, repayable by March 2005, annual interest at 4.5%		60,000		—		—
NT$65,000 thousand, repayable by October 2005, annual interest at 1.5%		65,000		—		—
NT$50,000 thousand, repayable by December 2006, annual interest at 3.75%		—		50,000		1,522
NT$100,000 thousand, repayable by January 2006, annual interest at 2.20%		—		100,000		3,044
NT$100,000 thousand, repayable by January 2006, annual interest at 1.55%		—		100,000		3,045

F-105


	December 31
	2004		2005
	NT$		NT$		US$
	(In Thousands)
Loan for imports of machinery JPY$1,826,874 thousand, repayable by June 2005, annual interest at 0.5986% — 1.1628%		565,052		—		—
EUR$82 thousand repayable by April 2005, annual interest at 2.71% — 2.8052%		3,541		—		—
JPY$779,090 thousand, repayable by June 2006, annual interest at 0.7505% — 0.90%		—		217,834		6,631

Secured loans:
Working capital loans:
NT$5,000 thousand, repayable by October 2005, annual interest at 1.5%, collateralized by land and buildings (Note 12)		5,000		—		—

		800,593		467,834		14,242

		Unused credit lines as of December 31, 2005 aggregated approximately NT$6,493,357 thousand, which will expire from January 2006 to December 2006.

11.		COMMERCIAL PAPER PAYABLE


	December 31
	2004		2005
	NT$		NT$			US$
	(In Thousands)
Commercial paper		—		150,000			4,566
Discount on par value		—		(587	)		(18	)

		—		149,413			4,548

		The commercial paper’s actual interest rate is 1.55%-1.622% in 2005 and it expires in February 2006.

12.		LONG-TERM BONDS PAYABLE

F-106


	December 31
	2004			2005
	NT$			NT$		US$
	(In Thousands)
Long-term bonds payable		1,200,000			—		—
Convertible bonds		333,195			—		—
Less: current portion		(1,200,000	)		—		—

		333,195			—		—

		On August 3, 2004, ThaiLin issued a NT$1,000,000 thousand secured convertible bonds due on August 3, 2009 with zero interest rates. Those bonds have been convertible since September 3, 2004 at conversion price NT$17.1 for each share. As of December 31, 2005, all of the bonds had been converted. The compensation interest rates applicable are as follows:

		Redemption within one month to three years: 1.50% per annum;

		Redemption after three years until 40 days before the due date: Nil

		ChipMOS Taiwan on January 26, 2000 issued secured bonds with face Value of NT$1,200,000 thousand. Those bonds bear annual interest at 5.95% payable annually. The bonds were fully repaid by ChipMOS Taiwan by cash on January 26, 2005.

		As of December 31, 2005, no assets were mortgaged as collateral for the long – term bonds.

13.		LONG-TERM LOANS


	December 31
	2004		2005
	NT$		NT$		US$
	(In Thousands)
Bank loans, repayable quarterly from November 2004 to February 2007, interest at fixed rate (3.4% as of December 31, 2004 and 2005 respectively)		270,000		150,000		4,566
Bank loans, repayable quarterly from February 2006 to November 2009, interest at fixed rate (4.69% as of December 31, 2005)		—		500,000		15,221
Bank loans, repayable semi-annually from March 2005 to September 2006, interest at fixed rate (3.3% and 3.645% as of December 31, 2004 and 2005 respectively)		200,000		134,000		4,079
Syndicated bank loans collateralized by equipment, repayable semi-annually from September 2004 to September 2007, interest at floating rate (4.375% and 4.72% as of December 31, 2004 and 2005, respectively)		1,714,280		1,142,840		34,790
Syndicated bank loans, repayable semi-annually from September 2004 to September 2007, interest at floating rate (4.50% and 4.845% as of December 31, 2004 and 2005, respectively)		428,570		285,710		8,697

F-107


	December 31
	2004		2005
	NT$		NT$		US$
	(In Thousands)
Syndicated bank loans collateralized by equipment, repayable quarterly from June 2004 to March 2008, interest at floating rate (3.7% and 3.97% as of December 31, 2004 and 2005 respectively)		1,845,000		1,277,308		38,883
Syndicated bank loans collateralized by equipment, repayable semi-annually from November 2006 to May 2010, interest rate at floating rate (3.72% as of December 31, 2005)		—		1,000,000		30,441
Research and development subsidy loan, collateralized by time deposits in amounts of NT25,000 thousand, repayable quarterly from July 2003 to July 2006, with zero interest rate		18,522		6,181		188
Research and development subsidy loan, repayable quarterly from January 2006 to April 2010, interest at fixed rate (1% as of December 31, 2004 and 2005)		29,120		29,120		887
Syndicated bank loans collateralized by equipment, repayable on September 2009, interest at floating rate (3.195% as of December 31, 2005)		—		500,000		15,221
Bank loans collateralized by equipment, repayable quarterly from December 2004 to September 2007, interest at floating rate (3.65% and 3.89% as of December 31, 2004 and 2005 respectively)		180,000		103,000		3,136
Bank loans collateralized by equipment, repayable quarterly form August 2005 to August 2009, interest at floating rate. (3.7% as of December 31, 2004)		35,695		—		—
General loans collateralized repayable quarterly from August 2005 to August 2009, interest at floating rate (3.7%as of December 31, 2004)		58,715		—		—
Bank loans collateralized by equipment, repayable quarterly form August 2005 to August 2009, interest at floating rate. (3.7% as of December 31, 2004)		285,000		—		—
General loans repayable quarterly from July 2005 to July 2009, interest at floating rate. (3.7% as of December 31, 2004)		43,500		—		—
Bank loans collateralized by equipment, repayable quarterly from April 2001 to December 2005, interest at floating rate. (5.755% as of December 31, 2004)		17,500		—		—
Bank loans collateralized by equipment, repayable quarterly from February 2005 to November 2008, interest at floating rate (2.8% and 2.9% as of March 31, 2004 and 2005 respectively)		350,000		262,505		7,991

F-108


	December 31
	2004			2005
	NT$			NT$			US$
	(In Thousands)
Bank loans collateralized by equipment, repayable quarterly from March 2006 to December 2010, interest at floating rate. (3.2% as of December 31, 2005)		—			440,000			13,394
Bank loans collateralized by property, repaid at January 2006, interest at floating rate, (2.5% as of December 31, 2005)		—			130,000			3,957
Syndicated bank loans collateralized by equipment, repayable quarterly April 2005 to January 2011, interest at floating rate (3.088% and 3.075% as of December 31, 2004 and 2005 respectively)		620,000			539,131			16,412

Syndicated bank loans collateralized by equipment, repayable quarterly December 2003 to September 2008, interest at floating rate (3.088% and 3.075% as of December 31, 2004 and 2005 respectively)		320,417			234,972			7,153
General loans, repayable from April 1, 2003 to March 31, 2007. Payable in 42 monthly installments, commencing on October 1, 2003. Effective interest rate was 9.658%		12,402			—			—

		6,428,721			6,734,767			205,016
Less: current portion		(1,826,974	)		(2,300,916	)		(70,043	)

		4,601,747			4,433,851			134,973	)

		According to the agreement signed by ChipMOS Taiwan with Industrial Development Bureau (IDB) in respect to the research and development subsidy loan, ChipMOS Taiwan is obligated to pay the IDB a certain percentage (2%) of sales of the product developed for 3 years after completing the project.

		Under the syndicated bank loan facility agreement, ChipMOS Taiwan is required to:

	(1)		Ensure that ChipMOS Bermuda and SPIL maintain a percentage of direct ownership in ChipMOS Taiwan of at least 50% of outstanding shares and have control over its operation.

	(2)		Maintain certain financial ratios.

			ChipMOS Taiwan was in compliance with the financial ratio requirements as of December 31, 2005.

Certain fixed assets with an aggregate net book value of NT$8,893,025 thousand and time deposits in an aggregate amount of NT$54,356 thousand were mortgaged as collateral for the long–term and short–term loans.

F-109

Future minimum principal payments under the Company long-term loans as of December 31, 2005 are as follows:


	Amount
	NT$		US$
	(In Thousands)
2006		2,300,916		70,043
2007		2,123,184		64,633
2008		892,808		27,178
2009 and thereafter		1,417,859		43,162

		6,734,767		205,016

14.		PENSION PLAN

		ChipMOS Taiwan, ThaiLin, ChipMOS Logic and CHANTEK have established defined benefit pension plans for all of their regular employees, which provide benefits based on the length of service and the average monthly salary for the six months period immediately before retirement.

		ChipMOS Taiwan, ThaiLin, ChipMOS Logic and CHANTEK make monthly contributions, equal to 2% of salaries and wages, to a pension fund that is administered by a pension fund monitoring committee and deposited in its name in the Central Trust of China in the Republic of China.

		The new Labor Pension Act effective July 2005, required that ChipMOS Taiwan and ThaiLin make monthly deposits, equal to 6% of salaries and wages of employees who chose to join new pension scheme, into individual pension account in Bureau of Labor Insurance.

