promos technologies inc. · 2007 non-consolidated financial statements and independent auditors’...
TRANSCRIPT
Published Date : April 15, 2008
ANNUAL REPORT 2007
ProMOS Technologies Inc.
Stock Ticker : 5387
This Annual Report being posted on belw:
http://newmops.tse.com.tw
http://www.promos.com.tw
Report to the Shareholders 1
Company Profile 5
Corporate Governance Report 7
Organization System 7
Information on the company’s directors, supervisors, general manager, assistant generalmanagers, deputy assistant general managers, and the supervisors of all the company’s divisionsand branch units 9
The state of the company's implementation of corporate governance 17
Information on CPA professional fees 20
Information on replacement of certified public accountant 21Status of the company's chairperson, general manager, or any managerial officer in charge offinance or accounting matters in the most recent year holding a position at the accounting firm ofits certified public accountant or at an affiliated enterprise of such accounting firm 21Any transfer of equity interests and/or pledge of or change in equity interests by a director,supervisor, managerial officer, or shareholder with a stake of more than 10 percent during themost recent fiscal year or during the current fiscal year up to the date of printing of the annual 21Any of the company's 10 largest shareholders being related parties as defined under theStatement of Financial Accounting Standards No. 6 22The total number of shares and total equity stake held in any single enterprise by the company, itsdirectors and supervisors, managers, and any companies controlled either directly or indirectly bythe company 22
Information on Capital Raising Activities 23Capital and shares 23Issuance of corporate bonds, preferred Shares, global depositary receipts and employee stockwarrants
29Mergers, acquisitions, and issuance of new shares due to acquisition of shares of othercompanies
34Implementation of the company's funds utilization plans 34
Overview of Business Operations 34Description of the business 34Analysis of the market as well as the production and marketing situation 36The information of Employees 40Disbursements for environmental protection 40Labor relations 41Important Contracts 41
Overview of the Financial Status 43
Abbreviated balance sheets and income statements for the past five fiscal years 43
Financial analysis for the past five years 45
Supervisors' report for the most recent year's financial statement 46
Table of Contents
2007 Non-consolidated financial statements and independent auditors’ report 49
2007 consolidated financial statements and independent auditors’ report 111
Financial difficulties 181
Review and Analysis of the Financial Condition, Operating Results and aListing of Risks 181
Financial condition 181
Business performance 182
Cash flow 183
Major capital expenditures 183Reinvestment policy for the most recent fiscal year, the main reasons for the profits/lossesgenerated thereby, the plan for improving re-investment profitability, and investment plans for the 184Risks analysis and assessment during the most recent fiscal year and as of the date of printing ofthe annual report 184
Other important matters 187
Special Items 187
Information related to the company's affiliates 187Information on a private placement of securities during the most recent fiscal year or during thecurrent fiscal year up to the date of printing of the annual report 189Holding or disposal of shares in the company by the company's subsidiaries during the mostrecent fiscal year or during the current fiscal year up to the date of printing of the annual report 189
Other matters that require additional description 189Significant impacts on shareholders ’ equity or securities ’ price pursuant to subparagraph 2 ofparagraph 2 of article 36 of R.O.C. Securities and Exchange Act 189
Report to the Shareholders
Dear Shareholders,
1. Operating results for 2007
A. Review the implementation of the business plan
In 2007, the market price of DRAM mainstream product 512M DDR2
decreased from US$6 to $0.8. Compared with 2006, the market price
declined 86.67% in 2007. Fortunately, in 2007, ProMOS's new main product
70 nm 512M DDR2 start mass production. The new products contributes big
volume and revenue in 2007. Even though the market price reach extremely
low, but the 2007 revenue only decrease 20.77% compare with 2006. The
revenue of ProMOS reached NT$47.59 billion in 2007. The net loss after
tax is NT$7.3 billion, equivalent to loss per share of NT$-1.11.
