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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Exact Name of Registrant as Specified in its Charter)
Advanced Semiconductor Engineering, Inc.
(Translation of Registrant's Name into English)
REPUBLIC OF CHINA
(Jurisdiction of Incorporation or Organization)
26 Chin Third Road
Nantze Export Processing Zone
Nantze, Kaohsiung, Taiwan
Republic of China
(8867) 361-7131
(Address of Principal Executive Offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
American Depositary Shares, each representing
5 Common Shares of NT$10 par value
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(As of the close of the period covered by the annual report)
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: 2,752,000,000 Common Shares
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark which financial statement item the Registrant
has elected to follow.
Item 17 Item 18 X
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TABLE OF CONTENTS
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Page
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Introduction
Use of Certain Terms............................................ 1
Special Note Regarding Forward-Looking Statements............... 1
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....................................... 2
Selected Financial Data.......................... 2
Capitalization and Indebtedness.........Not applicable
Reason for the Offer and Use of
Proceeds................................Not applicable
Risk Factors..................................... 5
Item 4 Information on the Company............................ 14
History and Development of the Company........... 14
Business Overview................................ 16
Organizational Structure......................... 36
Properties....................................... 36
Item 5 Operating and Financial Review and Prospects.......... 39
Operating Results and Trend Information.......... 39
Liquidity and Capital Resources.................. 47
Research and Development......................... 49
Item 6 Directors, Senior Management and Employees............ 50
Directors and Senior Management and Board
Practices........................................ 50
Compensation..................................... 53
Employees........................................ 54
Share Ownership.................................. 55
Item 7 Major Shareholders.................................... 55
Major Shareholders............................... 55
Related Party Transactions....................... 56
Item 8 Financial Information................................. 58
Consolidated Statements and Other Financial
Information...................................... 58
Legal Proceedings................................ 58
Significant Changes.............................. 58
Item 9 Listing Details....................................... 58
Market Price Information and Markets............. 58
Item 10 Additional Information ............................... 60
Articles of Incorporation........................ 60
Material Contracts............................... 65
i
Page
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Exchange Controls................................ 68
Taxation......................................... 68
Documents on Display............................. 72
Item 11 Quantitative and Qualitative Disclosures About
Market Risk........................................... 72
Foreign Currency Exchange Rate Risk.............. 72
Interest Rate Risk............................... 73
Item 12 Description of Securities Other Than Equity
Securities...................................Not applicable
Part II Item 13 Defaults, Dividend Arrearages and
Delinquencies................................Not applicable
Item 14 Material Modifications to the Rights of Security
Holders and Use of Proceeds........................... 73
Material Modifications to the Rights of
Security Holders................................. 73
Part III Item 17 Financial Statements.................................. 74
Item 18 Financial Statements.................................. 74
Item 19 Exhibits.............................................. 74
ii
USE OF CERTAIN TERMS
All references herein to (i) the "Company," "ASE Group," "ASE Inc.," "we,"
"us," or "our" are to Advanced Semiconductor Engineering, Inc. and, unless the
context requires otherwise, its subsidiaries, (ii) "ASE Test" are to ASE Test
Limited and its subsidiaries, (iii) "ASE Test Taiwan" are to ASE Test, Inc., a
company incorporated in the ROC, (iv) "ASE Test Malaysia" are to ASE
Electronics (M) Sdn. Bhd., a company incorporated under the laws of Malaysia,
(v) "ISE Labs" are to ISE Labs, Inc., a corporation incorporated in the State
of California, (vi) "ASE Philippines" are to ASE Holdings Electronics
(Philippines) Inc., a company incorporated in the Philippines, (vii) "Universal
Scientific" are to Universal Scientific Industrial Co., Ltd., a company
incorporated in the ROC, (viii) "ASE Material" are to ASE Material Inc., a
company incorporated in the ROC, (ix) "ASE Korea" are to ASE (Korea) Inc., a
company incorporated under the laws of the Republic of Korea and (x) "ASE Chung
Li" are to ASE (Chung Li) Inc., a company incorporated in the ROC.
All references to the "Republic of China", the "ROC" and "Taiwan" are to
the Republic of China, including Taiwan and certain other possessions. All
references to "Korea" are to the Republic of Korea.
We publish our financial statements in New Taiwan Dollars, the lawful
currency of the ROC. In this annual report, references to "United States
Dollars", "U.S. Dollars" and "US$" are to United States Dollars and references
to "New Taiwan Dollars", "NT Dollars" and "NT$" are to New Taiwan Dollars.
Unless otherwise noted, all translations from NT Dollars to U.S. Dollars were
made at the noon buying rate in the City of New York for cable transfers in NT
Dollars per U.S. Dollar as certified for customs purposes by the Federal
Reserve Bank of New York (the "Noon Buying Rate") as of December 29, 2000,
which was NT$33.17=US$1.00. All amounts translated into U.S. Dollars in this
annual report are provided solely for your convenience and no representation is
made that the NT Dollar or U.S. Dollar amounts referred to herein could have
been or could be converted into U.S. Dollars or NT Dollars, as the case may be,
at any particular rate or at all.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 including statements regarding our future
revenues, earnings, and other results of operations. Our actual results may
differ materially from the results discussed in these forward-looking
statements for a variety of reasons, including risks associated with
cyclicality and market conditions in the semiconductor industry, demand for the
outsourced semiconductor assembly and testing services we offer and for such
outsourced services generally, our ability to maintain a high capacity
utilization rate relative to our fixed costs, competition in our industry, and
other reasons. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this annual report. These
forward-looking statements are based on our own information and on information
from other sources we believe to be reliable. Our actual results may be
materially less favorable than those expressed or implied by these
forward-looking statements as a result of the reasons noted above and other
risks and factors which could depress the market price of our shares.
1
PART I
Item 1. Identity of Directors, Senior Management and Advisers.
Not applicable.
Item 2. Offer Statistics and Expected Timetable.
Not applicable.
Item 3. Key Information.
SELECTED FINANCIAL DATA
The following selected historical consolidated financial data have been
derived from the Consolidated Financial Statements. Our statements of income
for the years ended December 31, 1998, 1999 and 2000 and our balance sheets as
of December 31, 1999 and 2000 have been audited. The Consolidated Financial
Statements, and the report of T.N. Soong & Co. on those financial statements,
are included in this annual report. The selected consolidated financial
information for those periods and as of those dates are qualified by reference
to those financial statements and that report, and should be read in
conjunction with them and with "Item 5. Operating and Financial Review and
Prospects". The selected consolidated statement of income data for the years
ended December 31, 1996 and 1997 and selected consolidated balance sheet data
as of December 31, 1996, 1997 and 1998 set forth below are derived from our
audited consolidated financial statements not included in this annual report.
These financial statements have been audited by T.N. Soong & Co. The
Consolidated Financial Statements are prepared and presented in accordance with
generally accepted accounting principles in the ROC, or ROC GAAP, which differ
in material respects from generally accepted accounting principles in the
United States, or U.S. GAAP. Notes 27 and 28 of Notes to Consolidated Financial
Statements contain additional disclosures required under U.S. GAAP and provide
descriptions of the significant differences between ROC GAAP and U.S. GAAP and
reconciliations of net income and shareholders' equity to U.S. GAAP as of and
for the years ended December 31, 1999 and 2000.
Year Ended and as of December 31,
----------------------------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------- ------------- -------------- -------------- ------------
(in millions, except share, per share, per ADS and dividend data)
NT$ NT$ NT$ NT$ NT$ US$
Income Statement Data:
ROC GAAP:
Net revenues............................ 17,833.9 19,088.2 20,762.4 32,609.6 50,893.4 1,534.3
Cost of revenues........................ (13,956.7) (13,758.5) (15,468.1) (23,959.6) (35,567.3) (1,072.3)
-------------- ------------- ------------- ------------- ------------- -------------
Gross profit............................ 3,877.2 5,329.7 5,294.3 8,650.0 15,326.1 462.0
Operating expenses:
Selling................................ (543.4) (733.5) (744.7) (924.3) (1,020.5) (30.8)
General and administrative(1).......... (529.3) (648.7) (909.4) (1,655.0) (2,606.2) (78.6)
Goodwill amortization(2)............... - (53.2) (345.7) (507.8) (559.8) (16.8)
Research and development............... (382.3) (372.9) (453.6) (714.3) (1,262.5) (38.1)
-------------- ------------- ------------- ------------- ------------- -------------
Operating income........................ 2,422.2 3,521.4 2,840.9 4,848.6 9,877.1 297.7
Net non-operating income (expense):
Investment income (loss) on long-term
investment(1)(3)..................... (108.1) 114.2 54.6 329.9 195.7 5.9
Goodwill amortization(4)............... (145.3) (155.1) (155.1) (279.3) (363.0) (10.9)
Gain on sale of investments............ - 4,870.9 606.9 5,544.2 91.7 2.8
Foreign exchange gain (loss)........... 113.5 (133.8) (935.5) (538.4) 302.7 9.1
Interest income (expense)(5)........... (241.4) (85.9) (380.4) (1,046.6) (1,538.0) (46.4)
Others(6).............................. 85.9 11.0 (50.1) 204.0 (162.6) (4.9)
-------------- ------------- ------------- ------------- ------------- -------------
Income before tax....................... 2,126.8 8,142.7 1,981.3 9,062.4 8,403.6 253.3
Income tax benefit (expense)............ (61.2) (374.9) 150.8 (459.5) (1,065.8) (32.1)
-------------- ------------- ------------- ------------- ------------- -------------
Income before minority interest......... 2,065.6 7,767.8 2,132.1 8,602.9 7,337.8 221.2
Income before acquisition............... - - - (65.1) - -
2
Year Ended and as of December 31,
------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000
-------------- ------------- ------------- -------------- ------------- -------------
(in millions, except share, per share, per ADS and dividend data)
NT$ NT$ NT$ NT$ NT$ US$
Minority interest in net income of
subsidiary.............................. (94.1) (364.3) (528.1) (743.1) (1,500.6) (45.2)
-------------- ------------- ------------- ------------- ------------- -------------
Net income.............................. 1,971.5 $7,403.5 $1,604.0 $7,794.7 5,837.2 176.0
============== ============= ============= ============= ============= =============
Earnings per common share:
Primary................................ 0.75 2.76 0.57 2.91 2.13 0.06
============== ============= ============= ============= ============= =============
Fully diluted.......................... 0.75 2.76 0.57 2.90 2.13 0.06
============== ============= ============= ============= ============= =============
Dividends per common share(7)........... 8.00 3.80 7.20 1.07 3.15 0.09
============== ============= ============= ============= ============= =============
Net income from operations per common
share................................... 0.91 1.33 1.07 1.83 3.69 0.11
============== ============= ============= ============= ============= =============
Income from continuing operations....... 2,126.8 8,142.7 1,981.3 9,062.4 8,403.6 253.3
============== ============= ============= ============= ============= =============
Income from continuing operations per
common share............................ 0.80 3.07 0.75 3.42 3.14 0.09
============== ============= ============= ============= ============= =============
Earnings per pro forma equivalent ADS:
Primary................................ 3.75 13.80 2.87 14.53 10.65 0.32
============== ============= ============= ============= ============= =============
Fully diluted.......................... 3.75 13.80 2.87 14.51 10.65 0.32
============== ============= ============= ============= ============= =============
Number of common shares(8)..............2,651,524,485 2,651,524,485 2,651,524,485 2,651,524,485 2,677,602,508 2,677,602,508
Number of pro forma equivalent ADSs..... 530,304,897 530,304,897 530,304,897 530,304,897 535,520,502 535,520,502
U.S.GAAP:
Net income.............................. 298.9 4,641.3 3,930.0 118.5
Earnings per common share:
Basic:......................... 0.11 1.75 1.47 0.04
============= ============= ============= =============
Diluted........................ 0.08 1.71 1.42 0.04
============= ============= ============= =============
Earnings per pro forma equivalent
ADS:
Basic.......................... 0.56 8.75 7.34 0.22
============= ============= ============= =============
Diluted........................ 0.38 8.57 7.10 0.21
============= ============= ============= =============
Balance Sheet Data:
ROC GAAP:
Current assets:
Cash and cash equivalents...... 1,431.2 10,869.8 8,173.9 11,809.1 14,166.5 427.1
Short-term investments......... 1,187.7 4,008.0 647.2 216.3 1,682.7 50.7
Notes and accounts receivable.. 3,458.0 4,094.3 3,636.7 7,463.4 9,260.6 279.2
Inventories.................... 1,838.7 2,059.0 1,744.8 2,449.7 3,246.3 97.9
Other.......................... 346.0 705.5 771.9 1,411.8 2,431.6 73.3
-------------- ------------- ------------- ------------- ------------- -------------
Total.......................... 8,261.6 21,736.6 14,974.5 23,350.3 30,787.7 928.2
Long-term investments................... 4,113.7 5,501.7 7,317.0 9,674.4 10,712.2 322.9
Properties.............................. 10,561.4 16,363.1 20,356.8 38,107.5 60,566.2 1,825.9
Other assets............................ 379.6 1,557.7 4,363.2 6,198.6 6,275.1 189.2
-------------- ------------- ------------- ------------- ------------- -------------
Total assets............................ 23,316.3 45,159.1 47,011.5 77,330.8 108,341.2 3,266.2
== ============== ============= ============= ============= ============= =============
Short-term bank borrowing/loans......... 3,506.1 5,946.0 6,810.2 9,868.2 13,768.0 415.0
Long-term bank borrowing/loans.......... 3,575.2 11,872.9 12,235.0 24,551.5 25,976.9 783.2
Other liabilities and minority interest. 3,076.4 6,306.5 6,091.5 12,854.1 24,927.1 751.5
-------------- ------------- ------------- ------------- ------------- -------------
Total liabilities and minority interest. 10,157.7 24,125.4 25,136.7 47,273.8 64,672.0 1,949.7
== ============== ============= ============= ============= ============= =============
Shareholders' equity.................... 13,158.6 21,033.7 21,874.8 30,057.0 43,669.2 1,316.5
U.S.GAAP:
Shareholders' equity.................... 17,675.2 26,569.7 40,729.1 1,227.9
Segment Data:
Net revenues:
Packaging...................... 11,936.9 15,334.3 16,867.4 24,523.0 38,028.8 1,146.5
Testing........................ 1,549.0 2,383.4 3,131.3 7,793.2 12,768.4 384.9
Other.......................... 4,348.0 1,370.5 763.7 293.4 96.2 2.9
Gross profit:
Packaging...................... 2,795.2 3,990.5 3,693.8 5,753.0 10,016.9 302.0
3
Year Ended and as of December 31,
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1996 1997 1998 1999 2000
------------ ------------- ------------- -------------- -------------- ------------
(in millions, except share, per share, per ADS and dividend data)
NT$ NT$ NT$ NT$ NT$ US$
Testing........................ 669.0 1,148.7 1,484.6 3,105.2 5,294.4 159.6
Other.......................... 413.0 190.5 115.9 (208.2) 14.8 0.4
Other Data:
Net cash outflow from acquisition of
fixed assets............................ (3,528.7) (8,030.1) (6,945.0) (9,869.2) (30,063.6) (906.3)
Depreciation and amortization........... 1,731.5 2,301.6 3,237.2 5,554.4 8,593.8 259.1
Net cash inflow (outflow) from
operations.............................. 3,534.3 2,185.3 5,194.2 7,017.2 17,643.2 531.9
Net cash inflow (outflow) from sale of
investments............................. - 5,495.0 290.5 7,889.3 - -
Net cash inflow (outflow) from investing
activities(9)........................... (5,551.2) (5,067.7) (8,558.3) (11,782.7) (33,550.4) (1,011.5)
Net cash inflow (outflow) from financing
activities.............................. 1,071.8 11,290.3 589.3 8,569.1 17,582.4 530.1
_______________
(1) Excludes goodwill amortization.
(2) Included in general and administrative expenses in the Consolidated
Financial Statements.
(3) Derived by netting "investment income under equity method -- net" in
non-operating income and "investment loss under equity method -- net" in
non-operating expense in the Consolidated Financial Statements.
(4) Included in investment loss in the Consolidated Financial Statements.
(5) Derived by netting interest income and interest expense in the
Consolidated Financial Statements.
(6) Derived by netting the "others" entry in non-operating income and the
"others" entry in non-operating expenses in the Consolidated Financial
Statements.
(7) Dividends per common share issued as a stock dividend.
(8) Represents the weighted average number of shares after retroactive
adjustments to give effect to stock dividends.
(9) Derived by aggregating proceeds from sales of shares of stock of ASE Inc.
and ASE Test.
Exchange rates
Fluctuations in the exchange rate between NT Dollars and U.S. Dollars will
affect the U.S. Dollar equivalent of the NT Dollar price of the common shares
on the Taiwan Stock Exchange and, as a result, will likely affect the market
price of the ADSs. Fluctuations will also affect the U.S. Dollar conversion by
the depositary of cash dividends paid in NT Dollars on, and the NT Dollar
proceeds received by the depositary from any sale of, common shares represented
by ADSs, in each case, according to the terms of the deposit agreement.
The following table sets forth, for the fiscal years indicated,
information concerning the number of NT Dollars for which one U.S. Dollar could
be exchanged based on the noon buying rate for cable transfers in NT Dollars as
certified for customs purposes by the Federal Reserve Bank of New York. The
exchange rate was NT$34.50 per U.S. Dollar as of June 27, 2001.
Year Ended December 31, Average Exchange Rate(1)
- ------------------------ ------------------------
1996......................................................... 27.48
1997......................................................... 29.06
1998......................................................... 33.50
1999......................................................... 32.28
2000......................................................... 31.37
Monthly High Low
- ------- ------ -----
December 2000........................................ 33.18 33.02
January 2001......................................... 33.08 32.38
February 2001........................................ 32.39 32.27
March 2001........................................... 32.87 32.35
April 2001........................................... 32.99 32.79
May 2001............................................. 34.05 32.89
June 2001 (through June 27).......................... 34.50 34.08
- -------------------
(1) Calculated by averaging the exchange rate on the last day of each month
during the period.
Source: Federal Reserve Board database
4
CAPITALIZATION AND INDEBTEDNESS
Not applicable.
REASON FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
RISK FACTORS
Risks Relating to Our Business
Since we are dependent on the highly cyclical semiconductor industry and
conditions in the markets for the end use applications of our products, our
revenues and earnings may fluctuate significantly.
Our semiconductor packaging and testing business is affected by market
conditions in the highly cyclical semiconductor industry. All of our customers
operate in this industry, and variations in order levels from our customers and
service fee rates may result in volatility in our revenues and earnings. From
time to time, the semiconductor industry has experienced significant, and
sometimes prolonged, downturns. Because our business is, and will continue to
be, dependent on the requirements of semiconductor companies for independent
packaging and testing services, any future downturn in the semiconductor
industry would reduce demand for our services. For example, a worldwide
slowdown in demand for semiconductor devices led to excess capacity and
increased competition beginning in early 1998. As a result, price declines in
1998 accelerated more rapidly and adversely affected our operating results in
1998. Prices for packaging and testing services improved due to an upturn in
the industry in the second half on 1999 continuing through the first half of
2000, but have fallen since an industry downturn commencing in the fourth
quarter of 2000. This industry downturn places downward pressure on the average
selling prices for our packaging and testing services. If we cannot reduce our
costs to sufficiently offset any decline in average selling prices, our
profitability will suffer.
Market conditions in the semiconductor industry depend to a large degree
on conditions in the markets for the end use applications of semiconductor
products, such as communication, consumer electronic and personal computer
products. Any deterioration of conditions in the markets for the end use
applications of the semiconductors we package and test would reduce demand for
our services and, in turn, would likely have a material adverse effect on our
financial condition and results of operations. In 2000, approximately 67% of
our sales were attributable to the packaging and testing of semiconductors used
in personal computer and communications applications. Both industries are
subject to intense competition and significant shifts in demand which could put
pricing pressure on the packaging and testing services provided by us and
adversely affect our revenues and earnings.
A reversal or slowdown in the outsourcing trend for semiconductor
packaging and testing services could adversely affect our growth prospects and
profitability.
In recent years, semiconductor manufacturers that have their own in-house
packaging and testing capabilities, known as integrated device manufacturers,
have increasingly outsourced stages of the semiconductor production process,
including packaging and testing, to independent companies to reduce costs and
shorten production cycles. In addition, the availability of advanced
independent semiconductor manufacturing services has also enabled the growth of
so called "fabless" semiconductor companies that focus exclusively on design
and marketing, and that outsource their manufacturing, packaging and testing
requirements to independent companies. We cannot assure you that these
integrated device manufacturers and fabless semiconductor companies will
continue to outsource their packaging and testing requirements to third parties
like us. A reversal of, or a slowdown in, this outsourcing trend could result
in reduced demand for our services and adversely affect our growth prospects
and profitability.
If we are unable to compete favorably in the highly competitive
semiconductor packaging and testing markets, our revenues and earnings may
decrease.
The semiconductor packaging and testing markets are very competitive. We
face competition from a number of sources, including other independent
semiconductor packaging and testing companies, especially those which offer
5
turnkey packaging and testing services. We believe that the principal
competitive factors in the markets for our products and services are:
o technological expertise;
o ability to work closely with customers at the product development
stage;
o production yield;
o responsiveness and flexibility;
o cycle time;
o capacity;
o production time;
o range and quality of packaging types and testing platforms available;
and
o price.
We face increasing competition from other packaging and testing companies
in Asia. In particular, most of our customers obtain packaging or testing
services from more than one source. Furthermore, some of our competitors may
have access to more advanced technologies and greater financial and other
resources than we do. Many of our competitors have shown a willingness to
quickly and sharply reduce prices, as they did in 1998 and the first half of
2001, in order to maintain capacity utilization in their facilities during
periods of reduced demand. Although prices have stabilized, any renewed erosion
in the prices for our packaging and testing services could cause our profits to
decrease and have a material adverse effect on our financial condition and
results of operations.
Our profitability depends on our ability to respond to rapid technological
changes in the semiconductor industry.
The semiconductor industry is characterized by rapid increases in the
diversity and complexity of semiconductors. As a result, we expect that we will
need to constantly offer more sophisticated packaging and testing technologies
and processes in order to respond to competitive industry conditions and
customer requirements. If we fail to develop, or obtain access to, advances in
packaging or testing technologies or processes, we may become less competitive
and less profitable. In addition, advances in technology typically lead to
declining average prices for semiconductors packaged or tested with older
technologies or processes. As a result, if we cannot reduce the costs
associated with our services, the profitability on a given service, and our
overall profitability, may decrease over time.
Our operating results are subject to significant fluctuations, which could
adversely affect the market value of your investment.
Our operating results have varied significantly from period to period and
may continue to vary in the future. Downward fluctuations in our operating
results may cause decreases in the market price of our ADSs and common shares.
Among the more important factors affecting our quarterly and annual operating
results are the following:
o our ability to quickly adjust to unanticipated declines or shortfalls
in demand and market prices for our packaging and testing services,
due to our high percentage of fixed costs;
o timing of capital expenditures in anticipation of future orders;
o changes in prices of our packaging and testing services;
o volume of orders relative to our packaging and testing capacity;
6
o our ability to obtain adequate packaging and testing equipment on a
timely basis; and
o changes in costs and availability of raw materials, equipment and
labor.
Due to the factors listed above, it is possible that our future operating
results or growth rates may be below the expectations of research analysts and
investors. If so, the market price of our ADSs and common shares, and thus the
market value of your investment, may fall.
Due to our high percentage of fixed costs, we will be unable to maintain
our profitability at past levels if we are unable to achieve relatively high
capacity utilization rates.
Our operations, in particular our testing operations, are characterized by
relatively high fixed costs. We expect to continue to incur substantial
depreciation and other expenses in connection with the acquisition of new
packaging and testing equipment and new facilities. Our profitability depends
in part not only on absolute pricing levels for our services, but also on
utilization rates for our packaging and testing equipment, commonly referred to
as "capacity utilization rates". In particular, increases or decreases in our
capacity utilization rates can have a significant effect on gross margins since
the unit cost of packaging and testing services generally decreases as fixed
costs are allocated over a larger number of units. In periods of low demand, we
experience relatively low capacity utilization rates in our operations due to
relatively low growth in demand, which leads to reduced margins during that
period. We cannot assure you that we will be able to maintain or surpass our
past profitability levels if we cannot consistently achieve or maintain
relatively high capacity utilization rates.
If we are unable to manage our expansion effectively, our growth prospects
may be limited and our future profitability may be affected.
We have significantly expanded our packaging and testing operations in
recent years, and expect to continue to expand our operations in the future. In
particular, we intend to expand our operations geographically, attract new
customers and broaden our product range to include products packaged and tested
for a variety of end use applications. In the past, we have expanded through
both internal growth and the acquisition of new operations. Rapid expansion
puts strain on our managerial, technical, financial, operational and other
resources. As a result of our expansion, we have implemented and will continue
to need to implement additional operational and financial controls and hire and
train additional personnel. Any failure to manage our growth effectively could
lead to inefficiencies and redundancies and result in reduced growth prospects
and profitability.
We need to successfully integrate and manage our acquisitions to maintain
profitability.
We intend to grow in part through the acquisition of semiconductor
packaging and testing operations that complement our existing business. This
strategy will involve reviewing and potentially reorganizing acquired business
operations, corporate structures and systems and financial controls. The
success of our acquisition strategy may be limited because of unforeseen
expenses, difficulties, complications and delays encountered in connection with
these acquisitions. We may not be able to acquire or manage profitably
additional businesses or to integrate successfully any acquired businesses into
our existing business without substantial costs, delays or other operational or
financial difficulties. In addition, we may be required to incur additional
debt or issue additional equity to pay for future acquisitions.
In 1999, we acquired the packaging and testing operations of ISE Labs, ASE
Chung Li and ASE Korea, as well as a controlling 22.6% interest in Universal
Scientific, later increased to 23.3%. We continue to evaluate acquisition
opportunities and plan to make additional acquisitions in the future if
suitable opportunities arise. These acquisitions and other acquisitions we may
make in the future may dilute our earnings per share as a result of the
specific scope of the businesses or condition of the operations being acquired.
In particular, acquisitions may involve risks, including:
o integration and management of the acquired operations;
o retention of select management personnel;
7
o integration of purchasing operations and information systems;
o coordination of sales and marketing efforts;
o cost of any pending or potential litigation against the acquired
businesses prior to our acquisition;
o management of an increasingly larger and more geographically
disparate business; and
o diversion of management's attention from other ongoing business
concerns.
If we are unable to successfully integrate and manage our acquisitions,
our growth plans may not be met and our profitability may decline.
Because of the highly cyclical nature of our industry, our capital
requirements are difficult to plan. If we cannot obtain additional capital when
we need it, our growth prospects and future profitability may be adversely
affected.
Our capital requirements are difficult to plan in our highly cyclical and
rapidly changing industry. We will need capital to fund the expansion of our
facilities as well as research and development activities in order to remain
competitive. We believe that our current cash and cash equivalents, cash flow
from operations and the proceeds from our offering of ADSs in September 2000
ADS will be sufficient to meet our anticipated needs at least through the end
of 2001, including for working capital and capital expenditure requirements.
However, future acquisitions or market or other developments may cause us to
require additional funds. Our ability to obtain external financing in the
future is subject to a variety of uncertainties, including:
o our future financial condition, results of operations and cash flows;
o general market conditions for financing activities by semiconductor
companies; and
o economic, political and other conditions in Taiwan and elsewhere.
If we are unable to obtain funding in a timely manner or on acceptable
terms, our growth prospects and future profitability may decline.
We depend on select personnel and could be affected by the loss of their
services.
We depend on the continued service of our executive officers and skilled
technical and other personnel. Our business could suffer if we lose the
services of any of these personnel and cannot adequately replace them. Although
some of these management personnel have entered into employment agreements with
us, they may nevertheless leave before the expiration of these agreements. We
are not insured against the loss of any of our personnel. In particular, we
will be required to increase substantially the number of these employees in
connection with our expansion plans, and there is intense competition for their
services in the semiconductor industry. We may not be able to either retain our
present personnel or attract additional qualified personnel as and when needed.
In addition, we may need to increase employee compensation levels in order to
attract and retain our existing officers and employees and the additional
personnel that we expect to require. A portion of the workforce at our
facilities in Taiwan are foreign workers employed by us under work permits
which are subject to government regulations on renewal and other terms.
Consequently, our business could also suffer if the Taiwan regulations relating
to the import of foreign workers were to become significantly more restrictive
or if we are otherwise unable to attract or retain these workers at reasonable
cost.
Criminal charges were brought in December 1998 by the district attorney
for Taipei against Jason C.S. Chang, our Chairman, Richard H.P. Chang, our Vice
Chairman and Chief Executive Officer, and Chang Yao Hung-ying, our director,
and others. ASE Inc. is not a party to these proceedings and we do not expect
that these charges will result in any liability to us. On January 5, 2001, the
District Court of Taipei rendered a judgment finding Jason C.S. Chang and Chang
Yao Hung-ying guilty and Richard H.P. Chang not guilty. In order to comply with
the Singapore Companies Act, Jason C.S. Chang and Chang Yao Hung-ying have both
resigned as directors of our subsidiary, ASE Test. Neither Jason
8
C.S. Chang nor Chang Yao Hung-ying believes that he or she committed any
offense in connection with such transactions, and the are appealing the
decision to the High Court of Taiwan, the ROC. If the convictions are not
overturned on appeal to the High Court or, if necessary, the Supreme Court of
Taiwan the ROC, they will be required under ROC law to resign as directors and
Jason C.S. Chang will be required to resign as Chairman of ASE Inc. See "Item
4. Information on the Company -- Business Overview -- Legal Proceedings".
If we are unable to obtain additional packaging and testing equipment or
facilities in a timely manner and at a reasonable cost, our competitiveness and
future profitability may be adversely affected.
The semiconductor packaging and testing business is capital intensive and
requires significant investment in expensive equipment manufactured by a
limited number of suppliers. The market for semiconductor packaging and testing
equipment is characterized, from time to time, by intense demand, limited
supply and long delivery cycles. Our operations and expansion plans depend on
our ability to obtain a significant amount of this equipment from a limited
number of suppliers, including, in the case of testers, Agilent Technology,
Advantest Corporation, Credence Systems Corporation, Electroglas, Inc.,
Megatest Corporation, Schlumberger Technologies and Teradyne, Inc., and, in the
case of wire bonders, Kulicke & Soffa Industries Inc. We have no binding supply
agreements with any of our suppliers and acquire our packaging and testing
equipment on a purchase order basis, which exposes us to changing market
conditions and other substantial risks. For example, shortages of capital
equipment could result in an increase in the price of equipment and longer
delivery times. Semiconductor packaging and testing also requires us to operate
sizeable facilities. If we are unable to obtain equipment or facilities in a
timely manner, we may be unable to fulfill our customers' orders, which could
adversely affect our growth prospects as well as financial condition and
results of operations.
Fluctuations in exchange rates could result in foreign exchange losses.
Currently, the majority of our revenues from packaging and testing
services are denominated in U.S. Dollars and NT Dollars. Our costs of revenues
and operating expenses associated with packaging and testing services, on the
other hand, are incurred in several currencies, including NT Dollars, U.S.
Dollars, Malaysian ringgit, Korean won, Philippine pesos, Singapore dollars and
Hong Kong dollars. In addition, a substantial portion of our capital
expenditures, primarily for the purchase of packaging and testing equipment,
has been, and is expected to continue to be, denominated in U.S. Dollars with
much of the remainder in Japanese yen. Fluctuations in exchange rates,
primarily among the U.S. Dollar, the NT Dollar and the Japanese yen, will
affect our costs and operating margins. In addition, these fluctuations could
result in exchange losses and increased costs in NT Dollar and other local
currency terms. Despite hedging and mitigating techniques implemented by us,
fluctuations in exchange rates have affected, and may continue to affect, our
financial condition and results of operations. For example, we recorded foreign
exchange losses of NT$935.5 million in 1998 and NT$538.4 million in 1999, due
primarily to losses attributable to Japanese yen-denominated liabilities
created by us in the second half of 1998 to manage our foreign exchange
exposure. We closed our position on these Japanese yen-denominated liabilities
as of November 5, 1999, and currently our foreign currency denominated
liabilities are denominated principally in U.S. Dollars.
The loss of a major customer or disruption of our strategic alliance with
TSMC may result in a decline in our revenues and profitability.
Although we have over 200 customers, due in part to the concentration of
market share in the semiconductor industry, we have derived and expect to
continue to derive a large portion of our revenues from a small group of
customers during any particular period. Our five largest customers together
accounted for approximately 34%, 40% and 44% of our sales in 1998, 1999 and
2000, respectively. Other than Motorola in 1999, and Motorola and VIA
Technologies, Inc. in 2000, no customer accounted for more than 10% of our net
revenues in 1998, 1999 or 2000. In connection with our acquisition in July 1999
of Motorola's in-house packaging and testing operations in Chung Li and Korea,
we entered into manufacturing services agreements which expire in 2004 for
Motorola's continuing business at the Chung Li and Korea facilities. As a
result, Motorola accounted for approximately 16% of our 1999 sales and
approximately 22% of our sales in 2000. There has been significant variation in
the composition of our largest five customers over time. This variation is due
primarily to the high level of competition in the semiconductor industry in
which our customers operate. The demand for our services from each customer is
directly dependent upon that customer's level of business activity, which could
vary significantly from year to year. As a result, we have been less dependent
on any particular customer over time.
9
Our strategic alliance with Taiwan Semiconductor Manufacturing Company
Limited, the world's largest dedicated semiconductor foundry, enables us to
offer complete semiconductor manufacturing services to our customers. This
strategic alliance is terminable at will by either party. A termination of this
strategic alliance, and our failure to enter into a substantially similar
alliance, may adversely affect our competitiveness and our revenues and
profitability.
All of our key customers operate in the cyclical semiconductor business
and have in the past, and may in the future, vary order levels significantly
from period to period. Moreover, over half of our customers are fabless
semiconductor companies which outsource substantially all of their wafer
fabrication and packaging requirements. Many of these companies are relatively
small, have limited operating histories and financial resources, and are highly
exposed to the cyclicality of the industry. There can be no assurance that
these customers or any other customers will continue to place orders with us in
the future at the same levels as in prior periods. The loss of one or more of
our significant customers, or reduced orders by any one of them, and our
inability to replace these customers or make up for such orders could reduce
our profitability. In addition, we have in the past reduced, and may in the
future be requested to reduce, our prices to limit the level of order
cancellations. These price reductions would in turn be likely to reduce our
margins and profitability.
We depend on our agents for sales and customer service in North America
and Europe. Any serious interruption in our relationship with these agents, or
substantial loss in their effectiveness, could significantly reduce our
revenues and profitability.
We depend on non-exclusive agents for sales and customer service in North
America and Europe. Our sales agents help us identify customers, monitor
delivery acceptance and payment by customers and, within parameters set by us,
help us negotiate price, delivery and other terms with our customers. Purchase
orders are placed directly with us by our customers. Our customer service
agents provide customer service and after-sales support to our customers.
Currently, our sales and customer service agents perform services only for
us and ASE Test, our subsidiary, but they are not owned or controlled by us.
These agents are free to perform sales and support services for others,
including our competitors. In particular, we may not be able to find an
adequate replacement for these agents or to develop sufficient capabilities
internally on a timely basis. Any serious interruption in our relationship with
these agents or substantial loss in their effectiveness in performing their
sales and customer service functions could significantly reduce our revenues
and profitability.
Our revenue and profitability may decline if we are unable to obtain
adequate supplies of raw materials in a timely manner and at a reasonable
price.
Our packaging operations require that we obtain adequate supplies of raw
materials on a timely basis. Shortages in the supply of raw materials
experienced by the semiconductor industry have in the past resulted in
occasional price increases and delivery delays. For example, in 1997 and 1998,
the industry experienced a shortage in the supply of advanced substrates used
in ball grid array, or BGA, packaging. In 1997 we established ASE Material
Inc., a company engaged in the development, production and sales of substrates
and leadframes, to partially reduce this risk. However, ASE Material will not
meet all of our raw materials requirements and consequently we will remain
dependent on market supply and demand. We cannot assure you that we will be
able to obtain adequate supplies of raw materials in a timely manner and at a
reasonable price. Our revenues and earnings could decline if we were unable to
obtain adequate supplies of high quality raw materials in a timely manner or if
there were significant increases in the costs of raw materials that we could
not pass on to our customers.
Any environmental claims or failure to comply with any present or future
environmental regulations may require us to spend additional funds and may
materially and adversely affect our financial condition and results of
operations.
We are subject to a variety of laws and regulations relating to the use,
storage, discharge and disposal of chemical by-products of, and water used in,
our packaging process. Although we have not suffered material environmental
claims in the past, the failure to comply with any present or future
regulations could result in the assessment of damages or imposition of fines
against us, suspension of production or a cessation of our operations. New
regulations could require us to acquire costly equipment or to incur other
significant expenses. Any failure on our part to control the use of, or
10
adequately restrict the discharge of, hazardous substances could subject us to
future liabilities that may have a material adverse effect on our financial
condition and results of operations.
Our controlling shareholders may take actions that are not in, or may
conflict with, our public shareholders' best interest.
Members of the Chang family own, directly or indirectly, a controlling
interest in our outstanding common shares. See "Item 7 -- Major Shareholders".
Accordingly, these shareholders will continue to have the ability to exercise a
controlling influence over our business, including matters relating to:
o our management and policies;
o the timing and distribution of dividends; and
o the election of our directors and supervisors.
Members of the Chang family may take actions that you may not agree with
or that are not in our or our public shareholders' best interests.
We are an ROC company, and because the rights of shareholders under ROC
law differ from those under U.S. law, you may have difficulty protecting your
shareholder rights.
Our corporate affairs are governed by our Articles of Incorporation and by
the laws governing corporations incorporated in the ROC. The rights of
shareholders and the responsibilities of management and the members of the
board of directors under ROC law are different from those applicable to a
corporation incorporated in the United States. For example, directors and
controlling shareholders of ROC companies do not owe fiduciary duties to
minority shareholders. Therefore, public shareholders of ROC companies may have
more difficulty in protecting their interest in connection with actions taken
by management or members of the board of directors than they would as public
shareholders of a U.S. corporation.
Risks Relating to Taiwan, Republic of China
Strained relations between the Republic of China and the People's Republic
of China could negatively affect our business and the market value of your
investment.
Our principal executive offices and our principal packaging and testing
facilities are located in Taiwan and approximately 75.2% of our net revenues in
2000 from packaging and testing services are derived from our operations in
Taiwan. The Republic of China has a unique international political status. The
People's Republic of China asserts sovereignty over all of China, including
Taiwan. The People's Republic of China government does not recognize the
legitimacy of the Republic of China government. Although significant economic
and cultural relations have been established in recent years between the
Republic of China and the People's Republic of China, relations have often been
strained and the government of the People's Republic of China has indicated
that it may use military force to gain control over Taiwan in some
circumstances, such as the declaration of independence by the Republic of
China. Relations between the Republic of China and the People's Republic of
China have been particularly strained in recent years. Past developments in
relations between the Republic of China and the People's Republic of China have
on occasion depressed the market price of the shares and ADSs of Taiwanese
companies. Relations between the Republic of China and the People's Republic of
China and other factors affecting the political or economic conditions in
Taiwan could have a material adverse effect on our financial condition and
results of operations, as well as the market price and the liquidity of our
ADSs and common shares.
Because a substantial portion of our business and operations are located
in Taiwan, a severe earthquake in the future could severely disrupt the normal
operation of our business and adversely affect our earnings.
Taiwan is susceptible to earthquakes. On September 21, October 22 and
November 2, 1999, Taiwan experienced severe earthquakes which caused
significant property damage and loss of life, particularly in the central part
of Taiwan.
11
These earthquakes damaged production facilities and adversely affected the
operations of many companies involved in the semiconductor and other
industries. We experienced no structural damage to our facilities and no damage
to our machinery and equipment as a result of these earthquakes. There were,
however, interruptions to our production schedule primarily as a result of
power outage caused by the earthquakes. Our production facilities as well as
many of our suppliers and customers and providers of complementary
semiconductor manufacturing services, including foundries, are located in
Taiwan. If our customers are affected, it could result in a decline in the
demand for our packaging and testing services. If our suppliers and providers
of complementary semiconductor manufacturing services are affected, our
production schedule could be interrupted or delayed. As a result, a major
earthquake in Taiwan could severely disrupt the normal operation of business
and have a material adverse effect on our financial condition and results of
operations.
Risks Relating to Ownership of ADSs
If an active market for our ADSs fails be sustained, the price of our ADSs
may fall.
Active, liquid trading markets generally result in lower price volatility
and more efficient execution of buy and sell orders for investors, compared to
less active and less liquid markets. Liquidity of a securities market is often
a function of the volume of the underlying shares that are publicly held by
unrelated parties. Although ADS holders are entitled to withdraw the common
shares underlying the ADSs from the depositary at any time, ROC law requires
that the common shares be held in an account in the ROC or sold for the benefit
of the holder on the Taiwan Stock Exchange. In connection with any withdrawal
of common shares from our ADS facility, the ADSs evidencing these common shares
will be cancelled. Unless additional ADSs are issued, the effect of withdrawals
will be to reduce the number of outstanding ADSs and, if a significant number
of withdrawals are effected, to reduce the liquidity of the ADSs. We cannot
assure you that the ADS depositary will be able to arrange for a sale of
deposited shares in a timely manner or at a specified price, particularly
during periods of illiquidity or volatility with respect to our common shares.
As a holder of ADSs, your voting rights are limited by the terms of the
deposit agreement. You will not be able to exercise your voting rights on an
individual basis.
As a holder of ADRs evidencing ADSs, you will not be able to exercise
voting rights on an individual basis. You may exercise your voting rights with
respect to the underlying common shares only in accordance with the provisions
of the deposit agreement. In particular, for any resolution to be proposed at a
shareholders meeting, only holders who (1) have provided voting instructions in
a timely manner in accordance with the provisions of the deposit agreement, and
(2) together own at least 51% of the outstanding ADSs voting in the same
manner, will be able to vote the common shares representing their ADSs in the
manner set forth in their voting instructions. In all other cases, holders will
be deemed to have authorized and directed the depositary to give a
discretionary proxy to our Chairman or his designee to vote the common shares
represented by their ADSs in any manner he or his designee may wish, which may
not be in the interests of the holders.
During any period in which your ADSs represent the irrevocable right to
receive our common shares evidenced by certificates of payment deposited with
the custodian, you may exercise your voting rights in the same manner as if
your ADSs represented our common shares.
You may not be able to participate in rights offerings and may experience
dilution of your holdings.
We may, from time to time, distribute rights to our shareholders,
including rights to acquire securities. Under the deposit agreement, the
depositary will not distribute rights to holders of ADSs unless the
distribution and sale of rights and the securities to which these rights relate
are either exempt from registration under the Securities Act of 1933 with
respect to all holders of ADSs, or are registered under the provisions of the
Securities Act. We can give no assurances that we can establish an exemption
from registration under the Securities Act, and we are under no obligation to
file a registration statement with respect to these rights or underlying
securities or to endeavor to have a registration statement declared effective.
In addition, if the depositary is unable to obtain the requisite approval from
the Central Bank of China for the conversion of the subscription payments into
NT Dollars or if the depositary determines that it is unlikely to obtain the
required approval, we may decide with the depositary not to make the rights
available to holders of ADSs.
12
Accordingly, holders of ADSs may be unable to participate in our rights
offerings and may experience dilution of their holdings as a result.
If the depositary is unable to sell rights that are not exercised or not
distributed or if the sale is not lawful or reasonably practicable, it will
allow the rights to lapse, in which case you will receive no value for these
rights.
Changes in exchange controls which restrict your ability to convert
proceeds received from your ownership of ADSs may have an adverse effect on the
value of your investment.
Under current ROC law, the depositary, without obtaining further approvals
from the Central Bank of China or any other governmental authority or agency of
the ROC, may convert NT Dollars into other currencies, including U.S. Dollars,
for:
o the proceeds of the sale of common shares represented by ADSs or
received as stock dividends from the common shares; and
o any cash dividends or distributions received from the common shares.
In addition, the depositary may also convert into NT Dollars incoming
payments for purchases of common shares for deposit in the depositary receipt
facility against the creation of additional ADSs. The depositary may be
required to obtain foreign exchange approval from the Central Bank of China on
a payment-by-payment basis for conversion from NT Dollars into foreign
currencies of the proceeds from the sale of subscription rights of new common
shares. Although it is expected that the Central Bank of China will grant this
approval as a routine matter, we cannot assure you that in the future any
approval will be obtained in a timely manner, or at all.
Under current ROC law, a holder, without obtaining further approval from
the Central Bank of China, may convert from NT Dollars into other currencies,
including U.S. Dollars, the following:
o the proceeds of the sale of any underlying common shares withdrawn
from the depositary receipt facility or received as a stock dividend;
and
o any cash dividends or distribution received.
Under the ROC Foreign Exchange Control Law, the Executive Yuan of the ROC
government may, without prior notice but subject to subsequent legislative
approval, impose foreign exchange controls in the event of, among others, a
material change in international economic conditions. We cannot assure you that
foreign exchange controls or other restrictions will not be introduced in the
future.
The market value of your investment may fluctuate due to the volatility of
the ROC securities market.
The ROC securities market is smaller and more volatile than the securities
markets in the United States and in other European countries. The Taiwan Stock
Exchange has experienced substantial fluctuations in the prices and volumes of
sales of listed securities and there are currently limits on the range of daily
price movements on the Taiwan Stock Exchange. The Taiwan Stock Exchange Index
peaked at 12,495.3 in February 1990, and subsequently fell to a low of 2,560.5
in October 1990. On September 25, 2000, the Taiwan Stock Exchange Index closed
at 6,667.5. The Taiwan Stock Exchange has experienced problems such as market
manipulation, insider trading and payment defaults. The recurrence of these or
similar problems could have a material adverse effect on the market price and
liquidity of the securities of ROC companies, including our ADSs and common
shares, in both the domestic and the international markets.
You may have difficulty enforcing any judgment obtained in the United
States against us or our directors and supervisors or executive officers.
Our company is incorporated under the laws of the ROC. A substantial
majority of our directors, supervisors and executive officers reside in the
ROC. In addition, a substantial portion of our assets and the assets of those
persons are
13
located in the ROC. As a result, it may not be possible for investors to effect
service of process upon us or those persons within the United States, or it may
be difficult to enforce against us or them judgments obtained in the U.S.
courts, including those based upon the civil liability provisions of the
federal securities laws of the United States. In addition, we have been advised
by Lee and Li, our ROC counsel, that there is doubt as to whether ROC courts
will enter judgments in original actions brought in ROC courts based solely
upon the civil liability provisions of the federal securities laws of the
United States.
Purchasers of ADSs may incur dilution as a result of the practice among
ROC technology companies of issuing stock bonuses to employees.
Similar to other ROC technology companies, we issue from time to time
bonuses in the form of common shares valued at par under our employee stock
bonus plan. Because these shares are issued at par value, the issuance of these
shares may have a dilutive effect on your ADSs.
Item 4. Information on the Company.
HISTORY AND DEVELOPMENT OF THE COMPANY
Our legal name is Advanced Semiconductor Engineering, Inc. and we are also
known as "ASE". We were incorporated on March 23, 1984 under the laws of the
Republic of China as a company limited by shares. Our principal place of
business is at 26 Chin Third Road, Nantze Export Processing Zone, Nantze,
Kaohsiung, Taiwan, Republic of China and our phone number is 886-7-361-7131.
Our agent for service of process in the U.S. is CT Corporation System, 111
Eighth Avenue, New York, New York 10011and our agent's phone number is
212-894-8940.