		Certain pension information is as follows:

Net pension cost


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
Service cost		32,102			56,065			30,021			914
Interest cost		4,275			8,038			8,159			248
Projected return on plan assets		(2,581	)		(5,304	)		(4,500	)		(137	)
Amortization		689			(143	)		1,031			31
Unrecognized net (gain)/loss		—			655			53			2


		34,485			59,311			34,764			1,058

F-110

Reconciliation of the fund status of the plan and accrued pension cost


	December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
Actuarial present value of benefit obligations
Vested benefit obligation		—			(374	)		(415	)		(13	)
Nonvested accumulated benefit obligation		(81,658	)		(169,835	)		(142,011	)		(4,323	)
Additional benefits based on future salaries		(86,321	)		(143,915	)		(140,827	)		(4,287	)

Projected benefit obligation		(167,979	)		(314,124	)		(283,253	)		(8,623	)
Plan assets at fair value		84,821			174,349			156,989			4,779

Projected benefit obligation in excess of plan assets		(83,158	)		(139,775	)		(126,264	)		(3,844	)
Unrecognized net transition obligation		484			3,043			663			20
Unrecognized net loss		39,808			34,058			43,943			1,338


Accrued pension cost		(42,866	)		(102,674	)		(81,658	)		(2,486	)

Actuarial assumptions


	Year Ended December 31
	2003			2004			2005
Discount rate		3.25	%		3.25	%		2.75	%
Future salary increase rate		3.25	%		3.25	%		3.25	%
Expected rate of return on plan assets		3.25	%		3.25	%		2.75	%

Changes in pension fund


	Year Ended December 31
	2003		2004		2005
	NT$		NT$		NT$		US$
	(In Thousands)
Contributions		17,813		32,160		29,892		910

Payment of benefits		—		—		—		—

F-111

15.

TREASURY STOCK


	December 31
	2004		2005
	NT$		NT$		US$
	(In Thousands)
Outstanding shares held by subsidiaries		—		4,750		145
Purchase of treasury stock		—		115,402		3,512

		—		120,152		3,657

F-112

		As of December 31, 2005, ThaiLin held 254 thousand outstanding shares of ChipMOS Taiwan as long–term investment. The treasury stocks were carried with an amount of NT$4,750 thousand, according to ChipMOS Taiwan’s equity in the cost of the investment recorded by ThaiLin.

		In 2005, ChipMOS Taiwan purchased 7,098 thousand shares of treasury stock at the cost of NT$115,402 thousand. These shares shall be transferred to employees, resold or de–registered within three years. These shares do not possess shareholder’s equity.

16.		SHAREHOLDERS’ EQUITY

		Under ROC Company Law, the capital surplus can only be used to offset deficits, except that capital surplus generated from (1) donations (donated capital) or (2) the excess of the issue price over the par value of capital stock (including stocks issued for new capital and mergers, and the purchase of treasury stock) can be transferred to capital as stock dividends when no deficit remains and shareholders approve such distribution.

		ChipMOS Taiwan’s Articles of Incorporation provides that the following may be appropriated, from the accumulated net income after deducting any previously accumulated deficit and 10% legal reserve, subject to shareholder approval: (a) 10% as bonus to employees, (b) not more than 2% as remuneration to directors and supervisors, (c) a special reserve, if deemed necessary, and (d) dividends to shareholders.

		These appropriations and the disposition of the remaining net income shall be resolved by the shareholders in the following year and given effect in the financial statements of that year.

		The aforementioned appropriation for legal reserve shall be made until the reserve equals aggregate par value of ChipMOS Taiwan’s outstanding capital stock. The reserve can only be used to offset a deficit; or, when its balance has reaches 50% of the aggregate par value of the outstanding capital stock of ChipMOS Taiwan, up to 50% thereof can be distributed as stock dividend.

		Under the Integrated Income Tax System that became effective on January 1, 1998, ROC resident individual shareholders are allowed a tax credit for the income paid by ChipMOS Taiwan on earnings generated from the effective date. An Imputation Credit Account (ICA) is maintained by ChipMOS Taiwan for such income tax and the tax credit allocated to each shareholder. The maximum credit available for allocation to each resident shareholder cannot exceed the balance shown in the ICA on the date of distribution of dividends.

F-113

17.

INCOME TAX EXPENSE (BENEFIT)

A reconciliation of income tax expense-current before tax credits and income tax expense on income before income tax at statutory rate is shown below:


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
Income tax expense on “income before income tax” at statutory rate		213,742			674,082			709,515			21,598
Tax effects of adjustments:
Loss carry forward		—			(260,217	)		(489,380	)		(14,897	)
Tax-exempt income		(30,472	)		(166,653	)		(157,808	)		(4,804	)
Permanent difference		13,430			(19,795	)		40,061			1,220
Temporary difference		(9,000	)		175,091			41,694			1,269


Income tax expense-current before tax credits		187,700			402,508			144,082			4,386

Income tax expense (benefit) consists of:


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
Income tax expense-current before tax credits		187,700			402,508			144,082			4,386
Tax on the unappropriated earnings		—			—			163,838			4,988
Separate and foreign income tax		1,309			86			746			23
Income tax credits		(187,700	)		(355,923	)		(218,672	)		(6,657	)

Income tax for the current year		1,309			46,671			89,994			2,740
Net change of deferred income tax assets (liabilities) for the year
Tax credits		48,014			(70,003	)		76,611			2,332
Temporary difference		8,127			(128,593	)		(234,688	)		(7,144	)
Valuation allowance		(66,405	)		(560,053	)		(405,487	)		(12,344	)
Loss carry forward		41			584,122			517,738			15,761
Adjustment of prior year’s taxes and others		3,364			(4,743	)		497			15

Income tax expense (benefit)		(5,550	)		(132,599	)		44,665			1,360

ChipMOS Taiwan under Science Park Regulations is entitled to an exemption from ROC income taxes for a period of four years on income attributable to the expansion of its production capacity as a result of purchases of equipment funded by capital increases. Such tax exemption will expire on December 31, 2008.

F-114

Deferred income tax assets and liabilities are summarized as follows:


	December 31
	2004			2005
	NT$			NT$				US$
	(In Thousands)
Net current deferred income tax assets:
Unrealized foreign exchange loss		16,599			3,496				106
Unrealized loss provision on sales allowance		9,455			9,455				288
Loss of market price decline and obsolete and slow-moving inventories		27,768			20,616				628
Allowance for bad-debts		50,223			81,424				2,479
Tax credits		241,141			110,103				3,352
Loss carry forward		504,365			—				—
Others		23,842			14,108				429

		873,393			239,202				7,282
Less: valuation allowance		(282,918	)		—				—


		590,475			239,202				7,282
							��

Net non-current deferred income tax assets (liabilities):
Tax credits for investment in machinery and equipment and R&D expenditures		763,336			801,450				24,397
Loss carry forwards		756,419			133,732				4,071
Depreciation differences		(555,627	)		(556,316	)			(16,935	)
Other		140,985			266,057				8,099

		1,105,113			644,923				19,632
Less: Valuation allowance		(1,651,163	)		(793,874	)			(24,166	)


		(546,050	)		(148,951	)			(4,534	)

			The rate at which deferred income tax components are measured was 25% as of December 31, 2004 and 2005.

	d.		Integrated income tax information

			ChipMOS Taiwan, the balances of the ICA were NT$94,239 thousand and NT$96,852 thousand as of December 31, 2004 and 2005, respectively.

			ChipMOS Taiwan, the imputation credit allocated to each shareholder shall be based on the balance in the ICA on the date of distribution of dividends. Tax creditable ratio was 6.19% and 4.30% for 2004 and 2005, respectively.

F-115

The balance and year of expiry of unused investment tax credits and loss carry forwards as of December 31, 2005 are as follows:


	Machinery &		R&D		Loss Carry
Year of Expiry	Equipment		Expenditure		Forwards
	NT$		NT$		NT$
	(In Thousands)
2006		85,434		24,669		—
2007		296,284		35,003		133,732
2008		374,456		1,182		—
2009		94,525		—		—


		850,699		60,854		133,732

			The deferred tax assets related to the investment tax credits on R&D expenditures and purchases of machinery and equipment will expire from 2006 to 2009. Under ROC tax regulations, tax credits can be utilized to reduce current income tax obligations only to the extent of 50% of such income tax obligations except in the year when such tax credit will expire, in which case, the entire amount of expiring tax credit may be utilized to reduce the current income tax obligation. The foregoing limitation on the utilization of tax credits, the expiry dates of the tax credits, the level of tax credits expected to be generated from future operations and the level of non-taxable income attributable to the four-year income tax holiday on capacity expansion led management to conclude that it is unlikely that these investment tax credits will be fully realized. Loss carry forwards can be used to deduct current income tax obligation up to the extent of taxable income and will be expired after 5 years if not fully utilized by the Company. Accordingly, a valuation allowance on deferred tax assets is recognized as of December 31, 2004 and 2005.

			The tax authorities have examined and assessed the income tax returns of ChipMOS Taiwan and ThaiLin through 2002.