B. Research and development work
Faced with the stern market condition of 2007, ProMOS responded by
strengthening technology and increasing the product combination of
non-commodity DRAM. Without increasing the spending of capitals, we
accelerated the extension of technology in non-DRAM domains.
i. Strengthening of technology: ProMOS’ factory in the Central Taiwan
Science Park passed the product test and verification for the 70 nm
512Mb DDR2 in the first quarter of 2007 that was technologically
transferred from Hynix Semiconductor. Within 6 months, full scale
volume production began. Both the yield rate and the progress of
volume production have reached the anticipated goal. In addition,
using this technology as basis, we designed the 1Gb DDR2 product
and activated self-developed process shrinkage to reach the goal of
lowering costs. Typically, migrating into a more advanced process
requires the spending of substantial amounts of capital investment to
upgrade the equipments. However, we intended to conduct process
shrinkage by using existing equipments to improve the wafer costs of
production. It is anticipated to commence mass production in the third
quarter of 2008.
ii. Increased product combination of non-standard memory: ProMOS has
the best R&D ability among DRAM companies in Taiwan. In the past
few years, the factory in the Hsinchu Science Park has developed a
series of non-commodity DRAM products such as low power SRDAM
and DDR1. In a time where the market condition is harsh, the
Hsinchu Science Park factory has completely switched to non-DDR2
products to minify the negative impacts.
-1-
iii. Accelerate the technology extension in the non-DRAM domain: Aside
from niche type DRAM, the ProMOS Hsinchu Science Park factory
does not have any significant capital expenditure. It can fully utilize
existing equipments to proceed with diversified technology and product
developments. Examples include developments of products such as
NAND Flash, CMOS image sensor and low-power IC products.
2. Summary of business plan for 2008
A. Business policies
“Quick technology migration to enhance cost constitutional” is still the most
important fundamental strategy. For this year, ProMOS has set 3 goals: (1)
To solidify self-developed 70 nm 10% shrinkage process: mass production
can be implemented starting the third quarter of 2008 to lower costs. (2) To
implement 54 nm technology: in order to improve cost structure and
maximize the investment synergy of the new advanced equipments,
ProMOS decided to transger the 54 nm process technology from Hynix, our
strategic alliance partner. (3) To upgrade manufacturing capability:
ProMOS’ Central Taiwan Science Park wafer fabs currently have the
production capacity to produce 80,000 12-inch wafers per month. In the
future, trial run of 54 nm will be conducted as priority; thereafter, the content
ratio of 54 nm productions will be gradually increased. (4) Strengthen R&D
ability: in addition to developing our own 1 Gb DDR2 DRAM, we have also
cooperated with our strategic partner to extend to product developments
beyond the DRAM. This includes the production and the process
technology development of NAND Flash, LCD driver IC, CMOS image
sensor, one time programmable memory, power IC and products in various
applications. A portion of the products and process will steadily enter into
volume production this year and next year. This will allow ProMOS to
move away from being a pure DRAM company that heavily relies on
technology transfer.
B. Key strategies for sales and production
i. Consistent and dependable DRAM supply
The DRAM industry has been suffering from over-investment since last
year. ProMOS will conduct the most effective and economical
investment planning to achieve capability upgrade along with capacity
expansion in order to provide consistent and dependable reliable
DRAM supply to our customers.
ii. Development of non-PC DRAM market and foundry business
-2-
The commodity Dram always suffers from serious price erosion when
DRAM supply exceeds demand. ProMOS has more than 10%
business from non-PC DRAM applications and specialty memory
foundry. Under the trend of DRAM product diversification, ProMOS
will develop more new products for consumer applications to extend
the lifetime of legacy products and to magnify existing technology
value.
iii. Development of non-DRAM business
ProMOS will pilot run two internally developed NAND flash products
this year. In addition, ProMOS is collaborating with partners to develop
non-memory products/technologies such as LCD driver IC, CMOS
image sensor, one-time-programmable memory, and power IC.
3. Future development strategies
A. Continued cost reduction
ProMOS will introduce 54nm technology to continuously reduce
manufacturing cost.
B. Product diversification
Product diversification will be executed continuously. Besides 1Gb DDR2
and 1Gb DDR3 designed in the afore-mentioned “enhanced 70 nm
technology”, product portfolio will be expanded beyond DRAM. ProMOS
will continue to collaborate with partners to develop products and
technologies of LCD driver IC, CMOS image sensor, one-time-
programmable memory, power IC and others.