We were established in 1984 as a packaging and testing company, with
facilities in the Nantze Export Processing Zone. Our business grew and we were
listed on the Taiwan Stock Exchange in 1989. In 1990, we acquired ASE Test
Taiwan, which provides our customers with testing services. In 1991, we
established ASE Test Malaysia, which also provides our customers with testing
and packaging services. In 1996 we established ASE Philippines, which conducts
testing and packaging services. In 1997 we established ASE Materials, which
manufactures etched leadframes, and assists us in reducing our dependency on
outsourced leadframes. In 1997 we constructed a new facility in Kaohsiung for
packaging services and established a research and development laboratory.
ASE Chung Li and ASE Korea
In July 1999, we purchased Motorola's Semiconductor Products Sector
operations in Chung Li, Taiwan and Paju, South Korea for the packaging and
testing of semiconductors with principally communications, consumer and
automotive applications. The businesses are now operated by ASE Chung Li and
ASE Korea. We acquired substantially all of the assets of ASE Chung Li for a
base price of US$150.0 million in cash, consisting of an initial payment of
US$80.0 million at closing and an additional US$70.0 million payable over three
years if sales volume targets are met. We acquired 100% of the outstanding
shares of ASE Korea for a base price of US$140.0 million in cash, consisting of
an initial payment of US$36.0 million and an additional US$104.0 million
payable over five years. In addition to the combined base price of US$290.0
million, we also paid an aggregate of approximately US$60.1 million in cash to
purchase capital assets at both facilities which were acquired after January 1,
1999 and specified inventories and cash positions at both facilities. Under the
acquisition agreements, ASE Inc. acquired a 70.0% interest in each of the two
businesses, and ASE Test acquired the remaining 30.0% interest. This division
of the investment reflected in part our estimate of the relative packaging and
testing values at the facilities. Both facilities provide semiconductor
packaging and testing services for Motorola's Semiconductor Products Sector,
and will continue to do so for at least three to five years following the
completion of the acquisition under manufacturing services agreements with
Motorola.
ISE Labs
In May 1999, we acquired 70.0% of the outstanding shares of ISE Labs, a
semiconductor testing company with principal facilities located in Fremont and
Santa Clara, California. The total purchase price for our 70.0% equity interest
in ISE Labs was US$98.0 million. The stock purchase agreement provides that in
the event ISE Labs (1) does not consummate an initial public offering of its
common stock prior to December 31, 2001 at or above a specified price or
14
(2) disposes of certain of its material assets, which in the aggregate is
greater than 15% of the total assets of ISE Labs as shown on the most recent
audited balance sheet of ISE Labs, then we will be obligated to purchase the
remaining shares for US$42 million plus accrued interest. The purchase price is
payable either in cash or in shares of ASE Test at the option of the holders of
the remaining shares, who are primarily founders and employees of ISE Labs or
its predecessors.
In April, July and November, 2000, we purchased additional shares of ISE
Labs at an aggregate purchase price of US$70.9 million. As a result of these
purchases, we owned 80.4% of the outstanding shares of ISE Labs as of December
31, 2000.
Universal Scientific
From February through July of 1999, we purchased 22.6% of the outstanding
shares of Universal Scientific for approximately NT$3,532.5 million (US$115.0
million), principally through open market purchases on the Taiwan Stock
Exchange. We subsequently increased our holding to 23.3% following the open
market purchase of additional shares in July and August of 2000. Six out of the
nine directors on the Universal Scientific board of directors, including the
chairman, are our representatives.
15
BUSINESS OVERVIEW
We believe we are one of the world's largest independent providers of
semiconductor packaging services and, together with our subsidiary ASE Test
Limited, one of the world's largest independent providers of semiconductor
testing services, including front-end engineering testing, wafer probing and
final testing services. We believe that we are better positioned than our
competitors to meet the requirements of semiconductor companies worldwide for
outsourced packaging and testing services across a wide range of end use
applications because of:
o our broad range of advanced semiconductor packaging and testing
services;
o our expertise in product and process technology for the manufacture
of increasingly lighter and thinner semiconductor packages with lower
power consumption and better thermal dissipation characteristics;
o our expertise in interconnect materials and assembly of electronics
boards;
o our financial position which enables us to make significant
investments for future growth through both the expansion of existing
capacity and the acquisition of new businesses, technologies and
operations;
o our experience in integrating acquired operations and using the
acquired operations to provide services to their former owners;
o our strategic geographic locations with experienced teams in key
centers for outsourced semiconductor manufacturing; and
o our strategic alliance with Taiwan Semiconductor Manufacturing
Company Limited, or TSMC, the world's largest dedicated semiconductor
foundry, to provide complete turnkey services.
We plan to continue to expand our business and operations through both
internal growth and acquisitions in order to enhance our technological,
processing and materials capabilities, broaden our geographic coverage and
increase our production capacity, economies of scale and management resources.
In 2000, we incurred consolidated capital expenditures of NT$31,463.5 million
(US$948.6 million) for the expansion of our facilities. In addition, in 1999
and 2000 we acquired the semiconductor packaging and testing facilities of
Motorola in Taiwan and Korea, a 80.4% interest in ISE Labs, a front-end
engineering testing service provider, and a controlling 23.3% interest in
Universal Scientific, a leading contract provider of electronics board assembly
services in Taiwan.
We offer packaging and testing services separately and on a turnkey basis.
Turnkey services consist of integrated packaging, testing and direct shipment
of semiconductors to end users designated by our customers. Through our
strategic alliance with and close geographic proximity to TSMC, we are able to
expand the traditional scope of turnkey services to offer total semiconductor
manufacturing services to our customers, including access to wafer fabrication
services, also called foundry services, in addition to our packaging, testing
and direct shipment services. We are developing similar strategic alliances
with other major foundries and providers of other complementary semiconductor
manufacturing services. Through the effective implementation of our strategy,
we have been able to address the advanced semiconductor engineering
requirements of our customers for packaging and testing services. Our global
base of over 200 customers includes leading semiconductor companies across a
wide range of end use applications:
o Advanced Micro Devices, Inc.
o Altera Corporation
o ATI Technologies Inc.
o Cirrus Logic International Ltd.
o Conexant Systems, Inc.
16
o Delphi Automotive Systems Corp.
o DSP Group
o LSI Logic Corporation
o Motorola, Inc.
o On Semiconductor Corp.
o Philips Electronics NV
o Qualcomm Incorporated
o ST Microelectronics Pte Ltd.
o VIA Technologies, Inc.
Industry Background
General
Semiconductors are the basic building blocks used to create an increasing
variety of electronic products and systems. Continuous improvements in
semiconductor process and design technologies have led to smaller, more complex
and more reliable devices at a lower cost per function. These improvements have
resulted in significant performance and price benefits to manufacturers of
electronic systems. As a result, semiconductor demand has grown substantially
in our primary markets of communications and personal computer equipment, and
has experienced increased growth in additional markets such as consumer
electronic devices, automotive products and industrial automation and control
systems.
Outsourcing Trends in Semiconductor Manufacturing
Historically, semiconductor companies designed, manufactured, packaged and
tested semiconductors primarily in their own facilities. In recent years, there
has been a trend in the industry to outsource stages in the manufacturing
process. Virtually every significant stage of the manufacturing process can be
outsourced. Wafer foundry services and semiconductor packaging services are
currently the largest segments of the independent semiconductor manufacturing
services market. Most of the world's major integrated device manufacturers use
some independent manufacturing services to maintain a strategic mix of internal
and external manufacturing capacity. We believe that many of these
manufacturers are significantly reducing their investments in new semiconductor
packaging and testing facilities and that several are contemplating the
divestment of their in-house packaging and testing operations. Motorola's sale
to us of its packaging and testing operations in Taiwan and Korea in 1999 is an
example of this divestment trend.
The availability of technologically advanced independent manufacturing
services has also enabled the growth of "fabless" semiconductor companies that
focus on semiconductor design and marketing and outsource their fabrication,
testing and packaging requirements to independent companies. Similarly, the
availability of technologically advanced independent manufacturing services has
encouraged "systems companies," which traditionally outsourced the
manufacturing of semiconductor components used in the assembly of their systems
products to integrated device manufacturers, to increasingly outsource to
independent semiconductor manufacturing companies.
We believe the outsourcing of semiconductor manufacturing services will
increase in the future from current levels for many reasons, including the
following:
Technological Sophistication and Significant Capital Expenditure.
Semiconductor manufacturing processes have become highly complex, requiring
substantial investment in specialized equipment and facilities and
sophisticated engineering and manufacturing expertise. In addition, product
life cycles have been shortening, magnifying the need to
17
continuously upgrade or replace manufacturing equipment to accommodate new
products. As a result, new investments in in-house packaging, testing and
fabrication facilities are becoming less desirable to integrated device
manufacturers not only because of the high investment costs as well as their
inability to achieve sufficient economies of scales and utilization rates in
order to be competitive with the independent service providers. Independent
packaging, testing and foundry companies, on the other hand, are able to
realize the benefits of specialization and achieve economies of scale by
providing services to a large base of customers across a wide range of
products. This enables them to reduce costs and shorten production cycles
through high capacity utilization and process expertise. In the process, they
are also able to focus on discrete stages of semiconductor manufacturing and
deliver services of superior quality.
Focus on Core Competencies. As the cost of semiconductor manufacturing
facilities increases, semiconductor companies are expected to further outsource
their semiconductor manufacturing requirements in order to focus their
resources on core competencies, such as semiconductor design and marketing.
Time-to-Market Pressure. The increasingly short product life cycle has
accelerated time-to-market pressure for semiconductor companies, leading them
to rely increasingly on outsourced suppliers as a key source for effective
manufacturing solutions.
Growth of Fabless Semiconductor Companies and Outsourcing by Systems
Companies. The substantial growth in the number of fabless semiconductor
companies and systems companies that increasingly outsource their manufacturing
requirements to independent companies will also continue to drive growth in the
market for independent foundry, packaging and testing services.
The Semiconductor Industry in Taiwan and Southeast Asia
The semiconductor industry in Taiwan has been a leader in, and a major
beneficiary of, the trend in outsourcing. Most semiconductor companies in
Taiwan are engaged in only one or two stages of the semiconductor manufacturing
process. As a result, Taiwan's semiconductor industry tends to be more
efficient as companies focus on particular stages of the semiconductor
manufacturing process, develop economies of scale and maintain higher capacity
utilization rates.
In addition, because companies which provide the major stages of the
production process are located near one another, Taiwanese semiconductor
companies are attractive to customers who wish to outsource several parts of
their semiconductor manufacturing. For instance, a semiconductor company in the
United States could obtain foundry, packaging, testing, and drop shipment
services from companies located near one another in Taiwan, and as a result,
reduce cycle times and unit costs while streamlining logistics. Moreover, a
significant portion of the manufacturing capacity for the global electronics
industry is located in Asia, further strengthening this competitive advantage.
Through this specialization and a close network of customers and supplier
partnerships, semiconductor companies in Taiwan can achieve superior economies
of scale, flexibility, and customer responsiveness. Furthermore, Taiwan also
has an educated labor pool and a large number of engineers suitable for
sophisticated manufacturing industries such as semiconductors.
As a result of the growth of the global semiconductor market, the
semiconductor industry in Taiwan has in recent years made significant capital
expenditures to expand capacity and technological capabilities. The ROC
government has also provided tax incentives, long-term loans at favorable rates
and research and development support, both directly and indirectly through
support of research institutes and universities. As a result of investments
made in recent years, Taiwan has achieved substantial market share in the
outsourced semiconductor manufacturing business. Furthermore, the growth of
Taiwan's electronics industry, particularly in personal computer design and
manufacturing, has created substantial local demand for semiconductors.
Many of the factors that contributed to the growth of the semiconductor
industry in Taiwan have also contributed to the recent development of the
semiconductor industry in Southeast Asia. Access to expanding semiconductor
foundry services in Singapore, convenient proximity to major downstream
electronics manufacturing operations in Malaysia, Singapore and Thailand,
government sponsored infrastructure support, tax incentives and pools of
skilled engineers and labor at relatively low cost have all encouraged the
development of back-end semiconductor service operations in Southeast Asia. The
downstream electronics manufacturers in Southeast Asia have typically focused
on products used in the communications, industrial and consumer electronics and
personal computer peripheral sectors. The proximity
18
to both semiconductor foundries and end users has influenced local and
international semiconductor companies increasingly to obtain packaging, testing
and drop shipment services from companies in Southeast Asia.
Overview of Semiconductor Manufacturing Process
The manufacturing of semiconductors is a complex process that requires
increasingly sophisticated engineering and manufacturing expertise. The
following table sets forth the main stages of the manufacturing process. We are
involved in all stages of the semiconductor manufacturing process except
circuit design and wafer fabrication.
Process Description
- ------- -----------
Circuit Design The design of a semiconductor is developed
by laying out circuit components and
interconnections. A complex circuit may be
designed with as many as 20 layers of
patterns or more.
Front-End Engineering Test Throughout and following the design
process, prototype semiconductors undergo
front-end engineering testing, which
involves software development, electrical
design validation, reliability and failure
analysis.
Wafer Fabrication Process begins with the generation of a
photomask through the definition of the
circuit design pattern on a photographic
negative, known as a mask, by an electron
beam or laser beam writer. These circuit
patterns are transferred to th wafers using
various advanced processes.
Wafer Probe Each individual die is electrically tested,
or probed, for defects. Dies that fa this
test are marked to be discarded.
Packaging Packaging, also called assembly, is the
processing of bare semiconductors into
finished semiconductors and serves to
protect the die and facilitate electrical
connections and heat dissipation. The
patterned silicon wafer received from our
customers are diced by means of diamond
saws into separate dies, also called chips.
Each die is attached to a leadframe or a
laminate (plastic or tape substrate by
epoxy resin. A leadframe is a miniature
sheet of metal, generally made of copper
and silver alloys, on which the pattern of
input/output leads has been cut. On a
laminate substrate, typically used in ball
grid array packages, the leads take the
shape of small bumps or balls. Leads on the
lead frame or the substrate are connected
by extremely fine gold wires to the
input/output terminals on the chips,
through the use of automated machines known
as "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, either from the edges of the
package as in the case of the leadframe
packages, or in the form of small bumps on
a surface of the package as in the case of
ball grid array or other laminate packages.
Final Test Final testing is conducted to ensure that
the packaged semiconductor device meets
performance specifications. Final testing
involves using sophisticated testing
equipment and customized software programs
to electrically test a number of attributes
of packaged semiconductors, including
functionality, speed, predicted endurance
and power consumption. The final testing of
semiconductors is categorized by the
functions of the semiconductors tested into
logic/mixed-signal final testing, and
memory final testing. Memory final testing
typically requires simpler test software
but longer testing time per device tested.
19
Strategy
Our objective is to provide leading-edge semiconductor packaging and
testing solutions which set industry standards and facilitate the industry
trend to outsource semiconductor manufacturing requirements. The principal
elements of our strategy are to:
Expand Strategically Our Production Capacity and Product Expertise
We plan to continue to expand strategically our production capacity and
product expertise, both through internal growth and through acquisitions, to
address the increasing demand for independent semiconductor packaging and
testing services. We evaluate acquisition opportunities on the basis of access
to new markets and technology, increased proximity to our existing and
potential customers, the enhancement of our production capacity and economies
of scale and our management resources.
In 1999, we acquired ISE Labs, an independent testing company with
operations in California, Hong Kong and Singapore, as well as ASE Chung Li and
ASE Korea, formerly the semiconductor packaging and testing operations of
Motorola located in Chung Li, Taiwan and Paju, Korea. We acquired ISE Labs with
a view to combining its front-end engineering testing capabilities with our
final testing capabilities to provide our customers with complete semiconductor
packaging and testing solutions. Through the acquisition of ASE Chung Li and
ASE Korea, we gained access to specialized packaging and testing technologies
with a focus on wireless communications and automotive end-products. As part of
the acquisition, we also entered into service agreements for Motorola's
continuing business at the Taiwan and Korea facilities. Our acquisition of the
Motorola operations will serve as a model for our future acquisitions of
in-house packaging and testing facilities of integrated device manufacturers.
We believe that the success of the Motorola acquisition will encourage
other integrated device manufacturers to divest their in-house operations to us
and then retain us to satisfy the packaging and testing requirements formerly
met by their in-house operations. We continue to evaluate acquisition
opportunities and plan to make additional acquisitions in the future if
suitable opportunities arise. Although our general strategy is to expand or
invest in new packaging facilities through ASE Inc. and new testing facilities
through ASE Test, we will continue to make these determinations on a
case-by-case basis. For opportunities such as the former Motorola facilities in
Taiwan and Korea with integrated packaging and testing operations, we may
continue to divide our investments among group companies to reflect our
estimates of the relative packaging and testing values at those facilities.
Enhance Our Technological, Processing and Materials Capabilities
We intend to continue our focus on developing advanced process and product
technology in order to provide our customers with leading-edge solutions for
their semiconductor packaging and testing requirements. Our expertise in
packaging technology has enabled us to develop solutions such as fine-pitch
bonding for leadframe packages, stacked die configuration for ball grid arrays
and bump chip carrier packaging for communications applications.
We intend to enhance our expertise both upstream and downstream in the
semiconductor manufacturing process in order to better serve our customers in
our core services of packaging and testing. As product lives and production
cycles shorten and packaging and testing technologies advance more rapidly, our
customers increasingly value our ability, as a downstream service provider, to
work with them as an integral and strategic partner in the upstream development
of their products. Our acquisition of the front-end engineering testing
capabilities of ISE Labs has enhanced greatly our capabilities to participate
in the earlier stages of circuit design and the semiconductor manufacturing
process. Our establishment of ASE Material for the production of interconnect
materials such as leadframes and substrates has provided us with expertise in
interconnect technology, which has become an increasingly critical part of the
product development stage for our customers in terms of cost and production
time.
The increasing miniaturization of semiconductors and the growing
complexity of interconnect technology have led to the blurring of the
traditional distinctions among assembly at different (that is, upstream and
downstream) levels of integration: chip, module, board and systems. Our
acquisition of a controlling interest in Universal Scientific has given us
access to process and product technologies at the levels of module, board and
systems assembly and test, which helps us to better anticipate industry trends
and the needs of our end users, who are the end-clients of our customers.
20
Strengthen and Develop Strategic Alliances with Providers of Complementary
Manufacturing Services
We intend to strengthen existing and develop new strategic alliances with
providers of other complementary semiconductor manufacturing services, such as
foundries, as well as equipment vendors, raw material suppliers and technology
research institutes, in order to offer our customers total semiconductor
manufacturing solutions covering all stages of the manufacturing of their
products from design to shipment.
Since 1997, we have maintained a strategic alliance with TSMC, the world's
largest dedicated semiconductor foundry, which designates the ASE Group as the
non-exclusive preferred provider of packaging and testing services for
semiconductors manufactured by TSMC. Through our strategic alliance with and
close geographic proximity to TSMC, we are able to offer our customers a total
semiconductor manufacturing solution that includes access to foundry services
in addition to our packaging, testing and direct shipment services.
We are also working with TSMC in developing the next generation of
packaging product technology. We are developing similar strategic relationships
with other major foundries and providers of other complementary semiconductor
manufacturing services in Taiwan and Southeast Asia with which we already have
close business relationships.
Better Serve Our Customers Through Our Diversified Geographic Presence
We are located in close geographic proximity to the facilities of our
customers and providers of complementary semiconductor manufacturing services,
including foundries, in key centers for outsourced semiconductor manufacturing.
This proximity enables us to work closely with our customers, and other service
providers, enhances our responsiveness to the requirements of our customers and
shortens production cycles by reducing the time required to ship semiconductors
from one stage of the manufacturing process to the next. We maintain packaging
or testing facilities in the following strategic locations in order to better
serve our customers:
o Taiwan -- currently the largest center for outsourced
semiconductor manufacturing in Asia with its high concentration of
foundries, customers and end users;
o Malaysia and Singapore -- the emerging center for outsourced
semiconductor manufacturing in Southeast Asia with a concentration of
integrated device manufacturers;
o Korea -- a center for the manufacturing of memory devices and
semiconductors for communications applications with a concentration
of integrated device manufacturers specializing in these products;
and
o Silicon Valley in California -- the pre-eminent center for
semiconductor design with a concentration of fabless customers.
Achieve Economies of Scale From Our Expanded Production Capacity
We are re-mapping our organizational management structure to better
integrate our operations in areas such as research and development, purchasing,
manufacturing processes and materials, marketing and sales and information
technology systems across our various facilities. Operations that were formerly
conducted more or less independently at our individual facilities will be
coordinated more closely and come under more centralized management. The
pooling of resources in a matrix organizational management structure will
enable all of our facilities to realize the benefits of the expanded scale of
our aggregate production, such as reduced cost of raw materials and equipment
purchased through collective bargaining with various raw materials suppliers
and equipment vendors, a broader range of solutions and services, enhanced
geographic coverage and increased flexibility in capacity allocation.
We are developing procedures which will facilitate the sharing of the
different expertise in process technology and practical know-how among our
different facilities. The sharing of best practices will significantly reduce
the amount of time required by our facilities to install and operate a new
production line for the packaging or testing of new product types for which one
of our facilities may have greater expertise or know-how.
21
Principal Products and Services
We offer a broad range of semiconductor packaging products and testing
services. Our packaging products are based primarily on surface mount
technology, also known as SMT, and employ either leadframes or laminate
substrates as interconnect materials. Our packaging products are used in a wide
range of end use markets, including for communications, consumer, industrial,
automotive, personal computer and other applications. Our testing services
include front-end engineering testing, which is performed during and following
the initial circuit design stage of the semiconductor manufacturing process;
wafer probe; final testing and other related semiconductor testing services. We
offer our customers the integrated packaging, testing and direct shipment of
semiconductors to end users designated by our customers. In 2000, our packaging
revenues accounted for 74.7% of our net revenues and our testing revenues
accounted for 25.1% of our net revenues.
Packaging
We offer a broad range of semiconductor packages using primarily SMT
technology, including:
o plastic leaded chip carrier packages, also called PLCC;
o quad flat packages, also called QFP;
o thin quad flat packages, also called TQFP;
o small outline plastic packages, also called SOP;
o small outline plastic J-bend packages, also called SOJ;
o thin small outline plastic packages, also called TSOP; and
o ball grid array, also called BGA.
Within our packaging product portfolio, we focus on the assembly of
semiconductor packages for which there is expected to be strong demand,
including high pin-count SMT packages, such as QFPs and TQFPs, both of which
are based on leadframes, and SMT packages based on laminate substrates, such as
BGAs.
In SMT, the leads on semiconductors and other electronic components are
soldered to the surface of the printed circuit board rather than inserted into
holes, as compared with the older pin-through-hole technology, also called PTH.
Our principal PTH product is plastic dual in-line packages, also called PDIP.
SMT can accommodate a substantially higher number of leads than PTH, enabling
the board to interconnect a greater number of integrated circuits. This in turn
allows a reduction in the number of integrated circuits used and, together with
tighter component spacing, permits a reduction in the dimensions of the printed
circuit board. Because of their high lead counts, most very large scale
integrated circuits are configured for surface mounting. Additionally, SMT
allows components to be placed on both sides of the board, enabling even
greater density. The substantially finer lead-to-lead spacing, or pitch, in SMT
products requires a packaging process which is more exacting than the packaging
process for PTH products.
Leadframe-based products are the traditional SMT packages which are
packaged by connecting the die, using wire bonders, to the leadframe with gold
wire leads. As the packaging technology improves, the number of leads per
package increases. In the process, packages have evolved from the lower
pin-count plastic leaded chip carriers to quad flat packages. The following
table sets forth our principal leadframe-based packaging products.
22
Number
Package Format of Leads Description End Use Applications
- -------------- -------- ----------- --------------------
Quad Flat Package 32-240 QFPs designed for advanced Multimedia applications, cellular
(QFP)/Thin QFP (TQFP) processors and controllers, ASICs, and phones, personal computers,
DSPs. automotive and industrial products,
hard disk drives, communication
boards such as ethernet, integrated
services digital network, also called
ISDN, and notebook computers.
Plastic Leaded Chip Carrier 20-84 Designed for applications that do not Personal computers, scanners,
(PLCC) require low profile package with high electronic games and monitors.
density of interconnects.
Small Outline Plastic Package 8-54 Leadframe packages designed for Consumer audio/video and
(SOP)/ Thin SOP (TSOP) memory devices including logic and entertainment products, cordless
analog devices, SRAM, DRAM, fast telephones, pagers, fax machines,
static RAM, also called FSRAM, and printers, copiers, personal computer
flash memory devices. peripherals, automotive parts,
telecommunications products,
recordable optical disks and hard disk
drives.
Small Outline Plastic J-Bend 20-44 Package designed for memory and low DRAM memory devices,
Package (SOJ) pin-count applications microcontrollers, digital analog
conversions and audio/video
applications.
Plastic Dual In-line Package 28-42 Package used in consumer electronic Telephones, televisions, audio/video
(PDIP) products. applications and computer peripherals.
Laminate-Based BGA Products.
An important subset of SMT packages are BGA packages. In BGA technology,
the leads used to connect the semiconductor device to the circuit board take
the shape of small bumps or balls which are attached to the bottom of the
package surface, as opposed to traditional leadframe technology which has leads
protruding from the edges like pins. These small bumps or balls are typically
distributed evenly across the bottom surface of the package, allowing greater
distance between individual leads. BGA packages typically feature higher
pin-count, smaller package sizes, greater reliability, superior electrical
signal transmission, and better heat dissipation than traditional
leadframe-based packaging technology. BGA packages are generally used in
applications where size, density and performance are important considerations,
such as cellular handsets and high pin-count graphic chipsets. We also have
capabilities in stacked-die BGA, which assembles multiple dies into a single
package. As an extension to stacked-die BGA, we also assemble
systems-in-a-package products, which are integrated combinations of logic chips
assembled into the same package. We believe that we are among the leaders in
these packaging technologies.
The industry demand for BGA packages has grown significantly in recent
years. In light of the continuing demand for packages with higher pin-counts
and smaller sizes, we commenced in July 2000 volume production in flip chip
packages. For interconnections within the package, flip chip BGA technology
replaces wire bonding with wafer bumping, which requires tiny solder balls,
instead of wires, to be placed on top of dies for connection to substrates. As
compared with more traditional packages which allow input/output connection
only on the boundaries of the dies, flip chip packages significantly enhance
the input/output flow by allowing input/output connection over the entire
surface of the dies.
In addition, we are currently developing land grid array, or LGA, a type
of BGA package. Because LGA packages do not employ solder balls, it is a
lead-free packaging solution. LGA packages are designed for semiconductors
requiring a small, thin and light package. We expect LGA packages to be used in
end use applications such as portable personal computers, personal digital
assistants and cellular phones.
23
The following table sets forth our principal BGA packaging products.
Number
Package Format of Leads Description
- -------------- -------- -----------
Plastic BGA 119-665 Designed for semiconductors which require the enhanced performance
provided by plastic BGA, including personal computer chipsets, graphic
controllers and microprocessors, ASICs, DSPs and memory devices.
Applications include wireless products, cellular phones, global positioning
systems, notebook computers, disk drives and video cameras.
Map BGA 36-256 Smaller and thinner than conventional plastic BGA designed for
semiconductors such as memory, analog, and ASICs requiring a smaller
package. Applications include cellular and other telecommunications and
wireless systems, global positioning systems, notebook/subnotebook
computers and personal digital assistants, also called PDAs.
Film BGA 112-280 Substrate-based package that has higher performance and lower profile than
plastic BGA. Applications include cellular phones, pagers, wireless
communications, DSPs and micro-controller applications and high
performance disk drives.
Viper BGA 256-480 Designed for memory devices such as flash memory devices, SRAM, DRAM
and FSRAM, microprocessors/controllers and high value ASICs requiring a
low profile, light and small package. Applications include cellular and other
telecommunications products, wireless and consumer systems, PDAs, disk
drives, notebook/subnotebook computers and memory boards.
Stacked-Die BGA 66-256 Combination of multiple dies in a single package enables package to have
multiple functions within a small surface area. Applications include cellular
phones, local area networks, also called LAN, graphic processors, digital
cameras and pagers.
Flip Chip BGA 48-1500 Using advanced interconnect technology, flip chip BGA package allows
higher density of input/output connection over the entire surface of the dies.
Designed for high performance semiconductors that require high density of
interconnects in a small package. Applications include high performance
networking and graphics and processor applications.
Systems-in-a-Package 256-665 Integrated combination of microprocessor, logic controller and memory chips
assembled in one package. Applications include digital televisions, fax
modems, personal computer peripherals, CD players and copiers.
The following table sets forth, for the periods indicated, the percentage
of our packaging revenues accounted for by each package type.
Year Ended December 31,
------------------------------------------------
1998 1999 2000
-------- -------- --------
(percentage of packaging revenues)
Package Types:
BGA............ 22.0% 35.3% 44.2%
TQFP........... 15.9 18.4 18.2
QFP............ 35.4 22.0 14.6
SOJ/SOP........ 11.2 9.8 9.9
PLCC........... 8.2 4.4 3.0
PDIP........... 6.5 4.9 3.0
24
Year Ended December 31,
------------------------------------------------
1998 1999 2000
-------- -------- --------
(percentage of packaging revenues)
Other.......... 0.8 5.2 7.1
----- ----- -----
Total........ 100.0% 100.0% 100.0%
===== ===== =====
Testing
We provide a complete range of semiconductor testing services, including
front-end engineering testing, wafer probing, final testing of
logic/mixed-signal and memory semiconductors and other test-related services.
The testing of semiconductors requires technical expertise and knowledge
of the specific applications and functions of the semiconductors tested. We
believe that our testing services employ technology and expertise which are
among the most advanced in the semiconductor industry. In addition to
maintaining different types of testing equipment, which enables us to test a
variety of semiconductor functions, we work closely with our customers to
design effective testing and conversion programs on multiple equipment
platforms for particular semiconductors.
In recent years, complex, high-performance logic/mixed-signal
semiconductors have accounted for an increasing portion of our overall net
testing revenues. As the testing of complex, high-performance semiconductors
requires a large number of functions to be tested using more advanced testing
equipment, these products generate higher revenues per unit of testing time, as
measured in central processing unit, or CPU, seconds.
Front-End Engineering Testing. We provide front-end engineering testing
services, including software program development, electrical design validation,
and reliability and failure analysis.
o Software Program Development. Design and test engineers develop a
customized software program and related hardware to test the semiconductor on
advanced testing equipment. A customized software program is required to test
the conformity of each particular semiconductor type to its unique
functionality and specification.
o Electrical Design Validation. A prototype of the designed semiconductor
is submitted to electrical tests using advanced test equipment, customized
software programs and related hardware. These tests assess whether the
prototype semiconductor complies with a variety of different operating
specifications, including functionality, frequency, voltage, current, timing
and temperature range.
o Reliability Analysis. Reliability analysis is designed to assess the
long-term reliability of the semiconductor and its suitability of use for
intended applications. Reliability testing can include "burn-in" services,
which electrically stress a device, usually at high temperature and voltage,
for a period of time long enough to cause the failure of marginal devices.
o Failure Analysis. In the event that the prototype semiconductor
does not function to specifications during either the electrical design
validation or reliability testing processes, it is typically subjected to
failure analysis to determine why it did not perform as anticipated. As part of
this analysis, the prototype semiconductor may be subjected to a variety of
analyses, including electron beam probing and electrical testing.
Wafer Probing. Wafer probing is the step immediately before the packaging
of semiconductors and involves visual inspection and electrical testing of the
processed wafer for defects to ensure that it meets our customers'
specifications. Wafer probing services require expertise and testing equipment
similar to that used in logic/mixed-signal testing, and several of our testers
are also used for wafer probing.
Logic/Mixed-Signal Final Testing. We conduct final tests of a wide variety
of logic/mixed-signal semiconductors, with the number of leads ranging in the
single digits to several hundreds and operating frequencies of up to 400 MHZ,
which is at the high end of the range for the industry. The products we test
include semiconductors used for networking and wireless communications,
graphics and disk controllers for home entertainment and personal computer
applications, as well as a variety of application specific integrated circuits,
or ASICs, for various specialized applications.
25
Memory Final Testing. We provide final testing services for a variety of
memory products, such as static random access memory, or SRAM, dynamic random
access memory, or DRAM, and single-bit electronical programmable read-only
memory semiconductors.
Other Test-Related Services. We provide a broad range of additional
test-related services, including:
o Burn-in Testing. Burn-in is the process of electrically stressing a
device, usually at high temperature and voltage, for a period of time to
simulate the continuous use of the device to determine whether this use would
cause the failure of marginal devices.
o Dry Pack. Process which involves heating semiconductors in order to
remove moisture before packaging and shipping to customers.
o Tape and Reel. Process which involves transferring semiconductors from a
tray or tube into a tape-like carrier for shipment to customers.
Drop Shipment Services. We offer drop shipment services for shipment of
semiconductors directly to end users designated by our customers. Drop shipment
services are provided mostly in conjunction with logic/mixed-signal testing. We
provide drop shipment services to a majority of our testing customers. A
substantial portion of our customers at each of our facilities have qualified
these facilities for drop shipment services. Since drop shipment eliminates the
additional step of inspection by the customer before shipment to the end user,
quality of service is a key consideration. We believe that our ability to
successfully execute our full range of services, including drop shipment
services, is an important factor in maintaining existing customers as well as
attracting new customers.
The following table sets forth, for the periods indicated, the percentage
of our testing revenues accounted for by each type of testing service.
Year Ended December 31,
---------------------------------------------
1998 1999 2000
------ ------ ------
(percentage of testing revenues)
Testing Services:
Logic/mixed-signal final test... 88.2% 96.9% 97.7%
Memory final test............... 11.8 3.1 2.3
Total......................... 100.0% 100.0% 100.0%
Expansion
We commenced an expansion project in Chung Li, Taiwan in December 1999.
The first phase of the project was the construction of a building with
aggregate floor space of approximately 800,000 square feet to accommodate the
expected growth of our operations in Chung Li, which construction was completed
in the fourth quarter of 2000. The total value of the first phase of the
project, including land and the completed building, is estimated at NT$2.0
billion. Hung Ching, which is the developer of the project, bears all costs
relating to the development. The new building houses ASE Chung Li's testing
operations as well as part of the operations of other ASE Group companies.
Furthermore, we commenced an expansion project in Kaohsiung, Taiwan in the
second quarter of 2000. The first phase of the project was the construction of
a building with aggregate floor space of 1.1 million square feet to accommodate
the expected growth of our operations in Kaohsiung. Construction was completed
in the third quarter of 2001 at a cost of NT$2.0 billion. The new building
houses part of ASE Inc.'s packaging operations in Kaohsiung, part of ASE Test
Taiwan's testing operations and part of ASE Material's substrate manufacturing
operations.
We also commenced an expansion project in Penang, Malaysia in the fourth
quarter of 1999. The first phase of the project was the construction of a
building with floor space of approximately 100,000 square feet which was
completed in the third quarter of 2000. The aggregate cost of the project was
US$16 million.
26
Other Members of the ASE Group
Consolidated Subsidiaries
ASE Test. ASE Test, which is a Singapore company, is one of the largest
independent testing companies in the world, providing a complete range of
semiconductor testing services to leading international semiconductor
companies. In addition, ASE Test provides a broad range of leadframe and
laminate-based semiconductor packaging services. ASE Test has testing
operations in Taiwan, the United States, Hong Kong and Singapore, and also
maintains testing and packaging operations in Malaysia.
ASE Test was incorporated in 1996 and its ordinary shares have been quoted
for trading on the Nasdaq National Market since June 1996 under the symbol
"ASTSF". Following the completion of ASE Test's follow-on offering of ordinary
shares on July 19, 2000, we held approximately 51.2% of the outstanding shares
of ASE Test. We also hold the equivalent of another 2.5% of the company through
options created on ASE Test's convertible notes issued in 1999. ASE Test is a
holding company whose significant assets are its ownership interests in the
following operating companies:
o 100% of ASE Test Taiwan;
o 100% of ASE Test Malaysia;
o 80.4% of ISE Labs;
o 30% of ASE Chung Li (the remaining 70% of which is owned by ASE
Inc.); and
o 30% of ASE Korea (the remaining 70% of which is owned by ASE Inc.).
In 2000, ASE Test recorded net revenues of US$440.3 million, operating
income of US$114.9 million and net income of US$107.2 million. We currently
intend to maintain a majority ownership interest in ASE Test. We continue to
evaluate acquisition opportunities and plan to make additional acquisitions in
the future if suitable opportunities arise. Although our general strategy is to
expand or invest in new packaging facilities through ASE Inc. and new testing
facilities through ASE Test, we will make these determinations on a
case-by-case basis. For opportunities such as the former Motorola facilities in
Chung Li and Korea with integrated packaging and testing operations, we may
continue to divide our investments among group companies to reflect our
estimates of the relative packaging and testing values at those facilities.
ASE Material. ASE Material, which is a ROC company, manufactures
leadframes and other substrates used in the packaging of semiconductors. ASE
Material currently supplies our packaging facilities in Kaohsiung with a
portion of our leadframe and substrate requirements. See "-- Raw Materials and
Suppliers -- Packaging". As of December 31, 2000, we held 50.5% of the
outstanding shares of ASE Material, comprising 43.8% held by ASE Inc. and 6.7%
held by ASE Test Taiwan. The supervisor and two of the five directors of ASE
Material are representatives of ASE Inc., one director is a representative of
ASE Test Taiwan and the remaining two directors of ASE Material are Jason C.S.
Chang, our Chairman, and Richard H.P. Chang, our Vice Chairman and Chief
Executive Officer, serving in their individual capacities.
We believe that interconnect technology will play an increasingly
important role in semiconductor packaging as interconnect materials, such as
leadframes and substrates, account for a growing portion of the cost of a
semiconductor package. In anticipation of this trend, we established ASE
Material in December 1997 for the purpose of developing, producing and selling
leadframes and advanced substrates. In 2000, ASE Material supplied interconnect
materials that accounted for approximately 12.1% of our consolidated raw
material costs. Substantially all of these materials were leadframes. In 2000,
ASE Material supplied approximately 25.4% of the substrate requirements at our
packaging facilities in Kaohsiung. We expect to continue making investments in
ASE Material in order to further develop our in-house interconnect technology.
ASE Material's facilities are located in the Nantze Export Processing Zone
near our packaging and testing facilities in Kaohsiung, Taiwan. ASE Material
recently expanded its production capacity with new facilities located near our
27
packaging and testing facilities in Kaohsiung and Chung Li, Taiwan. In 2000,
ASE Material recorded revenues of NT$1,793.5 million (US$54.1 million),
operating loss of NT$153.9 million (US$4.6 million) and net loss of NT$175.4
million (US$5.3 million). Substantially all of ASE Material's sales are to
other ASE Group companies, and accordingly, substantially all of its sales and
net income are eliminated by ASE Inc. in preparing our consolidated financial
statements.
ASE Technologies. ASE Technologies, Inc., a ROC company, designs and
assembles notebook computers, set-top boxes and liquid crystal display
monitors, and assembles board and sub-systems. As of December 31, 2000, we held
98% of the outstanding shares of ASE Technologies.
In 2000, ASE Technologies recorded revenues of NT$157 million (US$4.7
million), operating loss of NT$211 million (US$6.4 million) and net loss of
NT$188 million (US$5.7 million). We intend to wind down the business of ASE
Technologies upon approval from ASE Technologies' shareholders in September
2001.
Unconsolidated Affiliates
In addition to our consolidated subsidiaries, Universal Scientific and
Hung Ching are commonly referred to as member companies in the ASE Group. As of
December 31, 2000, we held approximately 23.3% of the outstanding shares of
Universal Scientific and 25.1% of the outstanding shares of Hung Ching.
Universal Scientific. Universal Scientific, which is a ROC company,
manufactures electronics products in varying degrees of system integration
principally on a contract basis for original equipment manufacturers,
including:
o electronics components such as thick film mixed signal devices,
thick film resistors, high frequency devices and automotive and power
electronic devices;
o board and sub-system assemblies such as customized SMT board
assemblies, mother boards for personal computers, wireless local area
network cards and fax control boards; and
o system assemblies such as portable computers, desktop personal
computers, network computers and servers.
We are the largest shareholder in Universal Scientific and six out of the
nine directors on its board of directors, including the chairman, are
representatives of ASE Inc.
Universal Scientific's principal manufacturing facilities are located in
Nantou, Taiwan. In 2000, Universal Scientific recorded net revenues of
NT$39,110 million (US$1,179.1 million), operating income of NT$1,835 million
(US$55.3 million) and net income of NT$1,339 million (US$40.4 million). The
shares of Universal Scientific are listed on the Taiwan Stock Exchange. As of
December 31, 2000, Universal Scientific had a market capitalization of
NT$10,664.9 million (US$321.5 million).
Hung Ching. Hung Ching, which is a ROC company, is engaged in the
development and management of commercial, residential and industrial real
estate properties in Taiwan. Hung Ching's completed development projects
include the ASE Design Center commercial project and the Earl Village
residential project, both located in Hsichih, Taiwan. Hung Ching was founded in
1986 by Chang Yao Hung-ying. Mrs. Chang is the mother of both Jason C.S. Chang,
our Chairman, and Richard H.P. Chang, our Vice Chairman and Chief Executive
Officer, and is a director of ASE Inc. As of December 31, 2000, we held 25.1%
of the outstanding shares of Hung Ching. Messrs. and Mdm. Chang and other
members of the Chang family are controlling shareholders of Hung Ching.
In 2000, Hung Ching recorded net revenues of NT$1,601 million (US$48.3
million), operating income of NT$156 million (US$4.7 million) and net loss of
NT$35 million (US$1.1 million). The shares of Hung Ching are listed on the
Taiwan Stock Exchange. As of December 31, 2000, Hung Ching had a market
capitalization of NT$2,426.6 million (US$73.2 million).
28
Seasonality
See "Item 5. Operating and Financial Review and Prospectus-- Operating
Results and Trend Information-- Consolidated Quarterly Results".
Sales and Marketing
Sales and Marketing Offices
We maintain sales and marketing offices in the United States, Taiwan and
Malaysia. Our Hsinchu and Kaohsiung offices are staffed with employees from
both ASE Inc. and ASE Test Taiwan. These employees often call on prospective
customers together. In addition, the sales agent for our packaging and testing
services maintains sales and marketing offices in San Jose, California; Tempe,
Arizona; Austin, Texas; and Beverly, Massachusetts in the United States; and
Brussels in Belgium. We conduct marketing research through our in-house
customer service personnel and those of our sales agent and through our
relationships with our customers and suppliers to keep abreast of market trends
and developments. We also provide advice in the area of production process
technology to our major customers planning the introduction of new products. In
placing orders with us, our customers specify which of our facilities these
orders will go to. Our customers conduct separate qualification and correlation
processes for each of our facilities that they use. See "-- Sales and Marketing
- -- Qualification and Correlation by Customers".
Sales and Customer Service Agents
Under commission agreements, each of ASE Inc., ASE Test Taiwan, ASE Korea,
ASE Chung Li and ASE Test Malaysia has appointed Gardex International Limited
as the non-exclusive sales agent for its services and products worldwide,
excluding Asia. Gardex helps us identify customers, monitor delivery acceptance
and payment by customers and, within parameters set by us, negotiate price,
delivery and other terms with our customers. Purchase orders are placed
directly with us by our customers. We pay Gardex a commission of between 0.6%
and 1.0% of our sales outside of Asia, payable monthly, depending on the amount
of these sales. In 2000, we paid US$10.5 million in commission to Gardex.
Under service agreements, each of ASE Inc., ASE Test Taiwan, ASE Korea,
ASE Chung Li and ASE Test Malaysia has appointed ASE (U.S.) Inc. as its
non-exclusive agent to provide customer service and after-sales support to its
customers in Europe and North America. We pay ASE (U.S.) Inc. a monthly fee
based on ASE US's monthly services associated costs and expenses. In 2000, we
paid US$13.6 million in fees and service charges to ASE (U.S.) Inc.
Both Gardex and ASE (U.S.) Inc. are wholly owned by Mr. Y.C. Hsu, who has
had a long personal relationship with Mr. Jason C.S. Chang, our Chairman, that
pre-dates the founding of our company. We have maintained business
relationships with Gardex, ASE (U.S.) Inc. and their predecessors since 1985.
Gardex and ASE (U.S.) Inc. currently perform services only for us.
Customers
Our global base of over 200 customers includes leading semiconductor
companies across a wide range of end use applications:
o Advanced Micro Devices, Inc.
o Altera Corporation
o ATI Technologies Inc.
o Cirrus Logic International Ltd.
o Conexant Systems, Inc.
29
o Delphi Automotive Systems Corp.
o DSP Group
o LSI Logic Corporation
o Motorola, Inc.
o On Semiconductor Corp.
o Philips Electronics NV
o Qualcomm Incorporated
o ST Microelectronics Pte Ltd.
o VIA Technologies, Inc.
Our five largest customers together accounted for approximately 34%, 40%
and 44% of our sales in 1998, 1999 and 2000, respectively. Other than Motorola,
Inc. in 1999, and Motorola and VIA Technologies, Inc. in 2000, no customer
accounted for more than 10% of our net revenues in 1998, 1999 or 2000. In
connection with our acquisition in July 1999 of Motorola's in-house packaging
and testing operations in Chung Li and Korea, we entered into manufacturing
services agreements for Motorola's continuing business at the Chung Li and
Korea facilities. As a result, Motorola accounted for approximately 16% of our
1999 net revenues and 22% of our 2000 revenues. There has been significant
variation in the composition of our largest five customers over time and, as a
result, we have been less dependent on any particular customer over time. We
package and test for our customers a wide range of products with end use
applications in the personal computers, consumer, industrial and automotive,
and communications sectors.
The following table sets forth the names, in alphabetical order, of our
five largest customers for each of 1998, 1999 and 2000:
1998 1999 2000
----- ----- -----
ATI Technologies Inc. ATI Technologies Inc. LSI Logic Corporation
Motorola, Inc. LSI Logic Corporation Motorola, Inc.
VIA Technologies, Inc. Motorola, Inc. On Semiconductor Corp.
Winbond Electronics Silicon Integrated Systems Corp. ST Microelectronics Pte Ltd.
3Dfx VIA Technologies, Inc. VIA Technologies, Inc.
The following table sets forth our 2000 revenues categorized by the
principal end use applications of the products which we packaged and tested, as
a percentage of our net revenues in 2000.
Year Ended
December 31, 2000
----------------------------
(percentage of net revenues)
End Use Applications:
Communications.................................. 36.6%
Consumer Industrial/Automotive.................. 29.6
Personal Computers.............................. 30.4
Other........................................... 3.4
-----
Total........................................ 100.0%
=====
Many of our customers are leaders in their respective end use markets. For
example, we provide Motorola, an industry leader in automotive and wireless
communications semiconductor products, with most of its outsourced
30
packaging and testing requirements. The following table sets forth our largest
customers, categorized by the principal end use applications of the products
which we package and test for them.
Consumer/Industrial/
Communications Automotive Personal Computers
-------------- ---------------------- ------------------
Advanced Micro Devices, Inc. Altera Corporation Advanced Micro Devices, Inc.
Conexant Systems, Inc. Delphi Automotive Systems ATI Technologies, Inc.
DSP Group LSI Logic Corporation Cirrus Logic International Ltd.
Motorola, Inc. Motorola, Inc. IBM
Philips Electronics NV ST Microelectronics Pte Ltd. S3 International Ltd.
Qualcomm Incorporated ESS Technology, Inc. Silicon Integrated Systems Corp.
ST Microelectronics Pte Ltd. VIA Technologies, Inc.
Silicon Integrated Systems Corp.