			According to ROC tax law, unappropriated earnings generated in 1998 and thereafter are subject to a tax of 10% in the year when the shareholders resolve that such earnings shall be retained. The retained earnings (accumulated deficit) of ChipMOS Taiwan as of December 31, 2004 and 2005 were generated during and after 1998.

F-116

18.		RELATED PARTY TRANSACTIONS

		The Company engages in business transactions with the following related parties:


Name		Relationship
ChipMOS Bermuda		A major shareholder
SPIL		A major shareholder
MVI		An indirect major shareholder
ChipMOS Japan		A 100% owned subsidiary
ChipMOS USA		A 100% owned subsidiary
PlusMOS		A former 25% owned investee. It merged with CHANTEK in April 2004.
ThaiLin		A 34% owned investee. It became a subsidiary of ChipMOS Taiwan in 2004.
CHANTEK		A former subsidiary of ChipMOS Taiwan. It merged with ChipMOS Taiwan on November 21, 2005
Ultima Electronics Corp. (Ultima)		The chairman of ChipMOS Taiwan was a member of board of directors of Ultima (resigned in June 2003).
ProMOS Technology Inc. (ProMOS)		An investee of MVI
DenMOS Technology Inc. (DenMOS)		An investee of MVI
Best Home		A 19% owned investee; ChipMOS Taiwan is a major shareholder.
Sun Fund		A 17% owned investee; ChipMOS Taiwan is a major shareholder. A subsidiary of ChipMOS Bermuda (Note: It used to be called ChipMOS FAR
ChipMOS TECHNOLOGIES (H.K.) Ltd. (ChipMOS H.K.)		EAST Ltd., and was renamed as ChipMOS TECHNOLOGIES (H.K.) Ltd. in May 2005.)
AMCT		A former 100% owned investee. It was liquidated in October 2004.
Chantek International Mou–Fu Investment Ltd. (Mou-Fu)		The chairman of ChipMOS Taiwan is a former member of board of directors of Chantek International. It was liquidated in May 1, 2005. An investee of MVI
ChipMOS TECHNOLOGIES (H.K.) Ltd., Taiwan Branch (ChipMOS (H.K.) Taiwan Branch)		A subsidiary of ChipMOS Bermuda

F-117

The significant transactions with the aforementioned parties, other than those disclosed in other notes, are summarized as follows:


	Year Ended December 31
	2003		2004		2005
	NT$		NT$		NT$		US$
	(In Thousands)
During the year

Sales
MVI		1,680,986		14,274		6		—
Ultima		745,562		—		—		—
PlusMOS		19,642		16,751		—		—
ProMOS		1,748,326		4,231,658		4,332,058		131,874
ThaiLin		1,722		—		—		—
CHANTEK		469		—		—		—
ChipMOS H.K.		234		17,845		10,556		321
SPIL		345		—		—		—
AMCT		5		—		—		—
DenMOS		496,480		567,042		271,393		8,262

		4,693,771		4,847,570		4,614,013		140,457


Rental revenue
MVI		4,800		4,800		4,800		146
DenMOS		922		455		30		1
ThaiLin		8,118		—		—		—
ProMOS		—		14,057		9,371		285


		13,840		19,312		14,201		432


Other revenue
ThaiLin		10,571		—		—		—
DenMOS		2,647		—		—		—
CHANTEK		900		—		—		—
PlusMOS		27		41		—		—
ChipMOS H.K.		16		4,455		1,982		60
ChipMOS USA		1,343		526		—		—
ProMOS		—		507		522		—
AMCT		—		126		—		16


		15,504		5,655		2,504		76


Purchases
AMCT		4,758		10,732		—		—
ChipMOS H.K.		4,654		89,599		3,120		95
PlusMOS		522		—		—		—
MVI		12		637,089		11,964		364
ChipMOS USA		—		149		—		—
SPIL		—		—		75		2

		9,946		737,569		15,159		461

F-118


	Year Ended December 31
	2003		2004		2005
	NT$		NT$		NT$		US$
	(In Thousands)
Subcontract expenses
SPIL		101,847		—		—		—
ChipMOS H.K.		11,804		214,127		73,925		2,250
ThaiLin		33,515		—		—		—
CHANTEK		230		—		—		—

		147,396		214,127		73,905		2,250


Operating expenses
Administrative expenses
MVI		4,387		1,950		—		—
Mou-Fu		—		2,275		3,900		119

		4,387		4,225		3,900		119


Service fee
ChipMOS USA		22,864		32,175		—		—
ChipMOS Japan		11,851		15,045		—		—

		34,715		47,220		—		—


Rental expense
MVI		2,586		2,218		593		18
CHANTEK		7,699		—		—		—
ThaiLin		8,125		—		—		—
ProMOS		—		—		1,245		38

		18,410		2,218		1,838		56


Fee for stock registry service
Sun Fund		540		—		—		—
Mou-Fu		—		1,977		493		15

		540		1,977		493		15


Consultation fee
ChipMOS Bermuda		—		25,191		32,014		975


Other expense
PlusMOS		—		88		—		—
MVI		—		148		148		5
ProMOS		—		1,027		—		—

		—		1,263		148		5


	December 31
	2004		2005
	NT$		NT$		US$
	(In Thousands)
At the end of year

Notes and accounts receivable
MVI		1,098		—		—
DenMOS		120,043		54,901		1,671
ProMOS		1,303,250		1,372,950		41,795
ChipMOS H.K.		8,281		1,554		47


		1,432,672		1,429,405		43,513

F-119


	December 31
	2004			2005
	NT$			NT$		US$
	(In Thousands)
Other receivable
ChipMOS Bermuda		3,733			8,862		270
ChipMOS USA		15,378			—		—
MVI		420			852		26
ChipMOS Japan		5,937			—		—
DenMOS		885			317		9
ChipMOS H.K.		7,776			493		15
ProMOS		5,344			3,174		97
ChipMOS (H.K) Taiwan Branch		—			137		4

		39,473			13,835		421

Credit balances of long-term investments (Note 7)		(1,984	)		—		—


		37,489			13,835		421

Prepayments
ChipMOS USA		621			—		—


Accounts payable
ChipMOS H.K.		17,428			2,214		67


Other payable
ChipMOS USA		1,507			—		—
MVI		356			28		1
ChipMOS Japan		915			—		—
ProMOS		—			781		24
ChipMOS H.K.		32,641			3,191		97
SPIL		—			79		2
ChipMOS Bermuda		23,783			41,063		1,250
Mou-Fu		1,829			348		10


		61,031			45,490		1,384

		The payment terms for purchases from related parties are the same as those from other suppliers.

		The collection term for MVI is 90 days after month end, ProMOS is 75 days after month end while other related parties have the normal collection terms. The selling price is on the same basis as those to other customers.

		As of October 11, 2002, ChipMOS Taiwan signed an agreement entrusting Best Home with the construction for a central kitchen. ChipMOS Taiwan has paid NT$216,000 thousand in advance to Best Home for the purpose of acquiring a place and equipment. However, ChipMOS Taiwan entered into a contract to transfer the claim to Prudent Holdings Group Ltd. on December 17, 2003 and collected on November 19, 2004.

F-120

		On April 7, 2004, ChipMOS Taiwan entered into a semiconductor packaging technology license agreement with ChipMOS Bermuda. Under the agreement, ChipMOS Taiwan agreed to pay a license fee of US$20,000 thousand in installments of US$250 thousand in every three months over 20 years, starting from March 30, 2005.

		As of April 7, 2004, ChipMOS Taiwan entered into a technology transfer agreement with ChipMOS Bermuda for a period of 20 years, starting from effective day. The total price was US$19,700 thousand, recorded as deferred credits. As of December 31, 2004 and 2005, the unamortized amount was NT$626,196 thousand and NT$593,666.

		In 2004, ChipMOS Taiwan acquired 255 thousand shares of ChipMOS Logic from CHANTEK International at the cost of NT$2,527 thousand.

		In 2004, ChipMOS Taiwan purchased machineries from ProMOS and AMCT at the cost of NT$46,284 thousand and NT$84,027 thousand respectively. ChipMOS Taiwan also sold machineries to ChipMOS H.K. with the proceeds amounted to NT$5,574 thousand and recognized gain on disposal of properties amounted to NT$2,834 thousand.

		In 2005, ChipMOS Taiwan acquired 8,085 thousand, 418 thousand, 710 thousand and 1,614 thousand shares of CHANTEK from MVI, Mou-Fu, Best Home and CHANTEK International at the cost of NT$49,804 thousand, 2,574 thousand, 4,372 thousand and 9,945 thousand.

19.		RESTRICTED CASH AND CASH EQUIVALENTS


	December 31
	2004		2005
	NT$		NT$		US$
			(In Thousands)
Time deposits (matures from January 2006 to February 2007)		146,746		125,447		3,819

Time deposits are pledged as collateral for the Company’s customs duties payable, letter of credit, and research and development subsidy loans.

20.