C. Enhance technology development
Process technology development activities will expand beyond DRAM as
well. ProMOS’ internal R&D team will involve in the design and process
development of NAND flash, CMOS image sensor and others, in order to
create added system value.
4. The effects of external competition, legal environment, and overall business
environment
A. The effect of external competition
The DRAM market has been suffering from over-investment and serious
price erosion. As a result, capital expenditure has been significantly
reduced in 2008. At the same time, lower price also spurred the
-3-
consumption of DRAM in every electronics system, it reflected the
continuous increase of DRAM loading in each PC system. It is generally
believed that these two trends should bring about DRAM-supply-demand
toward more balanced in the next few quarters.
B. The effect of legal environment
In order to conform to the environmental protection trend and social
responsibility, all ProMOS products now meet RoHS specifications.
Furthermore, starting 2009, all ProMOS products will comply to
Halogen-free policy.
C. The effect of the overall business environment.
Although the subprime mortgage crisis has seriously impacted the
economic growth and consumer confidence level in the US, the rest of the
world, particularly the Asia emerging market, seem to have suffered at a
much lesser degree. This is evident from recently released PC shipment
data in the first quarter. Therefore it would appear that DRAM demand
should be at a healthy level in the second half of 2008.
Min-Liang Chen
Chairman & President
-4-
Company Profile
(1) Company Overview
Established in 1996, ProMOS Technologies is one of the world's leading memory
solution providers. Headquartered in Hsinchu Science Park, Taiwan, the
company has sales offices in Asia Pacific and North America. ProMOS
Technologies is traded on the Taiwan OTC (symbol 5387).
ProMOS Technologies is renowned in the global DRAM industry for its
outstanding performance in technology advancement and manufacturing
efficiency. ProMOS started technology alliance with Hynix Semiconductor, the
world's leading semiconductor memory company, in 2005 and had successfully
transferred both 90 nm and 70 nm process technologies.
ProMOS Technologies operates one 200mm wafer fab (Fab1) and three
advanced 300mm wafer fabs (Fab2, Fab3 and Fab4). Fab1 and Fab2, together
with the headquarters, are located in Hsinchu Science Park, while Fab3 and
Fab4 are located in Central Taiwan Science Park.
ProMOS is the very first DRAM company in Taiwan employing 90 nanometer
process technology to produce high-density DRAM products in 2005, and later
repeated the same feat in 2007 with 70nm technology.
ProMOS Technologies provides complete high-performance and high-density
commodity DRAM memory chips as well as pseudo-SRAM, low power SDRAM
products. The company sells and markets its own-branded products "ProMOS"
to worldwide first-tier system houses. ProMOS Technologies has been awarded
by its customers for "The Best DRAM Quality Supplier" for years.
(2) Company History
1996 Company established 1997 0.35um qualification 1998 0.25um 64Mb SDRAM mass production 1999 0.20um 64Mb SDRAM mass production ProMOS listed on GreTai Securities Market 2000 0.17um 128Mb SDRAM mass production 2001 12 inch wafer out with yielding dice
-5-
0.14um 256Mb mass production 2002 12 inch wafer fab at Hsinchu Science Park mass production 2003 256Mb passed qualification by INTEL 512Mb passed qualification by INTEL
Consolidate MVG's core DRAM proprietary to be a comprehensive memory solution provider with R&D, brand name, marketing & sales capabilities
Hynix Semiconductor and ProMOS Technologies signed "Technology Licensing Agreement "
Formed Advanced Technology Research and Development Center 2004
ProMOS 12 inch wafer fab at Central Taiwan Science Park commenced ground breaking
Self-developed 0.12um 256Mb DDR DRAM passed OEM customers' product qualification
2005
ProMOS inaugurated second 300mm wafer fab (Fab3), mass production of 90nm stack technology node
Hynix Semiconductor and ProMOS Technologies signed contract for long-term strategic alliance
2006 ProMOS third 300mm wafer fab (Fab4) Groundbreaking Ceremony 2007
ProMOS third 300mm wafer fab (Fab4) commences mass production of 70nm stack technology node
Product Development Center founded
-6-
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B. The tasks of principal divisions
President To lead and manage company’s operation in scope of business promulgation, strategy planning and technology development.