Winbond Electronics Corporation
We categorize our packaging and testing revenues based on the country in
which the customer is headquartered. The following table sets forth, for the
periods indicated, the percentage breakdown of our packaging and testing
revenues, categorized by geographic regions.
Year Ended December 31,
---------------------------------------
1998 1999 2000
------ ------ ------
North America...... 59.4 57.2 65.1
Taiwan............. 30.4 28.9 24.7
Other Asia......... 7.2 11.3 6.5
Europe............. 3.0 2.6 3.7
----- ----- -----
Total............. 100.0% 100.0% 100.0%
===== ===== =====
In 2000, approximately 74% of the testing revenues of ASE Test Taiwan and
67% of the testing revenues of ASE Test Malaysia were accounted for by the
testing of semiconductors packaged at our packaging facilities in Kaohsiung and
Malaysia, respectively. The balance represented testing revenues from customers
who delivered packaged semiconductors directly to ASE Test Taiwan or ASE Test
Malaysia for testing. In 2000, approximately 29% of our packaging revenues in
Kaohsiung and 80% of our packaging revenues in Malaysia were accounted for by
the packaging of semiconductors which were subsequently tested at ASE Test
Taiwan and ASE Test Malaysia, respectively. We expect that more customers of
our packaging facilities in Kaohsiung and Malaysia will begin to contract for
our packaging and testing services on a turnkey basis.
Qualification and Correlation by Customers
Customers generally require that our facilities undergo a stringent
"qualification" process during which the customer evaluates our operations and
production processes, including engineering, delivery control and testing
capabilities. The qualification process typically takes up to eight weeks, but
can take longer depending on the requirements of the customer. In the case of
our testing operations, after we have been qualified by a customer and before
the customer delivers semiconductors to us for testing in volume, a process
known as "correlation" is undertaken. During the correlation process, the
customer provides us with sample semiconductors to be tested and either
provides us with the test program or requests that we develop a conversion
program. In some cases, the customer also provides us with a data log of
results of any testing of the semiconductor which the customer may have
conducted previously. The correlation process typically takes up to two weeks,
but can take longer depending on the requirements of the customer.
31
Pricing
We price our packaging services primarily on a cost-plus basis and, to a
lesser extent, with reference to market prices. Prices are confirmed at the
time firm orders are received from customers, which is typically four to eight
weeks before delivery.
We price our testing services primarily on the basis of the amount of
time, measured in CPU seconds, taken by the automated testing equipment to
execute the test programs specific to the products being tested as well as the
cost of the equipment.
Raw Materials and Suppliers
Packaging
The principal raw materials used in our packaging processes are
interconnect materials such as leadframes and substrates, gold wire and molding
compound. Interconnect materials, such as leadframes and substrates, gold wire
and molding compound represented approximately 58.1%, 19.2% and 10.1%,
respectively, of our total cost of packaging materials in 2000.
The silicon die, which is the functional unit of the semiconductor to be
packaged, is supplied in the form of silicon wafers. Each silicon wafer
contains a number of identical dies. We generally receive the wafers from the
customer for which the semiconductor is being packaged. Consequently, we
generally do not incur inventory costs relating to the silicon wafers used in
our packaging process.
We do not maintain large inventories of leadframes, substrates, gold wire
or molding compound, but generally maintain sufficient stock of each principal
raw material for approximately one month's production based on blanket orders
and rolling forecasts of near-term requirements received from customers. In
addition, several of our principal suppliers dedicate portions of their
inventories, typically in amounts equal to the average monthly amounts supplied
to us, as reserves to meet our production requirements. However, shortages in
the supply of materials experienced by the semiconductor industry have in the
past resulted in occasional price adjustments and delivery delays. For example,
in 1997 and 1998, the industry experienced a shortage in the supply of advanced
substrates used in BGA packages, which, at the time, was available from a
limited number of suppliers located primarily in Japan. In these instances, we
generally negotiate an extension of the delivery date from our customers.
We believe that interconnect technology will play an increasingly
important role in semiconductor packaging as interconnect materials such as
leadframes and substrates account for a growing portion of the cost of a
semiconductor package. In anticipation of this trend, we established ASE
Material in December 1997 for the purpose of developing, producing and selling
leadframes and advanced substrates. In 2000, ASE Material supplied interconnect
materials that accounted for approximately 12.1% of our consolidated raw
material costs. Substantially all of these materials were leadframes. We expect
that by the end of 2000, ASE Material will supply approximately a third of the
substrate requirements at our packaging facilities in Kaohsiung. We expect to
continue making investments in ASE Material in order to further develop our
in-house interconnect technology.
Testing
Apart from packaged semiconductors, no other raw materials are needed for
the functional and burn-in testing of semiconductors. For the majority of our
testing equipment, we often base our purchases on prior discussions with our
customers about their forecast requirements. The balance consists of testing
equipment on consignment from customers and which are dedicated exclusively to
the testing of these customers' specific products.
32
Equipment
Packaging
The most important equipment used in the semiconductor packaging process
is the wire bonder. The number of wire bonders at a given facility is commonly
used as a measure of the packaging capacity of the facility. The wire bonders
connect the input/output terminals on the silicon die using extremely fine gold
wire to leads on leadframes or substrates. Typically, wire bonders may be used,
with minor modifications, for the packaging of different products. We purchase
wire bonders principally from Kulicke & Soffa Industries Inc. As of December
31, 2000, we operated an aggregate of 3,973 wire bonders, 20 of which were
consigned by customers. In addition to wire bonders, we maintain a variety of
other types of packaging equipment, such as wafer grind, wafer mount, wafer
saw, die bonders, automated molding machines, laser markers, solder plat, pad
printers, dejunkers, trimmers, formers, substrate saw and scanners.
Testing
Testing equipment is the most important and most capital intensive
component of the testing process. We generally seek to purchase testers from
different suppliers with similar functionality and the ability to test a
variety of different semiconductors. We purchase testing equipment from major
international manufacturers, including Agilent Technology, Advantest
Corporation, Credence Systems Corporation, Electroglas, Inc., Megatest
Corporation, Schlumberger Technologies and Teradyne, Inc. Upon acquisition of
new testing equipment, we install, configure, calibrate, perform burn-in
diagnostic tests on and establish parameters for the testing equipment based on
the anticipated requirements of existing and potential customers and
considerations relating to market trends. As of December 31, 2000, we operated
an aggregate of 1,029 testers, 139 of which were consigned by customers. In
addition to testers, we maintain a variety of other types of testing equipment,
such as automated handlers and probers (with special handlers for wafer
probing), scanners, re-formers and personal computer workstations for use in
software development. Each tester is attached to one or two handlers or
probers, which transport individual dies to the tester for testing or probing.
In general, particular semiconductors can be tested on only a limited
number of specially designed testers. As part of the qualification process,
customers will specify the machines on which their semiconductors may be
tested, and we often develop test program conversion tools that enable us to
test semiconductors on multiple equipment platforms. This portability between
testers enables us to allocate semiconductors tested across our available test
capabilities and thereby improve capacity utilization rates. In cases where a
customer requires the testing of a semiconductor product that is not yet fully
developed, the customer may provide personal computer workstations to us to
test specific functions. In cases where a customer has specified testing
equipment that was not widely applicable to other products which we test, we
have required the customer to furnish the equipment on a consignment basis.
Material Patents, Licenses and Contracts
We and our subsidiaries hold various patents and licenses covering a broad
range of packaging and testing technology and have various material contracts
as described in "Item 10. Additional Information -- Material Contracts" and
attached in "Item 19. Exhibits".
Material Effects of Government Regulations
All of our operations in the Nantze Export Processing Zone, including ASE
Test Taiwan, ASE Material and our operations in Kaohsiung, are subject to
regulation by the Export Processing Zone Administration, Ministry of Economic
Affairs in relation to land use, company registration, factory establishment,
labor safety inspections, issuance of import and export licenses, foreign
exchange and international trade management. All of our operations in Taiwan,
including ASE Test Taiwan, our operations in Kaohsiung, ASE Chung Li, ASE
Material and ASE Technologies, are also subject to regulation and periodic
monitoring by the ROC Environmental Protection Administration and the local
environmental protection authorities. For ASE Test Taiwan, our operations in
Kaohsiung, ASE Material and ASE Technologies, the local environmental
protection authority is the Bureau of Environmental Protection, Kaohsiung City.
For ASE Chung Li, the local environmental protection authority as the Bureau of
Environmental Protection, Taoyuan County.
33
ASE Test Malaysia operates under a license obtained from the Malaysian
Industrial Development Authority and issued by the Ministry of Trade and
Industry Malaysia. Some of the terms of the license are:
o ASE Test Malaysia's shares that are held by non-citizens of
Malaysia cannot be sold without the prior written consent of the
Ministry of International Trade and Industry.
o ASE Test Malaysia must recruit and train Malaysian citizens in
a manner that reflects the multiracial composition of Malaysia for
all levels of occupational classification.
o The prior approval of the Ministry of International Trade and
Industry must be obtained before any changes, additions or reductions
with respect to machinery or equipment are proposed, in cases where
there will be a material effect on production volume or electricity
consumption.
o ASE Test Malaysia must obtain the prior written consent of the
Ministry of International Trade and Industry before executing any
agreements on technology transfers with foreigners.
o ASE Test Malaysia must elect distributors of the "bumiputra"
ethnicity, primarily ethnic Malays, to distribute at minimum 30% of
its sales within Malaysia. The election of foreign companies as
distributors requires the prior approval of the Ministry of
International Trade and Industry.
o ASE Test Malaysia must export at minimum 85% of its production.
Quality Control
We believe that our advanced process technology and reputation for high
quality and reliable services have been important factors in attracting and
retaining leading international semiconductor companies as customers for our
packaging and testing services. We have maintained an average packaging yield
rate of 99.8% or greater in each of the last three years. We maintain a quality
control staff at each of our facilities. Our quality control staff typically
includes engineers, technicians and other employees who monitor packaging and
testing processes in order to ensure high quality. Our quality assurance
systems impose strict process controls, statistical in-line monitors, supplier
control, data review and management, quality controls and corrective action
systems. Our quality control employees staff quality control stations along
production lines, monitor clean room environment and follow up on quality
through outgoing product inspection and interaction with customer service
staff. We have established quality control systems which are designed to ensure
high quality service to customers, high product and testing reliability and
high production yields at our facilities. In addition, our packaging and
testing facilities have been qualified by all of our major customers after
satisfying stringent quality standards prescribed by these customers.
Our packaging and testing operations are undertaken in clean rooms where
air purity, temperature and humidity are controlled. To ensure stability and
integrity of our operations, we maintain clean rooms at our facilities that
meet U.S. Federal 209E class 1,000, 10,000 and 100,000 standards. All of our
facilities have been certified as meeting the ISO 9002 quality standards by the
International Standards Organization. Our facilities in Taiwan, Korea and
Malaysia have also been certified as meeting the Quality System 9000 or QS-9000
quality standards. The ISO 9002 certification is required by many countries in
connection with sales of industrial products in these countries. The QS-9000
quality standards provide for continuous improvement with an emphasis on the
prevention of defects and reduction of variation and waste in the supply chain.
Like the ISO 9002 certification, the QS-9000 certification is required by some
semiconductor manufacturers as a threshold indicating a company's quality
control standards. In addition, we have received various vendor awards from our
customers for the quality of our products and services.
Competition
We compete in the highly competitive independent semiconductor packaging
and testing markets. We face competition from a number of sources, including
other independent semiconductor packaging and testing companies, especially
those that also offer turnkey packaging and testing services. More importantly,
we compete for the business of integrated device manufacturers with in-house
packaging and testing capabilities and fabless semiconductor design companies
with their own in-house testing capabilities. Some of these integrated device
manufacturers have commenced,
34
or may commence, in-house packaging and testing operations in Asia.
Furthermore, several independent packaging companies in Asia may expand their
packaging capacities and enhance their testing capabilities.
Integrated device manufacturers that use our services continuously
evaluate our performance against their own in-house packaging and testing
capabilities. These integrated device manufacturers may have access to more
advanced technologies, and greater financial and other resources than we do. We
believe, however, that we can offer greater efficiency and lower costs while
maintaining equivalent or higher quality for several reasons. First, we tend to
have lower unit costs because our equipment generally has a higher utilization
rate as compared to that of the in-house testing operations of integrated
device manufacturers. Second, we tend to offer a wider range of products in
terms of complexity and technology as compared to the in-house testing
operations of integrated device manufacturers, since integrated device
manufacturers are less able to utilize individual testers for long periods of
time following the migration of product technology.
Environmental Matters
The semiconductor packaging process generates gaseous chemical wastes,
principally at the stage at which the copper leads protruding from the plastic
or ceramic casings of the semiconductor, commonly referred to as moldings, are
plated with tin or lead to improve their electrical conductivity. Liquid waste
is produced at the stage where silicon wafers are diced into chips with the aid
of diamond saws and cooled with running water. In addition, excess materials on
leads and moldings are removed from packaged semiconductors in the trimming and
de-junking processes, respectively. We have installed various types of
anti-pollution equipment for the treatment of liquid and gaseous chemical waste
generated at all of our semiconductor packaging facilities. We believe that we
have adopted adequate anti-pollution measures for the effective maintenance of
environmental protection standards that are consistent with the semiconductor
industry practice in the countries in which our facilities are located. In
addition, we believe we are in compliance in all material respects with present
environmental laws and regulations applicable to our operations and facilities.
Insurance
We have insurance policies covering losses due to fire. These insurance
policies cover the buildings, machinery and equipment at our major production
facilities. We do not have business interruption insurance, except in
connection with fire. Significant damage to any of our production facilities,
whether as a result of fire or other causes, would have a material adverse
effect on our results of operations. We are not insured against the loss of key
personnel.
35
ORGANIZATIONAL STRUCTURE
The following chart illustrates our corporate structure and effective
ownership interest in each of our principal operating subsidiaries and
affiliates.
ADVANCED SEMICONDUCTOR ENGINEERING, INC.(1)
|
|
- -----------------------------------------------------------|--------------------------------------------
| | | 51.2% | | |
| 70% | 70% | | 43.8% | 100% | 23.3%
| | | | | |
| -------|-----------------------------------ASE Test Limited(2) | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | 30% | | 30% | 100% | 84.4% | 100% | | |
| | | | | | | | | |
| | | | | | | | | |
ASE ASE ASE ISE Labs, ASE Test, | ASE Holding Universal
(Chung Li) (Korea) Electronics Inc.(3) Inc. | Electronics Scientific
Inc. Inc. (M) Sdn. | | (Philippines) Industrial
Bhd. | | Inc. Co., Ltd.(1)
| |
| 6.7% |
| |
ASE |
Material Inc.
(4)
- --------
(1) The common shares of ASE Inc. and Universal Scientific are listed on the
Taiwan Stock Exchange.
(2) The ordinary shares of ASE Test are quoted for trading on the Nasdaq
National Market under the symbol "ASTSF".
(3) The remaining shares of ISE Labs are owned primarily by the founders and
employees of ISE Labs or its predecessors.
(4) The remaining shares of ASE Materials are owned by management and
employees of ASE Inc. and its affiliates.
PROPERTIES
We operate a number of packaging and testing facilities in Asia and the
United States. Our facilities provide varying types or levels of services with
respect to different end-product focus, customers, technologies and geographic
locations. Our facilities range from our large-scale turnkey facilities in
Taiwan and Malaysia to our specialized Korea facility dedicated to wireless
communications and automotive end-products. With our diverse facilities we are
able to tailor our packaging and testing solutions closely to our customers'
needs. The following table sets forth the location, commencement of operation,
primary use, approximate floor space as of December 31, 2000, number of testers
and bonders we operated as of December 31, 2000, and net revenues recorded in
2000 of our packaging and testing facilities.
36
Net
Revenues
(in US$
millions)
---------
Year
Approximate Ended
Commencement Floor Space December
Facility Location of Operation Primary Use (in sq. ft.) Testers Bonders 31, 2000
- -------------- ----------- ------------ ------------------------------------- ------------ -------- ------- --------
ASE's facility Kaohsiung, March 1984 Our primary packaging facility. 900,000 0 2,634 US$820
in Kaohsiung Taiwan Offers complete semiconductor
manufacturing solutions in
conjunction with ASE Test Taiwan
and foundries located in Taiwan, such
as TSMC. Focuses primarily on
advanced BGA and QFP packages for
integrated device manufacturers,
fabless design companies and
communications systems companies.
ASE Test Kaohsiung, December 1987 Our primary testing facility. Offers 400,000 272 0 165
Taiwan Taiwan complete semiconductor solutions in
conjunction with ASE's facility in
Kaohsiung and foundries located in
Taiwan, such as TSMC. Focuses
primarily on advanced logic and
mixed signal testing for integrated
devicemanufacturers, fabless design
companies and communications
systems companies.
ASE Test Penang, February 1991 An integrated packaging and testing 600,000 186 411 167
Malaysia Malaysia facility which focuses primarily on the
requirements of integrated device
manufacturers and communications
systems companies.
ASE Chung Li Chung Li, April 1985(1) An integrated packaging and testing 300,000 224 691 244
Taiwan facility which specializes in
semiconductors for communications
applications, particularly those
incorporating the
Motorola-proprietary Map BGA
technology.
37
Net
Revenues
(in US$
millions)
---------
Year
Approximate Ended
Commencement Floor Space December
Facility Location of Operation Primary Use (in sq. ft.) Testers Bonders 31, 2000
- -------------- ----------- ------------ ------------------------------------- ------------ -------- ------- --------
ASE Korea Paju, Korea March 1967(2) An integrated packaging and testing 100,000 126 105 117
facility which specializes in
semiconductors for radio frequency,
sensor and automotive applications.
ISE Labs San Jose, November 1983(3) Front-end engineering and final 200,000 187 0 108
California testing facilities located in northern
Fremont, California in close proximity to
California several of the world's largest fabless
Santa Clara, design companies. Testing facilities
California located in close proximity to
Hong Kong integrated device manufacturers and
Singapore fabless companies in Hong Kong and
Southeast Asia.
ASE Cavite, November 1995 Focuses primarily on the packaging of 50,000 24 132 16
Philippines Philippines commodity semiconductor products
for integrated device manufacturers in
the Philippines.
Total 2,550,000 1,019 3,973 1,637
- -------------------
(1) We acquired a 70.0% interest in ASE Chung Li and ASE Test acquired the
remaining 30.0% interest in July 1999.
(2) We acquired a 70.0% interest in ASE Korea and ASE Test acquired the
remaining 30.0% interest in July 1999.
(3) We acquired a 70.0% interest in ISE Labs in May 1999, which was
subsequently increased to 80.4% following ASE Test's purchase of
additional shares of ISE Labs in 2000.
38
Item 5. Operating and Financial Review and Prospects.
OPERATING RESULTS AND TREND INFORMATION
The following discussion of our business, financial condition and results
of operations should be read in conjunction with the Consolidated Financial
Statements which are included elsewhere in this annual report. This discussion
contains forward-looking statements that reflect our current views with respect
to future events and financial performance. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of any number of factors, such as those set forth under "Item 3. Key
Information -- Risk Factors" and elsewhere in this annual report.
Overview
We offer a broad range of semiconductor packaging and testing services. In
addition to offering each service separately, we also offer turnkey services,
which is the integrated packaging, testing and direct shipment of
semiconductors to end users designated by our customers. Our net revenues have
increased significantly from NT$20,762.4 million in 1998 to NT$50,893.4 million
(US$1,534.3 million) in 2000. After eliminating the results of the operations
we acquired in 1999 for comparative purposes, our net revenues were NT$36,325.9
million (US$1,095.1 million) in 2000. Our revenue growth is increasingly
diversified across a broad range of end user applications and clients. We have
experienced growth in communications and consumer-related sectors while
maintaining our strong market position in personal computer-related sectors.
Our volume growth is increasingly concentrated in the packaging of higher
priced package types and the testing of more complex semiconductor devices.
We price our services based primarily on a cost-plus calculation of the
costs involved in providing these services, and with reference to market
prices. The majority of our prices and revenues are denominated in U.S.
Dollars. However, as more than half of our costs, including all labor and
overhead costs, are denominated in NT Dollars, we consider the NT Dollar to be
our functional currency. Furthermore, the majority of our financing costs are
denominated in NT Dollars. The average realized selling price for packaging a
semiconductor device is higher than the average realized selling price for the
final testing of the same device. Over the last three years, our testing
revenues have grown faster than our packaging revenues. In 1998, 1999 and 2000,
our packaging revenues accounted for 81.2%, 75.2% and 74.7%, while testing
revenues accounted for 15.1%, 23.9% and 25.1%, respectively, of our net
revenues. After eliminating the results of the operations we acquired in 1999
for comparative purposes, testing revenues as a percentage of net revenues in
1999 and 2000, at 16.1% and 17.6%, respectively, still show an increasing
trend. We expect this trend to continue as industry trends suggest a higher
growth rate for testing compared to packaging services. The portion of the
semiconductor testing market currently accounted for by independent testing
service providers is smaller than that for packaging, which we believe will
facilitate outsourced testing to grow at a faster rate than packaging. In
addition, the high capital expenditures needed for increasingly complex testing
equipment, as compared to less expensive packaging equipment, is leading to
further outsourcing of testing services by integrated device manufacturers. We
also expect to provide increasingly more turnkey services to our clients.
Our results of operations have been affected by a number of factors,
including the proportionate contribution of packaging and testing to our net
revenues, our capacity utilization rates and the costs of raw materials. Over
the last three years, our net revenues have been affected by the volume of
units packaged and tested, the selling prices for these units, and currency
fluctuations. In 1999, our results of operations were affected by our
acquisition in May 1999 of 70% of the outstanding shares of ISE Labs, our
acquisitions in July 1999 of ASE Chung Li and ASE Korea and our purchase from
February through July 1999, in the open market, of a controlling 22.6% stake in
Universal Scientific. Our interest in ISE Labs was subsequently increased to
80.4% following ASE Test's purchase of additional shares of ISE Labs for an
aggregate purchase price of $70.9 million in 2000. In addition, we subsequently
increased our ownership interest in Universal Scientific to 23.3% through the
purchase of additional shares in the open market in July and August of 2000.
39
Pricing and Revenue Mix
The semiconductor industry is characterized by a general trend towards
declining prices for products and services of a given technology over time.
During periods of intense competition and adverse conditions in the
semiconductor industry, the pace of this decline in prices of our services may
be more rapid than that experienced in other years. During such periods, the
selling prices in U.S. Dollar terms of our packaging and testing services
experience a sharp decline due to intense price competition from other
independent packaging and testing companies that attempt to maintain capacity
utilization levels in the face of reduced demand.
Declines in selling prices have been partially offset over the last three
years by a change in our revenue mix. In particular, we have been packaging
more higher-priced package types, such as ball grid array, also called BGA, and
advanced thin quad flat packages, also called TQFPs, and testing more complex
semiconductor devices. We will continue to develop and offer new technology in
packaging and testing services, as well as improve production efficiencies for
older technology, in order to mitigate the effects of declining prices on our
profitability.
High Fixed Costs
Our operations are capital intensive and are characterized by relatively
high fixed costs. Our primary fixed costs are for packaging and testing
equipment. Increases or decreases in capacity utilization rates can have a
significant effect on gross profit margins, as the unit cost of packaging and
testing services generally decreases as fixed charges, such as equipment
depreciation expense, are allocated over a larger number of units. Depreciation
is the principal component of our cost of testing revenues. Testers typically
cost between US$2.0 million and US$3.0 million each, while wire bonders used in
packaging typically cost approximately US$100,000 each. In 1998, 1999 and 2000,
our depreciation expense as a percentage of net revenues was 14.9%, 16.3% and
15.7%, respectively. The rise in depreciation expense partially reflects the
increased contribution of testing to net revenues, as well as an increase in
the cost of packaging and testing equipment. We begin depreciating our
equipment when it is placed into service. There may sometimes be a time lag
between when our equipment is placed into service and when it achieves high
levels of utilization. In periods of depressed industry conditions, we may
experience lower than expected demand from customers and a sharp decline in
selling prices, resulting in an increase in depreciation expense relative to
sales. With the improvement in industry conditions at the end of 1998,
utilization levels improved, along with a recovery in profitability.
Utilization levels remained high through 1999 and 2000.
Raw Material Costs
Substantially all of our raw material costs are accounted for by
packaging, as testing requires minimal materials. In 1998, 1999 and 2000, raw
material cost as a percentage of our net revenues was 34.9%, 30.0% and 28.7%,
respectively. Raw material cost as a proportion of net revenues has been
decreasing because of the higher contribution of testing to net revenues and,
in 1999 and 2000, a decrease in raw material prices. However, we expect raw
materials to become an increasingly important component of the cost of our
packaging sales and we plan to continue our development and production of
interconnect material through ASE Material in order to help ensure an adequate
supply of raw materials at competitive prices and reduce production time.
Goodwill Amortization
Our operating and non-operating income in recent years have been affected
by goodwill amortization charges in connection with acquisitions, the
restructuring of our investment holdings and other share repurchases. Under
generally accepted accounting principles in the ROC, additional purchases of
shares of consolidated subsidiaries (majority owned) or of companies accounted
for using the equity method (less than majority but greater than 20% owned)
will generate goodwill in an amount equal to the difference between the
purchase price and the book value per share of those shares. The goodwill
generated is amortized over ten years. Goodwill generated on the purchases of
shares of consolidated subsidiaries are recognized under general administrative
and selling expense. Goodwill generated on the purchases of shares of companies
which are less than majority but greater than 20% owned, and therefore
accounted for using the equity method, are recognized as a debit under
investment income. In addition to the acquisitions of ASE Korea and ISE Labs,
other transactions which created significant goodwill charges were the
open-market purchases of 22.6% of Universal Scientific shares in 1999, as well
as the open-market purchases of ASE Test shares by a wholly-owned
40
subsidiary as part of a share repurchase program in the period from December
1997 through March 1998. No goodwill was recognized in connection with the
acquisition of ASE Chung Li, which was structured as an asset purchase, due to
the appreciation of the fixed assets purchased.
Consolidation of ISE Labs, ASE Chung Li and ASE Korea
Under the method of consolidation used by us to consolidate the statements
of income of ISE Labs, ASE Chung Li and ASE Korea for the year ended December
31, 1999: (1) ISE Labs' full-year 1999 net revenues, cost of revenues and
operating expenses are included in the Consolidated Financial Statements, and
the pre-acquisition income of ISE Labs for the year ended December 31, 1999
(from January 1 to May 4, 1999) is then subtracted from our net income for
1999; and (2) the net revenues, cost of revenues, operating expenses and net
income of ASE Chung Li and ASE Korea are included in the Consolidated Financial
Statements since the date of acquisition. Under the method of consolidation
used by ASE Test to consolidate the statement of income of ISE Labs for the
year ended December 31, 1999, ISE Labs' pre-acquisition net revenues, cost of
revenues and operating expenses are not included in ASE Test's consolidated
income statement. See Notes 2 and 28f of Notes to Consolidated Financial
Statements.
Results of Operations
The following table sets forth, for the periods indicated, financial data
from our consolidated statements of income, expressed as a percentage of net
revenues.
Year Ended December 31,
----------------------------------------
1998 1999 2000
---- ---- ----
(percentage of net revenues)
Net revenues............................................ 100.0% 100.0% 100.0%
Packaging.............................................. 81.2 75.2 74.7
Testing................................................ 15.1 23.9 25.1
Other.................................................. 3.7 0.9 0.2
Cost of revenues........................................ (74.5) (73.5) (69.9)
----- ----- -----
Packaging............................................. (63.5) (57.6) (55.0)
Testing............................................... (7.9) (14.4) (14.7)
Other................................................. (3.1) (1.5) (0.2)
Gross profit............................................ 25.5 26.5 30.1
Packaging............................................. 17.8 17.6 19.7
Testing............................................... 7.2 9.5 10.4
Other................................................. 0.5 (0.6) --
Operating expenses...................................... (11.8) (11.6) (10.7)
----- ----- -----
Operating income........................................ 13.7 14.9 19.4
Non-operating income (expenses)......................... (4.1) 12.9 (2.9)
---- ---- ----
Income before income tax and minority interest.......... 9.6 27.8 16.5
Income tax benefit (expense)............................ 0.7 (1.4) (2.1)
--- ---- ----
Income before minority interest......................... 10.3 26.4 14.4
Pre-acquisition interest................................ -- (0.2) --
Minority interest in net income of subsidiary........... (2.6) (2.3) (2.9)
---- ---- ----
Net income.............................................. 7.7% 23.9% 11.5%
==== ==== ====
The following table sets forth, for the periods indicated, a breakdown of
our total cost of revenues and operating expenses, expressed as a percentage of
net revenues.
Year Ended December 31,
----------------------------------
1998 1999 2000
---- ---- ----
(percentage of net revenues)
Cost of revenues
Raw materials................. 34.9% 30.0% 28.7%
Labor costs................... 12.5 13.0 12.9
Depreciation.................. 14.9 16.3 15.7
Other......................... 12.2 14.4 12.6
---- ---- ----
Total cost of revenues........ 74.5% 73.5% 69.9%
==== ==== ====
Operating expenses
Selling...................... 3.6% 2.8% 2.0%
General and administrative(1) 4.4 5.0 5.1
Goodwill amortization(2)..... 1.6 1.6 1.1
Research and development..... 2.2 2.2 2.5
--- --- ---
Total operating expenses..... 11.8% 11.6% 10.7%
==== ==== ====
- -------------------
(1) Excludes goodwill amortization.
(2) Included in general and administrative expense in the Consolidated
Financial Statements.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net Revenues. Net revenues increased by 56.1% to NT$50,893.4 million
(US$1,534.3 million) in 2000 from NT$32,609.6 million in 1999. Packaging
revenues grew 55.1% to NT$38,028.8 million (US$1,146.5 million) in 2000 from
NT$24,523.0 million in 1999. Testing revenues increased 63.8% to NT$12,768.4
million (US$384.9 million) in 2000 from NT$7,793.2 million in 1999. Increases
in packaging and testing revenues resulted primarily from an increase in net
revenues at our existing facilities, due to an upturn in the semiconductor
industry which continued from 1999 into 2000, partially offset by an industry
downturn commencing in the fourth quarter of 2000, as well as the effects of
the acquisitions of ISE Labs, ASE Chung Li and ASE Korea in 1999. After
eliminating the results of ISE Labs, ASE Chung Li and ASE Korea for comparative
purposes, our net revenues for 2000 increased by 44.4% compared to 1999,
reflecting a 45.2% increase in packaging revenues and a 59.4% increase in
testing revenues. This increase was partially offset by a decrease in the
average realized selling prices for packaging and testing services. The
decrease in the average realized selling prices reflects the general trend in
the semiconductor industry of declining prices for each input/output lead on a
semiconductor device. This decrease was partially offset by a change in the
revenue mix as our BGA packages, which typically command higher selling prices
as a result of the higher number of leads per device, accounted for a greater
portion of the packaging volume, and as we tested more complicated
semiconductor devices.
Gross Profit. Gross profit increased by 77.2% to NT$15,326.1 million
(US$462.0 million) in 2000 from NT$8,650.0 million in 1999. Our gross margin
improved to 30.1% in 2000 compared to 26.5% in 1999 primarily as a result of a
higher revenue contribution from testing operations, which generally have
higher gross margins than packaging operations, and decreases in raw material
costs and depreciation as a percentage of net revenues. The improved gross
margin was also attributable to decreases in factory supplies and other
manufacturing overheads, partially offset by increases in equipment maintenance
expenses and provisions for inventory obsolescence, all as percentages of net
revenues. Raw material costs in 2000 were NT$14,620.4 million, or 28.7% of net
revenues compared to 30.0% in 1999. This decrease mainly resulted from a change
in the revenue mix, as testing services, which incur almost no raw material
costs, accounted for a greater portion of our net revenues, and a decrease in
raw material prices. Depreciation expense for the year was NT$8,127.6 million,
compared with NT$5,128.3 million in 1999. As a percentage of net revenues,
depreciation expense decreased slightly to 15.7% in 2000 from 16.3% in 1999,
primarily as a result of a higher machinery utilization rate in 2000 as
compared to 1999. Our gross margin for packaging increased to 26.3% in 2000
from 23.5% in 1999 primarily due to decreases in direct and indirect labor
costs, raw material costs and depreciation as percentages of packaging revenue.
Our gross margin for testing increased to 41.5% in 2000 from 39.8% in 1999
primarily due to a decrease in repair and maintenance costs, partially offset
by increases in depreciation and amortization as well as direct and indirect
labor costs, all as percentages of testing revenue.
42
Operating Income. Operating income increased 103.7% to NT$9,877.1 million
(US$297.8 million) in 2000 from NT$4,848.6 million in 1999. Operating margin
increased to 19.4% in 2000 from 14.9% in 1999, reflecting the higher gross
margin and decreases in selling, general and administrative expenses, partially
offset by an increase in research and development expenses, all as a percentage
of net revenues. Selling, general and administrative expenses amounted to
NT$5,449.0 million (US$164.3 million) in 2000, representing 10.7% of net
revenues in 2000 compared to 11.6% in 1999. This decrease was primarily due to
economies of scale realized from increased sales volumes. Research and
development expenses in 2000 were NT$1,262.5 million (US$38.1 million), or 2.5%
of net revenues compared to 2.2% in 1999. The increase primarily resulted from
increases in the number of employees employed in research and development and
in depreciation of testers and other equipment dedicated to research and
development uses.
Net Non-Operating Income/Loss. We recorded a net non-operating loss of
NT$1,473.6 million (US$44.4 million) in 2000 compared with net non-operating
income of NT$4,213.9 million in 1999. The difference primarily resulted from a
one-time capital gain of NT$5,544.1 million in 1999 in connection with the sale
of ASE Test ordinary shares by our subsidiary J&R Holding Limited through a
public offering of Taiwan Depositary Receipts and the sale of ASE Inc. common
shares by our subsidiaries and affiliates in a private placement of GDSs. Most
of the ASE Inc. common shares underlying the GDSs were acquired by our
subsidiaries between March 1996 and April 1998 as part of a share purchase
program instituted in support of ROC government policies. A small amount was
realized from open market sales of ASE Test Taiwan Depositary Receipts by our
subsidiaries and affiliates. Excluding this one-time capital gain, our non-
operating loss increased 10.8% from NT$1,330.2 million in 1999, primarily as a
result of a net foreign exchange gain in 2000 compared to a net loss in 1999,
partially offset by a net increase in interest expense. Non-operating income
for 2000 was NT$1,217.0 million (US$36.7 million), which primarily consisted of
interest revenues of NT$554.2 million (US$16.7 million), foreign exchange gains
of NT$302.7 million (US$9.1 million) and gain on sales of investments of
NT$91.7 million (US$2.8 million). We recorded a net foreign exchange gain in
2000 compared to a loss of NT$538.4 million in 1999, reflecting the unrealized
foreign exchange gains on assets that are denominated in foreign currency due
to the year-end depreciation of the NT Dollar. Non-operating expenses for 2000
were NT$2,690.6 million (US$81.1 million), which primarily consisted of
interest expenses of NT$2,092.2 million (US$63.1 million) and investment loss
under equity method of NT$237.2 million (US$7.2 million). Interest expense
increased 42.3% to NT$2,092.2 million (US$63.1 million) in 2000 from NT$1,469.8
million in 1999, primarily as a result of increased interest expenses from
convertible bonds due 2004 issued by ASE Test in June 1999 and other long-term
debts, which were used to finance our acquisitions of our interests in
Universal Scientific, ISE Labs, ASE Chung Li and ASE Korea.
Net Income. Net income for 2000 declined 25.1% to NT$5,837.1 million
(US$176.0 million) from NT$7,794.7 million in 1999. Excluding the one-time
capital gains of NT$5,544.1 million in 1999, net income increased 159.4% on a
full-year basis. Adjusted net income increased in 2000 compared to 1999
primarily as a result of the foregoing factors, partially offset by an increase
in our effective tax rate to 12.7% in 2000 compared to 5.1% in 1999. Our
effective income tax rate was significantly lower in 1999 primarily as a result
of substantial capital gain income in those years that was not subject to ROC
corporate tax.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Revenues. Our net revenues increased by 57.1% to NT$32,609.6 million
in 1999 from NT$20,762.4 million in 1998, reflecting in part the effects of the
acquisitions of ISE Labs in May 1999 and ASE Chung Li and ASE Korea in July
1999, as well as increases in net revenues at our existing facilities. For a
discussion of the consolidation principles relating to our acquisitions of ISE
Labs, ASE Chung Li and ASE Korea, see Note 2 of Notes to Consolidated Financial
Statements. After eliminating the results of ISE Labs, ASE Chung Li and ASE
Korea for comparative purposes, our net revenues for 1999 increased by 21.1% in
1999 compared to 1998, reflecting a 23.3% increase in packaging sales and a
29.7% increase in testing revenues. This increase was partially offset by a
decrease in revenues attributable to our subsidiary that designs and assembles
notebook computers, set-top boxes and liquid crystal display monitors, and
assembles board and sub-systems, ASE Technologies Inc., due primarily to the
continuing loss of one of its major customers in 1999. ASE Technologies intends
to wind down its business upon approval by its shareholders in September 2001.
See "Item 4. Information on the Company -- Business Overview -- Other Members
of the ASE Group" for more information on ASE Technologies. In 1999, our
adjusted packaging revenues accounted for 82.7% of our adjusted net revenues
and our adjusted testing revenues accounted for 16.1% of our adjusted net
revenues, compared to 81.2% and 15.1%, respectively, for 1998. The increase in
our adjusted net revenues for 1999 compared to 1998 resulted primarily from an
increase in packaging and testing volumes, which was partially offset by a
decrease in the
43
average realized selling prices for our packaging and testing services. The
decrease in the average realized selling prices reflected the general trend in
the semiconductor industry of declining prices for each input/output lead on a
semiconductor device. This decrease was partially offset by a change in our
revenue mix as our BGA packages, which typically command higher selling prices
as a result of the higher number of leads per device, accounted for a greater
portion of our packaging volume, and as we tested more complicated
semiconductor devices.
Gross Profit. Our gross profit increased by 63.4% to NT$8,650.0 million in
1999 from NT$5,294.3 million in 1998, reflecting the effects of the
acquisitions of ISE Labs, ASE Chung Li and ASE Korea, as well as increases in
gross profit at our existing facilities. After eliminating the results of ISE
Labs, ASE Chung Li and ASE Korea for comparative purposes, our gross profit
increased by 28.2% in 1999 compared to 1998. Our adjusted gross margin
increased to 27.0% compared to 25.5% for 1998 primarily as a result of
decreases in raw material and labor costs, which were partially offset by
increases in depreciation, factory supplies and other manufacturing overheads,
as well as a decrease in provision for inventory obsolescence, all as a
percentage of net revenues. Depreciation increased and raw material costs
decreased as a percentage of net revenues primarily as a result of a change in
our revenue mix, as testing services, which incur significant depreciation but
almost no raw material costs, accounted for a greater portion of our net
revenues, and a decrease in raw material prices. Cost of revenues also
increased due to increases in factory supplies such as rinsing agents and
manufacturing overhead and development costs associated with the ramp-up in BGA
production capabilities. Our adjusted gross margin for packaging increased to
24.8% in 1999 from 21.9% in 1998 primarily due to decreases in direct and
indirect labor and raw material costs as percentages of packaging revenue. Our
gross margin for packaging in 1999 was 23.5%, compared with our adjusted gross
margin for packaging of 24.8% for the same year, reflecting lower packaging
margins at our facilities acquired in 1999 due to differences in product mix.
Our adjusted gross margin for testing decreased to 45.2% from 47.4% in 1998
primarily due to increases in depreciation and amortization and other
manufacturing costs, partially offset by a decrease in direct and indirect
labor cost, all as percentages of testing revenue. Our gross margin for testing
in 1999 was 39.8%, as compared to our adjusted gross margin for testing of
45.2% for the same year, reflecting lower testing margins at the facilities
acquired in 1999 due to differences in the mix of testing services.
Operating Income. Our operating income increased by 70.7% to NT$4,848.6
million in 1999 from NT$2,840.9 million in 1998, reflecting in part the effects
of the acquisitions of ISE Labs, ASE Chung Li and ASE Korea, as well as
increases in operating income at our existing facilities. After eliminating the
results of ISE Labs, ASE Chung Li and ASE Korea for comparative purposes, our
operating income increased by 31.6% in 1999 compared to 1998. Our adjusted
operating margin increased to 15.0% compared to 13.7% for 1998, reflecting the
higher adjusted gross margin and decreases in selling expense, partially offset
by increases in research and development expense and other expense, all as a
percentage of net revenues. Selling expense as a percentage of net revenues
decreased primarily as a result of economies of scale realized from increased
sales volumes at our existing facilities. Amortization of goodwill expense
increased in 1999 compared to 1998 in absolute terms primarily as a result of
the acquisition of ISE Labs and ASE Korea in 1999, but remained relatively
unchanged as a percentage of net revenues.
Net Non-Operating Income. In 1999, our non-operating income increased
significantly primarily as a result of an increase in capital gains recognized.
These capital gains amounted to NT$5,544.2 million and were mostly generated by
the sales of ASE Test ordinary shares by our subsidiary J&R Holding Limited
through a public offering of Taiwan Depositary Receipts and the sale of ASE
Inc. common shares by our subsidiaries and affiliates in a private placement of
GDSs. Most of the common shares underlying the GDSs were acquired by our
subsidiaries between March 1996 and April 1998 as part of a share purchase
program instituted in support of ROC government policies. A small amount was
realized from open market sales of ASE Test Taiwan Depositary Receipts by our
subsidiaries and affiliates.
Net foreign exchange loss decreased in 1999 compared to 1998, reflecting
the higher than usual losses incurred in 1998 attributable to Japanese
yen-denominated liabilities created in the second half of 1998 to manage our
foreign exchange exposure. Net interest expense increased in 1999 compared to
1998 primarily as a result of increased debt financing incurred for our
acquisitions in 1999.
Amortization of goodwill expense in connection with the acquisition of
shares of our affiliates increased in 1999 compared to 1998, primarily as a
result of our purchase of 22.6% of the outstanding shares of Universal
Scientific.
44
Net Income. Our net income for 1999 was NT$7,794.7 million, or NT$7,225.4
million after eliminating the results of ISE Labs, ASE Chung Li and ASE Korea,
compared to NT$1,604.0 million for 1998. Our adjusted net income increased in
1999 compared to 1998 primarily as a result of the foregoing factors, partially
offset by an increase in our adjusted effective tax rate to 3.2% in 1999
compared to a benefit of 7.6% in 1998. Our net income for 1999, less capital
gains recognized upon the sale of long-term investments, was NT$2,250.5
million, compared to NT$997.1 million for 1998.
Quarterly Net Revenues, Gross Profit and Gross Margin
The following table sets forth our unaudited consolidated net revenues,
gross profit and gross margin for the quarterly periods indicated. You should
read the following table in conjunction with the Consolidated Financial
Statements and related notes included in this annual report. Our net revenues,
gross profit and gross margin for any quarter are not necessarily indicative of
the results for any future period. Our quarterly net revenues, gross profit and
gross margin may fluctuate significantly.
Quarter Ended
-------------------------------------------------------------------------------------------
Jun. 30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sept. 30
1999 1999 1999 2000 2000 2000
------- ------- ------- ------- ------- --------
unaudited (in millions)
Consolidated Net Revenues:
Packaging.............. NT$4,580.6 NT$7,190.0 NT$8,390.1 NT$8,378.4 NT$9,347.1 NT$10,458.9
Testing................ 1,432.0 2,182.7 2,837.8 2,776.2 3,013.3 3,440.1
Other.................. 105.0 11.7 83.5 7.0 75.2 5.2
---------- ---------- ----------- ----------- ----------- -----------
Total................ NT$6,117.6 NT$9,384.4 NT$11,311.4 NT$11,161.6 NT$12,435.6 NT$13,904.2
========== ========== =========== =========== =========== ===========
Consolidated Gross Profit:
Packaging.............. NT$977.5 NT$1,797.3 NT$2,080.5 NT$2,320.1 NT$2,568.2 NT$2,688.7
Testing................ 585.3 872.8 1,096.7 1,208.7 1,285.8 1,433.9
Other.................. (80.0) (0.2) (67.4) (39.0) (23.3) (45.1)
---------- ---------- ----------- ----------- ----------- ----------
Total................ NT$1,482.8 NT$2,669.9 NT$3,109.8 NT$3,489.8 NT$3,830.7 NT$4,077.5
========== ========== =========== =========== =========== ==========
Consolidated Gross Margin:
Packaging.............. 21.3% 25.0% 24.8% 27.7% 27.5% 25.7%
Testing................ 40.9% 40.0% 38.6% 43.5% 42.7% 41.7%
---------- ---------- ----------- ----------- ----------- ----------
Total................ 24.2% 28.5% 27.5% 31.3% 30.8% 29.3%
========== ========== =========== =========== =========== ==========
(table continued)
Quarter Ended
--------------------------
Dec. 31 Mar. 31
2000 2001
------- -------
unaudited (in millions)
Consolidated Net Revenues:
Packaging.............. NT$9,844.4 NT$8,142.4
Testing................ 3,538.8 3,105.5
Other.................. 8.8 2.1
----------- -----------
Total................ NT$13,392.0 NT$11,411.4
=========== ===========
Consolidated Gross Profit:
Packaging.............. NT$2,439.9 NT$1,455.0
Testing................ 1,366.0 875.9
Other.................. 122.2 51.8
----------- -----------
Total................ NT$3,928.1 NT$2,382.7
=========== ===========
Consolidated Gross Margin:
Packaging.............. 24.8% 17.9%
Testing................ 38.6% 28.2%
----------- -----------
Total................ 29.3% 21.2%
=========== ===========
Our results of operations have been adversely affected by the global
semiconductor industry downturn which commenced in the fourth quarter of 2000.
To a lesser extent, our results of operations have also been affected by
seasonality. Our first quarter net revenues have historically shown smaller
sequential increases over the preceding fourth quarter, compared to other
quarters of the year, primarily due to the combined effects of holidays in the
United States, Taiwan and Malaysia. Moreover, the increase or decrease in net
revenues of a particular quarter as compared with the immediately preceding
quarter varies significantly. See "Item 3. Key Information -- Risk Factors --
Our operating results are subject to significant fluctuations, which could
adversely affect the value of your investment". Our net revenues increased
significantly in the third and fourth quarters of 1999 compared to the second
quarter of 1999. These increases in net revenues resulted in part from the
revenues contributed by ASE Chung Li and ASE Korea which we acquired in July
1999 and in part as a result of increased volume and an upturn in the average
realized selling prices for packaging and testing services resulting from an
upturn in the semiconductor industry. Under ROC GAAP, the revenues contributed
by ISE Labs, which we acquired on May 4, 1999, have been included in our
consolidated net revenues as if we had acquired ISE Labs on January 1, 1999.
Taxation
Based on their respective statuses either as a company which is engaged in
designated businesses in Taiwan or a "pioneer" company in Malaysia, the
operating companies in the ASE Group were granted exemptions from ROC or
Malaysia income taxes, as the case may be, generally for a period of four or
five years, both at the initial stages of their operations and following
subsequent capital increases with respect to income attributable to capital
increases. These tax holidays resulted in tax savings for us of approximately
NT$508.8 million, NT$779.4 million and NT$700.7 million (US$21.1 million) in
1998, 1999 and 2000, respectively. Our tax holiday under the ROC Statute for
Upgrading of Industries expired at the end of 2000, but we may apply for
another tax holiday for cash injections from shareholders, such as rights
offerings, the proceeds of which are used to purchase eligible machinery and
equipment. We conducted
45
a rights offering in 2000, and plan to apply for a tax holiday for that rights
offering. The ROC Ministry of Finance announced that commencing 2000, we may
also apply for this tax holiday after the capitalization of retained earnings,
that is, through the issuance of stock dividends. ASE Test Malaysia's tax
holiday in Malaysia expired on June 30, 1999 and ASE Test Malaysia has received
approval to be a "pioneer high technology" company in Malaysia, which entitles
us to a five-year tax holiday substantially similar to our previous tax
holiday. We expect this tax holiday to commence retroactively on July 1, 1999.