SIGNIFICANT COMMITMENTS AND CONTINGENCIES AS OF DECEMBER 31, 2005

As of December 31, 2005, ChipMOS Taiwan leases parcels of land from the Hsinchu and Tainan Science Based Industrial Park (SBIP) under several agreements expiring on various dates from 2002 to 2017, with renewal options.

F-121

The future minimum lease payments under the above-mentioned leases as of December 31, 2005 are as follows:


	Amount
Year	NT$		US$
	(In Thousands)
2006		19,302		588
2007		19,302		588
2008		19,302		587
2009		19,302		587
Thereafter		139,449		4,245


Total minimum lease payments		216,657		6,595

	b.		Pursuant to the semiconductor packaging technology license agreement (see Note 18), ChipMOS Taiwan is obligated to make future payments of license fee amounted to US$19,500 thousand to ChipMOS Bermuda as of December 31, 2005.

	c.		The Company has unused letters of credit aggregating approximately USD$18,933 thousand, JPY 5,621,035 thousand, EUR$68 thousand, and GBP$212 thousand as of December 31, 2005.

	d.		In 2004, tax authorities have assessed and increase the 2000 income taxes of ChipMOS Taiwan by NT$30,526 thousand. ChipMOS Taiwan has filed an appealing for the assessment.

	e.		On November 27, 2005, ChipMOS Taiwan and Spansion LLC (Spansion) entered into an assembly and testing services agreement, pursuant to which the parties will enter into one or more statements of work, under which ChipMOS Taiwan will reserve capacity for Spansion for the assembly and testing services and Spansion will place purchase orders in accordance with the terms of the agreement. Pursuant to the first statement of work, effective from September 15, 2005, ChipMOS Taiwan is obligated to purchase and to install wafer sorting testers and probers in the agreed upon quantity and to provide the wafer sorting services to Spansion. Based on forecasts provided by Spansion, ChipMOS Taiwan is required to purchase wafer sorting testers and probers in an aggregate of approximately US$110,000 thousand (NT$3,613,500 thousand) in 2006.

21.

SIGNIFICANT SUBSEQUENT EVENTS

	a.		In January 2006, ChipMOS Taiwan obtained a five-year floating-rate syndicated loan of NT$6,000,000 thousand.

	b.		In February 2006, ThaiLin obtained a six-year floating-rate syndicated loan of NT$3,000,000 thousand.

F-122

In February 2006, ChipMOS Taiwan and ChipMOS USA have received notice of a patent infringement lawsuit brought by Tessera, alleging infringement of several Tessera patents and breach of an existing license agreement with ChipMOS Taiwan. The Company’s counsel has not formed an opinion as to the outcome of the case.

22.

NOTES TO THE CASH FLOW STATEMENT

Acquisition of subsidiaries


	December 31,
	2004			2005
	NT$			NT$			US$
	(In Thousands)
Net assets acquired:
Cash and bank balances		280,910			7,261			221
Current assets		1,528,849			27,519			838
Long term investment		106,488			—			—
Property, plant and equipment		3,691,657			9,197			280
Intangible assets		71,614			—			—
Other assets		205,831			1,415			43
Current liabilities		(1,813,210	)		(20,925	)		(637	)
Long term liabilities		(845,343	)		—			—
Other liabilities		(38,303	)		(16	)		(1	)
Minority interest		(2,206,550	)		—			—

		981,943			24,451			744
Goodwill on acquisition		(51,623	)		—			—


		930,320			24,451			744


Satisfied by:
Cash		186,573			—			—
Reclassification to interest in subsidiary		743,747			24,451			744

		930,320			24,451			744

F-123

An analysis of the net inflow of cash and cash equivalents in respect of the acquisition of subsidiary is as follows:


	December 31,
	2004			2005
	NT$			NT$		US$
	(In Thousands)
Cash and bank balances acquired		280,910			7,261		221
Less: cash consideration		(186,573	)		—		—


		94,337			7,261		221

Disposal of a subsidiary


	Year Ended December 31
	2003		2004		2005
	NT$		NT$		NT$			US$
	(In Thousands)
Net assets disposed:
Cash and bank balances		—				35,909			1,093
Accounts receivable		—		—		6,708			204
Inventories		—		—		38			1
Prepayment and other assets		—		—		619			19
Property, plant and equipment		—		—		32,969			1,004
Intangible assets		—		—		1,954			59
Bank loans		—		—		(17,791	)		(542	)
Accrued and other liabilities		—		—		(3,799	)		(116	)
Long–term loans		—		—		(5,290	)		(161	)
Minority interest		—		—		(30,303	)		(922	)


		—		—		21,014			639
Goodwill		—		—		66,786			2,033
Loss on disposal of a subsidiary		—		—		(3,856	)		(117	)


		—		—		83,944			2,555


Cash consideration		—		—		83,944			2,555

An analysis of the net inflow of cash and cash equivalents in respect of the disposal of a subsidiary is as follows:


Cash consideration	—	—	83,944		2,555
Less: cash and bank balances disposed	—	—	(35,909	)	(1,093	)


	—	—	48,035		1,462

F-124

23.		DERIVATIVE FINANCIAL INSTRUMENTS

		ChipMOS Taiwan had entered into forward exchange contracts or foreign currency options for the years ended December 31, 2004 and 2005, to hedge its exchange rate risk on foreign-currency assets or liabilities and anticipated transactions. Information on the derivative transactions is as follows:

	a.		Forward, exchange contracts

			As of December 31, 2004 and 2005, there were no outstanding forward contracts. Net exchange gains on forward exchange contracts were NT$4,710 thousand and NT$1,528 thousand for the year ended December 31, 2004 and 2005.

	b.		European options

			ChipMOS Taiwan expects to receive U.S. dollars from its export sales and to pay Japanese yen for its importation of materials, machinery, and equipment. It has entered into foreign currency option contracts with banks to hedge exchange rate risks. As of December 31, 2004 and 2005, ChipMOS Taiwan had no outstanding foreign currency option contracts. For the years ended December 31, 2004 and 2005, ChipMOS Taiwan didn’t realize premium income of nil and NT$36 thousand, respectively.

	c.		Interest Rate Risks

			ChipMOS Taiwan has entered into interest rate swap agreements to manage interest rate risk by exchanging a quarto stepping interest rate for a floating rate and keeps records when transactions are settled. The difference of the interests is calculated quarterly and is credited or charged to the income in the current period. The benefit of interest rate swaps recognized as non-operating income in 2004 and 2005 were NT$151 thousand and NT$11,190 thousand respectively.

	d.		Transaction risks

	1)		Credit risk. The banks with which the Company has entered into the above contracts are reputable and, therefore, the Company does not expected to be exposed to significant credit risks.

	2)		Market risk and hedge strategy. The Company is exposed to market risks arising from changes in currency exchange rates due to U.S. dollar denominated accounts receivable, Yen denominated accounts payable and U.S. dollar denominated debt. In order to manage these exposures, the Company entered into forward contracts and option contracts occasionally.

	3)		Liquidity and cash requirements. The cash flow requirements with respect to the Company’s forward contracts are limited to the periodic premium payments and the net differences of the contracted settlement rates. On the other hand, call/put options may not have to be exercised at all in cases where the strike price is higher/lower than the related market price at exercise dates.

F-125

The estimated fair values of the Company’s financial instruments are as follows:


	December 31, 2004				December 31, 2005
	Carrying				Carrying
	Value		Fair Value		Value		Fair Value
	NT$		NT$		NT$		NT$
			(In Thousands)
Non-derivative financial instruments

Assets
Cash		2,818,156		2,818,156		3,154,097		3,154,097
Restricted cash and cash equivalents		146,746		146,746		125,447		125,447
Short-term investments		2,815,127		2,817,587		186,136		186,136
Notes receivable		62,205		62,205		30,581		30,581
Accounts receivable		1,825,845		1,825,845		2,401,045		2,401,045
Receivables from related parties
Notes and accounts		1,419,319		1,419,319		1,419,976		1,419,976
Others		31,575		31,575		5,315		5,315
Other receivable		169,680		169,680		169,337		169,337
Long-term investments		663,040		669,708		413,125		413,125
Refundable deposits		14,858		14,858		17,846		17,846
Liabilities
Bank loans		800,593		800,593		467,834		467,834
Commercial paper payable		—		—		149,413		149,413
Notes payable		49,072		49,072		3,927		3,927
Accounts payable		526,003		526,003		657,963		657,963
Payable to related parties
Trade		17,428		17,428		2,214		2,214
Others		61,031		61,031		45,490		45,490
Payables to contractors and equipment suppliers		312,561		312,561		372,329		372,329
Long-term loans (including current portion)		6,428,721		6,428,721		6,734,767		6,734,767
Convertible bonds (including current portion)		333,195		333,195		—		—
Long-term bonds payable (including current portion)		1,200,000		1,200,000		—		—
Guarantee deposits		1,124		1,124		1,454		1,454

Fair values of financial instruments were determined as follows:

	1)		Short-term financial instruments — market values.

	2)		Short-term investments — market values.

	3)		Long-term investments — market value for listed companies and net equity value for the others.

	4)		Refundable deposits and guarantee deposits — future values.