HSIP Operation Group
To manage manufacturing, capacity planning, production efficiency upgrading, production cost decreasing, new technology and new product introducing into production line in HSIP.
CTSIP Operation Group
To manage manufacturing, capacity planning, production efficiency upgrading, production cost decreasing, new technology and new product introducing into production line in CTSIP.
R & D Units To develop advanced technology, upgrade product yield and design new products.
Product Engineering Group
To manage product testing analysis and technology engineering development.
Design Center To provide product design service to foundry customers with ProMOS unique technologies.
Tech. Development Group
To reach utmost production efficiency by developing new process and product technology
New Business Development Unit
To expand business and marketing objectives and develop production technology for new products.
G & A / Financial Group
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QRA Group To ensure product quality and reliability meeting customers’ requirements through promulgating company’s policies, controlling and monitoring the production output.
Sales & Marketing Group
In charge of Sales, Marketing Strategy, and Product Planning.
ITM Division To provide manufacturing automation and support network & management information system.
Strategic Alliance Division
To expand business scope with strategic partners.
Strategic Operation Planning Division
Optimize the product mix of company.
Environment/ Safety/ Health
To set up safety and health system for environment and employees, enhance pollution prevention and waste management.
Internal Audit To meet the requirement of law and government regulations, and ensure the goal achievement of the established operational procedures, policies and plans, the accuracy of operational data, as well as the efficiency and the effectiveness of the procedures. Enhance the evaluation and assessment of operations.
-8-
(2)
Info
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on th
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its
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Boa
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D
ate:
Apr
. 15,
200
8
Not
e 1:
Rep
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of c
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sha
reho
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N
ote
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ou D
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ased
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.05.
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Ph.
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ngin
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niv.
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gers
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roje
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anag
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t A
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ab
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irm
an o
f M
osel
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resi
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sing
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aste
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osel
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ice
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en M
ei
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-
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-
Ph.
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s
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er F
ab D
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ufac
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MO
S
Sen
ior
Vic
e P
resi
dent
for
M
anuf
actu
ring
Uni
ts o
f P
roM
OS
E
xecu
tive
Vic
e P
resi
dent
of
New
B
usin
ess
Dev
elop
men
t U
nits
- -
-
Dir
ecto
r R
ebec
ca T
ang
2005
.05.
04
3 20
05.0
5.04
1,
115
0.03
%
1,13
8 0.
02%
-
- -
- M
aste
r, E
lect
rica
l Eng
inee
ring
, Uni
v. o
f Il
linoi
s
Vic
e P
resi
dent
for
R&
D G
roup
of
Pro
MO
S
Pre
side
nt o
f M
osel
-
- -
Dir
ecto
r Y
en-S
han
Chu
ng
( N
ote
1 )
2005
.05.
04
3 20
05.0
5.04
59
5,96
6 13
.39%
65
1,25
2 9.
71%
-
- -
- M
aste
r, E
lect
rica
l Eng
inee
ring
, Tex
as U
nive
rsit
y P
resi
dent
of
Nan
ya
Cha
irm
an &
Pre
side
nt o
f N
ulig
ht
Tec
hnol
ogy
Cor
p.
- -
-
Dir
ecto
r Je
ssie
Pen
g (
Not
e 2
) 20
05.0
5.04
3
2003
.01.
10
7,37
1 0.
21%
23
4,02
8 3.
49%
-
- -
- M
aste
r, F
inan
ce, C
ity
Uni
vers
ity
of N
ew Y
ork
Pre
side
nt o
f P
roM
OS
Tec
hnol
ogie
s P
TE
. Ltd
. D
irec
tor
for
G&
A D
ivis
ion
of M
osel
Vic
e P
resi
dent
for
G&
A G
roup
of
Pro
MO
S
- -
-
Dir
ecto
r P
aul S
.P. H
su
2005
.05.