See Note 17 of Notes to Consolidated Financial Statements.
With facilities located in special export zones such as the Nantze Export
Processing Zone in Taiwan and the Bayan Lepas Free Trade Zone in Malaysia, we
enjoy exemptions from various import duties and commodity taxes on imported
machinery, equipment, raw materials and components. Goods produced by companies
located in these zones and exported or sold to others within the zones are
exempt from otherwise applicable commodity or business taxes.
Our effective income tax rate was 0%, 5.1% and 12.7% in 1998, 1999 and
2000, respectively. The effective tax rate was significantly lower in 1998 and
1999 primarily as a result of substantial capital gains income in those years
that was not subject to ROC corporate tax.
Exchange Rate Fluctuations
Currently, the majority of our revenues from packaging and testing
services are denominated in U.S. Dollars, with a portion denominated in NT
Dollars, while our costs of revenues and operating expenses associated with
packaging and testing services are incurred in several currencies, including
U.S. Dollars, NT Dollars, Malaysian ringgit, Korean won, Philippine pesos,
Singapore dollars and Hong Kong dollars. As a result, the depreciation of the
NT Dollar against the U.S. Dollar tends to increase our net revenues in NT
Dollar terms. In 1998, 1999 and 2000, the average exchange rate of the NT
Dollar to the U.S. Dollar was 33.50, 32.28 and 31.37, respectively. In
addition, a substantial portion of our capital expenditures, primarily for the
purchase of packaging and testing equipment, has been, and is expected to
continue to be, denominated primarily in U.S. Dollars with the remainder in
Japanese yen. Fluctuations in exchange rates, primarily among the U.S. Dollar,
the NT Dollar and the Japanese yen, will affect our costs and operating margins
and could result in exchange losses and increased costs in NT Dollar and other
local currency terms. Despite hedging and mitigating techniques implemented by
us, fluctuations in exchange rates have affected, and may continue to affect,
our financial condition and results of operations. We recorded foreign exchange
losses of NT$538.4 million in 1999 primarily as a result of losses incurred in
1998 attributable to Japanese yen-denominated liabilities created in the second
half of 1998 to manage our foreign exchange exposure. We recorded foreign
exchange gains of NT$302.7 million (US$9.1 million) in 2000, due primarily to
unrealized foreign exchange gains on foreign currency-denominated assets due to
the year-end depreciation of the NT Dollar relative to the U.S. Dollar.
U.S.GAAP Reconciliation
Our financial statements are prepared in accordance with generally
accepted accounting principles in the ROC, or ROC GAAP, which differ in
material respects from generally accepted accounting principles in the United
States, or U.S.GAAP. The following table sets forth a comparison of our net
income and shareholders' equity in accordance with ROC GAAP and U.S.GAAP for
the periods indicated:
Year Ended December 31,
----------------------------------------
1999 2000 2000
---- ---- ----
(in millions)
Net income in accordance with:
ROC GAAP........................ NT$7,794.7 NT$5,837.1 US$176.0
U.S.GAAP........................ NT$4,641.3 NT$3,930.0 US$118.5
As of December 31,
--------------------------------------------
1999 2000 2000
---- ---- ----
(in millions)
Shareholders' equity in accordance
with:
ROC GAAP.......................... NT$30,057.0 NT$43,669.2 US$1,316.5
U.S.GAAP.......................... NT$26,569.7 NT$40,729.1 US$1,227.9
46
Note 27 of Notes to Consolidated Financial Statements provides a
description of the principal differences between ROC GAAP and U.S.GAAP as they
relate to us, and a reconciliation to U.S.GAAP of select items, including net
income and shareholders' equity. Differences between ROC GAAP and U.S.GAAP
which have a material effect on our net income as reported under ROC GAAP
relate to gain from the sale of treasury stock and compensation expense
pertaining to bonuses to employees, directors and supervisors.
In 1999, three of our consolidated subsidiaries sold an aggregate of 32.4
million ASE Inc. common shares in open market sales. Under U.S.GAAP, when a
subsidiary holds its parent's common shares as investments, the common shares
are treated as treasury stock and is presented in the consolidated balance
sheet as a deduction to shareholders' equity. The capital gain or loss from the
sale of treasury stock is added to or deducted from the balance of treasury
stock. Under ROC GAAP, this treatment is not required and, as a result, the
investment in ASE Inc. common shares by its subsidiaries is treated as
long-term investment in the balance sheets and the capital gain or loss from
the sale of treasury stock is recognized as income or loss. As a result of
these transactions, we recognized under ROC GAAP capital gains on sale of
investments of NT$1,388.5 million in 1999. Under U.S.GAAP, those investments in
ASE Inc.'s common shares should be classified as treasury stock and the capital
gain is not recognized as income but is deducted from treasury stock under
capital surplus.
We paid employee bonuses in 1999 and 2000 in the form of common shares,
and expect to pay all or a portion of employee bonuses in future periods in the
form of common shares. The number of common shares distributed as part of
employee bonuses is obtained by dividing the total nominal NT Dollar amount of
the bonus to be paid in the form of common shares by the par value of the
common shares, or NT$10 per share, rather than their market value, which has
generally been substantially higher than par value. Under ROC GAAP, the
distribution of employee bonus shares is treated as an allocation from retained
earnings, and we are not required to, and do not, charge the value of the
employee bonus shares to income. Under U.S.GAAP, however, we would be required
to charge the market value of the employee bonus shares to employee
compensation expense in the period to which they relate, correspondingly reduce
our net income and income per common share calculated in accordance with
U.S.GAAP.
The amount and the form of the payment of this compensation is subject to
approval by our board of directors and is only determinable at the first board
meeting which is held after the issuance of our financial statements for the
relevant year. Under U.S.GAAP, the compensation expense is initially accrued at
the nominal NT Dollar amount of the aggregate bonus in the period to which it
relates. For U.S.GAAP purposes, the difference between the amount initially
accrued and the market value of the common shares issued as payment of all or
any part of the bonus is recorded as employee compensation expense in the
period in which board approval is obtained, which normally occurs during the
second quarter of each year. See Note 27 of Notes to Consolidated Financial
Statements. Net income and income per common share amounts calculated in
accordance with ROC GAAP and U.S.GAAP differ accordingly. The amount of the
adjustment for market price for the purpose of U.S.GAAP reconciliation for the
special stock bonus paid in 2000 was allocated over a period of three years
commencing in the second quarter of the year following the year in which the
bonus was paid, reflecting the additional length of service which we require
from employees who received the special stock bonus.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of cash are cash generated from operations and debt
financing and, in certain years, proceeds from the sale of investments. Our
primary uses of cash are to fund capital expenditures and working capital
requirements related to our operations and expansion. Our cash and cash
equivalents are held primarily in U.S. Dollars.
Cash generated from our operations was NT$17,643.2 million (US$531.9
million) for 2000, as compared to NT$7,017.2 million for 1999. The increase in
cash generated from our operations in 2000 reflected an increase in recurring
net income (excluding extraordinary capital gains), partially offset by an
increase in accounts receivable. The increase in recurring net income
(excluding extraordinary capital gains) for 2000 compared to 1999 resulted from
an increase in the revenues and improvements in the operating margins of ASE
Inc. and the operations of ASE Chung Li and ASE Korea (which were acquired in
July 1999). Our cash generated from operations was NT$5,194.2 million in 1998.
The increase in our cash generated from operations in 1999 reflected an
increase in recurring net income (excluding ordinary capital gain), accounts
payable and accrued expenses, partially offset by an increase in accounts
receivable. Our accounts receivable, accounts payable and accrued expense
increased in 1999 compared to 1998
47
primarily as a result of the effect from our acquisition of ISE Labs, ASE Chung
Li and ASE Korea, as well as from revenue growth. Our accounts receivable
collection improved to an average of 60 days in 2000 from an average of 62 days
in 1999, while our average days inventory improved to 29 days in 2000 from 32
days in 1999. Our accounts receivable collection improved to 62 days in 1999
from 68 days in 1998, while our average days inventory improved to an average
of 32 days in 1999 from an average of 45 days in 1998.
As of December 31, 2000, we had positive working capital in the amount of
NT$4,914.3 million (US$148.2 million) as a result of an increase in cash of
NT$2,357.4 million (US$71.1 million) from NT$11,809.1 million (US$356.0
million) to NT$14,166.5 million (US$427.1 million) and an increase in
short-term borrowings. Our working capital is supplemented by short-term
borrowings. The cash and short-term borrowings were used to fund capital
expenditures including the acquisition of additional packaging and testing
equipment and the expansion of existing facilities and additional investments.
We believe that our current cash and cash equivalents, cash flow from
operations and the proceeds from our September 2000 ADS offering will be
sufficient to meet our anticipated needs at least through the end of 2001,
including for working capital and capital expenditure requirements.
In connection with the expansion of our production capacity, we have
incurred capital expenditures of NT$7,447.7 million, NT$11,097.4 million and
NT$31,463.5 million (US$948.6 million) in 1998, 1999 and 2000, respectively.
All of our capital expenditures are and have been in connection with the
expansion of our production capacity.
As of December 31, 2000, we had total short-term lines of credit of
NT$23,933.1 million (US$721.5 million), of which NT$9,684.4 million (US$92.0
million) had been drawn. The interest rate for borrowings under these
facilities ranged from 0.975% to 10% during 2000. See Note 11 of Notes to
Consolidated Financial Statements. The majority of our short-term borrowings
are denominated in NT Dollars, with the remainder denominated principally in
U.S. Dollars.
As of December 31, 2000, our outstanding long-term bank loans, less
current portion, were NT$10,329.9 million (US$311.4 million). Certain of our
bank loans are secured by machinery and equipment. Our long-term bank loans
bear interest at floating rates, which in 2000 ranged from 1.1% to 10.5%. For
information regarding our long-term bank loans, including the maturity profile,
see "Item 11. Quantitative and Qualitative Disclosures About Market Risk --
Foreign Currency Exchange Rate Risk". See Note 14 of Notes to Consolidated
Financial Statements. Most of our long-term bank loans are denominated in NT
Dollars. In addition, as of December 31, 2000, we had outstanding convertible
bonds denominated in U.S. Dollars in an aggregate amount of NT$12,229.1 million
(US$368.7 million), including amounts outstanding under bonds guaranteed by ASE
Test. See Note 13 of Notes to Consolidated Financial Statements.
As of May 2001, we had budgeted total capital expenditures of US$200
million for 2001, all for the expansion of production capacity. As of December
31, 2000, we had long-term loan repayment obligations totaling NT$3,309.9
million (US$99.8 million) in long-term loan repayments due in 2001. In
addition, we had long-term loan repayment obligations totaling NT$12,484.8
million (US$376.4 million) due in 2002, including our US$200,000,000 Zero
Coupon Convertible Bonds Due 2002. We also had NT$9,684.4 million (US$292.0
million) of short-term borrowings outstanding, part of which we would expect to
renew. We expect to meet our long-term working capital, capital expenditure and
debt repayment requirements through cash from operations, the proceeds from our
September 2000 ADS offering and further debt financing and capital raising if
needed. We have also raised capital at the subsidiary level to meet investment
and capital requirements. In July 2000, ASE Test completed a US$276 million
offering of ordinary shares. In September 2000, we completed a US$140 million
offering of ADSs. As of December 31, 2000, we had a cash position of
NT$14,166.5 million (US$427.1 million), outstanding and unused short-term
credit lines of NT$14.248.7 million (US$429.6 million) and unused long-term
bank facilities of NT$5,869.8 million (US$177.0 million).
We have from time to time also liquidated long-term or short-term
investments to provide cash for our operations and capital expenditures,
including offerings of ASE Test ordinary shares, sometimes in the form of
Taiwan Depositary Receipts, in 1997 and 1999 and the sale by our subsidiaries
of ASE Inc. common shares in the form of GDSs in 1999.
From time to time, we evaluate possible investments, acquisitions or
divestments and may, if a suitable opportunity arises, make an investment,
acquisition or divestment. We currently have no commitments to make any
material
48
investment, acquisition or divestment. In July 2000 our shareholders approved a
resolution which authorizes our board of directors to make investments in the
People's Republic of China. At such time as such an investment is permitted by
the ROC investment law and policy and if suitable opportunities are available
at that time, we intend to consider establishing a semiconductor packaging
facility in the People's Republic of China.
RESEARCH AND DEVELOPMENT
Packaging
We centralize our research and development efforts in packaging technology
in our Kaohsiung facilities. After initial phases of development, we conduct
pilot runs in one of our facilities before the new techniques or technologies
are implemented commercially at other sites. Facilities with special product
expertise, such as ASE Korea, also conduct research and development of these
specialized products and technologies at their sites. One of the areas of
emphasis for our research and development efforts is improving the efficiency
and technology of our packaging processes. We expect these efforts to continue.
We are now also putting significant research and development efforts into the
development and adoption of new technology. We work closely with the
manufacturers of our packaging equipment, including Kulicke & Soffa Industries
Inc., a United States supplier of a substantial portion of our new wire
bonders, in designing and modifying the equipment used in our production
process. We also work closely with our customers to develop new product and
process technology.
A significant portion of our research and development efforts is also
focused on the development of advanced substrate production technology for BGA
packaging through ASE Material. Substrate is the principal raw material for BGA
packages. Development and production of advanced substrates involve complex
technology and, as a result, high quality substrates are currently available
only from a limited number of suppliers, located primarily in Japan. We believe
that the successful development of substrate production capability by ASE
Material will, among other things, help ensure a stable and cost-effective
supply of substrates for our BGA packaging operations and shorten production
time. In 2000, ASE Material supplied approximately 25.4% of the substrate
requirements at our packaging facilities in Kaohsiung.
We have also entered into various non-exclusive technology license
agreements with licensors including Tessera Inc., Fujitsu Limited, Flip Chip
Technologies, Motorola, Inc. and LSI Logic Inc. The technology we license from
these companies includes solder bumping, redistribution, ultraCSP, assembly and
other technologies used in the production of package types such as bump chip
carrier, flip chip packages and micro BGA. We are also working with TSMC in
developing the next generation of packaging product technology. The license
agreement with Tessera will not expire until the expiration of the Tessera
patents licensed by the agreement. The license agreements with Fujitsu, Flip
Chip, and Motorola will expire on April 13, 2003, March 1, 2009, and December
31, 2002, respectively. We hold no material patents. We are currently
co-developing with TSMC wafer bumping technology to implant directly onto the
die input/output leads that will be connected to leads on laminate substrates
or leadframes.
Testing
Our research and development efforts in the area of testing have focused
primarily on improving the efficiency and technology of our testing processes.
Our current projects include developing software for parallel testing of logic
semiconductors, rapid automatic generation and cross-platform conversion of
test programs to test logic/mixed-signal semiconductors, automatic code
generation for converting and writing testing programs, testing new products
using existing machines and providing customers remote access to monitor test
results. We are also continuing the development of interface designs to provide
for high-frequency testing by minimizing electrical noise. We work closely with
our customers in designing and modifying testing software and with equipment
vendors to increase the efficiency and reliability of testing equipment. Our
research and development operations also include a mechanical engineering
group, which currently designs handler kits for semiconductors testing and
wafer probing, as well as software to optimize capacity utilization.
For 1998, 1999 and 2000, our research and development expenditures totaled
approximately NT$453.6 million, NT$714.3 million and NT$1,262.5 million
(US$38.1 million), respectively. These expenditures represented approximately
2.2%, 2.2% and 2.5% of net revenues in 1998, 1999 and 2000, respectively. We
have historically
49
expensed all research and development costs as incurred and none is currently
capitalized. As of December 31, 2000, we employed 1,163 employees in research
and development.
Item 6. Directors, Senior Management and Employees.
DIRECTORS AND SENIOR MANAGEMENT AND BOARD PRACTICE
Directors
Our board of directors is elected by our shareholders in a general meeting
at which a quorum, consisting of a majority of all issued and outstanding
common shares, is present. The Chairman is elected by the board from among the
directors. Our seven-member board of directors is responsible for the
management of our business.
The term of office for our directors is three years from the date of
election. The current board of directors began serving on July 11, 2000. The
terms of the directors will expire on July 10, 2003. Directors may serve any
number of consecutive terms and may be removed from office at any time for a
valid reason by a resolution adopted at a general meeting of shareholders.
Normally, all board members are elected at the same time, except where the
posts of one-third or more of the directors are vacant, at which time a special
meeting of shareholders shall be convened to elect directors to fill the
vacancies.
The following table sets forth the name of each of our directors, his or
her position in ASE Inc., the year they were elected as director and other
significant positions within the ASE Group held by them.
Director
Name Position Since Other Significant Positions Held
- ---- -------- -------- --------------------------------
Jason C.S. Chang(1)......... Director and Chairman 1984 Chairman of ASE Test Taiwan
Richard H.P. Chang(1)....... Vice Chairman 1984 Chairman of ASE Test;
Chairman of Universal Scientific
Leonard Y. Liu(2)........... Director and President 2000 Director and Chief Executive
Officer of ASE Test; Chief
Executive Officer and President of
Universal Scientific
Joseph Tung(2).............. Director and Chief 1997 Director of ASE Test;
Financial Officer Supervisor of Universal Scientific
Chang Yao Hung-ying(1)(2)... Director 1984 Director of ASE Test Taiwan
Chin Ko-Chien(2)............ Director and Executive 1997 Director of ASE Test
Vice President
David Pan(2)................ Director 1997 Director and President of ASE
Test
- ---------
(1) Chang Yao Hung-ying is the mother of both Jason C.S. Chang and Richard
H.P. Chang.
(2) Representative of ASE Enterprises Limited, a company organized under the
laws of Hong Kong, which held 20.4% of our outstanding common shares as of
December 31, 2000. All of the outstanding shares of ASE Enterprises
Limited are held by a company organized under the laws of the British
Virgin Islands in trust for the benefit of Chang Yao Hung-ying, the mother
of Jason C.S Chang, our Chairman, and Richard H.P. Chang, our Vice
Chairman and Chief Executive Officer. Jason C.S. Chang is the sole
shareholder and director of that company.
Supervisors
We currently have five supervisors, each serving a three-year term.
Supervisors are typically elected at the time that directors are elected. The
current supervisors began serving on June 1, 2001, and will expire on May 31,
2004. The supervisors' duties and powers include investigation of our business
condition, inspection of our corporate records, verification and review of
financial statements presented by our board of directors at shareholders'
meetings, convening of shareholders' meetings, representing us in negotiations
with our directors and notification, when appropriate, to the
50
board of directors to cease acting in contravention of any applicable law or
regulation or in contravention of our Articles of Incorporation. Each
supervisor is elected by our shareholders and cannot concurrently serve as a
director, managerial officer or other staff member. The ROC Company Law
requires at least one supervisor be appointed at all times and that a
supervisor's term of office be no more than three years.
The following table sets forth the name of each of our supervisors, his or
her position in ASE Inc., the year they were elected as supervisor and other
significant positions within the ASE Group held by them.
Name Position Supervisor Since Other Significant Positions Held
---- -------- ---------------- --------------------------------
Feng Mei-Jean (1) Supervisor 1984 Supervisor of ASE Chung Li
Yen-Yi Tseng (2) Supervisor 2000 Vice Chairman of Hung Ching
Alan Cheng (2) Supervisor 1997 Director of ASE Test; Chairman of Hung Ching
John Ho (2) Supervisor 1998 Director of Universal Scientific
Raymond Lo (2) Supervisor 2000 President of ASE Test Taiwan
- -------------
(1) Feng Mei-Jean is the wife of Richard H.P. Chang.
(2) Representative of ASE Enterprises Limited.
In accordance with ROC law, each of our directors and supervisors is
elected either in the capacity as an individual shareholder or as an individual
representative of a corporate or governmental shareholder. Persons designated
to represent corporate or government shareholders as directors are typically
nominated by such shareholders at the annual general meeting. Of the current
directors and supervisors, nine represent ASE Enterprises Limited. The
remaining directors and supervisors serve in their capacity as individual
shareholders.
Executive Officers
The following table sets forth information relating to our executive
officers.
Name Postion Age
- ---- ------- ---
Jason C.S. Chang.......... Chairman 56
Richard H.P. Chang........ Vice Chairman and Chief Executive Officer 52
Leonard Y. Liu............ President, ASE Inc. 59
Chin Ko-Chien............. Executive Vice President and General
Manager, Kaohsiung packaging facility 55
David Pan................. President, ASE Test 56
Raymond Lo................ President, ASE Test Taiwan 47
Kanapathi A/L Kuppusamy... President, ASE Test Malaysia 49
Shih-Song Lee............. President, ASE Chung Li 60
James Stilson............. President, ASE Korea 54
Fu-Shing Chang............ President, ASE Philippines 50
Gregory Lin............... President, ASE Material 57
Joseph Tung............... Chief Financial Officer 42
Biographies of Directors, Supervisors and Executive Officers
Jason C.S. Chang has served as Chairman of ASE Inc. since its founding in
March 1984. He holds a degree in electrical engineering from National Taiwan
University and a masters degree from the Illinois Institute of Technology. He
is the son of Chang Yao Hung-ying, a director of ASE Inc., and the brother of
Richard H.P. Chang, our Vice Chairman and Chief Executive Officer.
Richard H.P. Chang has served as Vice Chairman of ASE Inc. since November
1999 after having served as President of ASE Inc. since its founding in March
1984, and was appointed Chief Executive Officer of ASE Inc. in July 2000. Mr.
Chang is also the Chairman of ASE Test. He holds a degree in industrial
engineering from Chung Yuan
51
Christian University of Taiwan. He is the son of Chang Yao Hung-ying, a
director of ASE Inc., and the brother of Jason C.S. Chang, our Chairman.
Leonard Y. Liu has served as a director since July 2000 and President of
ASE Inc. since November 1999. Mr. Liu is also the Chief Executive Officer and a
director of ASE Test and the Chief Executive Officer of Universal Scientific.
Before joining ASE Inc., he was Chairman and Chief Executive Officer of Walker
Interactive System, Inc. Mr. Liu has held other top management positions at
leading technology companies, including Chief Operating Officer of Cadence
Design Systems, President of the Acer Group worldwide and General Manager of
IBM's application enabling software business unit. He holds a degree in
electrical engineering from National Taiwan University and a doctorate degree
in electrical engineering and computer science from Princeton University.
Joseph Tung has served as a director of ASE Inc. since April 1997 and
Chief Financial Officer since December 1994. He is also a director of ASE Test.
Before joining ASE Inc., Mr. Tung was a Vice President at Citibank, N.A. He
received a degree in economics from the National Chengchi University of Taiwan
and a masters degree in business administration from the University of Southern
California.
Chang Yao Hung-ying has served as a director of ASE Inc. since 1996.
Before April 1997, she was the Chairman of Hung Ching. She holds a degree from
Shanghai University. She is the mother of Jason C.S. Chang and Richard H.P.
Chang, our Chairman and our Vice Chairman and Chief Executive Officer,
respectively.
Chin Ko-Chien has served as a director of ASE Inc. since March 1984 and
Executive Vice President and General Manager of our packaging facility in
Kaohsiung since March 1990. Mr. Chin is also a director of ASE Test. Before
joining ASE Inc., he held managerial positions at Fu Hua Construction Co. Ltd.
and De Ji Trading Company. He holds a degree in bearings technology from Taiwan
Ocean University.
David Pan has served as a director of ASE Inc. since April 1997 and
President and a director of ASE Test since November 1995. Before joining ASE
Test, Mr. Pan was the Vice President responsible for research and development
at Ultratech Stepper Inc. He holds a degree in physics from the University of
Illinois and masters and doctorate degrees in physics from the University of
California at Berkeley.
Feng Mei-Jean has served as a supervisor of ASE Inc. since March 1984. She
holds a degree in economics from National Taiwan University. She is the wife of
Richard H.P. Chang, our Vice Chairman and Chief Executive Officer.
Yen-Yi Tseng has served as a supervisor of ASE Inc. since July 2000 and
Vice Chairman of Hung Ching since 1999. Mr. Tseng served as President of
Ret-Ser Engineering Agency from 1991 to 1998. He holds a degree in civil
engineering from National Taiwan University and a masters degree in system
engineering from Asian Institute of Technology in Thailand. He was also a
participant in the Program for Management Development at Harvard Business
School.
Alan Cheng has served as a supervisor of ASE Inc. since April 1997. Mr.
Cheng is also the Chairman of Hung Ching. He holds a degree in industrial
engineering from Chung-Yuan University.
John Ho has served as a supervisor of ASE Inc. since April 1998. He is
also a director of Universal Scientific. He served as Chief Financial Officer
of ASE Inc. from 1988 until 1995. He holds a degree in business administration
from National Taiwan University and a masters degree in business administration
from the University of Iowa.
Raymond Lo has served as a supervisor of ASE Inc. since July 2000 and
President of ASE Test Taiwan since December 1999, after serving as Vice
President of Operations of ASE Inc. since July 1993. Before joining ASE Inc.,
Mr. Lo was the Director of Quality Assurance at Zeny Electronics Co. He holds a
degree in electronic physics from the National Chiao Tung University of Taiwan.
Kanapathi A/L Kuppusamy has served as President of ASE Test Malaysia since
July 1999. Before joining ASE Test Malaysia, Mr. Kanapathi was President of
Motorola Asia Final Manufacturing. He holds a masters degree in business
administration from the University of East Asia in Kuala Lumpur, Malaysia.
Shih-Song Lee has served as President of ASE Chung Li since July 1999.
Before joining ASE Chung Li, Mr. Lee
52
served as President of Motorola's Semiconductor Products Sector Businesses in
Chung Li, Taiwan before we acquired the company. He holds a degree in
electrical engineering from the Tatung Institute of Technology in Taiwan.
James Stilson has served as President of ASE Korea since July 1999. Before
joining ASE Korea, Mr. Stilson served as President of Motorola's Semiconductor
Products Sector Businesses in Paju, Korea before we acquired the company. He
holds a degree in chemistry and a masters degree in business administration
from the University of California.
Fu-Shing Chang has served as President of ASE Philippines since January
2000. Before joining ASE Philippines, Mr. Chang served as Vice President for
Quality Assurance and Customer Service. He holds a degree in mechanical
engineering from the National Cheng-kung University in Taiwan.
Gregory Lin has served as President of ASE Material since its inception in
December 1997. Before joining ASE Material, Mr. Lin held research positions
with Xerox Palo Alto Research Center. He holds a degree in chemistry from
National Taiwan Chung Hsing University, and masters and doctorate degrees in
chemistry from the University of Illinois.
COMPENSATION
In 2000, we paid to our directors, supervisors and executive officers
approximately NT$190.0 million (US$5.7 million) in cash remuneration. In
addition, an aggregate of 7,024,440 common shares of ASE Inc. were granted in
2000 to our directors, supervisors and executive officers. In 2000, we also set
aside an aggregate of NT$1.5 million (US$0.05 million) to provide pension,
retirement and similar benefits for our executive officers pursuant to existing
plans provided by or contributed to by our company or its subsidiaries. The
following table sets forth cash remuneration paid to our individual directors
and supervisors in 2000.
Name Position Compensation(1) Share Bonuses
- ---- -------- --------------- -------------
NT$
(in thousands)
Jason C.S. Chang........ Chairman 3,503 --
Richard H.P. Chang...... Director 3,358 6,034,260
Leonard Y. Liu(6)....... Director (Representative of ASE Enterprises
Limited) (2) 57,900
Chang Yao Hung-ying .... Director (Representative of ASE Enterprises
Limited) (2) --
Chin Ko-Chien........... Director (Representative of ASE Enterprises
Limited) (2) 150,800
David Pan............... Director (Representative of ASE Enterprises
Limited) (2) 111,000
Raymond Lo(5)........... Director and Supervisor (Representative of
ASE Enterprises Limited) (2) 126,440
Joseph Tung............. Director (Representative of ASE Enterprises
Limited) (2) 104,920
Feng Mei-Jean........... Supervisor 1,000 --
Yen-Yi Tseng(6)......... Supervisor (Representative of ASE Enterprises
Limited) (2) 30,000
Roger Cheung(3)......... Supervisor (Representative of ASE Enterprises
Limited) (2) --
John Ho................. Supervisor (Representative of ASE Enterprises
Limited) (2) 93,330
Alan Cheng.............. Supervisor (Representative of ASE Enterprises
Limited) (2) --
Walt Delauder(3)........ Supervisor (Representative of ASE Enterprises (2) --
Limited)
- ----------------
(1) Does not include share bonuses of ASE Inc. or options to purchase
ordinary shares of ASE Test.
(2) A total of NT$76,200 was paid to ASE Enterprises Limited on account of its
representative directors and a total
53
of NT$60,000 was paid to ASE Enterprises Limited on account of its
representative supervisors. Such payments were not to the directors and
supervisors in their individual capacities.
(3) Term expired on July 11, 2000.
(4) All share bonuses were for shares of ASE Inc.
(5) Term as director expired on July 11, 2000. Term as supervisor began on
July 11, 2000.
(6) Term began on July 11, 2000.
ASE Test Share Option Plans
ASE Test currently maintains four option plans approved in 1997, 1998, 1999
and 2000. As of May 31, 2001, ASE Test had no outstanding options under the IPO
option plan of 1996 and the 1996 option plan, and these plans have expired.
Under ASE Test's share option plans, its directors, employees, advisors and
consultants and those of its affiliates may, at the discretion of a committee
of its directors administering the plan, be granted options to purchase its
shares at an exercise price of no less than their market value on the date of
grant. The committee has complete discretion to determine which eligible
individuals are to receive option grants, the number of shares subject to each
grant, the vesting schedule to be in effect for each option grant and the
maximum term for which each granted option is to remain outstanding, up to a
maximum term of five, or in the case of the 1999 and 2000 option plans, ten
years. ASE Test's board of directors may amend or modify the plans at any time.
As of May 31, 2001, an aggregate of 18,800,000 of ASE Test's shares had been
reserved for issuance and 16,221,853 options to purchase its shares remained
outstanding under its various option plans. An aggregate of 6,790,000 options
had been granted to the directors and executive officers of ASE Test. Options
granted under the various plans are exercisable at an exercise price ranging
from $2.06 to $25.00 per share. Options granted under the 1997 and 1998 option
plans will expire five years from the date of grant, and in the case of the
1999 and 2000 plans, ten years from the date of grant.
The following table sets forth options of ASE Test granted in the year ended
December 31, 2000 with respect to our officers, directors and supervisors. No
other officers, directors or supervisors were granted options in 2000. No
options exercisable for our shares were granted in the year ended December 31,
2000.
Number of Options Exercise Price Expiration Date
Officer or Director Granted(1) of Options of Options
- -------------------------- ----------------- -------------- ---------------
Raymond Lo................ 35,000 25 April 18, 2009
Kanapathi A/L Kuppusamy... 25,000 25 April 18, 2009
- -------------------
(1) Each option covers one ordinary share of ASE Test.
ASE Inc. Employee Bonus Plan
We award bonuses to the employees of ASE Group companies based on overall
income and individual performance targets. These employees are eligible to
receive bonuses in the form of common shares of ASE Inc. valued at par. Actual
amounts of bonuses to individual employees are determined based upon the
employee meeting specified individual performance objectives. We granted an
aggregate of 30,760,000 common shares, 9,540,000 common shares and 47,833,062
common shares in 1998, 1999 and 2000, respectively, as stock awards to our
employees with a fair market value at the date of grant of NT$2,311.1 million,
NT$754.7 million and NT$3,429.0 million (US$103.4 million), respectively. We
expect this practice to continue in future periods.
EMPLOYEES
The following table sets forth certain information concerning our
employees for the dates indicated.
As of December 31,
-----------------------------
1998 1999 2000
---- ---- ----
Total ............................. 8,737 14,184 18,121
Function
Direct labor....................... 5,583 9,495 12,011
Indirect labor (manufacturing)..... 1,937 2,995 3,577
Indirect labor (administration).... 799 1,067 1,370
Research and development........... 418 627 1,163
Location
Taiwan............................. 6,390 9,360 12,430
Korea.............................. -- 972 965
Malaysia........................... 2,167 2,625 3,407
United States...................... -- 369 523
Philippines........................ 180 582 568
Singapore.......................... -- 36 104
Hong Kong.......................... -- 137 124
Eligible employees may participate in the ASE Inc. Employee Share Bonus
Plan and the ASE Test Share Option Plans. See "--Compensation" and "--Share
Ownership".
With the exception of ASE Korea's employees, our employees are not covered
by any collective bargaining arrangements. We believe that our relationship
with our employees is good.
SHARE OWNERSHIP
The following table sets forth certain information with respect to our
officers and directors as of March 31, 2001.
Number of ASE Percentage of Total of our
Inc. Common Common Shares Issued
Officer or Director Shares Held and Outstanding
- -------------------------------------------------------------------------------
Jason C.S. Chang.................. 17,311,832 0.63%
Richard H.P. Chang................ 32,353,782 1.18
Leonard Y. Liu.................... 57,900 --
Joseph Tung....................... 602,722 0.02
Chang Yao Hung-Ying............... 16,139,604 0.59
Chin Ko-Chien..................... 376,718 0.01
David Pan......................... 210,518 0.01
Feng Mei-Jean..................... 49,803,131 1.81
Yen-Yi Tseng...................... 30,000 --
Alan Cheng........................ 245,895 0.01
John Ho........................... 183,787 0.01
Raymond Lo........................ 375,911 0.01
Kanapathi A/L Kuppusamy........... -- --
Shih-Song Lee..................... 120,000 0.01
James Stilson..................... -- --
Fu-Shing Chang.................... 73,203 0.01
Gregory Lin....................... 285,567 0.01
Item 7. Major Shareholders.
MAJOR SHAREHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common shares as of December 31, 2000, by (1) each
shareholder known by us to own beneficially more than 5% of our common shares
and (2) all directors, supervisors and executive officers as a group.
55
Name of Shareholder or group Common Shares Beneficially Owned
- ---------------------------- --------------------------------
Number Percentage
------ ----------
ASE Enterprises Limited(1)...................... 560,889,602 20.4%
Directors, supervisors and executive officers
as a group(2)................................. 680,210,777 24.7%
- ---------------
(1) ASE Enterprises Limited is a company organized under the laws of Hong Kong.
All of the outstanding shares of ASE Enterprises Limited are held by a company
organized under the laws of the British Virgin Islands in trust for the benefit
of Chang Yao Hung-ying, the mother of Jason C.S Chang, our Chairman, and
Richard H.P. Chang, our Vice Chairman and Chief Executive Officer. Jason C.S.
Chang is the sole shareholder and director of that company.
(2) Includes shareholding of ASE Enterprises Limited.
The following table sets forth information relating to our common shares
held by our consolidated subsidiaries and non-consolidated affiliates as of
December 31, 2000.
Name of Shareholder Common Shares Beneficially Owned
- ------------------- --------------------------------
Number Percentage
------ ----------
ASE Capital(1)................................ 17,907,964 0.7%
ASE Investment(1)(2).......................... 117,401,760 4.3%
ASE Test Taiwan(3)............................ 557,875 0.02%
Hung Ching(4)................................. 33,791,301 1.2%
- ------------
(1) ASE Capital and ASE Investment are our wholly-owned subsidiaries.
(2) Of the 117,401,760 common shares owned by ASE Investment 13,873,890 are
currently represented by an aggregate of 2,774,778 ADSs.
(3) ASE Test Taiwan is a subsidiary of ASE Test, our 51.2% owned subsidiary.
(4) As of December 31, 2000, we held 25.1% of the outstanding shares of Hung
Ching. Our director Chang Yao Hung-ying, our Chairman Jason C.S. Chang,
our Vice Chairman and Chief Executive Officer Richard H.P. Chang and other
members of the Chang family are controlling shareholders of Hung Ching.
See "Item 4. Information on the Company-- Business Overview-- Other
Members of the ASE Group--Unconsolidated Affiliates".
In addition to the common shares held by our consolidated subsidiaries and
unconsolidated affiliates set forth above, as of December 31, 2000, J&R
Holding, our wholly-owned subsidiary, held options exercisable for 76,703,517,
or 2.8%, of our common shares at an exercise price of NT$59.7 per common share.
The number of common shares covered by the options and the exercise price are
subject to adjustments if specified events take place, such as the declaration
of dividends in our common shares or the issuance of our common shares at less
than the market price. The options expire in November 2002.
As of May 31, 2001, approximately 37.3 million of our ADSs were
outstanding, representing approximately 6.8% of our outstanding shares. We
believe that, of such ADSs, approximately 26.7 million were held by
approximately 700 holders in the United States.
RELATED PARTY TRANSACTIONS
In recent years, ASE Inc. has made awards of ASE Inc.'s common shares to
the employees of ASE Group companies as part of their compensation, based in
part on the consolidated net income of ASE Inc. and the member companies'
contribution to the consolidated income. ASE Inc. granted an aggregate of
13,510,250 common shares in 2000, 1,305,000 common shares in 1999 and 6,105,410
common shares in 1998 as stock awards to employees of other companies of the
ASE Group with a fair market value at the time of grant of NT$968.5 (US$29.2
million), NT$103.2 million and NT$458.7 million, respectively. ASE Inc. expects
this practice to continue in future periods.
ASE Material sold interconnect material, principally leadframes, in the
aggregate amount of NT$1,765.6 million (US$53.2 million), NT$779.9 million and
NT$452.1 million to ASE Inc. for 2000, 1999 and 1998, respectively. In 2000, we
purchased approximately 25.4% of our substrate requirements for our packaging
facilities in Kaohsiung from ASE Material. We purchase, and plan to continue to
purchase, materials from ASE Material at prevailing market prices.
56
ASE Test Taiwan has historically charged ASE Inc. fees for the testing of
semiconductors packaged for a small number of customers that prefer to be
billed through ASE Inc. for testing services performed by ASE Test Taiwan.
These fees amounted to NT$142.7 million (US$4.3 million), NT$81.5 million and
NT$155.7 million for 2000, 1999 and 1998, respectively. ASE Inc. sold to ASE
Test Taiwan at book value a building at an aggregate price of NT$18.4 million
(US$0.6 million) in 2000.
ASE Test Malaysia and ASE Philippines have historically purchased a
portion of the raw materials used in their packaging operations, principally
leadframes, from ASE Inc. when they face a shortage in the supply of these
types of raw materials. These types of raw materials are typically resold by
ASE Inc. to ASE Test Malaysia and ASE Philippines at book value. Purchases of
raw materials by ASE Test Malaysia amounted to NT$3.6 million (US$0.1 million),
NT$14.6 million and NT$28.0 million for 2000, 1999 and 1998, respectively.
Purchases of raw materials by ASE Philippines amounted to NT$1.8 million
(US$0.05 million), NT$2.1 million and NT$4.1 million for 2000, 1999 and 1998,
respectively. In addition, ASE Inc. purchased raw materials, principally
leadframes, from ASE Test Malaysia in an amount of NT$11.9 million (US$0.4
million), NT$4.3 million and NT$3.2 million for 2000, 1999 and 1998,
respectively.
ASE Inc. has historically guaranteed the short-term borrowing of many of
its subsidiaries. As of December 31, 2000, ASE Inc. had endorsed and guaranteed
an aggregate amount of NT$8,423.9 million (US$254.0 million) of the outstanding
promissory notes of its subsidiaries.
ASE Inc. sold to ASE Philippines at book value machinery and equipment for
the packaging of plastic dual in-line packages at an aggregate price of NT$22.8
million (US$0.7 million) and NT$12.9 million in 2000 and 1999, respectively.
In January 2000, ASE Chung Li and Hung Ching, our affiliate company,
entered into an agreement for the development of buildings on land currently
owned by ASE Chung Li. Hung Ching will bear all costs relating to the
development. Upon completion of the development, floor space in the buildings
will be sold by Hung Ching at prices to be negotiated between Hung Ching and
the buyers. ASE Chung Li and its affiliates will have priority in the purchase
of the floor space. In the event that floor space is sold to persons other than
ASE Chung Li, ASE Chung Li will receive 25% of the purchase price. The first
phase of the development project is the construction of a building with
aggregate floor space of approximately 800,000 square feet, which was completed
in September 2000. The total value of the first phase of the project, including
land and the completed building, is estimated at NT$2.0 billion. The new
building is expected to house ASE Chung Li's testing operations as well as part
of the operations of other ASE Group companies.
In October 1997, J&R Holding entered into agreements with Swiss Bank
Corporation to purchase call options on a portion of our US$200 million Zero
Coupon Convertible Bonds due 2002. The call options were offered by Swiss Bank
Corporation as a part of the repackaging of our convertible bonds by SBC
Warburg, an affiliate of Swiss Bank Corporation, into two separate instruments
consisting of: (1) US$200 million callable floating rate notes secured by the
convertible bonds and (2) call options on the convertible bonds. SBC Warburg
decided to repackage the convertible bonds because the adverse market
conditions resulting from the Asian financial crisis during the second half of
1997 made it difficult to market the convertible bonds. SBC Warburg was able to
obtain commitments for the entire issue of the floating rate notes but, as a
result of the adverse market conditions described above, was able to obtain
commitments for only a portion of the call options. As a result, Swiss Bank
Corporation approached a number of large institutional investors, including J&R
Holding, with a proposal to sell a portion of the call options.
J&R Holding decided to purchase the call options because its management
considered the call options to be a good investment. Under the first agreement
with Swiss Bank Corporation, J&R Holding is required to make four cash payments
to Swiss Bank Corporation in November 1998, 1999, 2000 and 2001. In return, J&R
Holding has the right to call the convertible bonds back at any time during the
period from November 1998 through November 2002. Under the second agreement,
Swiss Bank Corporation paid US$200,000 to J&R Holding. In return, Swiss Bank
Corporation had the right to sell a portion of the call options to J&R Holding
at any time between November 4, 1997 and November 1, 1998. In any event, J&R
Holding was required under the automatic exercise provision of the second
agreement to purchase these call options upon the expiration of the agreement
on November 1, 1998.
ASE Holding Limited, one of our subsidiaries through which we hold ASE
Test's shares, entered into a share purchase agreement dated as of May 19, 2001
with our Chairman, Jason C.S. Chang, and Vice-Chairman, Richard H.P.
57
Chang, under which ASE Holding Limited would purchase 2,480,000 shares of ASE
Test from Jason C.S. Chang and Richard H.P. Chang upon the exercise of certain
options granted to them under ASE Test's 1996 IPO option plan for an aggregate
purchase price of US$35,389,600. The closing date of this acquisition of shares
was May 22, 2001. We engaged in this acquisition principally for investment
purposes.
Item 8. Financial Information.
CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
Consolidated financial statements are set forth under "Item 18. Financial
Statements".
LEGAL PROCEEDINGS
We are not involved in material legal proceedings the outcome of which we
believe would have a material adverse effect on us.
Criminal charges were brought in December 1998 by the district attorney
for Taipei against Jason C.S. Chang, Richard H.P. Chang, Chang Yao Hung-ying
and four others for alleged breach of fiduciary duties owned to Hung Ching
Development & Construction Co. Ltd. ("Hung Ching"), an affiliate of ASE Inc.,
in their capacity as directors and officer of Hung Ching in connection with a
land sale transaction in 1992 valued at approximately NT$1.7 billion. It was
alleged that the transaction in which Jason C.S. Chang sold the land to Hung
Ching unfairly benefitted Jason C.S. Chang to the detriment of Hung Ching. Hung
Ching at that time was a privately owned company whose principal shareholders
were members of the Chang family. Ancillary charges were brought against Jason
C.S. Chang, Chang Yao Hung-ying and another for alleged forgery of Hung Ching
board resolutions relating to that transaction. On January 5, 2001, the
District Court of Taipei rendered a judgment in the matter, finding Jason C.S.
Chang and Chang Yao Hung-ying guilty with sentences of six years' imprisonment
each and Richard H.P. Chang not guilty. In order to comply with the particular
requirements of the Singapore Companies Act, Jason C.S. Chang and Chang Yao
Hung-ying have both resigned as directors of ASE Test.
Neither Jason C.S. Chang nor Chang Yao Hung-ying believes that he or she
committed any offense in connection with such transactions, and they are
appealing the decision to the High Court of Taiwan, the ROC. Counsel to Jason
C.S. Chang and Chang Yao Hung-ying have advised that, as these proceedings may
not be finally determined until the case has been considered by the High Court
and the Supreme Court of Taiwan, the ROC, two or three years may elapse until
they are fully resolved. If the convictions are not overturned on appeal to the
High Court or, if necessary, the Supreme Court of Taiwan, the ROC, they will be
required under ROC law to resign as directors and Jason C.S. Chang will be
required to resign as Chairman of ASE Inc.
SIGNIFICANT CHANGES
We have not experienced any significant changes since the date of the
annual financial statements.
Item 9. Listing Details.
MARKET PRICE INFORMATION AND MARKETS
Our shares are traded on the Taiwan Stock Exchange under the symbol
"2311". Public trading of our shares, par value NT$10, commenced in July 1989.
Prior to that time, there was no public market for our shares. As of December
31, 2000, there were an aggregate of 2,752,000,000 of our common shares
outstanding. The following table sets forth the high and low closing prices for
the shares for the periods indicated as reported by Bloomberg for the periods
indicated.
Closing Price(1)
-----------------
High Low
----- ----
Year Ended December 31,
1996 ............................................... 15.63 8.44
58
1997................................................ 63.10 14.90
1998................................................ 76.94 32.29
1999................................................ 85.17 35.03
2000................................................ 93.54 21.90
Year Ended December 31, 1999
First Quarter....................................... 58.39 35.03
Second Quarter ..................................... 75.56 51.18
Third Quarter....................................... 82.43 56.27
Fourth Quarter...................................... 85.17 65.78
Year Ended December 31, 2000
First Quarter....................................... 93.54 69.20
Second Quarter ..................................... 90.87 68.06
Third Quarter ...................................... 72.24 40.10
Fourth Quarter ..................................... 43.00 21.90
Year Ending December 31, 2001
First Quarter....................................... 38.80 22.50
Monthly
December 2000....................................... 34.50 21.90
January 2001........................................ 34.80 22.50
February 2001....................................... 38.80 31.10
March 2001.......................................... 31.70 28.20
April 2001.......................................... 29.40 27.00
May 2001 ........................................... 27.50 24.50
June 2001 (through June 28) ........................ 25.10 21.00
- -------------------
(1) As adjusted retroactively by the Taiwan Stock Exchange to give effect to
stock dividends paid in the periods indicated.
The last reported price of our shares was NT$21.00 per share on June 28,
2001.
We offered and sold 8,600,000 GDSs in July 1995 comprising of GDSs sold in
the United States under Rule 144A and GDSs sold outside the United States
pursuant to Regulation S. Each GDS represented five common shares of ASE Inc.
The GDSs sold under Rule 144A were designated as eligible for trading in the
PORTAL System of the National Association of Securities Dealers, Inc. in the
United States. The GDSs sold pursuant to Regulation S were listed on the Stock
Exchange of Singapore and the Luxembourg Stock Exchange and quoted on SEAQ
International. Some of our affiliates offered and sold an additional 10,489,902
GDSs in December 1999. Concurrently with an offering of ADSs in on September
25, 2000, we are offered to exchange one ADS for each GDS sold under Rule 144A.
We also converted each of the outstanding GDSs sold pursuant to Regulation S
into one ADS. Upon completion of the conversion of the GDSs sold pursuant to
Regulation S into ADSs, we delisted these GDSs from the Stock Exchange of
Singapore and the Luxembourg Stock Exchange on September 26, 2000 and from the
SEAQ International on October 12, 2000. The following table sets forth, for the
periods indicated, the high and low closing prices of our GDSs as quoted on
SEAQ International.