F-126

Long-term liabilities — based on forecasted cash flows discounted at current interest rates of similar long-term liabilities. Bonds payable are discounted at present value, using an annual interest rate of 5.95%. Other long-term liabilities are their carrying values as they use floating interest rates.

		The fair values of non-financial instruments were not included in the fair values disclosed above. Accordingly, the sum of the fair values of the financial instruments listed above does not equal the fair value of the Company.

24.		SEGMENT AND GEOGRAPHIC INFORMATION

		The Company engages mainly in the research and development, manufacturing, assembly, testing and turnkey of semiconductors. In accordance with Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosure About Segments of an Enterprise and Related Information”, the Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews these segment results by Testing, Assembly, Testing and Assembly for LCD and other Flat-Panel Display Driver Semiconductors and Turnkey when making decisions about allocating resources and assessing performance of the Company. Financial segment information required by SFAS No. 131 is as follows:

The Company provides semiconductor testing, assembly, turnkey services and LCD and other flat-panel display driver semiconductors services.


	2003
											Corporate &
									Segment		Other		Consolidated
	Testing		Assembly		Turnkey		LCD		Totals		Assets		Totals
	NT$		NT$		NT$		NT$		NT$		NT$		NT$
	(In Thousands)
Revenues from customers		3,072,739		2,637,117		1,075,319		1,683,490		8,468,665		—		8,468,665
Cost of revenues		2,614,901		2,079,706		1,061,109		1,155,322		6,911,038		—		6,911,038
Segment gross profit		457,838		557,411		14,210		528,168		1,557,627		—		1,557,627
Depreciation and amortization		1,886,241		313,850		—		451,710		2,651,801		14,623		2,666,424
Segment assets		4,656,948		2,121,812		—		2,150,940		8,929,700		7,690,240		16,619,940
Expenditure for segment assets		1,382,018		399,888		—		387,929		2,169,835		—		2,169,835

F-127


	2004
												Segment		Corporate &		Consolidated
	Testing		Assembly		Turnkey		LCD		Bumping			Totals		Other Assets		Totals
	NT$		NT$		NT$		NT$		NT$			NT$		NT$		NT$
	(In Thousands)
Revenues from customers		5,950,174		5,734,592		473,588		2,655,201		54,322			14,867,877		—		14,867,877
Cost of revenues		3,744,781		4,795,074		466,676		1,615,799		121,898			10,744,228		—		10,744,228
Segment gross profit		2,205,393		939,518		6,912		1,039,402		(67,576	)		4,123,649		—		4,123,649
Depreciation and amortization		2,445,481		410,721		—		578,835		22,650			3,457,687		—		3,457,687
Segment assets		12,352,842		4,634,992		—		2,961,478		504,130			20,453,442		7,394,399		27,847,841
Expenditure for segment assets		4,698,036		1,028,155		—		1,380,372		526,712			7,633,275		—		7,633,275


	2005
													Segment		Corporate &		Consolidated
	Testing		Assembly		Turnkey		LCD			Bumping			Totals		Other Assets		Totals
	NT$		NT$		NT$		NT$			NT$			NT$		NT$		NT$
	(In Thousands)
Revenues from customers		6,371,845		4,901,030		2,945,040		153,129			385,479			14,756,523		—		14,756,523
Cost of revenues		4,337,442		3,867,653		1,885,241		337,646			409,705			10,837,687		—		10,837,687
Segment gross profit		2,034,403		1,033,377		1,059,799		(184,517	)		(24,226	)		3,918,836		—		3,918,836
Depreciation and amortization		2,618,466		672,053		836,665		90,862			2,143			4,220,189		—		4,220,189
Segment assets		13,453,184		3,236,351		3,733,320		1,683,367			52,328			22,158,550		5,728,060		27,886,610
Expenditure for segment assets		3,412,550		1,044,114		1,613,308		581,599			28,873			6,680,444		—		6,680,444

			In providing turnkey services, the Company purchases fabricated wafers and sells tested and assembled semiconductors to application and system manufacturers. The process of conducting testing and assembling for the fabricated wafer is at a very limited level, which only uses a very small portion of facility capacity. Therefore, the Company allocated no specific assets to the turnkey segment and accordingly, no related depreciation and amortization was allocated.

			The corporate and other assets constitute the total current assets, long-term investments, long-term restricted cash equivalents, intangible assets of bond issuance costs, employee dormitory building and refundable deposits.

	b.		The Company has no significant foreign operations.

F-128

Net revenues:


	Year Ended December 31
	2003		2004		2005
	NT$		NT$		NT$
	(In Thousands)
Area
ROC		7,061,812		12,182,691		11,924,655
USA		495,803		1,597,962		1,548,927
JAPAN		414,422		541,747		482,587
OTHERS		496,628		545,477		800,354


		8,468,665		14,867,877		14,756,523

Net sales to customers representing at least 10% of net total sales:


	Year Ended December 31
	2003				2004				2005
Customer	Amount		%		Amount		%		Amount		%
	NT$				NT$				NT$
	(In Thousands)
MVI		1,680,986		20		14,274		—		6		—
Ultima		745,562		9		453,698		3		—		—
ProMOS		1,748,326		21		4,231,658		29		4,332,058		29
PowerChip		—		—		1,721,993		12		2,233,503		15

25.		SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY CHIPMOS TAIWAN AND ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES

		The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the Republic of China (“ROC GAAP”), which differ in the following respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”):

	a.		Bonuses to employees, directors and supervisors

			According to ROC regulations and the Articles of Incorporation of ChipMOS Taiwan, a portion of distributable earnings should be appropriated as bonuses to employees and remuneration to directors and supervisors. The remuneration to directors and supervisors is paid in cash, while bonuses to employees may be granted in cash or stock or both. 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.

F-129

			Under U.S. GAAP, such bonuses and remuneration are charged to income currently and included in operating expenses as compensation expenses. Since the amount and form of such bonuses and remuneration are not finally determinable until approved by the shareholders, the total amount of such bonuses and remuneration is initially accrued based on the amount to be paid as provided by ChipMOS Taiwan’s Articles of Incorporation. The percentage to be paid in stock is determined at the next shareholders’ meeting in the following year. The number of shares to be issued is determined by dividing the amount to be paid in stock by the par value of the shares. Any difference between the initially accrued amount (the cash portion plus the par value of the shares) and the fair market value of the bonuses settled (the cash portion plus the fair value of the shares) is recognized in the year of approval by the shareholders.

	b.		Marketable securities

			Under ROC GAAP, marketable equity securities are carried at the lower of aggregate cost or market value, and debt securities at cost, with only unrealized losses recognized when losses are irrecoverable. Under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, debt and equity securities that have readily determinable fair values are to be classified as either trading, available-for-sale or held-to-maturity securities. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and traded for short-term profit are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as either held-to-maturity or trading are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders’ equity; however, unrealized losses relating to declines in fair value deemed to be other than temporary are recorded in earnings. The adjustment below relates to the Company’s equity securities that are classified as trading and available-for-sale securities under U.S. GAAP.

	c.		Long-term investments

			Under both ROC and U.S. GAAP, investments in shares of companies wherein the Company owns over 20% of the outstanding common stock and exercises significant influence over operating and financial policies of the investee companies are generally accounted for under the equity method. However, there are differences in applying equity accounting under ROC and U.S. GAAP. The Company’s proportionate share of the income (loss) from an equity investee may differ if the equity investee’s net income (loss) under ROC GAAP differs from that under U.S. GAAP. The differences between ROC GAAP and U.S. GAAP for the equity investees have been adjusted and included in the reconciliation below.

F-130

Under the equity method, the Company’s proportionate share of the income (loss) of the investee is generally recognized in the year the income (loss) is earned. However, in 2004 under ROC GAAP, if audited financial statements of an investee are not available for the Company to apply the equity method due to time constraints and such equity interests are below certain materiality threshold, the Company is permitted to delay the recognition of income (loss) until 2005. Under US GAAP, there are no provisions that allow the investor company to delay recognition of its equity in the investees’ income or loss. The US GAAP represents the proportionate share of loss of long-term investment in 2004. In 2005, there was no such difference.

	d.		Technologies transferred in payment of capital stock

			As discussed in Note 9, MVI and SPIL contributed, as payment to their subscription in the shares of stock of ChipMOS Taiwan, technologies relating to the testing and assembly of semiconductors at an agreed value of NT$750,000 thousand. Under ROC GAAP, such technology transfers in payment of capital stock are recorded as an intangible asset, and amortized by systematic charges to income over the periods estimated to be benefited. As permitted under ROC GAAP, ChipMOS Taiwan uses a 5 years amortization period. Under U.S. GAAP, the technology contribution cannot be recognized due to the unavailability of a fair value for the technologies. Therefore, the carrying value of the technologies has been adjusted to zero under U.S. GAAP.

	e.		Start-up costs

			ROC GAAP requires start-up costs to be deferred and amortized in a systematic manner over the periods of the expected benefit. Start-up costs include all costs incurred prior to production readiness. On the other hand, U.S. GAAP primarily requires that start-up costs be expensed as incurred.

	f.		Depreciation of fixed assets and employee dormitory building

			Under ROC GAAP, the estimated life of a building can be as long as 55 years based on the ROC Internal Revenue Code. For U.S. GAAP purpose, building lives are estimated to be 25 years.

	g.		Transfer of building and facilities from MVI

			ChipMOS Taiwan purchased building and facilities from MVI in 1997. The actual costs of assets purchased from MVI were based on MVI’s book value of such building and facilities on a specified cut-off date plus an additional payment of NT$173,174 thousand representing compensation to MVI. ChipMOS Taiwan capitalized, allowed under ROC GAAP such additional payment of NT $173,174 thousand. Under U.S. GAAP, assets acquired are recorded at amounts that do not exceed their fair values. Also, generally under U.S. GAAP, the transferee should evaluate the assets transferred from related parties with significant influence at the predecessor’s basis. Therefore, the assets transferred from MVI were evaluated at MVI’s predecessor cost basis and the NT$173,174 thousand was deducted from the capital surplus and building and facilities for U.S. GAAP.