04
3 20
05.0
5.04
-
- -
- -
- -
-
Mas
ter
, Law
, New
Yor
k U
nive
rsit
y S
choo
l of
Law
M
aste
r, D
iplo
mac
y, F
letc
her
Sch
ool o
f L
aw a
nd
Dip
lom
acy,
Tuf
ts U
nive
rsit
y.
Sen
ior
part
ner
of L
ee &
Li A
ttor
neys
-at -
law
Cha
irm
an a
nd C
EO
of
PH
YC
OS
In
tern
atio
nal C
O.,
Ltd
. -
- -
Inde
pend
ent
Dir
ecto
r C
hung
-Hsi
n L
ee
2005
.05.
04
3 20
05.0
5.04
-
- -
- -
- -
-
Ph.
D.,
Ele
ctri
cal E
ngin
eeri
ng, S
UN
Y U
nive
rsit
y at
B
uffa
lo
Cha
irm
an o
f The
rmo
Ele
ctro
n C
orp.
Dir
ecto
r of
Chi
pbon
d T
echn
olog
y C
orp.
-
- -
Inde
pend
ent
Dir
ecto
r C
hika
gam
i Y
asus
hi
2005
.05.
04
3 20
05.0
5.04
-
- -
- -
- -
- M
aste
r, A
gric
ultu
ral M
achi
nery
, Tok
yo U
nive
rsit
y P
resi
dent
of A
rise
Gro
up
- -
-
Sup
ervi
sor
Ted
Hsi
ao
2005
.05.
04
3 20
05.0
5.04
-
- -
- 10
-
- -
Mas
ter,
Ele
ctri
cal E
ngin
eeri
ng, T
exas
sta
te u
nive
rsit
y S
enio
r V
ice
Pre
side
nt o
f TE
CO
Ele
ctri
c &
Mac
hine
ry
Co.
, Ltd
.
Cha
irm
an o
f Ton
g S
eng
App
lied
Mat
eria
l Inc
. Cha
irm
an o
f AS
T
Tec
hnol
ogy
Inc.
,
Cha
irm
an o
f P
&W
Tec
hnol
ogy
Inc.
- -
-
Sup
ervi
sor
Ter
-Cha
o P
eng
2005
.05.
04
3 20
05.0
5.04
26
0%
28
-
98
- -
- P
h. D
., E
cono
mic
s, A
ubur
n U
nive
rsit
y
Ass
ocia
te P
rofe
ssor
in t
he
Eco
nom
ics
Dep
artm
ent o
f Fe
ng
Chi
a U
nive
rsit
y
- -
-
Sup
ervi
sor
Cho
n-S
hin
Jou
( N
ote
2 )
20
05.0
5.04
3
2003
.01.
10
7,37
1 0.
21%
23
4,02
8 3.
49%
-
- -
-
Ph.
D.,
Poly
mer
Sci
ence
and
Che
mic
al E
ngin
eeri
ng,
Uni
v. O
f M
assa
chus
etts
at A
mhe
rst
Dir
ecto
r fo
r Pr
oduc
tion
Div
isio
n of
Mos
el
Vic
e P
resi
dent
for
Waf
er F
ab o
f M
osel
-
- -
-9-
Major Shareholders of Institutional Shareholders Date：Apr. 15, 2008
Statutory Shareholders Major Shareholders of Institutional Shareholders Mosel Vitelic Inc. Ontadon Investments S.A.(4.29%) / TOP GUIDANCE HOLDINGS
LIMITED(3.23%) / Prodigy Consultants Limited(2.57%) / iShares MSCI Emerging Markets Fund (1.00%)/ Bernadine International S.A. (1.80%) / Mou-Fu Investments Co., Limited (1.55%) / Kuo Hua Life Insurance (1.23%) / Chiu Zhen Fung (1.03%) / Naorai Co., Limited (1.22%) / Jia-Fu Wang (0.95%)
Bou Da Investment Ltd Mou-Fu Investments Co., Limited(49.92%) / Mosel Vitelic Inc. (46.71%) / Tiger Success Limited (3.37%)
Major Institutional Shareholders of Institutional Shareholders Date：Apr. 15, 2008
Major Shareholders of Institutional Shareholders
Major Institutional Shareholders of Institutional Shareholders
Ontadon Investments S.A. Karl-Heinz Hemmerle
Prodigy Consultants Limited Lo Gar Ling Bernadine International S.A. James Chien-Tien Wang/Pang Pui.Lin/Lo Gar Ling Mou-Fu Investments Co., Limited Mosel Vitelic Inc.