Closing Price of GDSs(1)
------------------------
High Low
---- ---
Year Ended December 31,
1996............................................... US$2.97 US$1.50
1997 .............................................. 11.65 2.79
1998 .............................................. 14.78 4.88
1999............................................... 17.79 6.27
2000 (through October 12).......................... 19.20 5.88
Year Ended December 31, 1999
First Quarter ..................................... 10.27 6.27
59
Second Quarter..................................... 15.46 9.77
Third Quarter...................................... 16.16 11.20
Fourth Quarter..................................... 17.79 13.81
Year Ended December 31, 2000
First Quarter...................................... 19.20 14.52
Second Quarter .................................... 16.35 12.17
Third Quarter ..................................... 12.89 6.83
Fourth Quarter (through October 12)................ 6.58 5.88
Monthly
October 2000 (through October 12).................. 6.58 5.88
- -------------
(1) Adjusted retroactively to give effect to stock dividends.
Source: Bloomberg.
The last reported sale price of the GDSs before delisting on the SEAQ
International was US$5.95 per GDS on October 12, 2000.
We offered and sold 20,000,000 ADSs on September 25, 2000. Our ADSs are
traded on the New York Stock Exchange under the symbol "ASX". Public trading of
our ADSs, each representing five common shares, commenced in September 2000.
Prior to that time, there was no public market for our ADSs. As of April 12,
2001, there were an aggregate of 35,656,653 of our ADSs outstanding. The
following table sets forth the high and low sales prices for the shares for the
periods indicated as reported by the New York Stock Exchange for the periods
indicated.
Closing Price of ADSs
---------------------
High Low
---- ---
Year Ended December 31,
2000 (from September 25)........................... US$6.75 US$3.06
Year Ended December 31, 2000
Fourth Quarter (including September 25 -
October 1 of third quarter)........................ 6.75 3.06
Year Ending December 31, 2001
First Quarter ..................................... 6.05 3.31
Monthly
December 2000 ..................................... 5.06 3.06
January 2001 ...................................... 5.75 3.31
February 2001 ..................................... 6.05 4.75
March 2001 ........................................ 5.05 4.20
April 2001......................................... 4.40 4.00
May 2001 .......................................... 4.40 3.74
June 2001 (through June 27)........................ 3.65 3.05
- -------------
Source: Bloomberg.
The last reported sale price of the ADSs on the NYSE was US$2.99 per ADS on
June 27, 2001.
Item 10. Additional Information.
ARTICLES OF INCORPORATION
We are a company limited by shares organized under the laws of the ROC.
Our organizational document is our Articles of Incorporation. We have no
by-laws.
Our Articles of Incorporation provide, in Article 2, that we are to engage
in the following types of business:
60
1. The manufacture, assembly, processing, testing and export of various
types of integrated circuitry;
2. The research, development, design and manufacture, assembly,
processing, testing and export of various computers, electronics,
communications, information products and their peripheral products; and
3. General import and export trading business (to the exclusion of certain
approved businesses that require trading permits).
Directors
Our Articles of Incorporation provide that we are to have from five to
seven directors with tenures of three years who are elected from among the
shareholders. There is no minimum amount of shares necessary to stand for
election to a directorship. Many of our directors are corporate shareholders,
who appoint representatives. Re-elections are allowed. The directors have
certain powers and duties, including devising operations strategy, proposing to
distribute dividends or make up losses, proposing to increase or decrease
capital, reviewing material internal rules and contracts, hiring and
discharging the general manager or managers, establishing and dissolving branch
offices, reviewing budgets and audited financial statements and other duties
and powers granted by or in accordance with the ROC Company Law or shareholders
resolutions.
The board of directors is constituted by the directors, who elect a
chairman and a vice-chairman from among the directors to preside over the
meeting of the Board. Meetings of the board may be held in the ROC or any place
abroad. A director may appoint another director to attend a meeting and vote by
proxy, but a director may accept only one proxy.
The Articles of Incorporation contain no provisions relating to a
director's power to vote on a proposal in which that director is interested,
the directors' power to vote compensation to themselves, borrowing powers,
retirement or age- limit requirements.
General
We were incorporated on March 23, 1984 as a company limited by shares
under the ROC Company Law. Before our annual general shareholders' meeting held
on July 11, 2000, our authorized and paid-in share capital was
NT$24,000,000,000, divided into 2,400,000,000 common shares, all of which were
in registered form and 1,980,355,086 of which were issued and outstanding. At
the meeting, our shareholders:
o approved an increase in our authorized share capital to
NT$32,000,000,000, divided into 3,200,000,000 common shares; and
o approved the distribution of a stock dividend of NT$3.15 per common
share.
Currently, 2,752,000,000 common shares are issued and outstanding,
including common shares represented by our ADSs. We do not have any equity in
the form of preference shares or otherwise outstanding.
We have 200,000,000 common shares reserved for the issuance of common
shares upon conversion of any convertible bonds issued by us, including
94,607,641 common shares reserved in connection with our US$200 million Zero
Coupon Convertible Bonds Due 2002 issued in November 1997. As of August 15,
2000, these convertible bonds were convertible into our common shares at a
conversion price of NT$59.7 per common share. The conversion price is subject
to adjustment in the following circumstances:
(1) the making of a free distribution or bonus issue of common shares;
(2) subdivisions, consolidations or reclassifications of common shares;
(3) the declaration of a dividend in common shares;
(4) the grant, issue or offer to the holders of common shares or rights or
warrants to subscribe for or purchase common shares at less than the current
market price or to subscribe for or purchase any securities convertible into or
exchangeable
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for common shares at less than the then current market price;
(5) the distribution to the holders of common shares of evidences of
indebtedness of ASE Inc. or of shares of capital stock of ASE Inc. (other than
common shares) or of assets (other than regular periodic dividends in cash) or
of rights or warrants to subscribe for or purchase shares or securities (other
than those mentioned in (4) above);
(6) the issue of securities (other than the bonds, certificates of payment
issued on conversion of bonds and those mentioned in (4) above) convertible
into or exchangeable for common shares at less than the then current market
price or of rights or warrants (other than those mentioned in (4) above) to
subscribe for or purchase common shares at less than the then current market
price or to subscribe for or purchase securities convertible into or
exchangeable for common shares at less than the then current market price;
(7) the issue of common shares (other than common shares or certificates
of payment issued on conversion of the bonds or in any of the circumstances
described above, but including to employees under any employee bonus
arrangements) at less than the current market price; and
(8) any other event or circumstances which would have in our determination
or in the determination of the trustee an analogous effect to any of the events
in (1) to (7) above including, but not limited to, issues of receipts or
certificates entitling holders to receive securities.
Certificates of Payment
Under current ROC law, whenever we issue common shares, we will deliver
one or more certificates of payment evidencing the aggregate number of common
shares purchased to the purchaser (or the holder, in the case of a distribution
of common shares to existing holders, or the subscriber, in the case of a
holder subscribing for additional common shares under a rights offering). Each
certificate of payment will represent the irrevocable right to receive the
relevant number of common shares after all required ROC share issuance
procedures have been complied with. We are required under ROC law to file an
amendment to our corporate registration within 15 days after we receive the
proceeds of an offering.
Dividends and Distributions
In general, we are not permitted to distribute dividends or make other
distributions to shareholders in any year in which we did not record net
income. Our shareholders are not entitled to the benefits of any sinking fund
and are not entitled to redeem their shares. The ROC Company Law also requires
that 10% of annual net income (less prior years' losses, if any) be set aside
as a legal reserve until the accumulated legal reserve equals our paid-in
capital. In addition, our Articles of Incorporation require that before a
dividend is paid out of our annual net income:
o up to 2% of our annual net income (less any gains on the disposal
of fixed assets, prior years' losses and additions to legal and special
reserves, if any) should be paid to our directors and supervisors as
compensation; and
o between 5% and 7% of the annual net income (less any gains on the
disposal of fixed assets, prior years' losses and legal and special reserves,
if any) should be paid to our employees as bonuses. The 5% portion is to be
distributed to all employees in the form of stock bonuses in accordance with
our employee stock bonus plan, while any portion exceeding 5% is to be
distributed in accordance with rules established by our board of directors to
individual employees who have been recognized as having made special
contributions to our company.
At the annual general shareholders' meeting, our board of directors
submits to the shareholders for their approval any proposal for the
distribution of a dividend or the making of any other distribution to
shareholders from our net income for the preceding fiscal year. All common
shares outstanding and fully paid as of the relevant record date are entitled
to share equally in any dividend or other distribution so approved. Dividends
may be distributed in cash, in the form of common shares or a combination of
the two, as determined by the shareholders at the meeting. Our Articles of
Incorporation provide that our dividend policy is to give priority to stock
dividends and the amount of cash dividends is not to exceed 20% of the total
dividends distributable in that year.
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We are also permitted to make distributions to our shareholders of
additional common shares by capitalizing reserves. However, the capitalized
portion payable out of our legal reserve is limited to 50% of the total
accumulated legal reserve and the capitalization can only be effected when the
accumulated legal reserve exceeds 50% of our paid-in capital.
Cash dividends that are unclaimed for a period of five years from the date
of the relevant notice of distribution may no longer be claimed. Such unclaimed
cash dividends will, upon expiry of such five-year period, become our property.
However, stock dividends are not subject to any prescription period under ROC
law. Accordingly, uncollected stock dividends will remain in our safekeeping
and continue to be claimable by the relevant shareholders.
Changes in Share Capital
Under ROC Company Law, any change in the authorized share capital of a
company limited by shares requires an amendment to its Articles of
Incorporation. In the case of a public company such as ASE Inc., the approval
of the ROC Securities and Futures Commission and the ROC Ministry of Economic
Affairs is also required. Authorized but unissued common shares may be issued,
subject to applicable ROC law, upon terms as our board of directors may
determine.
Preemptive Rights
Under the ROC Company Law, when a ROC company issues new shares for cash,
existing shareholders who are listed on the shareholders' register as of the
record date have preemptive rights to subscribe for the new issue in proportion
to their existing shareholdings, while a company's employees, whether or not
they are shareholders of the company, have rights to subscribe for 10% to 15%
of the new issue. Any new shares that remain unsubscribed at the expiration of
the subscription period may be offered by us to the public or privately placed.
In addition, in accordance with the ROC Securities and Exchange Law, a
public company that intends to offer new shares for cash must offer to the
public at least 10% of the shares to be sold. This percentage can be increased
by a resolution passed at a shareholders' meeting, which would diminish the
number of new shares subject to the preemptive rights of existing shareholders.
Meetings of Shareholders
We are required to hold an ordinary meeting of our shareholders within six
months following the end of each fiscal year. These meetings are generally held
in Kaohsiung, Taiwan. Extraordinary shareholders' meetings may be convened by
resolution of the board of directors or by the board of directors upon the
written request of any shareholder or shareholders who have held 3% or more of
the outstanding common shares for more than one year. Extraordinary
shareholders' meetings may also be convened by a supervisor. Notice in writing
of meetings of shareholders, stating the place, time and purpose, must be
dispatched to each shareholder at least 20 days, in the case of ordinary
meetings, and 10 days, in the case of extraordinary meetings, before the date
set for each meeting. A majority of the holders of all issued and outstanding
common shares present at a shareholders' meeting constitutes a quorum for
meetings of shareholders.
Under the ROC Company Law, the applicable rules of the Taiwan Stock
Exchange and our Articles of Incorporation, we are required to hold an ordinary
meeting of our shareholders within six months following the end of each fiscal
year.
Voting Rights
Our Articles of Incorporation provide that a holder of common shares has
one vote for each common share, except that a holder of more than 3% of the
total outstanding common shares is not permitted to vote 0.1% of the number of
common shares held by the holder in excess of 3%. There is cumulative voting
for the election of directors and supervisors. Elections for directors are not
staggered.
In general, a resolution can be adopted by the holders of at least a
majority of the common shares represented at a shareholders' meeting at which
the holders of a majority of all issued and outstanding common shares are
present. Under ROC Company Law, the approval by at least a majority of the
common shares represented at a shareholders meeting in which a quorum of at
least two-thirds of all issued and outstanding common shares are represented is
required for major corporate actions, including:
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o amendment to the Articles of Incorporation;
o increase in authorized share capital;
o transfer of the whole or substantial part of its business or assets;
o taking over of the whole of the business of any other company; or
o distribution of any stock dividend.
In case of a dissolution or amalgamation of the company, approval by a
majority of the common shares represented at a shareholders' meeting in which a
quorum of at least three-fourths of all issued and outstanding common shares
are represented is required.
A shareholder may be represented at an ordinary or extraordinary meeting
by proxy if a valid proxy form is delivered to us five days before the
commencement of the ordinary or extraordinary shareholders' meeting.
Register of Shareholders and Record Dates
Our share registrar, President Securities Corp., maintains our register of
shareholders at its offices in Taipei, Taiwan, and enters transfers of common
shares in our register upon presentation of, among other documents,
certificates representing the common shares transferred. Under the ROC Company
Law and our Articles of Incorporation, we may, by giving advance public notice,
set a record date and close the register of shareholders for a specified period
in order for us to determine the shareholders or pledgees that are entitled to
rights pertaining to the common shares. The specified period required is as
follows:
o ordinary shareholders' meeting -- one month;
o extraordinary shareholders' meeting -- 15 days;
o relevant record date -- five days.
Annual Financial Statements
At least 10 days before the annual ordinary shareholders' meeting, our
annual financial statements must be available at our principal executive office
in Kaohsiung, Taiwan for inspection by the shareholders.
Transfer of Common Shares
The transfer of common shares in registered form is effected by
endorsement and delivery of the related share certificates but, in order to
assert shareholders' rights against us, the transferee must have his name and
address registered on our register of shareholders. Shareholders are required
to file their respective specimen seals, also known as chops, with us. Chops
are official stamps widely used in Taiwan by individuals and other entities to
authenticate the execution of official and commercial documents.
Acquisition of Common Shares by ASE Inc.
Under the ROC Securities and Exchange Law, effected on July 21, 2000, we
may purchase our own common shares for treasury stock in limited circumstances,
including:
o to transfer common shares to our employees;
o to reserve common shares to be issued upon conversion of convertible
securities; and
o to maintain our credit and our shareholders' equity.
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We may purchase our common shares (1) on the Taiwan Stock Exchange or (2)
by means of a public tender offer. These transactions require the approval of a
majority of our board of directors at a meeting in which at least two-thirds of
the directors are in attendance. The total amount of common shares purchased
for treasury stock may not exceed 10% of the total outstanding shares.
These restrictions on acquiring our common shares do not apply to our
subsidiaries or affiliates.
Liquidation Rights
In the event of our liquidation, the assets remaining after payment of all
debts, liquidation expenses and taxes will be distributed pro rata to the
shareholders in accordance with the relevant provisions of the ROC Company Law
and our Articles of Incorporation.
Substantial Shareholders and Transfer Restrictions
The ROC Securities and Exchange Law currently requires (1) each director,
supervisor, manager or substantial shareholder (that is, a shareholder who
together with his or her spouse, minor children or nominees, holds more than
10% of the shares of a publicly listed company) to report any change in that
person's shareholding to the issuer of the shares which shall later report such
information to the ROC Securities and Futures Commission and (2) each director,
supervisor, manager or substantial shareholder holding those common shares for
more than a 90-day period to report his or her intent to transfer any shares on
the Taiwan Stock Exchange to the ROC Securities and Futures Commission at least
three days before the intended transfer, unless the number of shares to be
transferred is less than 10,000 shares per trading day.
Limitations on the Right to Own Securities
Investments in us by foreigners are not subject to any individual or
aggregate foreign ownership limits. The exercise of voting rights by such
foreign shareholders is not subject to any restriction.
Other Provisions
There are no special provisions in the Articles of Incorporation that
would delay, defer or prevent a change of control and would operate only in
respect to a merger, acquisition or restructuring involving us or our
subsidiaries. There are no provisions in the Articles of Incorporation
governing the ownership threshold above which shareholder ownership must be
disclosed.
MATERIAL CONTRACTS
Stock Purchase Agreement dated as of March 15, 1999 between ASE Test
Limited and the Selling Shareholders relating to the purchase and sale of
12,250,000 shares of Common Stock of ISE Labs, Inc.
Our subsidiary, ASE Test, entered into this agreement in order to take
control and a majority stake in ISE Labs, Inc., a California corporation
engaged in the business of testing integrated circuits. Our subsidiary paid
$8.00 per share to the selling shareholders at the closing. The contract
contemplates either an initial public offering meeting certain qualifications
or a material asset sale meeting certain qualifications which must occur by
December 31, 2001. This offering or sale has not yet occurred. If this offering
or sale does not occur by the mandated time, each seller will have the right to
exchange his outstanding common stock of ISE Labs for ASE Test shares deemed to
have a value equivalent to $8.00, plus interest. Alternatively, such selling
shareholder may sell its stock to ASE Test. ___ See "Item 4. Information on the
Company -- History and Development of the Company -- ISE Labs".
Asset Purchase Agreement dated as of July 3, 1999 among ASE (Chung Li)
Inc., ASE Inc., Motorola Electronics Taiwan, Ltd. and Motorola, Inc.
We entered into this asset purchase agreement to acquire Motorola's
integrated circuit testing and packaging unit located in Chung Li, ROC.
Pursuant to this agreement, substantially all of Motorola Electronics Taiwan,
Ltd.'s assets were transferred to our subsidiary, ASE Chung Li. The base
purchase price as set forth in the contract was $80 million, subject
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to certain adjustments. We acquired substantially all of the assets of ASE
Chung Li for a base price of US$150.0 million in cash, consisting of an initial
payment of US$80.0 million at closing and an additional US$70.0 million payable
over three years if sales volume targets are met. See "Item 4. Information on
the Company -- History and Development of the Company -- ASE Chung Li and ASE
Korea".
Stock Purchase Agreement dated as of July 3, 1999 among ASE Investment
(Labuan) Inc., ASE Inc., Motorola Asia Ltd. and Motorola, Inc. relating to the
purchase and sale of 100% of the Common Stock of Motorola Korea Ltd.
We entered into this stock purchase agreement to acquire Motorola's
integrated circuit testing and packaging unit located in Paju, Korea. Pursuant
to this agreement, substantially all of Motorola Asia Ltd.'s assets were
transferred to our subsidiary, ASE Korea. The base purchase price as set forth
in the contract was $36 million, plus an additional purchase price of
$51,095,000, subject to certain adjustments. We acquired 100% of the
outstanding shares of ASE Korea for a base price of US$140.0 million in cash,
consisting of an initial payment of US$36.0 million and an additional US$104.0
million payable over five years. See "Item 4. Information on the Company --
History and Development of the Company -- ASE Chung Li and ASE Korea".
Manufacturing Services Agreement dated as of July 3, 1999 among Motorola,
Inc., ASE Inc. and ASE (Chung Li) Inc.
This contract was entered into to provide a strategic supplier
relationship in which we use our ASE Chung Li subsidiary to provide testing and
packaging services to Motorola on a priority basis. This contract has a
duration of five years. The contract governs capacity reservation by Motorola
at the Chung Li facility as well as our facilities in Kaohsiung or the
facilities of ASE Test Taiwan and specifications of the work to be performed.
Remuneration to us is confidential and the contract, as filed as an exhibit
to our Form F-1 Registration Statement in 2000, was granted confidential
treatment by the Commission.
Manufacturing Services Agreement dated as of July 3, 1999 among Motorola,
Inc., ASE Inc. and ASE (Korea) Inc.
This contract was entered into to provide a strategic supplier
relationship in which we use our ASE Korea subsidiary to provide testing and
packaging services to Motorola on a priority basis. This contract has a
duration of five years. The contract governs capacity reservation by Motorola
at the Korea facility and specifications of the work to be performed.
Remuneration to us is confidential and the contract, as filed as an exhibit to
our Form F-1 Registration Statement in 2000, was granted confidential treatment
by the Commission.
BGA Immunity Agreement dated as of January 25, 1994 between ASE Inc. and
Motorola, Inc.
Pursuant to this contract, Motorola released, acquitted and forever
discharged us and our subsidiaries from any and all claims or liability for
infringement or alleged infringement of any Motorola patents, as defined in the
contract. Motorola granted us and our subsidiaries immunity from suit for
Motorola patents involving BGA packages. We and our subsidiaries released,
acquitted and forever discharged Motorola and its subsidiaries for any time
prior to the date of the contract, from any and all claims or liability for
infringement of any of our patents. We granted Motorola and its subsidiaries
immunity from suit for our patents involving BGA packages. Remuneration to
Motorola is confidential and the contract, as filed as an exhibit to our Form
F-1 Registration Statement in 2000, was granted confidential treatment by the
Commission. The agreement terminates on December 31, 2002.
Service Agreement dated as of July 1, 2000 between ASE Electronics (M)
Sdn. Bhd. and ASE (U.S.) Inc.
This contract established ASE (U.S.) as our subsidiary, ASE Test
Malaysia's non-exclusive sales service and sales support agent in Europe and
North America for its products and services. For such services, our subsidiary
pays ASE (U.S.) 12.5% of their monthly incurred services associated costs and
expenses plus 10%. ASE (U.S.) agreed to reimburse our subsidiary for expenses
for any employee traveling to the U.S. or Europe if such travel was necessary
to ASE (U.S.)'s services. This agreement will expire on June 30, 2001.
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Service Agreement dated as of July 1, 2000 between ASE Test Inc. and ASE
(U.S.) Inc.
This contract established ASE (U.S.) as our subsidiary, ASE Test Inc.'s
non-exclusive sales service and sales support agent in Europe and North America
for its products and services. For such services, our subsidiary pays ASE
(U.S.) 15% of their monthly incurred services associated costs and expenses
plus 10%. ASE (U.S.) agreed to reimburse our subsidiary for expenses for any
employee traveling to the U.S.or Europe if such travel was necessary to ASE
(U.S.)'s services. This agreement will expire on June 30, 2001.
Service Agreement dated as of July 1, 2000 between ASE (Korea) Inc. and
ASE (U.S.) Inc.
This contract established ASE (U.S.) as our subsidiary, ASE Korea's
non-exclusive sales service and sales support agent in Europe and North America
for its products and services. For such services, our subsidiary pays ASE
(U.S.) 5% of their monthly incurred services associated costs and expenses plus
10%. ASE (U.S.) agreed to reimburse our subsidiary for expenses for any
employee traveling to the U.S.or Europe if such travel was necessary to ASE
(U.S.)'s services. This agreement will expire on June 30, 2001.
Service Agreement dated as of July 1, 2000 between ASE (Chung-Li) Inc. and
ASE (U.S.) Inc.
This contract established ASE (U.S.) as our subsidiary, ASE Chung Li's
non-exclusive sales service and sales support agent in Europe and North America
for its products and services. For such services, our subsidiary pays ASE
(U.S.) 10% of their monthly incurred services associated costs and expenses
plus 10%. ASE (U.S.) agreed to reimburse our subsidiary for expenses for any
employee traveling to the U.S.or Europe if such travel was necessary to ASE
(U.S.)'s services. This agreement will expire on June 30, 2001.
Service Agreement dated as of July 1, 2000 between ASE Inc. and ASE (U.S.)
Inc.
This contract established ASE (U.S.) as our non-exclusive sales service
and sales support agent in Europe and North America for our products and
services. For such services, we pay ASE (U.S.) 50% of their monthly incurred
services associated costs and expenses plus 10%. ASE (U.S.) agreed to reimburse
us for expenses for any employee traveling to the U.S.or Europe if such travel
was necessary to ASE (U.S.)'s services. This agreement will expire on June 30,
2001.
Commission Agreement dated as of July 1, 2000 between ASE Electronics (M)
Sdn, Bhd. and Gardex International Limited
This contract established Gardex as our subsidiary, ASE Test Malaysia's
non-exclusive worldwide sales agent for all its products and services. For such
services, our subsidiary pays Gardex monthly, in respect of net export sales
outside Malaysia, 0.7% of the sales amount for monthly sales. ___ This
agreement expires on June 30, 2001
Commission Agreement dated as of July 1, 2000 between ASE Test Inc. and
Gardex International Limited
This contract established Gardex as our subsidiary, ASE Test Inc.'s
non-exclusive worldwide sales agent for all its products and services. For such
services, our subsidiary pays Gardex monthly, in respect of net export sales
outside Taiwan, 0.7% of the sales amount for monthly sales. This agreement will
expire on June 30, 2001.
Commission Agreement dated as of July 1, 2000 between ASE (Korea) Inc. and
Gardex International Limited
This contract established Gardex as our subsidiary, ASE Korea's
non-exclusive worldwide sales agent for all its products and services. For such
services, our subsidiary pays Gardex monthly, in respect of net export sales
outside Korea, 0.6% of the sales amount for monthly sales. This agreement will
expire on June 30, 2001.
Commission Agreement dated as of July 1, 2000 between ASE (Chung Li) Inc.
and Gardex International Limited
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This contract established Gardex as our subsidiary, ASE Chung Li's
non-exclusive worldwide sales agent for all its products and services. For such
services, our subsidiary pays Gardex monthly, in respect of net export sales
outside Taiwan, 0.6% of the sales amount for monthly sales. This agreement will
expire on June 30, 2001.
Commission Agreement dated as of July 1, 2000 between ASE Inc. and Gardex
International Limited
This contract established Gardex as our non-exclusive worldwide sales
agent for all its products and services. For such services, we pay Gardex
monthly, in respect of net export sales outside Taiwan, 1.0% of the sales
amount for monthly sales. This agreement will expire on June 30, 2001.
EXCHANGE CONTROLS
ROC Exchange Controls
The Foreign Exchange Control Statute and regulations provide that all
foreign exchange transactions must be executed by banks designated to handle
the business, by the Ministry of Finance or by the Central Bank of China.
Current regulations favor trade-related foreign exchange transactions and
Foreign Investment Approval investments. Consequently, foreign currency earned
from exports of merchandise and services may now be retained and used freely by
exporters, and all foreign currency needed for the importation of merchandise
and services may be purchased freely from the designated foreign exchange
banks.
Trade aside, ROC companies and resident individuals may, without foreign
exchange approval, remit outside the ROC foreign currency of up to
US$50,000,000 (or its equivalent) and US$5,000,000 (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$50,000,000 (or its equivalent) and US$5,000,000 (or its
equivalent) respectively in each calendar year. The above limits apply to
remittances involving a conversion of NT Dollars to a foreign currency and vice
versa. A requirement is also imposed on all enterprises to register medium-and
long-term foreign debt with the Central Bank of China.
In addition, foreign persons may, subject to specified requirements, but
without foreign exchange approval of the Central Bank of China, remit outside
and into the ROC foreign currencies of up to US$100,000 (or its equivalent) for
each remittance. The above limit applies to remittances involving a conversion
of NT Dollars to a foreign currency and vice versa. The above limit does not,
however, apply to the conversion of NT Dollars into other currencies, including
U.S. Dollars, from the proceeds of sale of any underlying shares withdrawn from
a depositary receipt facility.
TAXATION
ROC Taxation
The following discussion is the opinion of Lee and Li. The discussion
describes the principal ROC tax consequences of the ownership and disposition
of ADSs representing common shares to a non-resident individual or entity. It
applies to you only if you are:
o an individual who is not a ROC citizen, who owns ADSs and who
is not physically present in the ROC for 183 days or more during any
calendar year; or
o 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.
You should also consult your tax advisors concerning the ROC tax
consequences of owning ADSs.
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Dividends
Dividends declared by us out of our retained earnings and distributed to
you 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 up to 10% of the gross amount of any dividends declared out of
such earnings that would reduce the 20% ROC tax imposed on these distributions.
Dividends paid by us out of our capital reserves previously were not
subject to ROC withholding tax. However, due to the fact that a tax ruling
confirming the foregoing has been removed from the government tax publication,
it is now unclear whether dividends paid out of capital reserve are free from
ROC withholding tax. The ROC tax authority is currently studying the issue.
Capital Gains
Under ROC law, capital gains on share securities transactions are exempt
from income tax.
Subscription Rights
Distributions of statutory subscription rights for common shares in
compliance with ROC law are not subject to any ROC tax. Proceeds derived from
sales of statutory subscription rights evidenced by securities are exempted
from income tax but are subject to securities transaction tax at the rate of
0.3% of the gross amount received. Proceeds derived from sales of statutory
subscription rights which are not evidenced by securities are subject to
capital gains tax at the rate of:
o 35% of the gains realized if you are a natural person; or
o 25% of the gains realized if you are an entity that is not a natural
person.
Subject to compliance with ROC law, we, at our sole discretion, can
determine whether statutory subscription rights shall be evidenced by issuance
of securities.
Securities Transaction Tax
A securities transaction tax, at the rate of 0.3% of the gross amount
received, 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 any such person. 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 since there is no authority directly indicating
whether an ADR holder will be treated as owning the shares represented by the
ADR. However, despite this lack of direct authority, we are of the view that
a holder of ADSs will not be subject to the ROC estate and gift tax because (1)
the ADSs are not considered property within the ROC and (2) the transfer of
ADSs is not deemed to be a transfer of the underlying common shares.
Tax Treaty
The ROC does not have an income tax treaty with the United States. On the
other hand, the ROC has income tax treaties with Indonesia, Singapore, South
Africa, Australia, Vietnam, New Zealand, Malaysia, Macedonia, Swaziland and
Gambia, which may limit the rate of ROC withholding tax on dividends paid with
respect to common shares of ROC
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companies. It is unclear whether if you hold ADSs, you will be considered to
hold common shares for the purposes of these treaties. Accordingly, if you may
otherwise be entitled to the benefits of the relevant income tax treaty, you
should consult your tax advisors concerning your eligibility for the benefits
with respect to the ADSs.
United States Federal Income Taxation
The following discussion describes the material U.S. federal income tax
consequences of the acquisition, ownership and disposition of ADSs to those
U.S. holders described below. For these purposes, you are a U.S. holder if you
are a beneficial owner of ADSs that, for U.S. federal income tax purposes, is:
o a citizen or resident of the United States;
o a corporation or other entity taxable as a corporation organized
under the laws of the United States or of any political subdivision of
the United States; or
o an estate or trust the income of which is includable in gross income
for U.S. federal income tax purposes regardless of its source.
This discussion only applies to ADSs that you hold as capital assets.
This discussion assumes that ASE Inc. will not be considered a passive
foreign investment company. Please see our discussion of the passive foreign
investment company rules below.
Please note that this discussion does not address all of the tax
consequences that may be relevant in light of your particular circumstances. In
particular, it does not address all of the tax consequences that may be
relevant to investors subject to special rules, including:
o persons subject to the alternative minimum tax;
o insurance companies;
o tax-exempt entities;
o dealers or traders in securities;
o financial institutions;
o persons who hold or will hold common shares as part of an
integrated investment, including a straddle, hedging or conversion
transaction, comprised of common shares and one or more other
positions for tax purposes;
o persons whose functional currency is not the U.S. Dollar; or
o persons who control 10% or more of our voting stock.
This discussion is based on the Internal Revenue Code of 1986, Treasury
Regulations, administrative announcements and judicial decisions currently in
effect. These laws and regulations may change, possibly with retroactive
effect. This discussion is also based in part on representations by the
depositary and assumes that each obligation under the deposit agreement and any
related agreement will be performed in accordance with its terms.
For U.S. federal income tax purposes, a U.S. holder of ADSs should be
treated as the holder of the common shares represented by the ADSs. However,
the U.S. Treasury has expressed concerns that parties to whom depositary shares
are pre-released may be taking actions that are inconsistent with the claiming
of foreign tax credits by the holders of ADSs. Accordingly, the analysis of the
creditability of ROC taxes described below could be affected by future actions
that may be taken by the U.S. Treasury.
70
Please consult your tax advisors with regard to the application of the
U.S. federal income tax laws to ADSs as well as any tax consequences arising
under the laws of any state, local or non-U.S. taxing jurisdictions.
Dividends
Any dividends you receive on ADSs, including the amount of any ROC taxes
withheld thereon, reduced by any credit against the withholding tax on account
of the 10% retained earnings tax imposed on us, other than pro rata
distributions of common shares to all shareholders including holders of ADSs,
will constitute foreign source dividend income to the extent paid out of
earnings and profits as calculated for U.S. federal income tax purposes. The
amount you will be required to include in income for any dividend paid in NT
Dollars will be equal to the U.S. Dollar value of the NT Dollars, calculated by
reference to the exchange rate in effect on the date the depositary receives
the dividend. If you realize gain or loss on a sale or other disposition of NT
Dollars, it will be U.S. source ordinary income or loss. You will not be
entitled to a dividends-received deduction for dividends you receive.
Subject to applicable limitations and restrictions, the ROC taxes withheld
from dividend distributions, reduced by any credit against the withholding tax
on account of the 10% retained earnings tax, will be eligible for credit
against your U.S. federal income tax liabilities. The limitation on foreign
taxes eligible for credit is calculated separately with respect to specific
classes of income including, amongst others, "passive income", "financial
services income" and "general limitation income". For this purpose, dividends
paid with respect to the common shares will constitute "passive income" or, in
the case of U.S. financial services providers may be, "financial services
income".
Pro rata distributions of common shares by a company to its shareholders,
including holders of ADSs, will not be subject to U.S. federal income tax.
Accordingly, these distributions will not give rise to U.S. federal income
against which the ROC tax imposed on these distributions may be credited. Any
ROC tax of this nature will only be creditable against a U.S. holder's U.S.
federal income tax liability with respect to income in the "general limitation
income" class and not "passive income" or "financial services income", subject
to applicable limitations and restrictions.
Capital Gains
You will recognize capital gain or loss for U.S. federal income tax
purposes on the sale or exchange of ADSs in the same manner as you would on the
sale or exchange of any other common shares held as capital assets. The gain or
loss will be U.S. source income or loss. You should consult your own tax
advisor about the treatment of capital gains, which may be taxed at lower rates
than ordinary income for non-corporate taxpayers, and capital losses, the
deductibility of which may be limited.
Deposits and withdrawals of common shares by a U.S. holder in exchange for
ADSs will not result in realization of gain or loss for U.S. federal income tax
purposes.
Passive Foreign Investment Company Rules
Based on management estimates and the available financial data, we do not
believe that we were a passive foreign investment company for 2000 nor do we
expect to be a passive foreign investment company. In general, a foreign
corporation is a passive foreign investment company for any taxable year in
which (1) 75% or more of its gross income consists of passive income (such as
dividends, interest, rents and royalties) or (2) 50% or more of the average
quarterly value of its assets consists of assets that produce, or are held for
the production of, passive income. The determination of whether we may be
considered a passive foreign investment company will be based on the
composition of our income and assets, as well as those of our subsidiaries and
certain affiliates, from time to time. Since the composition of our income and
assets will vary over time, there can be no assurance that we will not be
considered a passive foreign investment company for any fiscal year. If we are
a passive foreign investment company at any time that you own ADSs:
o Any gain realized on a disposition of ADSs and certain "excess
distributions" will be allocated over your holding period in the
ADSs. Amounts allocated to the year of the sale and any year prior to
our becoming a passive foreign investment company will be treated as
ordinary income. Amounts allocated to other years will be assessed at
the highest rates applicable for corporate or individual taxpayers,
as appropriate, for the relevant year and will be subject to an
interest charge; and
71
o You will be subject to additional U.S. tax filing requirements for
each year that you hold ADSs.
Estate and Gift Tax
As discussed in "-- ROC Taxation", you might be required to pay ROC estate
and gift tax. You should consult your tax advisor regarding the effect of these
taxes.
DOCUMENTS ON DISPLAY
The documents concerning us which are referred to herein may be inspected
at the Securities and Exchange Commission. You may read and copy any document
filed or furnished by us at the SEC's public reference rooms in Washington,
D.C., New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the reference rooms.
Item 11. Quantitative and Qualitative Disclosures About Market Risk.
Our exposure to financial market risks relates primarily to changes in
interest rates and foreign exchange rates. To mitigate theses risks, we utilize
derivative financial instruments, the application of which is primarily for
hedging, and not for speculative, purposes.
FOREIGN CURRENCY EXCHANGE RATE RISK
Our foreign currency exposures give rise to market risk associated with
exchange rate movements against the NT Dollar, our functional currency. Foreign
currency denominated liabilities as of December 31, 2000 include U.S. Dollar
debt and Japanese yen debt. As of December 31, 2000, approximately 69% of our
cash and accounts receivable were denominated in U.S. Dollars, with a
substantial portion of the remainder denominated in NT Dollars. As of December
31, 2000, approximately 86% of our accounts payable and payable for fixed
assets were denominated in currencies other than the NT Dollar. To protect
against reductions in value and the volatility of future cash flows caused by
changes in foreign exchange rates, we may utilize currency forward contracts
from time to time to reduce the impact of foreign currency fluctuations on our
results of operations. Our policy is to account for these contracts on a
mark-to-market rate basis, and the premiums are amortized on a straight-line
basis over the life of the contract. As of December 31, 2000, we had seven
foreign currency forward exchange contracts outstanding, all to hedge Malaysian
Ringgit against U.S. Dollars or Japanese Yen. These contracts were for a total
of US$6,045,000 and JPY150,000,000. For more information concerning these
forward exchange contracts, please see Note 23(b) to Notes to Consolidated
Financial Statements. The following table provides information about our
significant obligations that are sensitive to foreign currency exchange rate
fluctuations. The principal amounts are presented by year of maturity and
translated into U.S. Dollars based on the current exchange rate.
As of December 31, 2000
-----------------------------------------------------------------------------------------
Expected Maturity Date
-----------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 Total Fair Value
---- ---- ---- ---- ---- ----- ----------
(in millions)
Short-term debt:
U.S. Dollars average interest
rate: 7.4% to 9.1%........... US$ 28 -- -- -- -- US$28 US$ 28
Japanese yen average
interest rate: 0.975% to
1.6%......................... JPY$ 7,671 -- -- -- -- JPY$ 7,671 JPY$ 7,671
Swiss France average
interest rate: 4.505% to
4.905%....................... CHF$ 3.5 -- -- -- -- CHF$ 3.5 CHF$ 3.5
Malaysia Ringgit average
interest rate: 3.54% to
4.2%......................... MYR$ 67.3 -- -- -- -- MYR$ 67.3 MYR$ 67.3
Long-term borrowing:
U.S. Dollars average interest
rate: 7.75% to 10.50%........ US$ 12.5 US$ 256.3 US$ 9.6 US$ 180.9 US$ 10.0 US$ 469.3 US$ 469.3
72
(table continued)
As of December 31, 2000
-----------------------------------------------------------------------------------------
Expected Maturity Date
-----------------------------------------------------------------------------------------
2001 2002 2003 2004 2005 Total Fair Value
---- ---- ---- ---- ---- ----- ----------
(in millions)
Japanese yen average
interest rate: 1.1% to 5%.... JPY$ 866.7 JPY$ 4,202.9 -- -- -- JPY$ 5,069.6 JPY$ 5,069.6
INTEREST RATE RISK
Our exposure to interest rate risks relates primarily to our long-term
floating rate debt, which is normally incurred to support our corporate
activities, primarily capital expenditures. We currently do not enter into
derivative transactions with regard to interest rates, but would consider
engaging in currency interest rate swaps to lock in favorable currency and
interest rate levels from time to time, if available, on terms considered
attractive by us. No derivative contract was outstanding as of December 31,
2000.
Item 12. Description of Securities Other Than Equity Securities.
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies.
Not applicable.
Item 14. Material Modifications to the Rights of Security Holders and Use
of Proceeds.
MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
In July 1995, we established with Citibank, N.A., as GDS depositary, two
depositary receipts facilities, one for the purpose of facilitating the
issuance of GDSs sold under Rule 144A and the other for the purpose of
facilitating the issuance of GDSs sold pursuant to Regulation S. Each GDS
represented five of our common shares. In December 1999, some of our affiliates
offered and sold additional GDSs. The GDSs sold under Rule 144A were designated
as eligible for trading in the PORTAL System of the National Association of
Securities Dealers, Inc. in the United States. The GDSs sold pursuant to
Regulation S were listed on the Stock Exchange of Singapore and the Luxembourg
Stock Exchange and quoted on SEAQ International.
Concurrently with our offering of ADSs on September 25, 2000, we arranged
with our GDS depositary and our ADS depositary for the automatic conversion of
each of our outstanding GDSs sold pursuant to Regulation S into one ADS. The
ADSs issued upon conversion of our GDSs sold pursuant to Regulation S were
identified by a new CUSIP number. We have listed these ADSs for trading on the
NYSE under the symbol "ASX". We delisted these GDSs from the Stock Exchange of
Singapore and the Luxembourg Stock Exchange and suspended quotation on SEAQ
International.
Concurrently with our offering of ADSs of September 25, 2000, we offered
to exchange one ADS for each of our outstanding GDSs sold under Rule 144A. The
ADSs issued upon exchange of the GDSs sold under Rule 144A are identified by
the same CUSIP number as that which identifies the ADSs issued upon conversion
of the GDSs sold pursuant to Regulation S as described above, and all of those
ADSs are fully fungible for trading on the NYSE. Upon the completion of the
exchange offer, we instructed the GDS depositary to terminate the global
depositary receipt facility.
73
PART III
Item 17. Financial Statements.
The Company has elected to provide financial statements for fiscal year
2000 and the related information pursuant to Item 18.
Item 18. Financial Statements.
The consolidated financial statements of the Company and the report
thereon by its independent auditors listed below are attached hereto as
follows:
(a) Report of Independent Auditors of the Company dated March 27, 2001
(page F-1).
(b) Consolidated Balance Sheets of the Company and subsidiaries as of
December 31, 1999 and 2000 (page F-3).
(c) Consolidated Statements of Income of the Company and subsidiaries for
the years ended December 31, 1998, 1999 and 2000 (page F-4).
(d) Consolidated Statements of Changes in Stockholders' Equity of the
Company and subsidiaries for the years ended December 31, 1998, 1999
and 2000 (page F-6).
(e) Consolidated Statements of Cash Flows of the Company and subsidiaries
for the years ended December 31, 1998, 1999 and 2000 (page F-9).
(f) Notes to Consolidated Financial Statements of the Company and
subsidiaries (page F-11).
Advanced Semiconductor Engineering, Inc.
and Subsidiaries
Consolidated Financial Statements as of December 31, 1998, 1999 and 2000
Together with Independent Auditors' Report
Independent Auditors' Report
The Board of Directors and Shareholders
Advanced Semiconductor Engineering, Inc.
We have audited the accompanying consolidated balance sheets of Advanced
Semiconductor Engineering, Inc., a corporation incorporated under the laws of
the Republic of China, and its consolidated subsidiaries (the "Corporation") as
of December 31, 1999 and 2000 and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the years ended
December 31, 1998, 1999 and 2000, all expressed in New Taiwan dollars. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the Republic of China and the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Corporation as
of December 31, 1999 and 2000, and the results of their operations and their
cash flows for the years ended December 31, 1998, 1999 and 2000, in conformity
with generally accepted accounting principles in the Republic of China.
-1-
Certain accounting practices of the Corporation used in preparing the
accompanying financial statements conform with generally accepted accounting
principles in the Republic of China, but do not conform with generally accepted
accounting principles in the United States of America ("US GAAP"). A
description of the differences and the adjustments required to conform the
financial statements to US GAAP are set forth in Note 27.
March 27, 2001
T N Soong & Co
A Member Firm of Andersen Worldwide, SC
Taipei, Taiwan
Republic of China
-2-
ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31
-----------------------------------------------
1999 2000
-------------- -----------------------------
A S S E T S NT$ NT$ US$
- ----------- -------------- -------------- ------------
CURRENT ASSETS
Cash and cash equivalents (Note 2) 11,809,112 14,166,495 427,088
Short-term investments (Notes 2 and 3) 216,280 1,682,679 50,729
Notes receivable 201,042 219,641 6,622
Accounts receivable - net (Notes 4) 7,262,415 9,040,934 272,563
Inventories (Notes 2 and 5) 2,449,691 3,246,327 97,869
Deferred income tax assets - net (Notes 2 and 17) 492,533 1,160,727 34,993
Prepayments and other (Note 21) 919,219 1,270,859 38,314
-------------- -------------- ------------
Total Current Assets 23,350,292 30,787,662 928,178
-------------- -------------- ------------
LONG-TERM INVESTMENTS
Shares of stock (Notes 2, 6, 10 and 21) 9,184,681 10,485,459 316,113
Bonds (Notes 2 and 7) 489,751 226,740 6,835
-------------- -------------- ------------
Total Long-Term Investments 9,674,432 10,712,199 322,948
-------------- -------------- ------------
PROPERTIES (Notes 2, 8,13 and 21)
Cost
Land and land improvements 4,167,529 3,798,835 114,526
Buildings and improvements 7,304,856 9,390,206 283,093
Machinery and equipment 36,187,779 59,631,388 1,797,751
Transportation equipment 115,136 101,409 3,057
Furniture and fixtures 653,710 1,458,138 43,960
Leased assets and leasehold improvements 363,701 486,275 14,660
Long leasehold land 56,275 1,389 42
-------------- -------------- ------------
Total cost 48,848,986 74,867,640 2,257,089
Accumulated depreciation (14,961,384) (22,690,292) (684,061)
-------------- -------------- ------------
33,887,602 52,177,348 1,573,028
Construction in progress 894,935 3,438,426 103,661
Machinery in transit and prepayments 3,324,929 4,950,426 149,244
-------------- -------------- ------------
Net Properties 38,107,466 60,566,200 1,825,933
-------------- -------------- ------------
OTHER ASSETS (Notes 2, 9 and 21) 952,757 1,275,557 38,455
-------------- -------------- ------------
CONSOLIDATED DEBITS (Notes 2 and 10) 5,245,828 4,999,546 150,725
-------------- -------------- ------------
TOTAL ASSETS 77,330,775 108,341,164 3,266,239
============== ============== ============
(Forward)
The accompanying notes are an integral part of the financial statements.
-3-
December 31
------------------------------------------------
1999 2000
-------------- -------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY NT$ NT$ US$
- ------------------------------------ -------------- -------------- --------------
CURRENT LIABILITIES
Short-term borrowings (Notes 11 and 21) 3,787,647 5,402,597 162,876
Commercial papers and bank acceptances payable (Note 12) 1,703,593 4,281,805 129,087
Accounts payable 3,152,353 3,859,909 116,368
Payable for fixed assets (Note 8) 2,779,513 4,179,324 125,997
Income tax payable 458,425 1,100,964 33,192
Current portion of long-term debts (Notes 14 and 21) 2,886,351 3,309,935 99,787
Current portion of long-term payable for investments (Note 26) 1,490,599 773,616 23,323
Accrued expenses (Note 19) 921,907 1,613,207 48,635
Other 455,815 1,352,002 40,759
-------------- -------------- --------------
Total Current Liabilities 17,636,203 25,873,359 780,024
LONG-TERM BONDS PAYABLE (Note 13) 10,827,663 12,229,179 368,682
LONG-TERM DEBTS (Notes 14 and 21) 9,739,639 10,329,851 311,421
LONG-TERM PAYABLE FOR INVESTMENTS (Note 26) 3,984,181 3,417,912 103,042
ACCRUED PENSION COST (Notes 2 and 18) 189,189 248,425 7,489
DEFERRED INCOME TAX LIABILITIES - NET (Notes 2 and 17) 6,590 511,462 15,419
-------------- -------------- --------------
Total Liabilities 42,383,465 52,610,188 1,586,077
-------------- -------------- --------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 4,890,274 12,061,762 363,635
-------------- -------------- --------------
SHAREHOLDERS' EQUITY (Note 15)
Capital stock - NT$10 par value 19,800,000 27,520,000 829,665
-------------- -------------- --------------
Authorized - 2,400,000 thousand shares in 1999 and
3,200,000 thousand shares in 2000
Issued - 1,980,000 thousand shares in 1999 and 2,752,000
thousand shares in 2000
Capital surplus
Capital in excess of par value 1,921 3,171,933 95,627
Net gain on disposal of properties 11,879 23,109 697
Adjustment of equity in subsidiary due to change in
percentage of ownership 669,874 4,075,783 122,875
-------------- -------------- --------------
Total capital surplus 683,674 7,270,825 219,199
-------------- -------------- ------------
Retained earnings 9,243,346 8,200,947 247,240
-------------- -------------- --------------
Unrealized loss on long-term investment in shares of stock - (546,829) (16,486)
-------------- -------------- --------------
Cumulative translation adjustments 330,016 1,224,271 36,909
-------------- -------------- ------------
Total Shareholders' Equity 30,057,036 43,669,214 1,316,527
-------------- -------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 77,330,775 108,341,164 3,266,239
============== ============== ============
The accompanying notes are an integral part of the financial statements.