F-131

	h.		Inventory

			As discussed in paragraphs e. f. and g., the amortization of start-up costs, the depreciation on fixed assets and employee dormitory building, and the depreciation on the assets transferred from MVI were reconciled for U.S. GAAP purposes. Some of such expenses were recorded in the manufacturing expenses and therefore affect ending inventory balances under U.S. GAAP.

	i.		Capital surplus

			Under ROC GAAP, the following items are treated as capital surplus: (a) premium on issuance of common stocks; and (b) gain, net of applicable income tax, on disposal of properties. Under U.S. GAAP, item (a) is the same as in ROC GAAP; and item (b) is recorded as part of net income, which is then included as a component of retained earnings. However, starting in 2001, the treatment of item (b) under ROC GAAP has become the same as under U.S. GAAP.

	j.		Impairment of long-lived assets

			Under U.S. GAAP, impairment losses for assets to be held and used are recorded in current period earnings and create a new cost basis for related assets going forward, and cannot be reversed subsequently. Under U.S. GAAP, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed by comparing undiscounted net cash flows of the assets to the net book value of the assets. If the recoverability test indicates that impairment has occurred, the impairment loss is the amount of the asset’s net book value in excess of the related fair value. Prior to January 1, 2005, there is no requirement provided for impairment of long-lived assets under ROC GAAP. Therefore, the Company applied US GAAP to evaluate the long-lived assets for impairment purpose in 2004. In 2005, the adjustment for impairment of long-term investment represented the additional impairment to be recognized after the reversal of amortization of goodwill in respect of the long-term investment.

	k.		Derivative financial instruments

			Under ROC GAAP, there are no specific rules related to accounting for derivative financial instruments, nor criteria for hedge accounting. Therefore, companies have the flexibility in choosing when to recognize derivative financial instruments and when to follow hedge accounting versus fair value accounting for such instruments. U.S. GAAP has restrictive rules on hedge accounting under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and SFAS No. 138, “Accounting for Certain Derivative Instruments and Hedging Activities”. SFAS No. 133 and SFAS No. 138 are effective for fiscal years beginning after June 15, 2000, and establish accounting and reporting standards for all derivative financial instruments. The Company adopted those statements on January 1, 2001. The adoption of SFAS No. 133 and SFAS No. 138 had no material impact on the Company’s financial statements. Under U.S. GAAP, the Company did not apply hedge accounting and derivatives have historically been, and

F-132

continue to be, recorded on the balance sheets at fair value, with the changes in fair values recorded through current period earnings. In addition, the Company has no embedded derivatives from January 1 to December 31, 2005. The reconciling adjustments for all periods presented reflect those reconciliations from hedge accounting under ROC GAAP to non-hedge accounting under U.S. GAAP.

	l.		Stock bonus and dividend

			Under ROC GAAP, stock bonus and 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 and capital surplus. Accordingly, an adjustment of NT$61,632 thousand was included in the reconciliation, representing the difference between the fair value and the par value of ThaiLin stock.

	m.		Earnings per share (EPS)

			In calculating the weighted average number of shares outstanding for EPS purposes under ROC GAAP, employee bonus shares have been treated as outstanding for all periods in a manner similar to a stock split or stock dividend. Under U.S. GAAP, employee bonus shares have been considered separately from the stock dividend or split and have been treated as outstanding from the date of shareholder approval.

	n.		Interest capitalization

			Under ROC GAAP, interests on borrowings during construction conceptually should be capitalized in the assets that are constructed or produced for a company’s own use. However, if equity capital is raised during a year, no capitalization interest is recorded for the amount of property acquired up to the equity capital raised in that year. Under U.S. GAAP, SFAS No. 34 “Capitalization of Interest Cost”, interest is generally capitalized on assets until they are available and ready for use.

	o.		Goodwill and negative goodwill

			Under ROC GAAP, goodwill arises as the difference between acquisition cost and the equity of the subsidiary and is amortized using a systematic method, whereas under U.S. GAAP such goodwill is not amortized, but is subject to impairment tests. Negative goodwill arises when the fair values of the net assets acquired exceed the purchase price. Under ROC GAAP, negative goodwill is amortized over a five-year period whereas under U.S. GAAP, that negative goodwill is firstly allocated pro rata reduce amounts assigned to acquired assets. If negative goodwill still remains, it is recognized as extraordinary gain in the period in which the business combination is initially recognized. The negative goodwill of NT$20,275 thousand arising from the merger of CHANTEK into ChipMOS Taiwan was credited to property, plant and equipment under U.S. GAAP.

F-133

	p.		Pension expenses

			SFAS No. 87, “Accounting for Pensions”, and the SFAS No. 88, “Employer’s Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits”, were effective no later than the beginning of the first period for which an U.S. GAAP reconciliation is required for foreign issuers. A portion of the unrecognized net transition obligation on the adoption date is to be allocated directly to equity. The Company started to adopt SFAS No. 87 and SFAS No. 88 in 1997 and 2002, respectively. ROC SFAS No. 18, which is similar in many respects to SFAS No. 87 and SFAS No. 88, was effective in 1996. However, the treatment of certain expenses that comply with ROC SFAS No. 18 is different from SFAS No. 87 and SFAS No. 88.

	q.		Allowance for loss and scrap loss on inventories

			ROC GAAP does not specify the classification of allowance for loss on inventories, therefore the recovery of allowance for loss on inventories of NT$67,002 thousand and NT$74,581 thousand (US$2,270 thousand) for 2004 and 2005 has been classified under non-operating income. Under U.S. GAAP, the allowance for loss on inventories should be classified in the income statement as a component of cost of revenue.

			ROC GAAP does not specify the classification of scrap loss on inventories; therefore NT$75,602 thousand (US$2,301 thousand) has been classified under non-operating expense. Under U.S. GAAP, the scrap of inventories should be classified in the income statement as a component of cost of revenue.

			The following reconciles net income (loss) and shareholders’ equity under ROC GAAP as Reported in the accompanying financial statements to net income (loss) and shareholders’ equity amounts determined under U.S. GAAP, giving effect to adjustments for the differences listed above.

F-134


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
Net income

Net income based on ROC GAAP		860,557			2,322,760			2,108,036			64,172

Adjustments:
Amortization of technology transfer in payment of capital stocks		18,334			—			—			—
Amortization of start-up costs		14,796			9,916			2,305			70
Depreciation of fixed assets and employee dormitory building		(14,206	)		(14,444	)		(14,957	)		(455	)
Transfer of building and facilities from MVI		2,104			1,299			1,075			33
Marketable securities-trading		1,916			10,567			(3,956	)		(120	)
Depreciation of interest capitalization		(5,728	)		(19,793	)		(19,793	)		(603	)
Equity accounting for long-term investment		(3,867	)		(3,358	)		(34,105	)		(1,038	)
Employee bonus and director remuneration		—			—			(460,044	)		(14,005	)
Effect of U.S. GAAP adjustment on minority interest		—			—			48,767			1,484
Effect of U.S. GAAP adjustment on income taxes		(3,825	)		5,755			4,327			132

Net increase (decrease) in net income		9,524			(10,058	)		(476,381	)		(14,502	)


Net income based on U.S. GAAP		870,081			2,312,702			1,631,655			49,670


Earnings per share		0.98			2.61			1.84			0.06


Number of weighted average shares outstanding under U.S. GAAP		887,227			887,227			885,686			885,686

F-135


	December 31
	2004			2005
	NT$			NT$			US$
	(In Thousands)
Shareholders’ equity
Shareholders’ equity based on ROC GAAP		13,115,457			14,455,753			440,053