ii. Independence Analysis of Board members Under SFB Taiwan Criteria
Note 1: Please mark “�”if each director or supervisor is in accordance with conditions listed below 2 years before being elected or during the tenure. ( 1 ) Not an employee of the Company or its affiliated companies ( 2 ) Not a director or supervisor of the Company or its affiliated companies (excluding independent directors of the Company, its affiliated companies or subsidiaries whose more than 50% of issued shares with voting rights directly or indirectly held by the Company ) ( 3 ) Not shareholders of natural persons held by directors/supervisors and their spouses, children of minor age, and other persons holding shares in their name owning more than 1% of the Company’s issued shares or one of the Company’s top 10 shareholders ( 4 ) Neither their spouse nor relatives within second-degree or fifth-degree of linear consanguinity with persons listed on the first three columns ( 5 ) Not directors, supervisors or employees of institutional shareholders which directly own more than 5% of the Company’s issued shares or one of the Company’s top 5
shareholders ( 6 ) Not a director, supervisor, manager or shareholder holding more than 5% of the outstanding shares of certain companies or institutions witch have financial or business
relationship with the Company ( 7 ) Not an owner, partner, director, supervisor, manager of any sole proprietor, partnership, company or institution and his/her spouse, which provided business, legal, finance and accounting consultation and services to the Company or its affiliated companies ( 8 ) No other Officers, Directors or Supervisors are spouse or within second-degree relative of consanguinity to each other ( 9 ) Not violating circumstances regulated by Company Law No 30 (10) Not elected as a representative of the government and institutions regulated by Company Law No 27
With experience for more than five years and with the following professional expertise
Independence ( Note 1 )
Serve in an independent
director of other public offering
companies as a second job
In business, legal,
finance, accounting or above an instructor of college related to the
business of the Company
A justice, attorney, lawyer or other specialized occupations and technicians qualified by nation-wide test and related to areas required by the business of the Company
In business, legal, finance, accounting or areas required by the business of the
Company
( 1 ) ( 2 ) ( 3 ) ( 4 ) ( 5 ) ( 6 ) ( 7 ) ( 8 ) ( 9 ) (10 )
Director M.L. Chen � � � � � � � Director Hsing Tuan � � � � � � � Director Len Mei � � � � � � � � � Director Yen-Shan Chung � � � � � � Director Paul S.P. Hsu � � � � � � � � � � Director Chikagami Yasushi � � � � � � � � � � �
Concurrently as an independent director for another company
Director Chung-Hsin Lee � � � � � � � � � � �
Director Jessie Peng � � � � � � Director Rebecca Tang � � � � � �
� �
Supervisor Ted Hsiao � � � � � � � � � � Supervisor Ter-Chao Peng � � � � � � � � � � Supervisor Chon-Shin Jou � � � � � �
-10-
The
Gen
eral
Man
ager
, Ass
ista
nt G
ener
al M
anag
ers,
Dep
uty
Ass
ista
nt G
ener
al M
anag
ers,
and
the
Chi
efs
of a
ll th
e
Com
pany
's D
ivis
ions
and
Bra
nch
Uni
ts
Dat
e：A
pr. 1
5, 2
008
Cur
rent
S
hare
hold
ing
(Tho
usan
ds
of s
hare
s)
Spo
use
&
Min
or
Sha
reho
ldin
g (T
hous
ands
of
sha
res)
Sha
reho
ldin
g in
oth
ers’
na
me
(Tho
usan
ds
of s
hare
s)
Man
ager
s ar
e sp
ouse
or
rela
tives
w
ithin
sec
ond-
degr
ee
to e
ach
othe
r T
itle
Nam
e Te
nure
Sin
ce
No.
of
Sha
res
%
No.
of
Sha
res
%
No.
of
Sha
res
%
Edu
catio
n &
Exp
erie
nce
Oth
er T
itle
Titl
e N
ame
Rel
atio
n -s
hip
Pre
side
nt M
.L. C
hen
1997
.01.