-3-
ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Earnings Per Share and Equivalent ADS)
Years Ended December 31
-----------------------------------------------------
1998 1999 2000
----------- ----------- ------------------------
NT$ NT$ NT$ US$
----------- ----------- ----------- ----------
NET REVENUES (Note 25)
Packaging 16,867,404 24,522,968 38,028,799 1,146,482
Testing 3,131,278 7,793,198 12,768,361 384,937
Other 763,741 293,395 96,217 2,901
----------- ----------- ----------- ----------
Subtotal 20,762,423 32,609,561 50,893,377 1,534,320
----------- ----------- ----------- ----------
COST OF REVENUES
Packaging 13,173,587 18,769,995 28,011,934 844,496
Testing 1,646,706 4,687,939 7,473,964 225,323
Other 647,840 501,632 81,380 2,454
----------- ----------- ----------- ----------
Subtotal 15,468,133 23,959,566 35,567,278 1,072,273
----------- ----------- ----------- ----------
GROSS PROFIT 5,294,290 8,649,995 15,326,099 462,047
----------- ----------- ----------- ----------
OPERATING EXPENSES
Selling 744,742 924,347 1,020,451 30,764
General and administrative (Note 10) 1,255,081 2,162,765 3,166,006 95,448
Research and development 453,611 714,324 1,262,516 38,062
----------- ----------- ----------- ----------
Total Operating Expenses 2,453,434 3,801,436 5,448,973 164,274
----------- ----------- ----------- ----------
INCOME FROM OPERATIONS 2,840,856 4,848,559 9,877,126 297,773
----------- ----------- ----------- ----------
NON-OPERATING INCOME
Interest (Notes 2 and 23) 605,397 423,158 554,180 16,707
Gain on sales of investments (Notes 2 and 16) 606,944 5,544,155 91,666 2,763
Investment income under equity method (Notes 2 and 6) 29,149 81,466 69,915 2,108
Foreign exchange gain-net (Notes 2 and 23) - - 302,745 9,127
Other 146,516 314,549 198,518 5,985
----------- ----------- ----------- ----------
Total Non-Operating Income 1,388,006 6,363,328 1,217,024 36,690
----------- ----------- ----------- ----------
NON-OPERATING EXPENSES
Interest (Notes 2 and 8) 985,796 1,469,795 2,092,238 63,076
Investment loss under equity method (Notes 2 and 6) 129,698 30,871 237,152 7,150
Foreign exchange loss - net (Notes 2 and 23) 935,474 538,368 - -
Other 196,613 110,412 361,200 10,889
----------- ----------- ----------- ----------
Total Non-Operating Expenses 2,247,581 2,149,446 2,690,590 81,115
----------- ----------- ----------- ----------
INCOME BEFORE INCOME TAX AND MINORITY
INTEREST AND ACQUISITION 1,981,281 9,062,441 8,403,560 253,348
INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 17) 150,777 ( 459,543) ( 1,065,768) ( 32,130)
----------- ----------- ----------- ----------
INCOME BEFORE MINORITY INTEREST AND
ACQUISITION 2,132,058 8,602,898 7,337,792 221,218
(Forward)
-4-
INCOME BEFORE ACQUISITION (Note 2) - (65,167) - -
MINORITY INTEREST IN NET INCOME OF
SUBSIDIARIES (528,097) (743,065) (1,500,643) (45,241)
----------- ----------- ----------- ----------
NET INCOME 1,603,961 7,794,666 5,837,149 175,977
=========== =========== =========== ==========
EARNINGS PER SHARE (Notes 2 and 20)
Based on weighted average number of outstanding
shares of 2,677,602,508 in 2000 and 1,980,000,000 in 1999
and 1,780,000,000 in 1998
Primary 0.85 3.90 2.13 0.06
==== ==== ==== ====
Fully diluted 0.85 3.90 2.13 0.06
==== ==== ==== ====
Based on weighted average number of outstanding shares
after giving retroactive adjustment to 1999 and 2000
stock dividends
Primary 0.57 2.91
==== ====
Fully diluted 0.57 2.90
==== ====
EARNINGS PER EQUIVALENT ADS (Note 2 and 20)
Based on weighted average number of outstanding
shares of 2,677,602,508 in 2000 and 1,980,000,000 in 1999
and 1,780,000,000 in 1998
Primary 4.27 19.51 10.65 0.32
==== ===== ===== ====
Fully diluted 4.27 19.49 10.65 0.32
==== ===== ===== ====
Based on weighted average number of outstanding
shares after giving retroactive adjustment to
1999 and 2000 stock dividends
Primary 2.87 14.53
==== =====
Fully diluted 2.87 14.51
The accompanying notes are an integral part of the financial statements.
-5-
ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)
CAPITAL STOCK (NT$10 Par Value)
-----------------------------------------------
Issued and Outstanding
Authorized -------------------------------
Shares Shares Amount
--------------- --------------- -------------
BALANCE, JANUARY 1, 1998 1,400,000,000 1,017,000,000 NT$ 10,170,000
Increase in authorized capital, March 21, 1999 800,000,000 - -
Appropriations of 1997 earnings (Note 15)
Legal reserve - - -
Compensation to directors and supervisors - - -
Stock dividends - 60% - 610,200,000 6,102,000
Bonus to employees - stock - 30,760,000 307,600
Bonus to employees - cash - - -
Stock dividends from capital surplus - 2.9% - 122,040,000 1,220,400
Transfer of subsidiary's gain on disposal of properties - - -
Adjustment of equity in subsidiary due to change in
percentage of ownership - - -
Net income in 1998 - - -
Transfer of net gain on disposal of properties - - -
Unrealized loss on long-term investment in shares of stock - - -
Cumulative translation adjustments (Note 2) - - -
--------------- --------------- --------------
BALANCE, DECEMBER 31, 1998 2,200,000,000 1,780,000,000 17,800,000
Increase in authorized capital, June 9, 1999 200,000,000 - -
Appropriations of 1998 earnings (Note 15)
Legal reserve - - -
Compensation to directors and supervisors - - -
Stock dividends - 7.8% - 138,840,000 1,388,400
Bonus to employees - stock - 9,540,000 95,400
Bonus to employees - cash - - -
Stock dividends from capital surplus - 2.9% - 51,620,000 516,200
Transfer of subsidiary's net gain on disposal of properties - - -
Transfer of net gain on disposal of properties - - -
Adjustment of equity in subsidiary due to change in
percentage of ownership - - -
Net income in 1999 - - -
Reversal of unrealized loss on long-term investment in shares of stock - - -
Cumulative translation adjustments (Note 2) - - -
--------------- --------------- --------------
BALANCE, DECEMBER 31, 1999 2,400,000,000 1,980,000,000 19,800,000
(Forward)
-6-
Convertible bonds converted into common shares - 355,086 NT$ 3,551
Increase in authorized capital, July 11, 2000 800,000,000 - -
Appropriations of 1999 earnings (Note 15)
Legal reserve - - -
Compensation to directors and supervisors - - -
Bonus to employees -cash - - -
Bonus to employees -stock - 47,833,062 478,331
Stock dividends - 31.5% - 623,811,852 6,238,118
Capital increase in cash through the issuance of American
Depositary Receipts - September 29 - 100,000,000 1,000,000
Transfer of subsidiary's net gain on disposal of properties - - -
Adjustment of equity in subsidiary due to change in
percentage of ownership - - -
Unrealized loss on long-term investment
in shares of stock - - -
Net income in 2000 - - -
Transfer of net gain on disposal of properties - - -
Cumulative translation adjustment (Note 2) - - -
--------------- --------------- --------------
BALANCE, DECEMBER 31, 2000 3,200,000,000 2,752,000,000 NT$ 27,520,000
=============== =============== ==============
(Forward)
The accompanying notes are an integral part of the financial statements.
-7-
RETAINED EARNINGS
CAPITAL ------------------------------------------------
SURPLUS Legal Unappropriated
(Note 2) Reserve Earnings Total
-------------- ------------ ------------------ -------------
BALANCE, JANUARY 1, 1998 NT$ 2,352,354 NT$ 649,411 NT$7,455,769 NT$ 8,105,180
Increase in authorized capital, March 21, 1999 - - - -
Appropriations of 1997 earnings (Note 15)
Legal reserve - 740,118 (740,118) -
Compensation to directors and supervisors - - (120,000) (120,000)
Stock dividends - 60% - - (6,102,000) (6,102,000)
Bonus to employees - stock - - (307,600) (307,600)
Bonus to employees - cash - - (92,400) (92,400)
Stock dividends from capital surplus - 2.9% (1,220,400) - - -
Transfer of subsidiary's gain on disposal of properties 204 - (204) (204)
Adjustment of equity in subsidiary due to change in
percentage of ownership 55,605 - - -
Net income in 1998 - - 1,603,961 1,603,961
Transfer of net gain on disposal of properties 1,410 - (1,410) (1,410)
Unrealized loss on long-term investment in shares of stock - - - -
Cumulative translation adjustments (Note 2) - - - -
-------------- ------------- ------------ -------------
BALANCE, DECEMBER 31, 1998 1,189,173 1,389,529 1,695,998 3,085,527
Increase in authorized capital, June 9, 1999 - - - -
Appropriations of 1998 earnings (Note 15)
Legal reserve - 160,255 (160,255) -
Compensation to directors and supervisors - - (28,800) (28,800)
Stock dividends - 7.8% - - (1,388,400) (1,388,400)
Bonus to employees - stock - - (95,400) (95,400)
Bonus to employees - cash - - (5,500) (5,500)
Stock dividends from capital surplus - 2.9% (516,200) - - -
Transfer of subsidiary's net gain on disposal of properties 4,931 - (4,931) (4,931)
Transfer of net gain on disposal of properties 736 - (736) (736)
Adjustment of equity in subsidiary due to change in
percentage of ownership 5,034 - (113,080) (113,080)
Net income in 1999 - - 7,794,666 7,794,666
Reversal of unrealized loss on long-term investment in shares
of stock - - - -
Cumulative translation adjustments (Note 2) - - - -
-------------- ------------- ------------ -------------
BALANCE, DECEMBER 31, 1999 683,674 1,549,784 7,693,562 9,243,346
(Forward)
-6-
Convertible bonds converted into common shares NT$ 32,102 NT$ - NT$ - NT$ -
Increase in authorized capital, July 11, 2000 - - - -
Appropriations of 1999 earnings (Note 15)
Legal reserve - 779,393 (779,393) -
Compensation to directors and supervisors - - (139,200) (139,200)
Bonus to employees -cash - - (12,669) (12,669)
Bonus to employees -stock - - (478,331) (478,331)
Stock dividends - 31.5% - - (6,238,118) (6,238,118)
Capital increase in cash through the issuance of American
Depositary Receipts - September 29 3,137,910 - - -
Transfer of subsidiary's net gain on disposal of properties 9,470 - (9,470) (9,470)
Adjustment of equity in subsidiary due to change in
percentage of ownership 3,405,909 - - -
Unrealized loss on long-term investment
in shares of stock - - - -
Net income in 2000 - - 5,837,149 5,837,149
Transfer of net gain on disposal of properties 1,760 - (1,760) (1,760)
Cumulative translation adjustment (Note 2) - - - -
-------------- ------------- ------------ -------------
BALANCE, DECEMBER 31, 2000 NT$ 7,270,825 NT$ 2,329,177 NT$5,871,770 NT$ 8,200,947
============== ============= ============ =============
(Forward)
The accompanying notes are an integral part of the financial statements.
-7-
UNREALIZED
LOSS ON
LONG-TERM
INVESTMENT CUMULATIVE
IN SHARES TRANSLATION TOTAL
OF STOCK ADJUSTMENTS SHAREHOLDERS'
(Note 2) (Note 2) EQUITY
----------------- ----------------- ----------------
BALANCE, JANUARY 1, 1998 NT$ - NT$ 406,119 NT$ 21,033,653
Increase in authorized capital, March 21, 1999 - - -
Appropriations of 1997 earnings (Note 15)
Legal reserve - - -
Compensation to directors and supervisors - - (120,000)
Stock dividends - 60% - - -
Bonus to employees - stock - - -
Bonus to employees - cash - - (92,400)
Stock dividends from capital surplus - 2.9% - - -
Transfer of subsidiary's gain on disposal of properties - - -
Adjustment of equity in subsidiary due to change in
percentage of ownership - - 55,605
Net income in 1998 - - 1,603,961
Transfer of net gain on disposal of properties - - -
Unrealized loss on long-term investment in shares of stock (703,865) - (703,865)
Cumulative translation adjustments (Note 2) - 97,854 97,854
----------------- ----------------- ----------------
BALANCE, DECEMBER 31, 1998 (703,865) 503,973 21,874,808
Increase in authorized capital, June 9, 1999 - - -
Appropriations of 1998 earnings (Note 15)
Legal reserve - - -
Compensation to directors and supervisors - - (28,800)
Stock dividends - 7.8% - - -
Bonus to employees - stock - - -
Bonus to employees - cash - - (5,500)
Stock dividends from capital surplus - 2.9% - - -
Transfer of subsidiary's net gain on disposal of properties - - -
Transfer of net gain on disposal of properties - - -
Adjustment of equity in subsidiary due to change in
percentage of ownership - - (108,046)
Net income in 1999 - - 7,794,666
Reversal of unrealized loss on long-term investment in shares
of stock 703,865 - 703,865
Cumulative translation adjustments (Note 2) - (173,957) (173,957)
----------------- ----------------- ----------------
BALANCE, DECEMBER 31, 1999 - 330,016 30,057,036
(Forward)
-6-
Convertible bonds converted into common shares NT$ - NT$ - NT$ 35,653
Increase in authorized capital, July 11, 2000 - - -
Appropriations of 1999 earnings (Note 15)
Legal reserve - - -
Compensation to directors and supervisors - - (139,200)
Bonus to employees -cash - - (12,669)
Bonus to employees -stock - - -
Stock dividends - 31.5% - - -
Capital increase in cash through the issuance of American
Depositary Receipts - September 29 - - 4,137,910
Transfer of subsidiary's net gain on disposal of properties - - -
Adjustment of equity in subsidiary due to change in
percentage of ownership - - 3,405,909
Unrealized loss on long-term investment
in shares of stock (546,829) - (546,829)
Net income in 2000 - - 5,837,149
Transfer of net gain on disposal of properties - - -
Cumulative translation adjustment (Note 2) - 894,255 894,255
------------- -------------- ----------------
BALANCE, DECEMBER 31, 2000 NT$(546,829) NT$ 1,224,271 NT$ 43,669,214
============= ============= ================
The accompanying notes are an integral part of the financial statements.
-7-
ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)
BALANCE, JANUARY 1, 2000 2,400,000,000 1,980,000,000 US$ 596,925
Convertible bonds converted into common shares - 355,086 107
Increase in authorized capital, July 11, 2000 800,000,000 - -
Appropriations of 1999 earnings (Note 15)
Legal reserve - - -
Compensation to directors and supervisors - - -
Bonus to employees - cash - - -
Bonus to employees - stock - 47,833,062 14,420
Stock dividends - 31.5% - 623,811,852 188,065
Capital increase in cash through the issuance of American Depositary
Receipts - September 29 - 100,000,000 30,148
Transfer of subsidiary's net gain on disposal of properties - - -
Adjustment of equity in subsidiary due to change in percentage of
ownership - - -
Unrealized loss on long-term investment in shares of stock - - -
Net income in 2000 - - -
Transfer of net gain on disposal of properties - - -
Cumulative translation adjustment (Note 2) - - -
-------------- -------------- -------------
BALANCE, DECEMBER 31, 2000 3,200,000,000 2,752,000,000 US$ 829,665
============== ============== =============
(Forward)
The accompanying notes are an integral part of the financial statements.
-8-
ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)
BALANCE, JANUARY 1, 2000 US$ 20,611 US$ 46,722 US$ 231,943 US$ 278,665
Convertible bonds converted into common shares 968 - - -
Increase in authorized capital, July 11, 2000 - - - -
Appropriations of 1999 earnings (Note 15)
Legal reserve - 23,497 (23,497) -
Compensation to directors and supervisors - - (4,197) (4,197)
Bonus to employees - cash - - (382) (382)
Bonus to employees - stock - - (14,420) (14,420)
Stock dividends - 31.5% - - (188,065) (188,065)
Capital increase in cash through the issuance of American Depositary
Receipts - September 29 94,601 - - -
Transfer of subsidiary's net gain on disposal of properties 285 - (285) (285)
Adjustment of equity in subsidiary due to change in percentage of
ownership 102,681 - - -
Unrealized loss on long-term investment in shares of stock - - - -
Net income in 2000 - - 175,977 175,977
Transfer of net gain on disposal of properties 53 - (53) (53)
Cumulative translation adjustment (Note 2) - - - -
------------ ------------ ------------ -------------
BALANCE, DECEMBER 31, 2000 US$ 219,199 US$ 70,219 US$ 177,021 US$ 247,240
============ ============ ============ =============
(Forward)
The accompanying notes are an integral part of the financial statements.
-8-
ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In Thousands, Except Share Data)
BALANCE, JANUARY 1, 2000 US$ - US$ 9,949 US$ 906,150
Convertible bonds converted into common shares - - 1,075
Increase in authorized capital, July 11, 2000 - - -
Appropriations of 1999 earnings (Note 15)
Legal reserve - - -
Compensation to directors and supervisors - - (4,197)
Bonus to employees - cash - - (382)
Bonus to employees - stock - - -
Stock dividends - 31.5% - - -
Capital increase in cash through the issuance of American Depositary
Receipts - September 29 - - 124,749
Transfer of subsidiary's net gain on disposal of properties - - -
Adjustment of equity in subsidiary due to change in percentage of
ownership - - 102,681
Unrealized loss on long-term investment in shares of stock (16,486) - (16,486)
Net income in 2000 - - 175,977
Transfer of net gain on disposal of properties - - -
Cumulative translation adjustment (Note 2) - 26,960 26,960
----------- ----------- -------------
BALANCE, DECEMBER 31, 2000 US$ (16,486) US$ 36,909 US$ 1,316,527
=========== =========== =============
The accompanying notes are an integral part of the financial statements.
-8-
ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Years Ended December 31
------------------------------------------------------
1998 1999 2000
----------- ----------- ------------------------
NT$ NT$ NT$ US$
----------- ----------- ----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income 1,603,961 7,794,666 5,837,149 175,977
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest in net income of subsidiaries 528,097 743,065 1,500,643 45,241
Depreciation 2,960,604 5,128,282 8,127,561 245,027
Amortization 276,585 426,085 466,238 14,056
Exchange (gain) loss on long-term foreign:
Bonds payable (91,392) (191,895) 628,058 18,935
Debts (63,913) (3,927) - -
Investment payable - - 170,351 5,136
Bonds investment 8,285 11,066 (21,290) (642)
Accrued interest on convertible bonds 437,768 615,805 837,846 25,259
Provision for doubtful accounts and sales allowance 44,789 109,263 155,458 4,687
Gain on sale of investments (606,944) (5,544,155) (91,666) (2,763)
Investment (income)loss under equity method 100,549 (50,595) 167,237 5,042
Gain on disposal of properties (546) (20,903) 19,298 582
Provision (reversal of allowance) for loss on
short-term investments (10,779) (10,721) 4,849 146
Provision for loss on long-term bonds investments - - 284,301 8,571
Amortization of consolidated debit 345,726 507,816 559,807 16,877
Deferred income taxes (267,511) (343,180) (226,898) (6,840)
Changes in operating assets and liabilities, net of effects
from purchases of Motorola SPS Businesses and ISE Labs,
Inc.
Notes receivable 333,717 189,530 (18,599) (561)
Accounts receivable 79,131 (2,722,498) (1,933,977) (58,305)
Inventories 314,207 (444,885) (796,636) (24,017)
Prepayments and other (86,985) (284,376) (327,757) (9,881)
Notes payable (136,030) (214,858) - -
Accounts payable 318,435 869,713 707,556 21,331
Income tax payable (136,221) 238,982 642,539 19,371
Accrued expenses and other (745,419) 598,025 1,574,097 47,455
Accrued pension cost 66,941 (551,421) 59,236 1,786
Effect of exchange rate changes (78,905) 168,350 (682,197) (20,567)
----------- ----------- ----------- ----------
Net Cash Provided by Operating Activities 5,194,150 7,017,234 17,643,204 531,903
----------- ----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Motorola SPS Businesses - (4,259,541) - -
Acquisition of ISE Labs, Inc. - (3,014,427) - -
Acquisition of fixed assets (6,944,980) (9,869,161) (30,063,640) (906,350)
(Increase) decrease in short-term investments 3,530,471 569,099 (1,471,248) (44,355)
Payments for long-term investments:
Shares of stock (2,598,519) (3,538,728) (2,026,047) (61,081)
Bonds (190,039) - - -
Increase in other assets (462,699) (202,668) (787,246) (23,734)
Proceeds from sales of:
Properties 493,898 361,149 697,126 21,017
Shares of stock:
ASE Inc. 75,672 3,170,957 - -
ASE Test Ltd. 214,865 4,718,324 - -
(Forward)
-9-
Bonds - 282,306 - -
Others - - 100,666 3,035
Purchase of ASE Test Ltd. shares (2,676,952) - - -
----------- ----------- ----------- ----------
Net Cash Used in Investing Activities (8,558,283) (11,782,690) (33,550,389) (1,011,468)
----------- ----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayments of):
Capital increase through the issuance of American
Depositary Shares - - 4,151,300 125,152
Issuance of foreign convertible bonds - 3,460,050 - -
Long-term debts 828,345 4,201,517 1,013,796 30,563
Investment payable - - (1,453,603) (43,823)
Commercial papers and bank acceptances payable 807,665 (517,031) 2,578,212 77,727
Proceeds from (repayments of) short-term borrowings (692,274) 1,218,200 1,614,950 48,687
Repayments for long-term foreign bonds interest - - (24,915) (751)
Decrease in deferred intercompany profit (22,008) - - -
Increase (decrease) in minority interest (119,994) 235,081 9,854,500 297,091
Compensation to directors and supervisors and bonus
to employees (212,400) (28,800) (151,869) (4,578)
----------- ----------- ----------- - ----------
Net Cash Provided by Financing Activities 589,334 8,569,017 17,582,371 530,068
----------- ----------- ----------- ----------
EFFECT OF EXCHANGE RATE CHANGES 78,905 (168,350) 682,197 20,567
----------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,695,894) 3,635,211 2,357,383 71,070
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,869,795 8,173,901 11,809,112 356,018
----------- ----------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR 8,173,901 11,809,112 14,166,495 427,088
=========== =========== =========== ==========
SUPPLEMENTAL INFORMATION
Interest paid (excluding capitalized interest) 542,590 787,106 1,217,052 36,691
Income tax paid 293,901 397,065 497,882 15,010
Cash paid for acquisition of fixed assets
Acquisition of fixed assets 7,447,692 11,097,395 31,463,451 948,551
Increase in payable (502,712) (1,228,234) (1,399,811) (42,201)
----------- ----------- ----------- ----------
6,944,980 9,869,161 30,063,640 906,350
=========== =========== =========== ==========
Total assets acquired from acquisition of Motorola SPS businesses - 12,783,224 - -
Less: Liabilities assumed - 1,627,383 - -
----------- ----------- ----------- ----------
Payable amounts - 11,155,841 - -
Less: Payable balance at end of year - 5,474,780 - -
----------- ----------- ----------- ----------
Cash paid - 5,681,061 - -
Less: Cash received at the date of acquisition - 1,421,520 - -
----------- ----------- ----------- ----------
Net cash outflow - 4,259,541 - -
=========== =========== =========== ==========
Total assets acquired from acquisition of ISE Labs, Inc. - 4,671,849 - -
Less: Liabilities assumed - 1,371,453 - -
----------- ----------- ----------- ----------
Cash paid - 3,300,396 - -
Less: Cash received at the date of acquisition - 285,969 - -
----------- ----------- ----------- ----------
Net cash outflow - 3,014,427 - -
=========== =========== =========== ==========
Cash received from capital increase through the issuance of
American Depositary Shares
Net proceeds - - 4,137,910 124,748
Increase in payable - - 13,390 404
----------- ----------- ----------- ----------
Net cash inflow - - 4,151,300 125,152
=========== =========== =========== ==========
The accompanying notes are an integral part of the financial statements.
-10-
ADVANCED SEMICONDUCTOR ENGINEERING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 2000
(Amounts In Thousands of New Taiwan Dollars, Unless Otherwise Stated)
1. GENERAL
Advanced Semiconductor Engineering, Inc. ("ASE"), a corporation
incorporated under the laws of the Republic of China (the "ROC"), is an
independent provider of semiconductor packaging and testing services.
ASE's common shares are traded on the Taiwan Stock Exchange and in
September 2000, ASE's common shares in the form of American Depositary
Shares are traded on the New York Stock Exchange. ASE and its consolidated
subsidiaries and affiliates are referred to as the "ASE Group".
ASE has five wholly-owned subsidiaries: a) ASE Holding Limited
(incorporated in Bermuda in 1990) holds shares in ASE Group companies; b)
ASE Marketing Services Ltd. (incorporated in Hong Kong in 1991) engages in
trading; c) ASE Investment Co. (incorporated in the ROC in March 1996)
holds shares in ASE Group companies; d) J&R Holding Limited (incorporated
in Bermuda in May 1996) holds shares in ASE Group companies; and e) ASE
Capital Co. (incorporated in Taiwan in November 1997) holds shares in ASE
Group companies. As of December 31, 2000, ASE also has a 98% equity stake
in ASE Technologies, Inc., a company incorporated in the ROC engaged in
the research and development, manufacture and sales of computers and
related accessories, and a 44% equity stake in ASE Material Inc. ("ASE
Material"), a company incorporated in the ROC engaged in manufacturing and
processing of leadframes for semiconductors. In addition, ASE Test, Inc.
has a 7% equity stake in ASE Material.
In 1999, ASE (Chung Li) Inc. ("ASE Chung Li") and ASE Investment (Labuan)
Inc., a holding company, were incorporated to acquire a 100% interest in
the Motorola Semiconductor Product Sector Businesses ('Motorola SPS
Businesses") in Chung-Li, Taiwan and Paju, Korea on July 4, 1999. ASE and
ASE Test Limited ("ASE Test") own 70% and 30% equity stakes in the two
subsidiaries, respectively. ASE Investment (Labuan) Inc. owns 100% of the
equity of ASE Korea Inc. The acquisition transaction was accounted for as
a purchase, and the purchase price was approximately US$350.1 million (see
Note 26).
ASE Holding Limited has the following wholly-owned subsidiaries: a) ASEP
Realty Corporation (incorporated in the Philippines in December 1995) is
engaged in developing and investing in real estate; b) ASE Holding
Electronics (Philippines) (incorporated in the Philippines in December
1995) is engaged in the manufacture of electronic products, components and
semiconductors; and c) ASE Holding (Singapore) Pte. Ltd. (incorporated in
Singapore in December 1994) holds shares in ASE Group companies. A portion
of the share capital of the Philippine subsidiaries are held by certain
individuals due to legal limitations; share transfer agreements have been
signed to safeguard such investments. ASE Holding (Singapore) Pte. Ltd.
has 100% equity in ASE Electronics (M) Sdn, Bhd. ("ASE Test Malaysia")
(incorporated in Malaysia in 1991), which is engaged in the manufacture,
processing, testing and sales of integrated circuits. In April 1997, ASE
Holding Limited transferred its shareholding in ASE Test Malaysia to ASE
Test.
-11-
J&R Holding Limited has a 43%-owned subsidiary, namely ASE Test
(incorporated in Singapore in May 1996) and holds shares in ASE Group
companies. In addition, ASE Holding Limited has a 8% equity stake in ASE
Test. The shares of ASE Test have been listed on the NASDAQ National
Market in the United States since June 1996.
ASE Test has four majority-owned subsidiaries: a) ASE Test, Inc., which is
engaged in testing of semiconductors; b) ASE Test Malaysia, which is
engaged in packaging and testing of semiconductors; c) ASE Test Holding,
which mainly hold shares in ASE Group companies; and d) ASE Test Finance
Limited (incorporated in Mauritius in June 1999) which is engaged in
financing activities.
ASE Test, Inc. has a wholly-owned subsidiary, ASE Test (USA) Inc., which
is engaged in the after-sale service of tested semiconductors.
In May 1999, ASE Test acquired 70% of the outstanding shares of ISE Labs,
Inc. ("ISE Labs"), which is engaged in front-end engineering testing,
final testing and packaging of semiconductors. The purchase cost,
including transaction costs, was approximately US$100.1 million
(NT$3,320.3 million). ASE Test has committed to the minority shareholders
of ISE Labs that if ISE Labs (i) does not consummate its initial public
offering in the United States by December 31, 2001 at or above a
predetermined price or (ii) disposes of certain material assets, ASE Test
will be obligated to purchase the remaining 30% of equity of ISE Labs for
US$42 million (NT$1,393.1 million) plus accrued interest (payable either
in cash or shares at the option of the minority shareholders) (see Note
26). Any future acquisition of the remaining 30% equity of ISE Labs will
be accounted for as step-acquisitions using the purchase method. In June
1999, ASE Test Finance Limited issued US$160 million (NT$5,307.2 million)
of convertible notes to finance the acquisitions of ISE Labs and Motorola
SPS Businesses by ASE Test (see Note 13).
ASE Technologies, Inc. has two subsidiaries: a) ASE Technologies (U.S.A.),
Inc. (100% ownership), which is mainly engaged in research and
development, manufacture and sales of computers and related accessories;
and b) Transmonde Technologies, Inc. (83% ownership), which is mainly
engaged in sales of computers and related accessories.
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles in the ROC ('ROC GAAP").
Significant accounting polices are summarized as follows:
Presentation of financial statements
ASE prepared its financial statements using ROC GAAP and made
reconciliation to US GAAP (Note 27) and the accompanying balance sheets
are presented for two year-ends as at December 31, 1999 and 2000, and the
accompanying statements of income, changes in shareholders' equity and
cash flows are presented for three years ended December 31, 1998, 1999 and
2000.
Unless otherwise stated, amounts presented are in thousands of New Taiwan
dollars (NT$) or US dollars (US$).
-12-
Consolidation
The consolidated financial statements include the accounts of ASE and all
of the aforementioned companies (hereinafter, individually or collectively
referred to as "the Corporation").
The consolidated method used by the Corporation to consolidate the
statement of income of ISE Labs for the year ended December 31, 1999, ISE
Labs' full year 1999 net revenues, cost of revenues and operating expenses
are included in the Corporation's consolidated statements of income. The
pre-acquisition income of ISE Labs for the period (from January 1, 1999 to
May 4, 1999) is then subtracted from the Corporation's net income for
1999.
The statements of income for both ASE Chung Li Inc. and ASE Korea Inc.
(representing the acquirees from acquisitions of Motorola SPS Businesses)
are consolidated since the date of acquisitions due to the change of
business type after acquisition in ASE Chung Li and ASE Korea for the
accounting of silicon wafers from previous purchase and sale transaction
to customers' consignments (see accounting policy for inventories).
The accounts of ASE Material for 1999 are consolidated because ASE in
effect controls ASE Material as follows: First, two of the five board
members of ASE Material are appointed by ASE and one board member is
appointed by ASE Test, Inc., a consolidated subsidiary of ASE. Second, Mr.
Jason Chang, the Chairman of ASE, also serves as the Chairman of ASE
Material. Third, ASE appoints ASE Material's sole Supervisor, whose duty
under the ROC Company Law is to monitor ASE Material's business and
financial condition. Finally, Mr. Jason Chang has committed to vote his
shares of ASE Material as of December 31, 1999, which represented a 11.4%
ownership interest in ASE Material, in concert with ASE.
All intercompany accounts and transactions have been eliminated and
minority shareholders' interests in the equity and earnings of the
subsidiaries are presented separately in the financial statements. The
differences between the costs of investments and the proportionate equity
in each subsidiary when the stocks were acquired are recorded as
consolidated credits (debits) and are amortized on the straight-line
method over ten years.
Use of estimates
The preparation of financial statements both in conformity with ROC GAAP
and the generally accepted accounting principles in the United States ("US
GAAP") requires management to make estimates and assumptions that affect
certain reported amounts and disclosures. Actual results could differ from
those estimates.
Cash and cash equivalents
The Corporation considers all highly liquid investments within an original
maturity from date of purchase of three months or less to be cash
equivalents. As of December 31, 1999 and 2000, cash equivalents were
investments in money market funds stated at cost, which approximated fair
value.
Short-term investments
Marketable securities are carried at cost less allowance for decline in
market value.
-13-
Allowances for doubtful accounts
Allowance for doubtful accounts is provided based on evaluation of the
collectibility of receivables.
Inventories
Inventories are stated at the lower of weighted average cost or market
value. Unbilled processing charges incurred (included in finished goods
and work in process) are stated at actual cost. Market value represents
net realizable value for finished goods and work in process, and
replacement costs for raw materials, supplies and spare parts.
Materials received from customers for processing, mainly silicon wafers,
are excluded from inventories.
Long-term investments in shares of stock
Long-term investments of which ASE owns at least 20% of the outstanding
voting shares and where ASE exercises significant influence on the
investee companies' operations are accounted for by the equity method.
Under the equity method, the investments are initially carried at cost and
subsequently adjusted for ASE's proportionate share in the net earnings or
losses of the investee companies. Such proportionate share in the earnings
or losses are recognized as investment income or losses while any cash
dividends received are reflected as a reduction in the carrying value of
the investments. The goodwill representing the excess of the investment
costs over ASE's proportionate equity in the net assets of the investees
at the time of investments or at the time the equity method of accounting
is first applied to a particular investment, is amortized on the
straight-line method over ten years. Changes in ASE's ownership percentage
of investees accounted for by equity method are accounted for as
adjustments of long-term investments and capital surplus. The writedown of
carrying value of long-term investments has been taken on the basis of the
discounted cash flows expected to be realized in the future.
Other long-term investments (including ASE common shares) in shares of
stock are carried at cost. An allowance for decline in value is made for
any permanent impairment in the carrying value of the investments and such
decline in value is charged to current income. Cash dividends received are
recognized as income. The sales of ASE stocks are reflected as gain from
sales of long-term investment in the statement of income.
Unrealized profits or losses arising from transactions with equity
investees or between equity investees are offset against investment income
or loss from long-term investments, based on the percentage of ownership.
Long-term investments in bonds
Bond securities being held to maturity are stated at amortized cost.
Allowance for loss in bond securities is provided based on the evaluation
of recoverability of the carrying value of these securities.
-14-
Properties
Properties, except leased equipment, machinery in transit, construction in
progress and prepayments, are stated at cost. Equipment held under capital
leases and related obligations are stated at the lower of the fair value
of the equipment at the beginning of the lease period or the present value
of the total rental payments and the purchase price at the end of the leas
period. Machinery in transit, construction in progress and prepayments
under construction are stated at cost. These include cost of machinery,
construction, down payments and other direct cost plus interest charges
attributable to the borrowings used to finance these assets. Major
renewals and improvements are capitalized, while maintenance and repairs
are expensed currently.
Depreciation is provided on the straight-line method over estimated
service lives which range as follows: long leasehold land, 60 years (lease
period); buildings and improvements, 3 to 40 years; machinery and
equipment, 3 to 8 years; furniture and fixtures, 5 to 10 years;
transportation equipment, 3 to 10 years, and leased assets and leasehold
improvements, 3 to 10 years. In the event that an asset depreciated to its
residual value is deemed to have a continual useful life to the company,
the residual value is depreciated over the remaining life, not to exceed 2
years.
When properties are retired or disposed of, their costs and accumulated
depreciation are removed from the accounts and any loss is charged to
income; any gain is credited to income and, after deducting applicable
income tax, is transferred to capital surplus.
Deferred charges
Deferred charges are amortized on the straight-line method as follows:
tooling, 2 years; issuance costs of convertible bonds, 5 years;
telecommunications, electrical and computer network systems, 5 years; and
others, 2 to 5 years.
Consolidated debits
The consolidated debits as shown in the balance sheet representing
goodwill arising from the excess of the acquisition costs of investments
over ASE's proportionate equity in the net assets of the consolidated
subsidiaries at the time of acquisitions or investments, are amortized on
the straight line method over 10 years.
Revenue recognition
Revenue from the sale of semiconductor and computer products and testing
services is recognized upon shipment of the products or completion of the
services, with a provision for estimated returns and allowances recorded
at the time of recognition of revenue.
Income tax
Tax effects of deductible temporary differences and unused tax credits are
recognized as deferred income tax assets, while those taxable temporary
differences are recognized as deferred income tax liabilities. Valuation
allowance is provided for deferred income tax assets based on the
estimated realizability.
Adjustments of prior years' income tax are added to or deducted from the
current year's tax provision.
-15-
Income taxes on undistributed earnings (10%) generated in 1998 and onwards
for consolidated entities in the ROC are recorded as expense in the
following year when the shareholders have resolved that the earnings shall
be retained.
Pension cost
Pension cost is recorded based on actuarial calculations.
Convertible bonds
Conversion of convertible bonds into common shares is accounted for by
book value method. Under this method, unamortized bond issuance cost,
accrued interest no longer payable and the carrying value of the bond are
written off. In addition, common shares are recorded at par value of the
shares issued and the excess is recorded as capital surplus.
Foreign currency transactions and translation of foreign-currency
financial statements
ASE and its subsidiaries maintain their accounts in the currency of their
respective countries of incorporation (local currencies) and functional
currencies.
Foreign currency transactions, other than foreign currency forward
exchange contracts, are recorded in the local currencies at the rates of
exchange in effect when the transactions occur. Gains or losses resulting
from the application of different foreign exchange rates when
foreign-currency assets and liabilities are settled, are credited or
charged to income in the year of settlement. Year-end balances of foreign
currency assets and liabilities are restated based on prevailing exchange
rates and the resulting differences are credited or charged to income.
The financial statements of the foreign subsidiaries are translated into
New Taiwan dollars at the following rates: Assets and liabilities, current
rate; and income and expenses, average exchange rate during the year. The
net resulting translation adjustment is reported as a separate component
of shareholders' equity.
Derivative financial instruments
Premiums or discounts on foreign currency forward exchange contracts which
hedge foreign currency assets or liabilities arising from the difference
between the forward rate and the spot rate at the date of each contract
are deferred and amortized over the contract period. At year end, the
balances of the forward exchange receivables or payables are restated
based on prevailing exchange rates and the resulting gain or loss is
credited or charged to income. Any exchange gain or loss when the contract
is settled is also credited or charged to income. The difference between
receivable and payable balances arising from forward exchange contracts is
accounted for as either current asset or current liability.
Written option contracts to purchase foreign currencies and currency and
interest rate swap contracts entered into for hedging purposes are not
recorded as assets or liabilities on the contract dates. Gains or losses
upon settlement are credited or charged to income. Amounts received or
paid are amortized over each contract period. The outstanding written
option contracts, and currency and interest rate swap contracts are marked
to market with charges to income.
-16-
Interest rate swap agreements to limit the impact of the variable interest
rate of certain long-term debts are not recorded as assets or liabilities
on the contract date. The variable rates on swaps are based primarily on
US dollar LIBOR. The differential between fixed and variable rates to be
paid or received on swaps is accrued as interest rates change in
accordance with the agreements and is included in current interest
expense.
Earnings per share ("EPS") and earnings per equivalent ADS
Common shares of ASE's convertible bonds are not considered in the
calculation of primary and fully diluted EPS because they have
anti-dilutive effect. Common share equivalents of the employees' stock
options of ASE Test are included in the EPS calculation (see Note 20).
Earnings per equivalent American depositary share (ADS) are calculated by
multiplying earnings per share by five (each of the ADS represents five
common shares).
US dollar amount
ASE prepares its consolidated financial statements in New Taiwan dollars.
Translations into US dollars for 2000 financial statements are included
solely for the convenience of the readers, and are based on the US Federal
Reserve Bank of New York noon buying rate of NT$33.17 to US$1.00 in effect
as at December 31, 2000. The convenience translations should not be
construed as representations that the New Taiwan dollar amounts have been,
could have been, or could in the future be, converted into U.S. dollars at
this or any other rates.
3. SHORT-TERM INVESTMENTS
December 31
--------------------------------------------
1999 2000
------------ ---------------------------
NT$ NT$ US$
------------ ------------ ----------
Mutual funds 186,667 1,603,362 48,338
Stocks 19,613 63,978 1,929
Convertible bonds and government bonds 10,000 20,188 608
------------ ------------ ----------
216,280 1,687,528 50,875
Allowance for loss - 4,849 146
------------ ------------ ----------
216,280 1,682,679 50,729
============ ============ ==========
4. ACCOUNTS RECEIVABLE - NET
December 31
--------------------------------------------
1999 2000
------------ ---------------------------
NT$ NT$ US$
------------ ------------ ----------
Accounts receivable 7,496,669 9,393,853 283,203
Allowance for doubtful accounts (187,162) (314,243) (9,474)
Allowance for sales allowances (47,092) (38,676) (1,166)
------------ ------------ ----------
7,262,415 9,040,934 272,563
============ ============ ==========
-17-
The movement of allowance for doubtful accounts and sales allowances are
as follows:
Doubtful Sales
Accounts Allowances
------------ --------------
NT$ NT$
------------ ---------------
Balance, beginning of 1998 80,419 12,500
Additions 4,289 40,500
Deductions - -
------------ ------------
Balance, end of 1998 84,708 53,000
Additions 109,263 -
Deductions (6,809) (5,908)
------------ ------------
Balance, end of 1999 187,162 47,092
Additions 148,834 6,624
Deductions (21,753) (15,040)
------------ ------------
Balance, end of 2000 314,243 38,676
============ ============
(Forward)
US$ US$
------------ ------------
Balance, beginning of 2000 5,643 1,420
Additions 4,487 199
Deductions (656) (453)
------------ ------------
Balance, end of 2000 9,474 1,166
============ ============
5. INVENTORIES
December 31
---------------------------------------------
1999 2000
------------ ----------------------------
NT$ NT$ US$
------------ ------------ ----------
Finished goods 122,193 246,812 7,441
Work in process 349,910 337,320 10,169
Raw materials 1,685,424 2,099,058 63,282
General supplies and spare parts 379,775 630,979 19,023
------------ ------------ ----------
2,537,302 3,314,169 99,915
Allowance for obsolescence (176,205) (155,061) (4,675)
------------ ------------ ----------
2,361,097 3,159,108 95,240
Supplies in transit 88,594 87,219 2,629
------------ ------------ ----------
2,449,691 3,246,327 97,869
============ ============ ==========
-18-
The movement of allowance for obsolescence is as follows:
NT$
------------
Balance, beginning of 1998 203,276
Additions 106,708
Deductions (110,966)
------------
Balance, end of 1998 199,018
Additions 50,566
Deductions (73,379)
------------
Balance, end of 1999 176,205
Additions 115,928
Deductions (137,072)
------------
Balance, end of 2000 155,061
============
US$
------------
Balance, beginning of 2000 5,312
Additions 3,495
Deductions (4,132)
------------
Balance, end of 2000 4,675
============
6. LONG-TERM INVESTMENTS - COMMON STOCKS
December 31
------------------------------------------------------
1999 2000
--------------------- ------------------------------
% of % of
Direct Direct
Owner- Owner-
NT$ ship NT$ US$ ship
----------- -------- ----------- -------- -------
Equity method
Hung Ching Development & Construction Co.
(HCDC) (Note 10) 2,405,571 25.1 2,154,627 64,957 25.4
Hung Ching Kwan Co. (HCKC) 401,664 27.3 405,549 12,226 27.3
Universal Scientific Industrial Co., Ltd. (USI)
(Note 10) 3,600,626 22.7 3,931,810 118,535 21.3
Universal Access Technology Inc. (UAT) - - 92,775 2,797 25.0
Cost method
ASE stock held by subsidiaries 2,922,561 5.2 2,919,411 88,014 4.9
InveStar Burgeon Venture Capital, Inc. 145,408 13.0 153,035 4,614 13.0
Taiwan Fixed Network Co., Ltd. - - 1,500,000 45,222 1.6
Core-Pacific Securities Investment Trust Co. 9,000 3.0 - - -
Preferred stock
Intergrated Programmable Communication, Inc.
(IPC) - - 118,681 3,578 -
----------- ----------- --------
9,484,830 11,275,888 339,943
Adjustment for evaluation of ASE stock - (490,280) (14,781)
Unrealized gain on sale of land (300,149) (300,149) (9,049)
----------- ----------- --------
9,184,681 10,485,459 316,113
=========== =========== ========
-19-
ASE acquired its 27.3% equity interest in Hung Ching Kwan Co. ("HCKC") in
1992 by transferring to HCKC a parcel of land as an investment in HCKC at
an agreed valuation of NT$390,470. The resulting gain of NT$300,149, which
represents the excess of such value over the cost of the land plus land
value increment tax, has been deferred until the disposal of this
investment. As of December 31, 2000, ASE has a 43.4% (1999: 43.2%)
effective interest in HCKC, which consists of 27.3% interest directly
owned by ASE, and 15.9% (1999: 16.1%) interest indirectly owned through
Hung Ching Development & Construction Co. ("HCDC") (based on HCDC's 63.5%
interest in HCKC).
ASE made investments in UAT in December 2000 and directly acquired its 25%
equity interest. In addition, HCDC and USI have 10% and 25% equity
interest in UAT. Accordingly, as of December 31, 2000, ASE has a 32.9%
effective interest in UAT. UAT is engaged in the design of related
computer products and software service.
As of December 31, 2000, the undistributed earnings for each investee are
NT$491,859 (US$14,828) for HCDC, NT$1,341,435 (US$40,441) for USI, and
NT$55,215 (US$1,665) for HCKC. HCKC did not declare dividends in 1999 and
2000. USI declared stock dividends for NT$4.00 per share in 2000, and did
not declare dividends in 1999. HCDC declared stock and cash dividends in
2000 for NT$0.8 and NT$0.2 per share, respectively, but these dividends
have not been distributed.
ASE had net investment losses of NT$100,549 in 1998, net investment income
of NT$50,595 in 1999, and net investment losses of NT$167,237 (US$5,042)
in 2000 from its investments in the aforementioned equity investees.
7. LONG-TERM BOND INVESTMENTS
December 31
--------------------------------------------
1999 2000
------------ ---------------------------
NT$ NT$ US$
------------ ------------ ----------
APP Global Finance Ltd. (APP) bond: maturity date on
October 4, 2001; bearing interest at 9.75%; and payable
semiannually 304,166 320,432 9,660
Federal National Mortgage Association: maturity date
on May 2, 2001; bearing interest at 6.40%; and payable
semiannually 185,585 195,320 5,888
------------ ------------ ----------
489,751 515,752 15,548
Allowance for loss - (289,012) (8,713)
------------ ------------ ----------
489,751 226,740 6,835
============ ============ ==========
In 2000, ASE provided allowance for loss amounting to NT$289,012
(US$8,713) for the bond investment in APP because APP incurred financial
difficulties.