Adjustments:
Technology transfer in payment of capital stocks
Original cost		(750,000	)		(750,000	)		(22,831	)
Accumulated amortization of technology transfer in payment of capital stocks		750,000			750,000			22,831
Start-up costs
Original cost		(61,124	)		(61,107	)		(1,860	)
Accumulated depreciation of start-up costs		51,193			53,400			1,626
Net effect on inventories		(134	)		(53	)		(2	)
Depreciation of fixed assets and employee dormitory building
Depreciation of fixed assets and employee dormitory building		(85,648	)		(100,710	)		(3,066	)
Net effects on inventories		217			322			10
Transfer of building and facilities from MVI
Original cost		(173,174	)		(173,174	)		(5,271	)
Depreciation and gain on disposal of building and facilities from MVI		168,076			169,155			5,149
Net effects on inventories		(22	)		(26	)		(1	)
Marketable securities — trading		6,991			3,035			92
Pension expenses		(1,898	)		(1,898	)		(58	)
Interest capitalization		118,757			118,757			3,615
Depreciation of interest capitalization		(31,976	)		(51,769	)		(1,576	)
Long-term investments		(16,376	)		(25,470	)		(775	)
Employee bonus and director remuneration		—			(294,300	)		(8,959	)
Effect of U.S.GAAP adjustment on minority interest		—			48,767			1,485
Effect of U.S. GAAP adjustment on income taxes		3,458			7,785			237

Net decrease in shareholders’ equity		(21,660	)		(307,286	)		(9,354	)


Shareholders’ equity based on U.S. GAAP		13,093,797			14,148,467			430,699

F-136


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
Changes in shareholders’ equity based on U.S. GAAP
Balance, beginning of the year		9,801,202			10,593,316			13,093,797			398,593
Reversal of unrealized loss (gain) on available-for-sale securities		(79,277	)		5,618			805			25
Cash dividend		—			—			(532,336	)		(16,205	)
Purchase of treasury stock		—			—			(115,402	)		(3,513	)
Outstanding shares owned by subsidiaries		—			—			(4,750	)		(145	)
Issuance of new stock for merger		—			—			89,912			2,737
Unrealized gain (loss) on available-for-sale securities		(5,618	)		(805	)		(1,673	)		(51	)
Cumulative translation adjustments		115			(7,564	)		6,380			194
Adjustment for long-term investments		6,813			190,530			(19,921	)		(606	)
Net income for the year		870,081			2,312,702			1,631,655			49,670


Balance, end of the year		10,593,316			13,093,797			14,148,467			430,699


	December 31
	2004			2005
	NT$			NT$			US$
	(In Thousands)
Current assets

As reported		10,548,627			8,330,865			253,603
U.S. GAAP adjustments
Marketable securities — trading		6,991			3,035			92
Effect of inventory adjustments:
Start-up costs		(134	)		(53	)		(1	)
Depreciation of fixed assets and employee dormitory building		217			322			10
Transfer of building and facilities from MVI		(22	)		(26	)		(1	)


As adjusted		10,555,679			8,334,143			253,703


Long-term investments

As reported		663,040			413,125			12,576
U.S. GAAP adjustments
Cumulative translation adjustments		(4,549	)		—			—
Adjustment for investment income		(11,827	)		53,893			1,641
Impairment loss		—			(79,363	)		(2,416	)


As adjusted		646,664			387,655			11,801

F-137


	December 31
	2004			2005
	NT$			NT$			US$
	(In Thousands)
Property, plant and equipment — net

As reported		16,713,425			18,986,699			577,982

U.S. GAAP adjustments
Start-up costs		(9,931	)		(7,707	)		(235	)
Depreciation of fixed assets		(75,747	)		(89,178	)		(2,715	)
Transfer of building and facilities from MVI		(5,098	)		(4,019	)		(122	)
Interest capitalization		86,781			66,988			2,039
Negative goodwill of merging Chantek		—			(20,275	)		(617	)


As adjusted		16,709,430			18,932,508			576,332


Other assets

As reported		213,782			260,499			7,930
U.S. GAAP adjustments
Depreciation of employee dormitory building		(9,901	)		(11,532	)		(351	)
Goodwill		—			20,275			617


As adjusted		203,881			269,242			8,196


Current liabilities
As reported		5,710,551			4,885,016			148,707
U.S, GAAP adjustments
Accrued employee bonds and director remuneration		—			294,300			8,959


As adjusted		5,710,551			5,179,316			157,666


Other liabilities

As reported		1,276,044			825,729			25,136
U.S. GAAP adjustments
Pension expenses		1,898			1,898			58
Effect of U.S. GAAP adjustment on income taxes		(3,458	)		(7,785	)		(237	)


As adjusted		1,274,484			819,842			24,957


Minority interest
As reported		3,204,177			3,494,210			106,369
U.S. GAAP adjustments
Accrued employee bonds and director remuneration		—			(48,767	)		(1,485	)


As adjusted		3,204,177			3,445,443			104,884

F-138

		As a result of the adjustments presented above, the approximate amounts of total assets under U.S. GAAP were NT$28,217,951 thousand and NT$28,026,919 thousand as of December 31, 2004 and 2005, respectively.

		The following U.S. GAAP condensed statements of operation for the years ended December 31, 2003, 2004 and 2005 have been derived from the audited financial statements and reflect the adjustments presented above. Certain accounts have been reclassified to conform to U.S. GAAP. Reversal of allowance for doubtful receivables, gain (loss) on disposal of property, plant and equipment and loss on lease rescission are included as operating expenses.


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
Net revenue		8,468,665			14,867,877			14,756,523			449,209
Cost of revenue		(6,911,268	)		(10,746,166	)		(10,848,673	)		(330,249	)

Gross profit		1,557,397			4,121,711			3,907,850			118,960
Operating expenses		(541,145	)		(1,095,053	)		(1,540,563	)		(46,896	)

Income from operations		1,016,252			3,026,658			2,367,287			72,064
Non-operating expenses — net		(147,896	)		(574,814	)		(423,167	)		(12,882	)


Income before income tax		868,356			2,451,844			1,944,120			59,182


Net income		870,081			2,312,702			1,631,655			49,670

26.

ADDITIONAL DISCLOSURES REQUIRED BY U.S. GAAP

	a.		Recent accounting pronouncements

			The Company is required by SEC Staff Accounting Bulletin No. 74 to make certain disclosures about the effect that recently issued accounting standards will have on the financial statements adopted for future periods.

			In January 2003, FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (FIN 46), FIN 46 clarifies when a company should consolidate in its financial statements the assets, liabilities and activities of a variable interest entity. FIN 46 provides general guidance as to the definition of a variable interest entity and requires a variable interest entity to be consolidated if a company absorbs the majority of the variable interest entity’s expected losses, or is entitled to receive a majority of the variable interest entity’s residual returns, or both. In December 2004, FASB issued a revised Interpretation of FIN 46 (FIN 46-R), which replaces FIN 46 and clarifies and expands current accounting guidance for variable interest entities. FIN 46 and FIN 46-R are effective immediately for all variable interest entities created after January 31, 2004, and for variable interest entities created prior to February 1, 2004, no later than the end of the first reporting period after March 15, 2004. The adoption of FIN 46-R did not have a material impact on the accompanying consolidated financial statements.

F-139

			In April 2003, FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, this Statement clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. This Statement is generally effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did not have a material impact on the Company’s financial reporting and disclosures.

			In May 2003, FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. SFAS No. 150 changes the accounting for certain financial instruments that, under previous guidance, could be classified as equity or “mezzanine” equity by now requiring those instruments to be classified as liabilities (or assets in some circumstances) in the statement of financial position. Further, SFAS No. 150 requires disclosure regarding the terms of those instruments and settlement alternatives. The guidance in SFAS No. 150 generally is effective for all financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. We have evaluated SFAS No. 150 and determined that it does not have an impact on our financial reporting and disclosures.

			In December 2003, FASB issued SFAS No. 132 — revised, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. This Statement revises employers’ disclosures about pension plans and other postretirement benefits plans. This Statement requires additional disclosures about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information should be provided separately for pension plans and for other postretirement benefit plans. This Statement also requires new disclosures for interim periods beginning after December 15, 2003. The Statement was effective for fiscal years ending after December 15, 2003. The Company adopted this Statement for the year ended December 31, 2003. (Refer to Note d, pension plans).

			In December 2003, the Staff of the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition”, which replaces SAB 101, “Revenue Recognition in Financial Statements”. SAB 104’s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements and revises the SEC’s “Revenue Recognition in Financial Statements Frequently Asked Questions and Answers” that have been codified in Topic 13. SAB 104 was effective immediately and did not have a material impact on the Company’s financial reporting and disclosures.

F-140

			The FASB has issued SFAS No. 148 “Accounting for Stock-Based Compensation - Transition and Disclosures”. SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In December 2004, the FASB issued Statement of Financial Accounting Standard No. 123R (SFAS 123R) “Share-Based Payment”. Under previous practice, the reporting entity could account for share-based payment under the provisions of Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” and disclose share-based compensation as if accounted for under the provisions of Statement of Financial Accounting Standard No. 123 (SFAS No. 123), “Accounting for Stock-Based Compensation”. Under the provisions of SFAS No. 123R, a public entity is required to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is recognized over the period during which an employee is required to provide service in exchange for the award. As of December 31, 2005, the Company has no such stock-based compensation. SFAS No. 123 is not applicable to the Company.

	b.		Marketable securities

			On December 31, 2004 and 2005, certain investments carried at cost under ROC GAAP were revalued for purposes of U.S. GAAP presentation:


	(ROC GAAP)				(U.S. GAAP)
	Carrying Value				Fair Value
	2004		2005		2004		2005
	NT$		NT$		NT$		NT$
	(In Thousands)				(In Thousands)
Investment in trading securities (Note 4)		2,815,127		186,136		2,822,118		189,171

			The Company uses the weighted-average cost method for trading securities when determining the cost basis.