01
7,92
8 0.
12%
13
0 -
- -
Ph.
D.,
Ele
ctric
al E
ngin
eerin
g, U
niv.
of R
utge
rs
Pro
ject
Man
ager
at
AT
&T
Bel
l Lab
C
hairm
an o
f Mos
el,
-
- -
Exe
cutiv
e V
ice
Pre
side
nt H
sing
Tua
n
2005
.12.
21
693
0.01
%
- -
- -
Mas
ter
Deg
ree,
Eng
inee
ring,
Uta
h S
tate
Uni
v.
Vic
e P
resi
dent
, Mos
el-V
itelic
Inc.
D
irect
or o
f Mos
el,
- -
-
Exe
cutiv
e V
ice
Pre
side
nt Le
n M
ei
1997
.10.
01
2,29
9 0.
03%
-
- -
-
Ph.
D.,
Mat
eria
l Sci
ence
, Uni
v. o
f Illi
nois
W
afer
Fab
Dire
ctor
of R
eadr
ite
- -
- -
Vic
e P
resi
dent
Jess
ie
Pen
g 20
05.1
2.16
40
0 0.
01%
22
9 -
- -
Mas
ter,
Fin
ance
, City
Uni
vers
ity o
f New
Yor
k P
resi
dent
of P
roM
OS
Tec
hnol
ogie
s P
TE
. Ltd
. D
irect
or, M
osel
-Vite
lic In
c.
- -
- -
Vic
e P
resi
dent
Ben
Tse
ng
2005
.06.
01
352
0.01
%
45
- -
-
Ph.
D.,E
lect
rical
Eng
inee
ring,
Uni
v. o
f Sou
th
Car
olin
a A
ssis
tant
Pro
fess
or, S
anta
Cla
ra U
niv.
R
&D
Dep
artm
ent m
anag
er, A
MD
V
ice
Pre
side
nt o
f R&
D, P
ower
chip
Sem
icon
duct
or
Sen
ior A
dvis
or, T
EC
O G
roup
- -
- -
Vic
e P
resi
dent
Li C
hun
Li
2005
.12.
16
654
0.01
%
- -
- -
B.S
., E
lect
rical
Eng
inee
ring,
UC
Ber
kele
y U
nive
rsity
V
ice
Pre
side
nt o
f Pro
duct
Dev
elop
men
t M
osel
-Vite
lic In
c.
- -
- -
Vic
e P
resi
dent
J. T
. Lin
20
06.0
4.13
84
0 0.
01%
70
-
- -
M.S
., M
etal
lurg
y E
ngin
eerin
g, S
teve
ns In
stitu
te o
f T
echn
olog
y
Dire
ctor
of F
ab O
pera
tion
Div
isio
n at
UM
C
Sin
gapo
re B
ranc
h (U
nite
d M
icro
elec
tron
ics
Cor
p.)
- -
- -
Vic
e P
resi
dent
Chi
h-H
uang
C
hen
2007
.02.
29
- -
- -
- -
B.S
., P
hysi
cs, T
ung-
Hai
Uni
vers
ity
Gen
eral
Man
ager
of P
rodu
ct T
echn
olog
ies
Div
isio
n, T
rece
nti T
echn
olog
ies
Boa
rd D
irect
or, T
rece
nti T
echn
olog
ies
Boa
rd D
irect
or a
nd V
ice
Pre
side
nt, U
MC
Jap
an
-11-
i. R
emun
erat
ion
Pai
d to
Dire
ctor
s in
200
7
Uni
t: T
hous
ands
of N
TD
/Tho
usan
ds o
f sha
res
Not
e 1:
The
rep
rese
ntat
ive
of a
n in
stitu
tiona
l sha
reho
lder
, Mos
el V
itelic
Inc.