-20-
8. PROPERTIES
Accumulated depreciation consists of:
December 31
-----------------------------------------------
1999 2000
------------- -----------------------------
NT$ NT$ US$
------------- ------------- -----------
Buildings and improvements 966,103 1,335,682 40,268
Machinery and equipment 13,451,590 20,586,431 620,634
Transportation equipment 21,949 56,731 1,710
Furniture and fixtures 369,481 469,584 14,157
Leased assets and leasehold improvements 147,336 235,634 7,104
Long leasehold land 4,925 6,230 188
------------- ------------- ------------
14,961,384 22,690,292 684,061
============= ============= ============
Capitalized interest expenses were NT$144,416, NT$123,347 and NT$163,916
(US$4,942) for the years ended December 31, 1998, 1999 and 2000,
respectively.
ASE Chung Li and HCDC entered into an agreement for the joint development
of buildings on the land owned by ASE Chung Li in 1999, which construction
was completed in October 2000. In addition, ASE Chung Li and ASE Material
entered into purchase agreements with HCDC to purchase the building. The
contract price, which was based on appraisal, totaled NT$1,044,341
(US$31,485) and NT$358,442 (US$10,806), respectively. As of December 31,
2000, ASE Chung Li and ASE Material have paid NT$313,333 (US$9,446) and
NT$107,500 (US$3,241), respectively, and the balance will be paid in the
2001. The building is shown as construction in progress in the 2000
consolidated balance sheet.
Machinery in transit and prepayments pertain to the purchase of packaging
and testing equipment, which are associated with machinery purchased with
title transferred but are not yet in ready-for-use condition, and down
payments for machinery purchased with non-cancelable purchase orders.
Major components for machinery in transit and prepayments are as follows:
December 31
--------------------------------------------
1999 2000
------------ ---------------------------
NT$ NT$ US$
------------ ------------ ----------
Bonders 460,551 405,595 12,228
Testers 640,250 1,063,911 32,074
Others 2,224,128 3,480,920 104,942
------------ ------------- ----------
Total 3,324,929 4,950,426 149,244
============ ============= ==========
-21-
9. OTHER ASSETS
December 31
--------------------------------------------
1999 2000
------------ ---------------------------
NT$ NT$ US$
------------ ------------ ----------
Deferred charges (Note2)
Tooling 271,646 124,468 3,752
Issuance costs of convertible bonds 189,730 139,244 4,198
Telecommunications, electrical and Computer
network systems 142,266 290,208 8,749
Other 72,035 346,130 10,435
------------ ------------ ----------
675,677 900,050 27,134
Guarantee deposits 86,542 204,112 6,154
Non-operating properties 54,860 147,686 4,452
Other 135,678 23,709 715
------------ ------------ ----------
952,757 1,275,557 38,455
============ ============ ==========
10. CONSOLIDATED DEBITS
These represent goodwill arising from the purchases of:
December 31
--------------------------------------------
1999 2000
------------ ---------------------------
NT$ NT$ US$
------------ ------------ ----------
Motorola SPS Businesses (Note 26) 427,944 417,760 12,595
ISE Labs shares (Note 26) 2,056,775 2,008,793 60,561
ASE Test shares 2,749,558 2,554,869 77,023
Other 11,551 18,124 546
------------ ------------ ----------
5,245,828 4,999,546 150,725
============ ============ ==========
Amortization of the above-mentioned goodwill for consolidated subsidiaries
(as reflected in general and administrative expenses in the statement of
income) were NT$345,726, NT$507,816 and NT$559,807 (US$16,877) for the
years ended December 31, 1998, 1999 and 2000, respectively.
In addition, the carrying values of investments in HCDC and USI as
discussed in Note 6 as of December 31, 1999 and 2000 included unamortized
goodwill, which is being amortized over ten years through April 2006 for
HCDC and July 2010 for USI, resulting from the purchases of HCDC shares in
1995 and 1996, and USI shares in 1999 and 2000, as follows:
December 31
--------------------------------------------
1999 2000
------------ ---------------------------
NT$ NT$ US$
------------ ------------ ----------
HCDC 935,886 780,798 23,539
USI 1,862,225 1,872,342 56,447
------------ ------------ ----------
2,798,111 2,653,140 79,986
============ ============ ==========
-22-
Amortization of the above-mentioned goodwill for equity investees (as
reflected in investment income (loss) by equity method in the statement of
income) were NT$155,088, NT$279,242 and NT$362,971 (US$10,943) for the
years ended December 31, 1998, 1999 and 2000, respectively.
11. SHORT-TERM BORROWINGS
December 31
-----------------------------------------------------------------------------
1999 2000
------------------------------ ---------------------------------------------
Interest Interest
Rate (%) NT$ Rate (%) NT$ US$
-------------- ------------ -------------- ------------ ----------
Letters of credit 6.57~8.515 1,160,916 0.975-7.5 1,733,626 52,265
Revolving 1.4~8 1,601,589 1.6-10 2,741,038 82,636
Promissory notes 6.66~8.45 1,025,142 8.1-8.7 927,933 27,975
------------ ------------ ----------
3,787,647 5,402,597 162,876
============ ============ ==========
As of December 31, 1999 and 2000, unused credit lines for short-term
borrowings and commercial papers and bank acceptances payable total
approximately NT$11,191,775 and NT$14,248,718 (US$429,566), respectively.
12. COMMERCIAL PAPER AND BANK ACCEPTANCES PAYABLE
Commercial paper and bank acceptances payable bore interest rates ranging
from 4.7% to 6.76% in 1999 and 5.2% to 11.5% in 2000, respectively.
13. LONG-TERM BONDS PAYABLE
December 31
------------------------------------------------
1999 2000
------------- ------------------------------
NT$ NT$ US$
------------- ------------- ------------
Foreign convertible bonds - US$200 million issued by
ASE 6,292,000 6,597,845 198,910
Foreign convertible bonds - US$110 million issued by
ASE Test Finance Limited 3,460,050 3,637,908 109,675
Accrued interest 1,075,613 1,993,426 60,097
------------- ------------- ------------
10,827,663 12,229,179 368,682
============= ============= ============
Set forth below is information on the long-term bonds payable:
A. US$200 million issued by ASE
In November 1997, ASE issued bonds, consisting of 200 units with face
value of US$1 million (NT$30.8 million) each, with zero coupon, due
November 2002. The bonds bear an implicit interest rate of 6.372%.
-23-
Starting from December 1997 through October 2002, the bondholders may
convert the bonds into common shares at the specified conversion
price. The conversion rate was based on the current market price at
the time of sale. As of December 31, 2000, 355,086 common shares were
issued as a result of the conversion of such bonds, resulting in
capital surplus of NT$32,102 (US$968). As of December 31, 2000, the
outstanding convertible bonds aggregated US$199 million (NT$6,601
million).
On or at any time after October 14, 2000, ASE may redeem the bonds at
the redemption price if:
a) (i) the closing price of the common shares for a period of 30
consecutive trading days is higher than 140% of the conversion
price (NT$59.7 per share as at December 31, 2000) in effect on
each such trading day and (ii) the closing price of the common
shares translated into US dollars at the prevailing rate for a
period of 30 consecutive trading days is higher than 140% of the
conversion price then in effect translated into US dollars at the
rate of NT$28.62=US$1.00; or
b) at least 95% of the bonds have already been converted, redeemed, or
purchased and cancelled.
In addition, ASE may, if the applicable tax law is unfavorably
changed, redeem at any time all, but not some, of the bonds.
On September 5, 1997, ASE entered into a firm commitment subscription
agreement with SBC Warburg Securities Pte. Ltd. ("SBC Warburg") for
the sale by ASE to SBC Warburg of US$200 million Zero Coupon
Convertible Bonds due 2002 (the "Convertible Bonds"). The closing of
the sale of the Convertible Bonds was initially scheduled to occur on
October 6, 1997. Due to the adverse market conditions prevailing
during this period of time as a result of the Asian financial crisis,
however, SBC Warburg requested that the closing date for the sale of
the Convertible Bonds be extended.
During the extension period (the "Extension Period"), SBC Warburg
decided to market the Convertible Bonds to potential investors as two
separate instruments by repackaging them into: (1) a debt portion
consisting of US$200 million callable floating rate notes which are
secured by the Convertible Bonds (the "FRNs") and (2) an equity
portion consisting of options to purchase the Convertible Bonds (the
"Call Options"). SBC Warburg was able to obtain commitments for the
entire issue of the FRNs but, as a result of the adverse market
conditions described above, was able to obtain commitments for only a
portion of the Call Options. As a result, Swiss Bank Corporation
("SBC"), an affiliate of SBC Warburg, approached a number of large
institutional investors, including J&R Holding Limited ("J&R
Holding"), a consolidated subsidiary of ASE, with a proposal to sell a
portion of the Call Options. Subsequently, J&R Holding entered into
two agreements with SBC to purchase options on a portion of the
Convertible Bonds.
-24-
Under the first agreement with SBC, J&R Holding is required to make
four cash payments to SBC on November 4, 1998, 1999, 2000 and 2001 as
long as the Call Options remain unexercised and outstanding. In
return, J&R Holding has the right to call the Convertible Bonds at any
time during the period from November 1998 through November 2002. The
exercise price of the Call Options is equal to the accreted carrying
value of the Convertible Bonds as shown on the Corporation's balance
sheet at the date exercised. Pursuant to the second agreement, SBC
paid US$200,000 to J&R Holding. In return, SBC has the right to sell a
portion of the Call Options to J&R Holding at any time between
November 4, 1997 and November 1, 1998. In any event, J&R Holding was
required under the automatic exercise provision of this agreement to
purchase the Call Options upon the expiration of the agreement on
November 1, 1998.
The closing of the sale of the Convertible Bonds eventually took place
on November 4, 1997. Upon the closing of the sale of the Convertible
Bonds, SBC Warburg immediately resold the Convertible Bonds to a
subsidiary of SBC Warburg. Such subsidiary in turn repackaged the
Convertible Bonds into the FRNs and the Call Options for resale to the
investors that had indicated an interest in purchasing the FRNs and/or
the Call Options during the Extension Period. The closing of the sale
of the FRNs and the Call Options took place on November 5, 1997.
SBC Warburg and its subsidiary have entered into a swap transaction,
which stipulates that SBC Warburg will pay the interest on the FRN
(aggregating to US$80 million (NT$2,654 million)) on the subsidiary's
behalf. The subsidiary will repay the interest to SBC Warburg at the
maturity date of the Convertible Bonds. ASE has contracted with
certain banks to issue letters of credit for US$71,834 (NT$2,382,734)
to SBC Warburg to guarantee the interest payment obligation of the
subsidiary. Under the contract with these banks, ASE may not, among
other things, change its scope of operations and is required to
maintain certain financial ratios.
B. US$110 million of Foreign Convertible Notes
In June 1999, ASE Test (the "Guarantor"), in connection with the
acquisitions of ISE Labs and Motorola SPS Businesses, issued US$160
million (NT$5,307 million) of 1% guaranteed convertible notes (the
"Convertible Notes") due July 1, 2004 through its subsidiary, ASE Test
Finance Limited (the "Issuer"). ASE subscribed to US$50 million
(NT$1,659 million) of the Convertible Notes and, accordingly, as of
December 31, 2000, the net balance of US$109,890 thousand (NT$3,645
million) is shown in the accompanying balance sheet.
The holders of the Convertible Notes are entitled to convert the
Convertibles into ASE Test's ordinary shares at the specified
conversion price at any time after December 29, 1999 and before or on
July 1, 2004.
The Convertible Notes may be redeemed under the following
circumstances:
a) Redemption for taxation reasons:
If the applicable tax law or treaty is unfavorablely revised, the
Issuer or ASE Test may redeem the Convertible Notes in whole at
early redemption price, at any time upon giving written notice
not less than 30 days and not more than 60 days to the
bondholders.
-25-
b) Redemption at the option of the Issuer:
On or at any time after July 1, 2002, the Issuer may redeem all
or a part of the Convertible Notes at the early redemption price.
14. LONG-TERM DEBTS
Long-term debts consist of the following:
December 31
-----------------------------------------------
1999 2000
------------- -----------------------------
NT$ NT$ US$
------------- ------------- ------------
Mortgage bank loans for purchase of machinery 4,272,641 4,989,564 150,424
Acceptances payable to syndicate banks 6,947,225 6,678,815 201,351
Bank loans secured by assets 921,978 1,540,747 46,450
Revolving bank loans 315,317 250,708 7,558
Obligation under capital leases (Note 22) 168,829 179,952 5,425
------------- ------------- ------------
12,625,990 13,639,786 411,208
Current portion 2,886,351 3,309,935 99,787
------------- ------------- ------------
9,739,639 10,329,851 311,421
============= ============= ============
A. Mortgage bank loans for purchases of machinery:
These represent various bank loans obtained by ASE, ASE Test, Inc.,
ASE Chung Li, ASE Technologies, Inc., and ASE Material. These mortgage
bank loans are repayable in monthly, quarterly or semi-annually
installments and bear interest at rates ranging from 1.3% to 8.3% in
1999 and 1.1% to 8.12% in 2000.
ASE has syndicate loan agreements with banks that stipulate, among
other things, the following:
1) Without the prior written consent from the majority of the
banks, ASE cannot:
a) Give guarantees to or assume direct or indirect liabilities of
other parties, except for its existing obligations, in excess
of US$40 million (NT$1,327 million).
b) Enter into a merger agreement.
c) Transfer or sell more than 20% of its total assets, including
equipment and receivables.
d) Provide collateral to other parties involving 25% of its total
assets.
e) Make loans to other parties.
f) Enter into contracts with terms and conditions which are not at
arm's length.
g) Change significantly its accounting practices.
h) Invest up to 50% of its equity in shares of HCDC.
2) Maintenance by ASE of certain financial ratios.
The syndicate loan has expired in November 2000.
-26-
B. Acceptances payable to syndicate banks
December 31
--------------------------------------------
1999 2000
------------ ---------------------------
NT$ NT$ US$
------------ ------------ -----------
Principal - five-year revolving credit lines
aggregating NT$8,000,000 (US$241,182) through
June 2003, interest at 4.66%-6.2558% in 1999
and 5.223%-6.378% in 2000 7,075,000 6,775,000 204,251
Unamortized discounts 127,775) (96,185) (2,900)
------------ ------------ ----------
6,947,225 6,678,815 201,351
============ ============ ==========
Acceptances payable to syndicate banks were covered by several bank
acceptance agreements made by ASE and ASE Test, Inc. which stipulate,
among other things, the following:
1) Without the prior written consent from the majority of the banks,
ASE can not pledge its assets or assume liabilities or change its
operating items or merge with any other entity or dispose of more
than 20% of total assets, or provide financing to other entity,
or make such investment that will unfavorably affect its
financial conditions.
2) ASE's tangible net worth (as defined) should not be less than
NT$19 billion (US$573 million).
3) ASE can only invest up to 50% of its tangible net worth
(as defined) in the shares of HCDC.
4) ASE is required to maintain certain financial ratios.
5) ASE is required to pay an annual commitment fee at 0.15-0.2% of
the difference between the authorized and utilized credit line.
6) ASE should not change its accounting policies significantly.
ASE Test provided a guaranty on the bank acceptance agreement entered
into by ASE Test, Inc. Under the guaranty, ASE Test is required to
maintain certain financial ratios and, without written consent of the
majority banks, shall not:
1) Merge or consolidate with any other entity or take any action to
dissolve, liquidate or reorganize.
2) Purchase or redeem its shares or reduce its share capital.
3) Reduce its ownership in ASE Test, Inc. to less than 51%.
4) Transfer, sell, lease or dispose of a substantial portion of its
assets.
-27-
C. Bank loans secured by assets
These represent various bank loans obtained by ISE Labs and ASE Korea
secured by all their assets. The maturities of the loans are May 2009
and November 2003, respectively, and the loans bear interest ranging
from 7.75% to 9.5% or at prime rate and 8.45%-10.5%, respectively.
These agreements contain certain covenant and default provisions that
require ISE Labs to maintain certain financial ratios, dividend and
capital expenditure restrictions and maintenance of working capital
requirements.
D. Revolving bank loans
These represent a loan of JPY1.3 billion in 1999 and loans of 2000.
The loan is repayable in the equivalent amount of US$10 million
(NT$301 million) over three equal semi-annual installments starting
October 9, 2000 with an interest rate equal to LIBOR plus 0.5% margin.
As of December 31, 1999 and 2000, unused long-term bank facilities totaled
approximately NT$3,106,827 and NT$5,869,764 (US$176,960), respectively.
As of December 31, 1999 and 2000, the future maturities of long-term debts
(including long-term bond payable) are as follows:
December 31
------------------------------------------------
1999 2000
------------- ------------------------------
NT$ NT$ US$
------------- ------------- ------------
Within the following year 2,886,351 3,309,935 99,787
During the second year 3,419,632 12,484,848 376,390
During the third year 7,991,629 3,257,243 98,198
During the fourth year 5,201,909 4,939,819 148,924
During the fifth year and thereafter 3,954,132 1,877,120 56,591
------------- ------------- ------------
23,453,653 25,868,965 779,890
============= ============= ============
Long-term debts (including long-term bond payable) by currencies are
detailed as follows:
1999 2000
---------------- --------------
New Taiwan Dollars NT$ 9,296,544 NT$ 12,128,557
US Dollars US$ 361,117 US$ 469,339
Deutsche Mark DM 2,897 DM 940
Japanese Yen Yen 2,344,208 Yen 5,069,552
Singapore Dollars SGD 24 SGD 7
British Pound GBP 91
European Currency Unit EUR 4
-28-
15. SHAREHOLDERS' EQUITY
In September 2000, ASE issued 20,000,000 ADSs, representing 100,000,000
common shares. In July 1995, ASE issued 8,600,000 GDSs, representing
43,000,000 common shares. Concurrently with the ADS issuance, the GDS
holders have converted their outstanding GDSs into ADSs. As of December
31, 2000, the GDS holders have converted aggregated 7,536,000 ADSs,
representing aggregated 37,679,000 common shares.
The ADS or GDS holders generally have the same rights and obligations as
the shareholders, subject to the provision of relevant ROC laws. The
exercise of such rights and obligations shall comply with the related
regulations and the deposit agreement, which stipulate, among other
things, that the ADS or GDS holders can, through Citicorp Financial
Services Limited, as nominee holder: (a) exercise their voting rights; (b)
sell their ADS or GDSs; and, (c) receive dividends declared and subscribe
to the issuance of new shares.
Under the ROC Company Law, capital surplus can only be used to offset
against deficit or be transferred to capital. Under relevant regulations,
the paid-in capital in excess of par value can be transferred to capital
only once a year and is subject to a specified limit.
ASE's Articles of Incorporation provide that the annual net income shall
be appropriated as follows:
a. gain on disposal of properties, less applicable income tax, as
capital surplus;
b. offset against deficit, if any;
c. 10% of the remainder as legal reserve, until the accumulated amount
equals paid-in capital;
d. an amount (Note 6) equal to the income from long-term investments in
shares of stock accounted for by equity method, excluding cash
dividends, as special reserve;
e. not more than 2% of the remainder, as compensation to directors and
supervisors;
f. 5% to 7% of the remainder, as bonus to employees, of which 5% will be
distributed in shares based on the employee stock bonus plan and the
excess to be distributed to specific employees as decided by the
board of directors; and
g. the remainder, as dividends to shareholders.
The aforementioned appropriations shall be approved by the shareholders in
the following year and given effect in the financial statements of such
year.
Under the ROC Company Law, the aforementioned legal reserve may be used to
offset a deficit. Also, when the reserve has reached 50% of capital, up to
50% thereof may be transferred to capital.
ASE is currently going through a growth phase. In order to meet the needs
of operational expansion, both current and future, and to satisfy
shareholders' need for cash inflow, in the Corporation's dividend policy
priority shall be given to stock dividends; cash dividends may also be
issued. In principle, the percentage of cash dividends issued shall not
exceed 20%. Cash dividends shall not be issued if the dividend per share
is less than NT$0.1; stock dividends shall be used instead.
-29-
With respect to the percentage of cash dividends to be issued referred to
in the previous paragraph, ASE may decide on the most suitable dividend
policy and method to issue in accordance with its current operational
status, and taking into consideration the budget plan for the following
year. The board of directors shall draw up a profit distribution plan,
which shall be submitted to the shareholders' meeting for approval before
implementation.
Under the Integrated Income Tax System which became effective on January
1, 1998, non-corporate resident shareholders are allowed a tax credit for
the income tax paid or payable by ASE on earnings generated in 1998 and
onwards. An Imputation Credit Account (ICA) is maintained by ASE for such
income tax and the tax credit allocated to each shareholder. The maximum
credit available for allocation to each shareholder cannot exceed the
balance shown in the ICA on the date of distribution of dividends.
As of December 31, 2000 the creditable taxes aggregated NT$6,380 (US$192).
The actual and estimated percentage for the distribution of 1999 and 2000
net income was 4.74% and 9.77%, respectively.
As of December 31, 2000, the unappropriated earnings prior to 1998 (the
year that Integrated Income Tax System became effective) amounted to
NT$17,644 (US$532).
16. GAIN ON SALES OF INVESTMENTS
This consists of the gross gain on sales of:
Year Ended December 31
------------------------------------------------------------
1998 1999 2000
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ----------
Sale of ASE Test's shares 190,999 4,007,674 - -
Sale of ASE's shares held by subsidiaries
(Note 27) 42,692 1,388,523 - -
Other 373,253 147,958 91,666 2,763
------------ ------------ ------------ ----------
606,944 5,544,155 91,666 2,763
============ ============ ============ ==========
-30-
The gain on sale of ASE Test's ordinary shares, as shown above, is
broken out as follows:
Year Ended December 31
------------------------------------------------------------
1998 1999 2000
------------- ------------- ----------------------------
NT$ NT$ NT$ US$
------------- ------------- ------------- ----------
US secondary public offering of 2,244
thousand shares in June and July 1997 - - - -
First offering of 1,400 thousand shares sold
to third party investors for issuances of
Taiwan Depositary Receipts (TDRs) in
December 1997 - - - -
Sale of 100 thousand shares for issuance of
TDR from January to March 1998 190,999 - - -
Secondary offering of 2,500 thousand
shares for issuances of TDRs in March
1999 - 4,007,674 - -
------------- ------------- ------------- ----------
190,999 4,007,674 - -
============= ============= ============= ==========
The gain on sale of ASE's common shares, as shown above, is broken out
as follows:
Year Ended December 31
------------------------------------------------------------
1998 1999 2000
------------- ------------- ----------------------------
NT$ NT$ NT$ US$
------------- ------------- ------------- ----------
1,405 thousands shares sold in December
1998 42,692 - - -
32,450 thousand shares sold in December
1999 through the re-issuance of GDSs - 1,388,523 - -
------------- ------------- ------------- ----------
42,692 1,388,523 - -
============= ============= ============= ==========
17. INCOME TAX
a. Income tax expense (benefit) is summarized as follows:
Year Ended December 31
------------------------------------------------------------
1998 1999 2000
------------- ------------- ----------------------------
NT$ NT$ NT$ US$
------------- ------------- ------------- ----------
Current
Tax based on pre-tax accounting
income at statutory rate 819,508 3,218,520 3,211,156 96,809
Add (less) tax effects of:
Permanent differences
Tax-exempt income
- Tax holiday (508,822) (779,437) (700,749) (21,126)
(Forward)
-31-
- Gain from sales
of securities - (384,079) (51,415) (1,550)
Investment income
- Sale of ASE Test
shares (47,750) (1,001,919) - -
Unamortized expense
for issuance of GDS (4,770) - - -
Temporary differences
Investment income (132,528) (398,886) (523,941) (15,796)
Unfunded pension cost 16,357 8,494 12,214 368
Unrealized foreign
exchange (gain) loss (6,265) (38,701) 91,102 2,747
Bond interest payable 109,442 112,318 114,798 3,461
Other 53,895 248,765 158,786 4,787
------------ ------------ ------------ ----------
299,067 985,075 2,311,951 69,700
Credits for investments and research
and development (138,923) (401,525) (1,231,247) (37,119)
Deferred (267,511) (155,437) (152,138) (4,587)
Income taxes (10%) on undistributed
earnings generated in 1998 and
onwards - 44,539 147,379 4,443
Adjustment of prior year's income tax (43,410) (13,109) (10,177) (307)
------------ ------------ ------------ ----------
Income tax (benefit) expense (150,777) 459,543 1,065,768 32,130
============ ============ ============ ==========
b. The above-mentioned taxes on pre-tax accounting income at the
statutory rates for domestic and foreign entities are shown below:
Year Ended December 31
------------------------------------------------------------
1998 1999 2000
------------- ------------- ----------------------------
NT$ NT$ NT$ US$
------------- ------------- ------------- ----------
Domestic entities in ROC
(25% statutory rate) 537,192 2,717,796 2,542,888 76,662
Foreign entities
ASE Korea Inc. (30.8% statutory
rate) - 55,770 2,153 65
ISE Labs, Inc. (federal tax rate 35%
and state tax rate 6%) - 163,240 439,169 13,240
ASE Test Malaysia (30% statutory
rate) 282,316 281,714 226,946 6,842
------------ ------------ ------------ ----------
819,508 3,218,520 3,211,156 96,809
============ ============ ============ ==========
-32-
c. Deferred income tax assets and liabilities as of December 31, 1999
and 2000 are summarized as follows:
December 31
--------------------------------------------
1999 2000
------------ ---------------------------
NT$ NT$ US$
------------ ------------ ----------
Current assets
Unused tax credits 470,956 1,028,885 31,019
Provision for inventory obsolescence 35,141 29,060 876
Provision for doubtful accounts and sales
allowance 34,500 73,766 2,224
Unrealized foreign exchange loss 2,292 7,626 230
Other 129,184 129,139 3,893
------------ ------------ ----------
672,073 1,268,476 38,242
Valuation allowance (152,738) (85,057) (2,565)
------------ ------------ ----------
519,335 1,183,419 35,677
Deferred income tax liability - unrealized foreign
exchange gain (26,802) (22,692) (684)
------------ ------------ ----------
492,533 1,160,727 34,993
============ ============ ==========
Non-current assets (liabilities)
Unused tax credits 1,152,528 754,914 22,759
Accrued pension costs 44,203 57,403 1,731
Accrued interest on convertible bonds 229,186 362,663 10,933
Loss carryforward 260,523 24,645 743
Others 11,909 83,382 2,514
------------ ------------ ----------
1,698,349 1,283,007 38,680
Valuation allowance (589,916) (343,825) (10,366)
------------ ------------ ----------
1,108,433 939,182 28,314
------------ ------------ ----------
Deferred income tax liability
Investment income (675,000) (1,159,500) (34,956)
Unrealized foreign exchange gain (56,600) (7,500) (226)
Goodwill amortization (156,952) (75,744) (2,283)
Others (226,471) (207,900) (6,268)
------------ ------------ ----------
(1,115,023) (1,450,644) (43,733)
------------ ------------ ----------
(6,590) (511,462) (15,419)
============ ============ ==========
In assessing the realizability of deferred tax assets, ASE considered
its future taxable earnings and expected timing for the reversal of
temporary differences. The valuation allowance is provided to reduce
the gross deferred tax assets to an amount which ASE believes will
more likely be realized. Deferred tax assets and liabilities are
classified in the consolidated balance sheet based on the
classification of the related assets or liabilities or the expected
timing of the reversal of temporary differences.
Due to new tax rulings effective in 2000, ASE Test, Inc. is allowed to
utilize a greater proportion of its tax credits. As a result, the
valuation allowance for non-current deferred tax asset is reversed and
credited to income tax benefits.
-33-
The gain on sales of the ASE Test's ordinary shares in 1997 and 1999,
as discussed in Note 16, was considered as a permanent difference
because management decided to re-invest and not to distribute the gain
and, accordingly, no deferred tax liability is recognized.
d. As of December 31, 2000, unused tax credits of ROC subsidiaries which
can be utilized to offset their future income tax are set forth below:
December 31, 2000
------------------------------------------------------------------------------
ASE ASE ASE
Year of Expiry ASE (Chung-Li) Material Test, Inc. Total
-------------- ------------ ------------ ------------ ------------ ------------
2001 $ - $ - $ - $ 221,870 $ 221,870
2002 - - - 150,793 150,793
2003 - - - 221,141 221,141
2004 692,982 114,000 119,000 264,013 1,189,995
------------ ------------ ------------ ------------ ------------
$ 692,982 $ 114,000 $ 119,000 $ 857,817 $ 1,783,799
============ ============ ============ ============ ============
In the ROC, the tax credits may be utilized to reduce up to 50% of
income tax payable each year. In the expiring year, any remainder of
unused tax credits can be used entirely.
The Federal and State net operating loss carryforward of ISE Labs,
Inc. as of December 31, 2000 are approximately US$2.5 million and
US$1.0 million with expiration in 2020 and 2005, respectively.
A portion of ASE's and ASE Test, Inc.'s income from the manufacture,
processing and testing of semiconductors is exempt from income tax for
five years ending December 2000 and 2005, respectively. The income of
ASE Test Malaysia (during the "pioneer" status tax period) was exempt
from income tax for five years through June 1999. ASE Test Malaysia
has been granted approval of "hi-tech pioneer" status for an
additional five years and is expected to commence the tax holiday
retroactively from July 1, 1999. The per share effect of tax holiday
is NT$0.3 in 1998, NT$0.4 in 1999, and NT$0.3 (US$0.01) in 2000.
Income tax returns of ASE and ASE Test, Inc. has been examined by the
ROC Tax authorities through 1999 and ASE Materials and ASE
Technologies have been examined by the ROC tax authorities through
1998. As a result of the examination by the ROC tax authorities, ASE
has recorded and paid additional taxes of NT$40,000 (US$1,206). ASE
has appealed the rulings of the ROC tax authorities relating to the
aforementioned additional taxes and is awaiting the outcome of the
appeal. No additional taxes were required to be paid by ASE Test, Inc.
and ASE Materials.
18. PENSION PLANS
The consolidated entities (including ASE) in the ROC have pension plans
for their regular employees. Retirement benefits are based on the length
of service and average salaries or wages of the last six months before
retirement. Those entities make monthly contributions, at 2% of salaries
and wages, to pension funds which are in the name of, and are administered
by, the employee pension plan committee of the respective entities. The
changes in the retirement funds are summarized as follows:
-34-
Year Ended December 31
------------------------------------------------------------
1998 1999 2000
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ----------
Balance, beginning of year 145,726 186,412 232,205 7,000
Contributions 32,358 34,410 92,211 2,780
Payments (2,738) (574) (435) (13)
Interest income 11,066 11,957 15,519 468
------------ ------------ ------------ ----------
Balance, end of year 186,412 232,205 339,500 10,235
============ ============ ============ ==========
Pension costs for these entities consist of:
Year Ended December 31
------------------------------------------------------------
1998 1999 2000
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ----------
Service costs 76,656 56,870 120,528 3,634
Interest 28,075 23,243 30,234 911
Projected return on pension assets (11,491) (12,543) (14,575) (439)
Amortization of prior period service cost,
gain or loss on plan assets, etc. 6,426 2,689 4,231 127
------------ ------------ ------------ ----------
99,666 70,259 140,418 4,233
============ ============ ============ ==========
Other pension information based on actuarial calculations of the plan are
as follows:
Year Ended December 31
------------------------------------------------------------
1998 1999 2000
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ----------
a. Benefit obligations
Accumulated benefit obligation 163,174 209,543 347,107 10,465
Additional benefits based on future
salaries 196,843 228,743 302,925 9,132
------------ ------------ ------------ ----------
Projected benefit obligation 360,017 438,286 650,032 19,597
Fair value of assets (188,433) (211,576) (311,758) (9,399)
------------ ------------ ------------ ----------
Funded status 171,584 226,710 338,274 10,198
Unrealized prior service costs (7,299) (6,951) - -
Unrecognized net transition
obligation (118,034) (114,468) (114,550) (3,453)
Unrecognized gain (loss) of
pension assets 124,207 92,854 30,580 921
Additional liability - - - -
Portion in other current liabilities (2,397) (8,956) (5,879) (177)
------------ ------------ ------------ ----------
Accrued pension cost 168,061 189,189 248,425 7,489
============ ============ ============ ==========
b. Vested obligation 240 2,162 7,124 215
============ ============ ============ ==========
(Forward)
-35-
c. Actuarial assumption
Discount rate 6.5%-7% 6.5%-7% 6%
Increase in future salary level 5%-6% 4%-5.5% 4%-5%
Expected rate of return on plan
assets 6.5%-7% 6.5%-7% 6%
19. STOCK OPTION PLANS
ASE Test has six stock option plans, the 1996 Option Plan (the "Pre-IPO
Plan"), the 1996 Executive Management Option Plan (the "1996 Plan"), and
the 1997, 1998, 1999 and 2000 Option Plans. Stock options granted under
these plans are exercisable for ASE Test ordinary shares based on a
vesting schedule over five years until the options expire. Because the
exercise price is equal to the market price of the shares on the date of
grant, no compensation cost was recognized.
20. EARNINGS PER SHARE AND ADS
Primary and fully diluted earnings per share for the years ended December
31, 1998, 1999 and 2000 and are calculated as follows:
The denominator is the weighted average number of outstanding shares of
common stock of 1,780,000,000 and 1,980,000,000 and 2,677,602,508 shares
in 1998, 1999 and 2000, respectively. The numerator is the net income with
the primary and fully diluted EPS adjustment for the employee stock
options of ASE Test.
Primary and fully diluted earnings per ADS for the years ended December
31, 1998, 1999 and 2000 are calculated as follows:
The denominator is the above-mentioned weighted average outstanding shares
divided by five (one ADS represents five common shares). The numerator is
the same as mentioned in the above EPS calculation.
21. ASSETS PLEDGED OR MORTGAGED
The following assets have been pledged or mortgaged as first priority
collateral for short-term and long-term debts, recruitment of foreign
laborers and for tax appeal to the tax authorities:
December 31
--------------------------------------------
1999 2000
------------ ---------------------------
NT$ NT$ US$
------------ ------------ ----------
Buildings and improvements - 710,327 21,415
Machinery and equipment 4,427,859 7,487,835 225,741
Long-term investments 1,785,323 1,266,164 38,172
Time deposits 428,137 297,079 8,956
Guarantee deposits - time deposits 55,219 73,599 2,219
------------ ------------ ----------
6,696,538 9,835,004 296,503
============ ============ ==========
-36-
In addition, the total assets of ISE Labs amounting to NT$6,927,897
(US$208,860) as of December 31, 2000, have been pledged as collaterals for
its long-term and short-term debts.
22. COMMITMENTS AND CONTINGENCIES AS OF DECEMBER 31, 2000
a. ASE, ASE Test, Inc., and ASE Material lease the land on which their
buildings are situated under various operating lease agreements with
the government expiring on various dates through September 2009. The
agreements grant these entities option to renew the leases and reserve
the right for the lessor to adjust the lease charges upon an increase
in the assessed value of the land and to terminate the leases under
certain conditions. ASE Technologies (U.S.A.), Inc. has three
operating lease agreements for office facilities. The rental expense
for the years ended December 31, 1998, 1999 and 2000 was approximately
NT$10,947, NT$59,973 and NT$118,929 (US$3,585), respectively. In
addition, ASE and ASE Test, Inc. and ISE Labs also lease equipment
under non-cancellable capital lease agreements. The net book value as
of December 31, 1999 and 2000 of the equipment acquired under the
capital obligations amounted to NT$325,473 and NT$200,429,
respectively. The future minimum lease payments under the
above-mentioned operating leases are as follows:
Operating leases NT$ US$
---------------- ------------ ----------
2001 275,997 8,321
2002 246,250 7,424
2003 243,367 7,337
2004 241,075 7,268
Thereafter 1,044,099 31,477
------------ ----------
Total minimum lease payments 2,050,788 61,827
============ ==========
The future minimum lease payments under above-mentioned capital leases
as of December 31, 2000 are as follows:
NT$ US$
----------- ----------
Within the following year 92,155 2,778
Within the second year 82,183 2,478
Within the third year 23,540 709
----------- ----------
Total minimum lease payments 197,878 5,965
Less: Imputed interest 17,926) (540)
----------- ----------
Present value of future lease obligations 179,952 5,425
Capital lease obligation, current 80,027) (2,413)
----------- ----------
Capital lease obligation, long-term 99,925 3,012
=========== ==========
b. ASE, ASE Test, Inc., ASE Test Malaysia and ASE Chung Li (since 1999)
engage outside sales agencies. Commissions and service fees were paid
based on monthly incurred services-related cost and expenses plus 15%
or based on 1%-3% (decreased to 1% after July 2000) of net export
sales. Commissions paid in 1998, 1999 and 2000 totaled approximately
NT$469,613, NT$570,729 and NT$762,159 (US$22,977), respectively.
c. As of December 31, 2000, commitments to purchase machinery and
equipment totaled approximately NT$5,469,766 (US$164,901).
-37-
d. As of December 31, 2000, commitments for construction of buildings
totaled approximately NT$682,796 (US$20,585).
e. ASE entered into technology agreements which will expire in 2019 (with
foreign companies) for the procurement of manufacturing technology for
certain products. Based on the agreements, ASE shall pay royalties at
a specified percentage of sales quantities. Such royalties in 1998,
1999 and 2000 were approximately NT$86,516, NT$112,025 and NT$199,836
(US$6,025), respectively.
g. As of December 31, 2000, ASE has endorsed and guaranteed the
promissory notes of its subsidiaries and equity investees, as
follows:
Subsidiaries NT$ US$
------------------------ ------------ ----------
ASE (Labuan) 2,648,289 79,840
ASE Technologies 132,000 3,980
ASE Holding 132,620 3,998
ASE (Philippines) 1,823,525 54,975
ASE Investment 300,000 9,044
ASE Material 714,438 21,539
ASE Chung Li 1,713,008 51,643
------------ ----------
7,463,880 225,019
Equity Investee
-----------------------
HCDC 960,000 28,942
------------ ----------
8,423,880 253,961
============ ==========
23. DERIVATIVE FINANCIAL INSTRUMENTS
Information on derivative transactions are as follows:
a. Interest rate swap
ASE entered into two interest rate swap contracts with a foreign bank,
which expired in January and December 1999. Under these contracts, ASE
paid interest based on a nomimal principal amount of US$20 million
(NT$663 million) and floating interest at a rate of 4.85%-5.19% of
LIBOR minus 0.21%-0.25%, whichever was higher. The foreign bank paid
interest to ASE based on the same nominal principal and floating
interest rate of 3 months' USD LIBOR. The interest settlement was made
on net basis. The net interest income from such contracts amounted to
NT$3,116 in 1998 and NT$842 in 1999. As of December 31, 2000, there
were no outstanding contracts.
-38-
b. Forward exchange contracts
ASE Test Malaysia entered into forward contracts to hedge foreign
exchange fluctuations associated with foreign currency liabilities. As
of December 31, 2000, the outstanding contracts are as follows:
Contract Value Carrying
Forward Contract (Thousand) Forward Rate Value Fair Value Maturity Date
---------------- -------------- -------------------- --------------- -------------- ---------------
Purchase US$ 45 3.7909 (US$/RM) $ 0.1 $ 0.1 January 4, 2001
Purchase US$ 3,000 3.7677 (US$/RM) 25.5 25.3 January 4, 2001
Purchase JPY 50,000 0.0351 (JPY$/RM) ( 0.9) (52.2) January 4, 2001
Purchase US$ 3,000 3.7721 (JPY$/RM) 22.0 15.3 January 31, 2001
Purchase JPY 50,000 0.0347 (JPY$/RM) 3.5 (29.4) January 31, 2001
Purchase JPY 20,000 0.0333 (JPY$/RM) 8.9 - February 28, 2001
Purchase JPY 30,000 0.0346 (JPY$/RM) 2.7 (10.7) February 28, 2001
The gain arising from such contracts based on mark-to-market valuation
were approximately NT$78,194 (US$2,357) in 2000.
c. European options
Because ASE and ASE Test, Inc. expect to receive U.S. dollars from
export sales and to pay Japanese yen or New Taiwan Dollars for
long-term debts, ASE and ASE Test, Inc. entered into foreign currency
option contracts to hedge risks of exchange rate fluctuations.
As of December 31, 2000, the outstanding contract is as follows:
Strike Price
Contract Amount US$/NT$ Maturity Date
------------------------ ------------- ------------ -----------------
Selling US$ call/TWD put US$20 million US$1: NT$34 December 26, 2001
The loss arising from such contract based on mark-to-market valuation
was approximately NT$21,832 (US$658) in 2000.
d. Currency and interest rate swap contract
Because ASE will repay U.S. dollars for long-term bonds payable at
maturity, ASE entered into currency and interest rate swap contract to
hedge risks of exchange rate fluctuations.
Under the contract, ASE will pay NT$1,942.5 million (NTD Notional) and
receive US$60.7 million (USD Notional) (the Strike Price is US$1:
NT$32) on November 4, 2002. In addition, ASE will pay interest based
on a NTD Notional principal amount of NT$1,942.5 million at 9.7%
interest rate and receive interest based on a USD Notional principal
amount of US$60.7 million at 6.0685% interest rate on November 4,
2002. The principal and interest settlement are to be made on net
basis.
The gain arising from such contract based on mark-to-market valuation
was approximately NT$21,446 (US$647) in 2000.
-39-
e. Transaction risk
1) Credit risk
ASE is exposed to credit risk in the event of non-performance of
the counterparties to forward contracts on maturity. In order to
manage this risk, ASE transacts only with financial institutions
with good credit ratings. As a result, no material losses
resulting from counterparty defaults are anticipated.
2) Market risk
ASE entered into European option and interest rate swap contracts
and currency and interest rate swaps to hedge the effects of
foreign currency fluctuations on net assets or net liabilities,
and the fluctuations in interest rates. Hence, the impact of
market risk was reduced.
3) Liquidation risk and cash-flow risk
ASE entered into forward exchange contracts and European option
contracts and currency and interest rate swaps to hedge its
exposure to the effect of exchange rate fluctuations on net
assets or net liabilities. At the maturity of the contracts, ASE
has enough operating capital to meet cash requirements, so there
is no fund raising risk. Therefore, ASE believes there are no
significant exposures to liquidation risk and cash flow risk.
24. FINANCIAL INSTRUMENTS
December 31
-----------------------------------------------------------------------
1999 2000
----------------------- ---------------------------------------------
Carrying Fair Carrying Fair Carrying Fair
Values Values Values Values Values Values
----------- ----------- ----------- ----------- -------- --------
Non-Derivative Financial Instruments NT$ NT$ NT$ NT$ US$ US$
Assets
Cash and cash equivalents $11,809,112 $11,809,112 $14,166,495 $14,166,495 $427,088 $427,088
Short-term investments 216,280 228,864 1,682,679 1,717,617 50,729 51,782
Notes receivable 201,042 201,042 219,641 219,641 6,622 6,622
Accounts receivable - net 7,262,415 7,262,415 9,040,934 9,040,934 272,563 272,563
Long-term investments 9,674,432 19,974,481 10,712,199 10,303,014 322,948 310,612
Liabilities
Short-term borrowings 3,787,647 3,787,647 5,402,597 5,402,597 162,876 162,876
C/P and B/A payable 1,703,593 1,703,593 4,281,805 4,281,805 129,087 129,087
Accounts payable 3,152,353 3,152,353 3,859,909 3,859,909 116,368 116,368
Long-term bonds payable 10,827,663 10,827,663 12,229,179 12,229,179 368,682 368,682
Long-term debts (included current
portion) 12,625,990 12,625,990 13,639,786 13,639,786 411,208 411,208
Long-term payable for investments
(included current portion) 5,474,780 5,474,780 4,191,528 4,191,528 126,365 126,365
The carrying values of cash, notes receivable, accounts receivable,
short-term borrowings, C/P and B/A payable, and notes and accounts
payable approximate fair values because of the short maturity of these
instruments. The fair values of short-term and long-term investments
are determined based on market values or net equity values. The fair
values of long-term liabilities are determined based on the estimated
present value of future cash flows using the interest rates of similar
long-term debt instruments which ASE is able to obtain as the discount
date. Fair value of long-term debts is carrying value because floating
interest rates are applied.
-40-
25. SEGMENT AND GEOGRAPHICAL INFORMATION
a. Geographical sales information
1) Net revenue:
Year Ended December 31
-------------------------------------------------------------------------
1998 1999 2000
------------------ ------------------ -------------------------------
% of % of % of
Total Total Total
NT$ Sales NT$ Sales NT$ US$ Sales
----------- ----- ----------- ----- ----------- ---------- -----
America 12,331,369 59 18,645,953 57 33,089,214 997,565 65
Domestic 6,301,536 31 9,427,343 29 12,639,373 381,048 25
Europe 625,742 3 852,110 3 1,905,646 57,451 4
Asia and other areas 1,503,776 7 3,684,155 11 3,259,144 98,256 6
----------- --- ----------- --- ----------- ---------- ---
20,762,423 100 32,609,561 100 50,893,377 1,534,320 100
=========== === =========== === =========== ========== ===
2) Long-lived assets:
Year Ended December 31
----------------------------------------------------
1999 2000
------------------ -------------------------------
% of
Total
Long- % of
Lived Total
NT$ Assets NT$ US$ Sales
----------- ------ ----------- ---------- -----
Domestic 27,849,826 73 43,309,343 1,305,678 72
Asia 8,567,995 22 14,271,843 430,264 23
America 1,689,645 5 2,985,014 89,991 5
----------- --- ----------- ---------- ---
38,107,466 100 60,566,200 1,825,933 100
========== === =========== ========== ===
b. Major customers
Customer accounting with 10% or more of total revenues are showed
below:
Year Ended December 31
-------------------------------------------------------------------------
1998 1999 2000
------------------ ------------------ -------------------------------
% of % of % of
Total Total Total
NT$ Sales NT$ Sales NT$ US$ Sales
----------- ----- ----------- ----- ----------- ---------- -----
Motorola, Inc. 1,508,662 7 5,155,573 16 11,256,760 339,366 22
=========== === =========== === =========== ========== ===
VIA Technologies Inc. 1,328,795 6 2,576,155 8 5,185,434 156,329 10
=========== === =========== === =========== ========== ===
c. Reported segment information
ASE has three reportable segments: Packaging, Testing and Investing,
each of which requires different development and production. The
packaging division packages bare semiconductors into finished
semiconductors with enhanced electrical and thermal characteristics.