			The following table shows the gross unrealized losses and fair value of short-term investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category that individual securities have been in a continuous unrealized loss position, at December 31, 2005.

F-141


	December 31, 2005
	Less than 12 months								12 months or greater
					Unrealized								Unrealized
	Fair value				losses/(gains)				Fair value				losses/(gains)
	NT$		US$		NT$		US$		NT$		US$		NT$		US$
							(In Thousands)
Stock		—		—		—		—		156,338		4,760		5,648		172
Open-ended funds		32,833		999		—		—		—		—		—		—


		32,833		999		—		—		156,338		4,760		5,648		172

Income tax expense (benefit)


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
Income tax current payable		1,309			86			87,643			2,668
Deferred income tax		(6,398	)		(133,697	)		(47,802	)		(1,455	)
Adjustment of prior years’ income taxes		3,364			(4,743	)		497			15


Income tax expense (benefit)		(1,725	)		(138,354	)		40,338			1,228

Reconciliation between the income tax calculated on pre-tax financial statement income based on statutory tax rate and the income tax expense (benefit), which conforms to U.S. GAAP as follows:

F-142


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
Tax on pretax income at ROC statutory rate (25%)		217,079			670,129			196,559			5,983
SBIP tax exemption (5%)		—			—			—			—

Tax on pretax income at SBIP statutory rate		217,079			670,129			196,559			5,983
Other tax and assessed additional income tax		1,309			86			164,584			5,010
Tax effect of:
Tax-exempt income		(1,469	)		(426,870	)		(185,377	)		(5,643	)
Permanent differences
Non-taxable gain on sales of investment		(22,571	)		(12,557	)		(18,630	)		(567	)
Non-deductible investment loss (gain)		6,613			(12,246	)		82,152			2,501
Others		—			(714	)		—			—
Temporary differences		—			50,418			(169,637	)		(5,164	)
Tax credits – utilized		(187,700	)		(355,923	)		(218,672	)		(6,657	)
– deferred		48,014			(70,003	)		76,611			2,332
Valuation allowance		(66,405	)		(560,053	)		(405,487	)		(12,343	)
Loss carry forward		41			584,122			517,738			15,761
Adjustment of prior year’s income tax		3,364			(4,743	)		497			15


Income tax expense (benefit)		(1,725	)		(138,354	)		40,338			1,228

F-143


	December 31
	2004			2005
	NT$			NT$			US$
	(In Thousands)
Deferred income tax assets

Current
Unrealized foreign exchange loss		16,599			3,496			106
Loss of market price decline and obsolescence and slow-moving inventories		27,768			20,616			628
Sales allowance		9,455			9,455			288
Bad-debt allowance		50,223			81,424			2,479
Tax credits for investment in machinery and equipment and R&D expenditures		241,141			110,103			3,352
Loss carry forward		504,365			—			—
Others		23,842			14,108			429

		873,393			239,202			7,282
Valuation allowance		(282,918	)		—			—

		590,475			239,202			7,282


Deferred income tax liabilities
Non-current
Tax credits for investment in machinery and equipment and R & D expenditures		763,336			801,450			24,397
Depreciation differences		(534,270	)		(531,219	)		(16,171	)
Interest capitalization		(21,695	)		(16,747	)		(510	)
Loss carry forward		756,419			133,732			4,071
Transferred assets from MVI		1,280			1,011			31
Start-up costs		2,516			1,940			59
Others		140,985			262,541			7,992

		1,108,571			652,708			19,869
Valuation allowance		(1,651,163	)		(793,874	)		(24,167	)

		(542,592	)		(141,166	)		(4,298	)

		47,883			98,036			2,984

	d.		Pension plans

			In accordance with to SFAS No. 132 — Revised “Employers’ Disclosures about Pensions and Other Post-retirement Benefits”, pension information is disclosed below:

F-144


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
Components of net periodic benefit cost
Service cost		32,102			51,970			30,021			914
Interest cost		4,275			7,599			8,713			265
Projected return on plan assets		(2,581	)		(4,892	)		(4,659	)		(142	)
Net amortization and deferral:
Unrecognized net transition obligation		28			(477	)		(305	)		(9	)
Unrecognized net loss		695			809			1,209			37
Curtailment (Gain) / Loss Recognition		—			—			458			14


Net periodic benefit cost		34,519			55,009			35,437			1,079


Changes in benefit obligation
Benefit obligation at beginning of year		122,148			167,979			314,124			9,563
Service cost		32,102			51,970			30,021			914
Interest cost		4,275			7,599			8,713			265
Actuarial loss (gain)		9,454			20,751			(2,024	)		(62	)
Acquisition of subsidiary		—			65,825			—			—
Effect of merger		—			—			(67,581	)		(2,057	)

Benefit obligation at end of year		167,979			314,124			283,253			8,623


Changes in plan assets
Fair value of plan assets at beginning of year		66,005			135,893			174,349			5,307
Actual return on plan assets		1,003			1,796			1,971			60
Employer contribution		17,813			32,160			29,892			910
Effect of merger		—			4,500			(49,223	)		(1,498	)

		84,821			174,349			156,989			4,779

Funds status		(83,158	)		(139,775	)		(126,264	)		(3,844	)
Unrecognized actuarial loss (gain)		38,352			48,918			42,708			1,301


Net amount recognized (recognized as accrued pension cost)		(44,806	)		(90,857	)		(83,556	)		(2,543	)


Actuarial assumptions

Discount rate		3.25	%		3.25	%		2.75	%		2.75	%

Rate of compensation increase		3.25	%		3.25	%		3.25	%		3.25	%

Expected return on plan assets		3.25	%		3.25	%		2.75	%		2.75	%

The Company has no other post-retirement or post-employment benefit plans. The company expects to contribute NT$30,783 thousand to its pension plans during 2006. The plan assets are all invested in the Central Trust of China.

F-145

	e.		Statements of cash flows

			ROC SFAS No. 17, “Statement of Cash Flows” has been applied. Its objectives and principles are similar to those set out in the SFAS No. 95, “Statement of Cash Flows”. The principle differences between the standards relate to classification. Cash flows from changes in short-term investments, refundable deposits, other assets and guarantee deposits and bonus to directors and supervisors are included as operating activities under SFAS No. 95. Summarized cash flow data by operating, investing and financing activities in accordance with SFAS No. 95 are as follows:


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
Net cash inflow (outflow) from:
Operating activities		1,842,453			5,764,200			8,958,953			272,723
Investing activities		(1,816,260	)		(6,169,297	)		(6,587,533	)		(200,534	)
Financing activities		(1,435,656	)		2,067,591			(2,035,152	)		(61,953	)
Effect of exchange rate changes		—			—			(327	)		(10	)

Change in cash and cash equivalents		(1,409,463	)		1,662,494			335,941			10,226
Cash and cash equivalents at the beginning of year		2,565,125			1,155,662			2,818,156			85,789

Cash and cash equivalents at the end of year		1,155,662			2,818,156			3,154,097			96,015

Statements of comprehensive income (loss)


	Year Ended December 31
	2003			2004			2005
	NT$			NT$			NT$			US$
	(In Thousands)
Net income based on U.S. GAAP		870,081			2,312,702			1,631,655			49,670
Other comprehensive income (loss):
Reversal of unrealized loss (gain) on available-for-sale security		(79,277	)		5,618			805			25
Unrealized gain (loss) on available-for-sale security		(5,618	)		(805	)		(1,673	)		(51	)
Translation adjustment		115			(7,564	)		6,380			194


Comprehensive income		785,301			2,309,951			1,637,167			49,838

Components in other comprehensive income (loss) refer to investments in Ultima. Under ROC laws, those losses and gains are not subject to income tax. Therefore, no tax expense or benefit is allocated to such investments.

F-146

Statements of accumulated comprehensive income (loss)


	Unrealized						Accumulated
	Gain (Loss) on						Other
	Long-term			Translation			Comprehensive
	Investments			Adjustment			Income (Loss)
	NT$			NT$			NT$
	(In Thousands)
Balance, as of January 1, 2003		79,277			(734	)		78,543
Addition in 2003		(84,895	)		115			(84,780	)

Balance, as of December 31, 2003		(5,618	)		(619	)		(6,237	)
Addition in 2004		4,813			(7,564	)		(2,751	)

Balance, as of December 31, 2004		(805	)		(8,183	)		(8,988	)
Addition in 2005		(868	)		6,380			5,512

Balance, as of December 31, 2005		(1,673	)		(1,803	)		(3,476	)

F-147

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	8th grade Avg

Siliconware Precision Industries (SPILA) Inactive 20-F2005 FY Annual report (foreign)

Content analysis