The testing division provides testing services, including front-end
engineering testing, wafer probing and final testing services. The
investing division is engaged in investing activities. The accounting
policies of the segments are the same as
-41-
those described in Note 2. Segment information for the years ended
December 31, 1999 and 2000 is as follows:
Packaging Testing Investing All other Total
-------------- ------------- ------------ ------------- -------------
1998
Revenue from external customer NT$ 16,867,404 NT$ 3,286,944 NT$ - NT$ 1,317,230 NT$21,471,578
Inter-segment revenues - (155,666) - (553,489) (709,155)
Interest revenue 380,470 18,471 186,069 20,387 605,397
Interest expense 655,684 149,224 138,439 42,449 985,796
Net interest revenue (expense) (275,214) (130,753) 47,630 (22,062) (380,399)
Depreciation and amortization 2,240,323 979,234 116 53,516 3,237,189
Segment profit 1,592,322 792,924 (209,595) (194,370) 1,981,281
Segment asset 25,435,533 8,409,405 10,575,845 2,590,684 47,011,467
Expenditures for segment assets 4,225,601 1,976,084 - 1,246,007 7,447,692
1999
Revenue from external customer NT$24,522,968 NT$ 7,874,728 NT$ - NT$ 1,207,287 NT$33,604,983
Inter-segment revenues - (81,530) - (913,892) (995,422)
Interest revenue 25,219 227,616 84,567 85,756 423,158
Interest expense 714,780 264,939 137,515 352,561 1,469,795
Net interest revenue (expense) (689,561) (37,323) (52,948) (266,805) (1,046,637)
Depreciation and amortization 2,994,302 2,418,278 140 141,647 5,554,367
Segment profit 3,131,508 2,224,801 4,642,002 (935,870) 9,062,441
Segment asset 35,318,472 16,203,198 11,840,510 13,968,595 77,330,775
Expenditures for segment assets 5,617,480 4,808,413 - 671,502 11,097,395
2000
Revenue from external customer NT$38,028,799 NT$12,911,073 NT$ - NT$ 2,001,604 NT$52,941,476
Inter-segment revenues - (142,712) - (1,905,387) (2,048,099)
Interest revenue 265,737 45,112 182,915 60,416 554,180
Interest expense 1,200,236 375,257 461,791 54,954 2,092,238
Net interest revenue (expense) (934,499) (330,145) (278,876) 5,462 (1,538,058)
Depreciation and amortization 4,423,814 3,815,237 59,704 295,044 8,593,799
Segment profit 6,191,070 3,541,102 (1,125,536) (203,076) 8,403,560
Segment asset 53,385,822 31,155,426 16,810,253 6,989,663 108,341,164
Expenditures for segment assets 12,412,225 14,720,913 - 4,330,313 31,463,451
2000
Revenue from external customer US$ 1,146,482 US$ 389,239 US$ - US$ 60,344 US$ 1,596,065
Inter-segment revenues - (4,302) - (57,443) (61,745)
Interest revenue 8,011 1,360 5,515 1,821 16,707
Interest expense 36,184 11,313 13,922 1,657 63,076
Net interest revenue (expense) (28,173) (9,953) (8,407) 164 (46,369)
Depreciation and amortization 133,368 115,020 1,800 8,895 259,083
Segment profit 186,646 106,756 (33,932) (6,122) 253,348
Segment asset 1,609,461 939,265 506,791 210,722 3,266,239
Expenditures for segment assets 374,200 443,802 - 130,549 948,551
26. ACQUISITIONS
In May 1999, ASE Test acquired 70% equity of ISE Labs, which is engaged in
the testing and packaging of semiconductors. The purchase cost, including
transaction costs, was approximately US$100.1 million (NT$3,320.3
million), which was paid in May 1999.
-42-
In July 1999, ASE and ASE Test purchased 70% and 30%, respectively, of the
interest of the Motorola SPS Businesses. The purchase cost was
approximately US$350.1 million (NT$11,612.8 million). As of December 31,
2000, US$223.5 million (NT$7,413.5 million) has been paid and the balance
of US$126.6 million (NT$4,199.3 million), plus interest (commencing as of
the acquisition date-July 1999) is payable, US$46.7 million (NT$1,549.0)
of which is subject to target sales volumes being met for the Motorola SPS
Business in Chung Li, Taiwan, based on specified payment dates within
three years. ASE believes the contingent payments of US$46.7 million
(NT$1,549.0) are determinable beyond a reasonable doubt. As of December
31, 2000, ASE has provided guaranteed letters of credit of US$131,741
(NT$4,369,849) to Motorola. Both acquirees currently provide packaging and
testing of semiconductors. A portion of the purchase price was financed
through a convertible notes offering completed on June 29, 2000 by ASE
Test Finance Limited and fully and unconditionally guaranteed by ASE Test
(see Note 13).
Future payments for investments in Motorola as of December 31, 2000 are as
follows:
NT$ US$
------------ ----------
Within the following year 773,616 23,323
Within the second year 772,450 23,288
Within the third year 2,645,462 79,755
------------ ----------
4,191,528 126,366
============ ==========
The acquisitions of the Motorola SPS Businesses and ISE Labs were
accounted for by the purchase method. Assets acquired and liabilities
assumed have been recorded at their estimated fair values as of the
acquisition date. The purchase prices exceeded the fair value of the net
tangible assets by about US$81.9 million for Motorola SPS Businesses and
US$76.5 million for ISE Labs, Inc. The purchase cost in excess of fair
value of net tangible assets was allocated to various intangible assets,
which will be amortized on a straight-line basis over 3 to 38 years.
The purchase prices and calculation of goodwill for those acquisitions
described above are as follows (in millions):
Acquires Purchase Cost Net Book Value Excess
-------- ------------- -------------- ----------
ISE Labs US$ 100.1 US$ 23.6 US$ 76.5
Motorola SPS Businesses US$ 350.1 US$ 268.2 US$ 81.9
The excess purchase price was allocated as follows (in millions):
Motorola SPS
ISE Labs Businesses
----------------------- ----------------------
NT$ US$ NT$ US$
----------- ------- ----------- -------
Item
Write-up of land 82.8 2.5 2,903.3 87.7
Write-up (write-down) in buildings 92.7 2.8 (380.7) (11.5)
Write-up (write-down) in machinery 297.9 9.0 (278.1) (8.4)
Deferred tax liability 188.7 (5.7) - -
Goodwill 2,251.1 67.9 466.8 14.1
----------- ------- ----------- -------
2,535.8 76.5 2,711.3 81.9
=========== ======= =========== =======
-43-
In the first quarter of 2000, ASE Test adjusted its allocation of purchase
price by reducing the allocation to land by US$0.2 million, buildings by
US$2.3 million, machinery by US$2.3 million, deferred tax liabilities by
US$1.9 million and increasing the allocation to goodwill by US$3.8 million
because impairment loss incurred arising from the disposition of the
packaging operation of ISE Labs subsequent to the acquisition.
The purchase prices for Motorola SPS Businesses and ISE Labs acquisitions,
respectively, are allocated as follows (in millions):
Motorola SPS
Businesses ISE Labs
---------------- ----------------
NT$ NT$
------------ -----------
Cash 1,418.8 135.0
Accounts receivable 951.1 448.9
Other current assets 216.6 22.0
Fixed assets - net 9,504.9 2,589.7
Other assets 81.6 109.9
Goodwill 442.6 2,134.5
Total liabilities (1,626.0) (1,864.6)
Minority interest - (433.2)
---------- ----------
10,989.6 3,142.2
========== ==========
The unaudited pro forma consolidated results of operations are presented
as if the acquisitions of the Motorola SPS Businesses had been made at the
beginning of 1998 and 1999, and in the case of ISE Labs, at the beginning
of 1998:
Year Ended December 31
------------------------
1998 1999
---------- ----------
NT$ NT$
---------- ---------
Revenue 46,555,084 49,804,626
Net income 1,926,805 6,937,554
Earnings per share - outstanding common shares
Primary 0.80 3.46
==== ====
Fully diluted 0.80 3.45
==== ====
Earnings per equivalent ADS
Primary 4.01 17.29
==== =====
Fully diluted 4.01 17.27
==== =====
The pro forma results of operations include adjustments to give effect to
the net decrease in depreciation and the amortization of goodwill related
to the increased value of acquired fixed assets and identifiable
intangible assets, and interest expense on debt assumed to finance the
purchases. The unaudited pro forma information is not necessarily
indicative of the results of operations that would have occurred had the
purchases been made at the beginning of the periods or the future results
of the combined operations.
The above pro forma consolidated results of operations include the
pre-acquisition revenues and net income as follows:
-44-
ISE Labs Motorola SPS Businesses
------------------------- ----------------------------
1998 1999 1998 1999
----------- ----------- ------------- ------------
NT$ NT$ NT$ NT$
----------- ----------- ------------- ------------
Net revenues 2,152,538 736,765 23,640,123 17,195,065
Net income (loss) 154,188 65,167 809,862 (106,946)
Under the method of consolidation used by the Corporation to consolidate
the statement of income of ISE Labs for the year ended December 31, 1999,
ISE Labs' full-year 1999 net revenues, cost of revenues and operating
expenses are included in the corporation's consolidated statements of
income.
27. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING
PRINCIPLES FOLLOWED BY THE CORPORATION AND GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles in the Republic of China
("ROC GAAP"), which differ in the following respects from generally
accepted accounting principles in the United States ("US GAAP"):
a. Pension benefits
US Financial Accounting Standards (FAS) 87, "Accounting for Pensions",
was effective no later than the beginning of the first period for
which a US GAAP reconciliation is required. A portion of the
unrecognized net transition obligation at the adoption date is to be
allocated directly to equity. The adoption date of ASE for US FAS 87
is the beginning of 1987. ROC SFAS 18, which is substantially similar
to US FAS 87, was effective in 1996 for listed companies in Taiwan.
Therefore, pension expense due to different adoption dates is
adjusted.
b. Short-term investments
Under ROC GAAP, marketable equity securities are carried at the lower
of aggregate cost or market value, and debt securities at cost. Under
US FAS 115, "Accounting for Certain Investments in Debt and Equity
Securities", except for debt securities classified as
"held-to-maturity securities", investments in debt and equity
securities, other than those recorded on the equity method, should be
stated at fair value.
All of the Corporation's short-term investments are classified as
trading securities under US GAAP, with gains and losses recognized
currently in income. The unrealized holding gain included in earnings
under US GAAP were NT$12,584 in 1999 and NT$22,354 (US$674) in 2000.
All of the Corporation's short-term investments in mutual funds, stock
and convertible debt are bought and held principally for the purpose
of selling them in the near term.
-45-
c. Bonuses to employees, directors and supervisors
According to ROC regulations and the Articles of Incorporation of the
ASE, a portion of distributable earnings should be set aside as
bonuses to employees, directors and supervisors. Bonuses to directors
and supervisors are always paid in cash. However, bonuses to employees
may be granted in cash or stock or both. All of these appropriations,
including stock bonuses which are valued at par value of NT$10, are
charged against retained earnings under ROC GAAP, after such
appropriations are formally approved by the board of directors and
resolved by the shareholders in the following year. Under US GAAP,
such bonuses are charged to income currently in the year earned. Stock
issued as part of these bonuses is recorded at fair market value.
Since the amount and form of such bonuses are not finally determinable
until the board of directors meeting in the subsequent year, the total
amount of the aforementioned bonuses ("regular bonuses") is initially
accrued based on the management's estimate regarding the amount to be
paid based on ASE's Articles of Incorporation. Any difference between
the initially accrued amount and the fair market value of the bonuses
settled by the issuance of shares is recognized in the year of
approval by the board of directors. The management estimates that the
regular annual employee bonuses, including cash and stock, will
approximate three to four months' salaries and wages.
Aside from the aforementioned regular bonus plan, ASE decided to grant
a special stock bonus to employees in 1997 and 2000 due to excellent
profits for ASE in 1997 and 2000. Employees who received the special
stock bonus are required to continue working for ASE for an additional
three years. Accordingly, the amount of special stock bonuses is being
allocated over three years as special compensation expenses in the
statement of income.
d. Treasury stock
Under US GAAP, when a subsidiary holds its parent's stock as
investments, the stock should be treated as treasury stock and is
presented in the consolidated balance sheet as a deduction to
shareholders' equity. The capital gain (loss) from sales of treasury
stock is added to or deducted from the balance of treasury stock.
Under ROC GAAP, such treatment is not required and, as a result, the
investment in ASE common shares is presented as a long-term investment
in the balance sheets and capital gain (loss) from sale of treasury
stock is recognized and included in the statement of income.
e. Depreciation of buildings
Under ROC GAAP, the estimated life of a building can be as long as 40
years based on ROC practices. For US GAAP purposes, an assessment for
useful lives of buildings is estimated to be 25 years.
f. Excess of book value on transfer of buildings between related parties
ASE Test, Inc., a consolidated subsidiary, purchased buildings and
facilitates from another consolidated subsidiary, ASE Technologies, in
1997. The actual costs purchased from ASE Technologies were based on
market value. Such additional payment for the excess of book value of
NT$17,667 was capitalized by ASE Test, Inc. as allowed under ROC GAAP.
Under US GAAP, transfers of assets from related parties should not be
recorded by the transferee at stepped-up values.
-46-
g. Gain on sales of subsidiary's stock
The carrying value of stock investments in ASE Test by J&R Holding
under ROC GAAP is different from that under US GAAP mainly due to the
differences in accounting for bonuses to employees, directors and
supervisors. Since parts of such stock investments were sold in 1997
and 1999, the disposal gain (loss) under US GAAP was different from
that under ROC GAAP as a result of the difference in carrying values.
h. Effects of US GAAP adjustments on equity long-term investment
The carrying values of equity-basis investments and the investment
income (loss) accounted for by the equity method in HCDC, HCKC and USI
are reflected in the financial statements under ROC GAAP. The
financial statements of these equity investees under ROC GAAP are
different from the financial statements had those financial statements
been prepared under US GAAP mainly due to the differences in
accounting for bonuses to employees, directors and supervisors and
deprecation of buildings. Therefore, the investment income (loss) has
been adjusted to reflect the differences between ROC and US GAAP in
the investees' financial statements.
i. Impairment of long-lived assets
US FAS 121 requires entities to perform separate calculations for
assets to be held and used to determine whether recognition of an
impairment loss is required, and if so, to measure the impairment. If
the sum of expected future cash flows, undiscounted and without
interest charges, is less than an asset's carrying value, an
impairment loss is recognized; if the sum of the expected future cash
flows is greater than an asset's carrying value, an impairment loss
can not be recognized. Measurement of an impairment loss is based on
the fair value of the asset. US FAS 121 also generally requires
long-lived assets and certain identifiable intangibles to be disposed
of should be reported at the lower of the carrying value or fair value
less cost to sell. Based on an assessment by ASE of the potential
impact of U.S. FAS 121, there is no impairment loss as of December 31,
2000 for ASE.
j. Stock dividends
Under ROC GAAP, stock dividends are recorded at par with a charge to
retained earnings. Under US GAAP, if the ratio of distribution is less
than 25 percent of the same class of shares outstanding, the fair
value of the shares issued should be charged to retained earnings. The
difference for 1999 stock dividends would be treated as an additional
reduction to retained earnings and increase to Capital Surplus
amounting to NT$9,580 million.
The following reconciles net income and shareholders' equity under ROC
GAAP as reported in the consolidated financial statements to the
approximate net income and shareholders' equity amounts as determined
under US GAAP, giving effect to adjustments for the differences listed
above.
-47-
Years Ended December 31
------------------------------------------------------------------
1998 1999 2000
------------- ------------- ------------------------------
NT$ NT$ NT$ US$
------------- ------------- ------------- ------------
Net income
Net income based on ROC GAAP 1,603,961 7,794,666 5,837,149 175,977
------------- ------------- ------------- ------------
Adjustments:
a. Pension benefits (cost) 26,075 (15,799) 5,635 170
b. Short - term investments (12,973) 12,584 22,354 674
c. Bonuses to employees, directors and
supervisors:
Accrued regular bonuses (812,960) (1,089,135) (929,348) (28,018)
Special stock bonuses (433,224) (577,500) (929,901) (28,034)
d. Gain from sale of treasury stock (42,692) (1,388,523) - -
e. Depreciation of building (21,718) (30,731) (32,127) (969)
f. Excess of book value of building
transferred between related parties 432 432 432 13
g. Capital gain from sale of long-term
investment 7,433 (5,180) - -
h. Effects for US GAAP adjustments
on equity long-term
investments (21,966) (154,218) (51,825) (1,562)
i. Effect of US GAAP adjustment on
income tax 4,538 5,691 6,553 197
j. Effect of US GAAP adjustments on
minority interest 1,944 89,014 1,074 32
------------- ------------- ------------- ------------
Net decrease in net income (1,305,111) (3,153,365) (1,907,153) (57,497)
------------- ------------- ------------- ------------
Net income based on US GAAP 298,850 4,641,301 3,929,996 118,480
============= ============= ============= ============
Earnings per share
Basic 0.11 1.75 1.47 0.04
============= ============= ============= ============
Diluted 0.08 1.71 1.42 0.04
============= ============= ============= ============
Earnings per ADS
Basic 0.56 8.75 7.34 0.22
============= ============= ============= ============
Diluted 0.38 8.57 7.10 0.21
============= ============= ============= ============
Number of weighted average shares
outstanding 2,651,524,485 2,651,524,485 2,677,602,508 2,677,602,508
============= ============= ============= =============
Number of ADS 530,304,897 530,304,897 535,520,502 535,520,502
============= ============= ============= ============
Years Ended December 31
------------------------------------------------------------------
1998 1999 2000
------------- ------------- ------------------------------
NT$ NT$ NT$ US$
------------- ------------- ------------- ------------
Shareholders' equity
Shareholders' equity based on ROC
GAAP 21,874,808 30,057,036 43,669,214 1,316,527
------------- ------------- ------------- ------------
Adjustments:
a. Pension benefits (31,996) (47,794) (42,159) (1,271)
b. Restatement of short - term
investments - 12,584 34,938 1,053
c. Bonuses to employees,
directors and supervisors (34,300) (217,827) (113,600) (3,425)
d. Treasury stocks
d1. reversal of unrealized loss 703,865 - 487,752 14,705
(Forward)
-48-
d2. classification of treasury
stock (4,704,995) (2,922,561) (2,919,411) (88,014)
e. Effect of US GAAP
adjustments on useful life (64,564) (95,296) (127,423) (3,841)
f. Excess of book value of
building transferred
between related
parties (17,055) (16,623) (16,191) (488)
g. Restate carrying value of
subsidiaries' long-term
investment (42,441) (47,621) (47,621) (1,436)
h. Effects of the above
adjustments on equity
investment (32,830) (187,048) (238,873) (7,201)
i. Effect of US GAAP
adjustments on income tax 9,479 15,170 21,723 655
j. Effect on US GAAP
adjustments on minority
interest 15,228 19,667 20,741 625
------------- ------------- ------------- ------------
Net decrease in shareholders' equity (4,199,609) (3,487,349) (2,940,124) (88,638)
------------- ------------- ------------- ------------
Approximate shareholders' equity
based on US GAAP 17,675,199 26,569,687 40,729,090 1,227,889
============= ============= ============= ============
Changes in shareholders' equity based
on US GAAP
Balance, beginning of year 18,533,750 17,675,199 26,569,687 801,015
Convertible bonds converted into
common shares - - 35,653 1,075
Capital increase in cash through the
issuance of American Depositary
Shares - - 4,137,910 124,749
Net income for the year 298,850 4,641,301 3,929,996 118,480
Adjustment for common shares issued
as bonuses to employees, directors
and supervisors 1,211,884 1,448,808 1,811,607 54,616
Translation adjustment for
subsidiaries 97,854 (173,957) 894,255 26,960
Adjustment from changes in
ownership percentage of investees 55,605 (108,046) 3,405,909 102,680
Unrealized loss on long-term
investment in shares of stock - - (59,077) (1,781)
Effect of change in exchange rate - - 3,150 95
Purchase of treasury stock (2,598,416) - - -
Sale of treasury stock 32,980 1,782,434 - -
Capital gain from sale of treasury
stock 42,692 1,303,948 - -
------------- ------------- ------------- ------------
Balance, end of year 17,675,199 26,569,687 40,729,090 1,227,889
============= ============= ============= ============
-49-
A reconciliation of the significant balance sheet accounts to the
approximate amounts as determined under US GAAP is as follows:
Years Ended December 31
------------------------------------------------
1999 2000
------------- ------------------------------
NT$ NT$ US$
------------- ------------- ------------
Short-term investments
As reported 216,280 1,682,679 50,729
US GAAP adjustments
Restatement of investments to fair value 12,584 34,938 1,053
------------- ------------- ------------
As adjusted 228,864 1,717,617 51,782
============= ============= ============
Long-term investments
As reported 9,674,432 10,712,199 322,948
US GAAP adjustments
Treasury stock (2,922,561) (2,429,131) (73,233)
Equity investments (187,048) (238,837) (7,200)
------------- ------------- ------------
As adjusted 6,564,823 8,044,231 242,515
============= ============= ============
Buildings and improvement
As reported 7,304,856 9,390,206 283,093
US GAAP adjustments
Effect of US GAAP adjustments on useful life (95,296) (127,423) (3,841)
Excess of book value of building transferred
between related parties (16,623) (16,191) (488)
------------- ------------- ------------
As adjusted 7,192,937 9,246,592 278,764
============= ============= ============
Other assets
As reported 952,757 1,275,557 38,455
US GAAP
Effect of US GAAP adjustments on income tax 15,170 - -
Classification of deferred income tax liabilities (6,590) - -
-------------- ------------- ------------
As adjusted 961,337 1,275,557 38,455
============= ============= ============
Deferred income tax liabilities - net
As reported 6,590 511,462 15,419
US GAAP
Effect of US GAAP adjustments on income tax - (21,723) (655)
Classification of deferred income tax assets (6,590) - -
-------------- ------------- ------------
- 489,739 14,764
============= ============= ============
(Forward)
-50-
Consolidated debits
As reported 5,245,828 4,999,546 150,725
US GAAP adjustments
Restated carrying value of subsidiaries'
long-term investment (47,621) (47,621) (1,436)
------------- ------------- ------------
As adjusted 5,198,207 4,951,925 149,289
============= ============= ============
Current liabilities
As reported 17,636,203 25,873,359 780,024
US GAAP adjustments - bonuses to employees,
directors and supervisors 217,827 113,600 3,425
------------- ------------- ------------
As adjusted 17,854,030 25,986,959 783,449
============== ============== ============
Accrued pension cost
As reported 189,189 248,425 7,489
US GAAP adjustments - pension benefits 42,691 42,159 1,271
------------- ------------- ------------
As adjusted 231,880 290,584 8,760
============= ============== ============
As a result of the adjustments presented above, the approximate amounts of
total assets based on US GAAP are NT$74,082,790 and NT$105,516,899
(US$3,181,094) as of December 31, 1999 and 2000, respectively.
28. ADDITIONAL DISCLOSURES REQUIRED BY US GAAP
ASE is required by SEC Staff Accounting Bulletin No. 74, to disclose the
impact recently issued accounting standards will have on its financial
statements when adopted in a future period, as well as make certain
disclosures about recently issued accounting standards.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("FAS 133"), accounting for
derivative instruments and hedging activities. SFAS No.133 has been
amended by FAS No.138, issued in June 2000.
The adoption of FAS 133 is effective commencing January 1, 2001 and ASE
will adopt FAS No.133, as amended, in its fiscal year ending December 31,
2001 and does not expect adoption to have a material impact on its
financial position or results of operations.
-51-
a. Pension
Set forth below is pension information disclosed in accordance with US
FAS 132:
Years Ended December 31
-------------------------------------------------------------
1998 1999 2000
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ----------
Components of net periodic benefit
cost
Service cost 59,531 81,240 120,528 3,634
Interest cost 19,569 23,796 30,241 912
Expected return on plan assets (13,023) (12,242) (14,575) (440)
Amortization of prior service
cost 777 642 8 -
------------ ------------ ------------ ----------
Net periodic benefit cost 66,854 93,436 136,202 4,106
============ ============ ============ ==========
Years Ended December 31
-------------------------------------------------------------
1998 1999 2000
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ----------
Changes in benefit obligation
Benefit obligation at beginning of
year 286,215 359,510 465,674 14,039
Service cost 57,234 79,410 120,528 3,633
Interest cost 18,604 23,369 30,241 912
Actuarial gain - 3,586 34,025 1,026
Benefits paid (2,543) (201) (436) (13)
------------ ------------ ------------ ----------
Benefit obligation at end of year 359,510 465,674 650,032 19,597
------------ ------------ ------------ ----------
Change in plan assets
Fair value of plan assets at
beginning of year 127,275 165,155 208,289 6,279
Actual return on plan assets 11,153 10,790 12,408 374
Employer Contribution 29,270 32,545 91,476 2,758
Benefits paid (2,543) (201) (436) (13)
------------ ------------ ------------ ----------
165,155 208,289 311,737 9,398
------------ ------------ ------------ ----------
Funded Status 194,355 257,385 338,295 10,199
Unrecognized actuarial loss (8,214) (16,549) (45,795) (1,381)
------------ ------------ ------------- -----------
Net amount recognized (recognized as
accrued pension cost) 186,141 240,836 292,500 8,818
============ ============ ============ ==========
Actuarial assumptions:
1998~2000
---------
Discount rate 6.5%
Rate of compensation increase 4.0%~5.5%
Expected return on plan assets 6.5%
ASE has no other post-retirement or post-employment benefit plans.
-52-
b. Short-term investments
At December 31, 2000, certain investments carried at cost under ROC
GAAP were restated under US FAS 115:
December 31
----------------------------------------------------------------------------------------------------
1999 2000
---------------------------------- ---------------------------------------------------------------
Unrealized Unrealized Unrealized
Carrying Fair Holding Carrying Fair Holding Carrying Carrying Holding
Value Value Gains Value Value Gains Value Value Gains
-------- -------- ---------- -------- -------- ---------- -------- -------- ----------
NT$ NT$ NT$ NT$ NT$ NT$ US$ US$ US$
-------- -------- -------- -------- -------- -------- -------- -------- ------
Short-term investments
(Note 3) 216,280 228,864 12,584 1,682,679 1,717,617 34,938 50,729 51,782 1,053
c. Income taxes expense (benefit)
Year Ended December 31
--------------------------------------------------------------
1998 1999 2000
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ----------
Income tax currently payable 160,144 583,550 1,080,704 32,581
Deferred (272,049) (161,128) (158,691) (4,784)
Income tax on undistributed earnings
generated in 1998 - 44,539 147,379 4,443
Adjustment of prior years' income
taxes (43,410) (13,109) (10,177) (307)
------------ ------------ ------------ ----------
(155,315) 453,852 1,059,215 31,933
============ ============ ============ ==========
Reconciliation between the income tax calculated on pretax financial
statement income based on the statutory tax rate and the income tax
expense (benefit) which conforms to US GAAP is as follows:
Year Ended December 31
--------------------------------------------------------------
1998 1999 2000
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ----------
Income tax at statutory rate $ 491,610 $ 2,406,503 $ 2,732,461 $ 82,377
Add (less) tax effects of:
Permanent differences
Tax-exempt income
- Tax holiday (508,822) (1,163,516) (700,749) (21,126)
- Gain from sale of
securities (38,935) (653,493) (51,415) (1,550)
Unamortized expense for
issuance of GDS (4,770) - - -
Bonus to employee and
directors 311,546 416,659 464,812 14,013
Other 8,734 35,408 (133,158) (4,014)
(Forward)
- -53-6
Tax credits
Utilized (138,923) (401,525) (1,231,247) (37,119)
Deferred (650,317) (431,695) 155,081 4,675
Provision for (reversal of)
valuation allowance 417,972 214,081 (313,772) (9,459)
Income taxes (10%) on undistributed
earnings generated in 1998 - 44,539 147,379 4,443
Adjustment of prior year's income tax (43,410) (13,109) (10,177) (307)
------------ ------------ ------------ ----------
Income tax expense (155,315) 453,852 1,059,215 31,933
============ ============ ============ ==========
The abovementioned taxes on pretax accounting income at the statutory
rates for domestic and foreign entities are shown below:
Year Ended December 31
---------------------------------------------
1999 2000
------------ ----------------------------
NT$ NT$ US$
------------ ------------ -----------
Domestic entities in ROC (25% statutory rate) $ 1,853,314 $ 2,064,193 $ 62,231
Foreign entities
ASE Korea Inc. (30.8% statutory rate) 55,770 2,153 65
ISE Labs, Inc. (33% statutory rate) 163,240 439,169 13,240
ASE Test Malaysia (30% statutory rate) 281,714 226,946 6,842
------------ ------------ ----------
$ 2,354,038 $ 2,732,461 $ 82,378
============ ============ ==========
d. Stock option plans
ASE Test has six stock option plans, the 1996 Option Plan ("Pre-IPO
Plan"), the 1996 Executive Management Option Plan ("1996 Plan"), the
1997 Option Plan, the 1998 Option Plan, the 1999 Option Plan and the
2000 Option Plan. The Pre-IPO Plan provided for grants of option,
which are currently exercisable, to ASE Test's directors, officers,
employees and independent consultants to purchase 1,500,000 shares at
US$2.0625 (NT$68.41) per share. Up to 10,000,000 shares, 3,200,000
shares, 1,600,000 shares, 2,000,000 shares and 12,000,000 shares have
been reserved for issuance under the 1996, 1997, 1998, 1999 and 2000
Option Plans, respectively.
The 1996, 1997, 1998, 1999 and 2000 Option Plans granted the following
stock options to purchase ASE Test's ordinary shares, which are
exercisable based on a vesting schedule over a period of five years
until the expiration of options, to directors, officers, key employees
and independent consultants.
If any granted shares are forfeited, the shares may be granted again,
to the extent of any such forfeiture.
-54-
Weight
Average
Remaining
Life as of
December 31,
Stock Option Plans Exercise Price Number of Shares Granted 2000 (Years)
----------------------------- ----------------------- ------------------------ -------------
US$ NT$
1996 Option Plan
I R&F 2 3 100 40,000 0.7
II DIR/R&F 3.5 116 7,750,000 0.4
III R&F 3 5 166 12,000 1.0
IV R&F 4 5.46875 181 2,010,000 1.2
V C961 14 464 163,200 1.9
VI C962 13.4375 446 45,800 2.8
VII R&F 5 20 663 187,500 3.6
VIII C963 25 829 34,900 4.3
1997 Option Plan
I P971 9.5625 317 2,720,000 1.5
II C971 14 464 16,000 1.9
III C972 13.4375 446 16,600 2.8
IV P972 20 663 480,000 3.6
V C973 25 829 16,100 4.3
1998 Option Plan
I ) P981 11 365 1,269,680 2.7
II P982 20 663 325,000 3.6
III C981 25 829 9,000 4.3
1999 Option Plan
(cent)(1) P991 and P992 20 663 1,750,000 8.6
II C991 and P994 25 829 352,000 9.3
2000 Option Plan Not applicable Not applicable None None
The exercise price of each option was equal to the stock's market
price on the date of grant and all options will expire after five
years, except for options granted under the 1999 Option Plan, which
will expire after ten years.
FAS 123, "Stock-Based Compensation" ("FAS 123") effective in 1996,
establishes accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee compensation
plans. Under FAS 123, ASE Test has elected to continue using the
intrinsic value-based method and provide pro forma disclosures of net
income and earnings per share as if the fair value accounting
provisions of this statements had been adopted.
ASE has computed for pro forma disclosure purposes the fair value of
each option grant, as defined by FAS 123, using the Black-Scholes
option pricing model with the following assumptions:
-55-
Pre-IPO Plan 1996 Plan 1997 Plan 1998 Plan 1999 Plan
------------ ---------------- ---------------- ---------------- -----------
Risk free interest rate 5.41% 6.61% 4.29-6.61% 4.56-6.61% 6.01-6.75%
Expected dividend
yield 0% 0% 0% 0% 0%
Expected lives 1.5 years 3.4-4 years 3.4-3.8 years 3.4-3.8 years 5 years
Volatility 54.64% 54.64% 54.64% 55.53-82.08% 55.53%
For purposes of pro forma disclosure, the estimated fair value of the
options are amortized to expense over the option rights vesting
periods. Had ASE Test recorded compensation costs based on the
estimated grant date fair value, as defined by FAS 123, ASE's net
income under US GAAP would have been reduced to the pro forma amounts
below.
Year Ended December 31
--------------------------------------------------------------
1998 1999 2000
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ----------
Net income based on US GAAP 298,850 4,641,301 3,929,996 118,480
Pro forma net income 109,497 4,479,803 3,682,196 111,010
Pro forma EPS - Basic 0.06 2.26 1.38 0.04
==== ==== ==== ====
- Diluted 0.04 2.21 1.33 0.04
==== ==== ==== ====
e. According to FAS 130, the statement of comprehensive income for the
years ended December 31, 1999 and 2000 are present below:
Year Ended December 31
--------------------------------------------------------------
1998 1999 2000
------------ ------------ ---------------------------
NT$ NT$ NT$ US$
------------ ------------ ------------ ----------
Net income based on US GAAP 298,850 4,641,301 3,929,996 118,480
Translation adjustment on subsidiaries -
net of income tax expense of NT$24,463
in 1998 and income tax benefit of NT$43,489
in 1999 and income tax expense of
NT$223,564 in 2000 73,391 (130,468) 670,691 20,220
------------ ------------ ------------ ----------
Comprehensive Income 372,241 4,510,833 4,600,687 138,700
============ ============ ============ ==========
-56-
f. Consolidation
The 1999 net revenues, cost of revenues and operating expense of ISE
Labs before the date of acquisition in the amounts of NT$736,765
(US$22,212) NT$475,250 (US$14,328) and NT$117,880 (US$3,554),
respectively, were consolidated in the 1999 consolidated financial
statements. The net revenues for the pre-acquisition period only
represented 2% of the ASE's consolidated net revenues in 1999 and such
presentation has no impact on the 1999 consolidated net income and
shareholders' equity under US GAAP. If the results of ISE Labs were
consolidated from the date of acquisition, the net revenues, gross
profit and income from operation of 1999 consolidated statement of
income will be NT$31,872,796, NT$8,388,480 and NT$4,704,924.
g. US GAAP cash flow information
The following represents the major caption of cash flow under US GAAP
pursuant to SFAS No. 95:
Years Ended December 31
------------------------------------------------
1999 2000
------------- ------------------------------
NT$ NT$ US$
------------- ------------- ------------
Cash flows
Net cash provided by operating activities 6,988,434 17,491,335 527,324
Net cash used in investing activities (14,953,647) (33,550,389) (1,011,468)
Net cash provided by financing
activities 11,768,774 17,734,240 534,647
------------- ------------- ------------
Net increase in cash 3,803,561 1,675,186 50,503
Cash, beginning of year 8,173,901 11,809,112 356,018
Effect of exchange rate changes in cash (168,350) 682,197 20,567
------------- ------------- ------------
11,809,112 14,166,495 427,088
============= ============= ============
The significant reclassifications for US GAAP cash flow statement
pertain to the following:
1) the effect of exchange rate changes on cash is shown in the
reconciliation of the beginning balance and ending balance of
cash (as opposed to operating activities under ROC GAAP)
2) compensation to directors and supervisors and bonuses to
employees is shown in the operating activity under US GAAP (as
opposed to financing activities under ROC GAAP)
3) proceeds from sales of treasury stock and purchases of treasury
stock are shown in the financing activities under US GAAP (as
opposed to investing activities under ROC GAAP).
-57-
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Additions
------------------------------
(1) (2)
Balance at Charged to Charged to
beginning costs and other Balance at
Description of year expenses accounts Deductions end of year
- ------------------------------- ---------------- --------------- --------------- ----------- ------------
2000
Allowance for doubtful
accounts NT$ 187,162 NT$ 148,834 NT$ - NT$ (21,753) NT$ 314,243
Allowance for sales
allowances 47,092 6,624 - (15,040) 38,676
Allowance for obsolescence 176,205 115,928 - (137,072) 155,061
1999
Allowance for doubtful
accounts 84,708 109,263 - (6,809) 187,162
Allowance for sales
allowances 53,000 - - (5,908) 47,092
Allowance for obsolescence 199,018 50,566 - (73,379) 176,205
1998
Allowance for doubtful
accounts 80,419 2,944 1,345 - 84,708
Allowance for sales
allowances 12,500 40,500 - - 53,000
Allowance for obsolescence 203,276 106,708 - (110,966) 199,018
-58-
Item 19. Exhibits.
1. (a) Memorandum and Articles of Association of the Registrant
(incorporating all amendments as of July 11, 2000) (incorporated
by reference to Exhibit 3.1 to the Company's registration
statement on Form F-1 (file no. 333-44622) (the "Form F-1")).
2. (a) Amended and Restated Deposit Agreement among ASE Inc., Citibank
N.A., as depositary, and Holders and Beneficial Holders of
American Depositary Shares evidenced by American Depositary
Shares evidenced by American Depositary Receipts issued
thereunder, including the form of American Depositary Receipt
(incorporated by reference to Exhibit 4.1 to the Form F-1).
(b) Form of Underwriting Agreement (incorporated by reference to
Exhibit 1.1 to the Form F-1).
4. (a) Stock Purchase Agreement dated as of March 15, 1999 between ASE
Test Limited and the Selling Shareholder relating to the purchase
and sale of 12,250,000 shares of Common Stock of ISE Labs, Inc.
(incorporated by reference to Exhibit 10.1 of ASE Test Limited's
registration statement on Form F-3 (File No. 333-10892) which was
declared effective by the SEC on December 22, 1999 (the "ASE Test
1999 Registration Statement")).
(b) Asset Purchase Agreement dated as of July 3, 1999 among ASE
(Chung Li) Inc., ASE Inc., Motorola Electronics Taiwan, Ltd. and
Motorola, Inc. (incorporated by reference to Exhibit 10.2 to the
ASE Test 1999 Registration Statement).
(c) Stock Purchase Agreement dated as of July 3, 1999 among ASE
Investment (Labuan) Inc., ASE Inc., Motorola Asia Ltd. and
Motorola, Inc. relating to the purchase and sale of 100% of the
Common Stock of Motorola Korea Ltd. (incorporated by reference to
Exhibit 10.3 to the ASE Test 1999 Registration Statement).
74
(d) Manufacturing Services Agreement dated as of July 3, 1999 among
Motorola, Inc., ASE Inc. and ASE (Chung Li) Inc. (incorporated by
reference to Exhibit 10.4 to the Form F-1).
(e) Manufacturing Services Agreement dated as of July 3, 1999 among
Motorola, Inc., ASE Inc. and ASE (Korea) Inc. (incorporated by
reference to Exhibit 10.5 to the Form F-1).
(f) BGA Immunity Agreement dated as of January 25, 1994 between ASE
Inc. and Motorola, Inc. (incorporated by reference to Exhibit
10.6 to the Form F-1).
(g) Land Lease effective October 1, 1999 until September 30, 2009
between ASE Inc. and the Nantze Export Processing Zone
(incorporated by reference to Exhibit 10.14 to the Form F-1).
(h) Land Lease effective September 1, 1999 until August 30, 2009
between ASE Inc. and the Nantze Export Processing Zone
(incorporated by reference to Exhibit 10.15 to the Form F-1).
(i) Land Lease effective April 1, 1998 until March 31, 2008 between
ASE Inc. and the Nantze Export Processing Zone (incorporated by
reference to Exhibit 10.16 to the Form F-1).
(j) Land Lease effective October 1, 1997 until September 30, 2007
between ASE Inc. and the Nantze Export Processing Zone
(incorporated by reference to Exhibit 10.17 to the Form F-1).
(k) Land Lease effective October 1, 1997 until September 30, 2007
between ASE Inc. and the Nantze Export Processing Zone
(incorporated by reference to Exhibit 10.18 to the Form F-1).
(l) Land Lease effective August 1, 1997 until July 31, 2007 between
ASE Inc. and the Nantze Export Processing Zone (incorporated by
reference to Exhibit 10.19 to the Form F-1).
(m) Land Lease effective January 1, 1996 until December 31, 2005
between ASE Inc. and the Nantze Export Processing Zone
(incorporated by reference to Exhibit 10.20 to the Form F-1).
(n) Land Lease effective January 1, 1995 until October 31, 2005
between ASE Inc. and the Nantze Export Processing Zone
(incorporated by reference to Exhibit 10.21 to the Form F-1).
(o) Land Lease effective October 1, 1999 until September 30, 2009
between ASE Inc. and the Nantze Export Processing Zone
(incorporated by reference to Exhibit 10.14 to the Form F-1).
(p) Land Lease effective July 1, 1995 until June 30, 2005 between ASE
Inc. and the Nantze Export Processing Zone (incorporated by
reference to Exhibit 10.22 to the Form F-1).
(q) Land Lease effective July 1, 1995 until June 30, 2005 between ASE
Inc. and the Nantze Export Processing Zone (incorporated by
reference to Exhibit 10.23 to the Form F-1).
(r) Land Lease effective August 1, 1994 until July 31, 2004 between
ASE Inc. and the Nantze Export Processing Zone (incorporated by
reference to Exhibit 10.24 to the Form F-1).
(s) Land Lease effective April 6, 1994 until April 5, 2004 between
ASE Inc. and the Nantze Export Processing Zone (incorporated by
reference to Exhibit 10.25 to the Form F-1).
(t) Exchange Agency Agreement between ASE Inc. and Citibank, N.A., as
exchange agent (incorporated by reference to Exhibit 10.26 to the
Form F-1).
(u) License Agreement dated as of January 16, 2001 between 1st
Silicon (Malaysia) Sdn. Bhd. and ASE Electronics (M) Sdn. Bhd.
(v) Service Agreement dated as of July 1, 2000 between ASE
Electronics (M) Sdn. Bhd. and ASE (U.S.) Inc.
75
(w) Service Agreement dated as of July 1, 2000 between ASE Test Inc.
and ASE (U.S.) Inc.
(x) Service Agreement dated as of July 1, 2000 between ASE (Korea)
Inc. and ASE (U.S.) Inc.
(y) Service Agreement dated as of July 1, 2001 between ASE
(Chung-Li) Inc. and ASE (U.S.) Inc.
(z) Service Agreement dated as of July 1, 2001 between Advanced
Semiconductor Engineering, Inc. and ASE (U.S.) Inc.
(aa) Commission Agreement dated as of July 1, 2000 between ASE
Electronics (M) Sdn. Bhd. and Gardex International Limited.
(bb) Commission Agreement dated as of July 1, 2000 between ASE Test
Inc. and Gardex International Limited.
(cc) Commission Agreement dated as of July 1, 2000 between ASE
(Korea) Inc. and Gardex International Limited.
(dd) Commission Agreement dated as of July 1, 2000 between ASE (Chung
Li) Inc. and Gardex International Limited.
(ee) Commission Agreement dated as of July 1, 2000 between Advanced
Semiconductor Engineering, Inc. and Gardex International
Limited.
(ff) Land Lease effective July 1, 2000 until June 30, 2010 between
ASE Inc. and the Nantze Export Processing Zone.
(gg) Land Lease effective July 1, 2000 until June 30, 2010 between
ASE Inc. and the Nantze Export Processing Zone.
(hh) Land Lease effective October 1, 2000 until September 30, 2010
between ASE Inc. and the Nantze Export Processing Zone.
(ii) Land Lease effective March 16, 2001 until March 15, 2011 between
ASE Inc. and the Nantze Export Processing Zone.
(jj) Land Lease effective March 1, 2001 until February 28, 2011
between ASE Inc. and the Nantze Export Processing Zone.
(kk) First Amendment to Lease Agreement dated June 7, 2000 between
ISE Labs, Inc. and RND Funding Company, Inc.
(ll) Sub-lease Agreement dated October 3, 2000 between ISE Labs
Singapore Pte Ltd and Wan Tien Realty (Pte) Ltd.
(mm) Sub-lease Agreement dated June 3, 1999 between ISE Labs
Singapore Pte Ltd and Wan Tien Realty (Pte) Ltd.
(nn) Sublease Agreement dated June 2000 between ISE Labs, Inc. and
Cirrus Logic, Inc.
(oo) Sublease Agreement dated June 2000 between ISE Labs, Inc. and
Cirrus Logic, Inc.
(pp) Tenancy Agreement dated April 1, 1999 between ISE Labs (HK)
Limited and Hing Seng Plastic Factory Limited
76
(qq) Lease dated September 28, 2000 between ISE Labs Hong Kong
Limited and Shinano Kenshi (HK) Co., Ltd.
(rr) Lease dated October 20, 2000 between ISE Labs Hong Kong and
Bless Silver Development Limited.
(ss) Lease Agreement between ASE Test Malaysia and Penang Development
Corporation (incorporated by reference to Exhibit 2(c) to ASE
Test Limited's annual report on Form 20-F for the year ended
December 31, 1997).
(tt) Sale and Purchase Agreement between Afasia Knitting Factory
(Malaysia) Sdn. Bhd. and ASE Electronics (M) Sdn. Bhd. dated
February 24, 1997
8. List of Subsidiaries
The Company agrees to furnish to the Securities and Exchange Commission
upon request a copy of any instrument which defines the rights of holders of
long-term debt of the Company and its consolidated subsidiaries.
77
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ADVANCED SEMICONDUCTOR ENGINEERING, INC.
By: /s/ JOSEPH TUNG
---------------------------------------
Joseph Tung
Chief Financial Officer
Date: June 28, 2001
EXHIBITS INDEX
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
4(u) License Agreement dated as of January 16, 2001 between
1st Silicon (Malaysia) Sdn. Bhd. and ASE Electronics
(M) Sdn. Bhd.
4(v) Service Agreement dated as of July 1, 2000 between ASE
Electronics (M) Sdn. Bhd. and ASE (U.S.) Inc.
4(w) Service Agreement dated as of July 1, 2000 between ASE
Test Inc. and ASE (U.S.) Inc.
4(x) Service Agreement dated as of July 1, 2000 between ASE
(Korea) Inc. and ASE (U.S.) Inc.
4(y) Service Agreement dated as of July 1, 2001 between ASE
(Chung-Li) Inc. and ASE (U.S.) Inc.
4(z) Service Agreement dated as of July 1, 2001 between
Advanced Semiconductor Engineering, Inc. and ASE (U.S.)
Inc.
4(aa) Commission Agreement dated as of July 1, 2000 between
ASE Electronics (M) Sdn. Bhd. and Gardex International
Limited.
4(bb) Commission Agreement dated as of July 1, 2000 between
ASE Test Inc. and Gardex International Limited.
4(cc) Commission Agreement dated as of July 1, 2000 between
ASE (Korea) Inc. and Gardex International Limited
4(dd) Commission Agreement dated as of July 1, 2000 between
ASE (Chung Li) Inc. and Gardex International Limited.
4(ee) Commission Agreement dated as of July 1, 2000 between
Advanced Semiconductor Engineering, Inc. and Gardex
International Limited.
4(ff) Land Lease effective July 1, 2000 until June 30, 2010
between ASE Inc. and the Nantze Export Processing Zone.
4(gg) Land Lease effective July 1, 2000 until June 30, 2010
between ASE Inc. and the Nantze Export Processing Zone.
4(hh) Land Lease effective October 1, 2000 until September
30, 2010 between ASE Inc. and the Nantze Export
Processing Zone.
4(ii) Land Lease effective March 16, 2001 until March 15,
2011 between ASE Inc. and the Nantze Export Processing
Zone.
4(jj) Land Lease effective March 1, 2001 until February 28,
2011 between ASE Inc. and the Nantze Export Processing
Zone.
4(kk) First Amendment to Lease Agreement dated June 7, 2000
between ISE Labs, Inc. and RND Funding Company, Inc.
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
4(ll) Sub-lease Agreement dated October 3, 2000 between ISE
Labs Singapore Pte Ltd and Wan Tien Realty (Pte) Ltd.
4(mm) Sub-lease Agreement dated June 3, 1999 between ISE Labs
Singapore Pte Ltd and Wan Tien Realty (Pte) Ltd.
4(nn) Sublease Agreement dated June 2000 between ISE Labs,
Inc. and Cirrus Logic, Inc.
4(oo) Sublease Agreement dated June 2000 between ISE Labs,
Inc. and Cirrus Logic, Inc.
4(pp) Tenancy Agreement dated April 1, 1999 between ISE Labs
(HK) Limited and Hing Seng Plastic Factory Limited.
4(qq) Lease dated September 28, 2000 between ISE Labs Hong
Kong Limited and Shinano Kenshi (HK) Co., Ltd.
4(rr) Lease dated October 20, 2000 between ISE Labs Hong Kong
and Bless Silver Development Limited.
4(tt) Sale and Purchase Agreement between Afasia Knitting
Factory (Malaysia) Sdn. Bhd. and ASE Electronics (M)
Sdn. Bhd. dated February 24, 1997.
8 List of Subsidiaries.