N
ote
2: T
he r
epre
sent
ativ
e of
an
inst
itutio
nal s
hare
hold
er,,
Bou
Da
Inve
stm
ent L
td.
Rem
uner
atio
n P
aid
to D
irect
ors
Rem
uner
atio
n P
aid
to E
mpl
oyee
s as
a s
econ
d jo
b C
ompe
nsat
ion
(A)
Dire
ctor
Pro
fit
Sha
ring
(B)
E
xpen
ses
from
P
rofe
ssio
nal
Pra
ctic
e (C
)
Tot
al A
mou
nt P
aid
from
Item
(A)
to
Item
(C)
as %
of 2
007
Net
Inco
me
Afte
r T
ax
Sal
ary,
Rew
ard
and
Spe
cial
D
isbu
rsem
ent (
D)
Em
ploy
ee B
onus
from
Pro
fit
Sha
ring
(E
)
Ava
ilabl
e S
hare
s fo
r E
mpl
oyee
Sto
ck
Opt
ion
Pro
gram
(F
)
Tot
al A
mou
nt P
aid
from
Item
(A)
to
Item
(E)
as %
of 2
007
Net
Inco
me
Afte
r T
ax
Sta
nd A
lone
C
onso
lidat
ed
Title
N
ame
Sta
nd
Alo
ne C
onso
li-da
ted
Sta
nd
Alo
ne C
onso
li -d
ated
S
tand
A
lone
Con
soli-
date
d S
tand
A
lone
C
onso
li-da
ted
Sta
nd
Alo
ne C
onso
li-da
ted
Cas
h B
onus
Sto
ck
Bon
us
Cas
h B
onus
Sto
ck
Bon
us S
tand
A
lone
Con
soli-
date
d S
tand
A
lone
C
onso
li-da
ted
Rem
uner
atio
n P
aid
from
O
ther
R
einv
estm
ent
Com
pani
es
Exc
ept
Sub
sidi
ary
Com
pani
es
Cha
irman
M
. L. C
hen
Dire
ctor
H
sing
Tua
n
Dire
ctor
Le
n M
ei
Dire
ctor
R
ebec
ca
Teng
Dire
ctor
P
aul S
.P.
Hsu
Dire
ctor
Ye
n-S
han
Chu
ng
(Not
e 1)
Dire
ctor
Je
ssie
P
eng
(Not
e 2)
Inde
pend
ent
Dire
ctor
C
hung
- Hsi
n Le
e
Inde
pend
ent
Dire
ctor
C
hika
gam
i Ya
sush
i
5,60
5 5,
605
- -
840
840
-0.0
9%
-0.0
9%
5,42
7 26
,009
-
- -
- 1,
515
1,
515
-0.1
6%
-0.4
4%
-
-12-
Ran
ge o
f Rem
uner
atio
n pa
id to
Dire
ctor
s in
200
7
Nam
e of
Dire
ctor
s T
otal
Am
ount
Pai
d fr
om th
e F
irst T
hree
Item
s(A
+B
+C
) T
otal
Am
ount
Pai
d fr
om th
e F
irst T
hree
Item
s (A
+B
+C
+D
+E
) R
ange
P
roM
OS
Con
solid
ated
Pro
MO
S
C
onso
lidat
ed
Und
er N
T$2
,000
,000
Hsi
ng T
uan
/ Len
Mei
/ R
ebec
ca
Teng
/ P
aul S
.P. H
su /
Yen-
Sha
n C
hung
(N
ote1
) / J
essi
e P
eng
(Not
e 2)
/ C
hung
-Hsi
n Le
e /
Chi
kaga
mi Y
asus
hi
Hsi
ng T
uan
/ Len
Mei
/ R
ebec
ca
Teng
/ P
aul S
.P. H
su /
Yen-
Sha
n C
hung
(N
ote
1) /
Jess
ie P
eng
(Not
e 2)
/ C
hung
-Hsi
n Le
e /
Chi
kaga
mi Y
asus
hi
Hsi
ng T
uan
/ Len
Mei
/ R
ebec
ca
Teng
/ P
aul S
.P. H
su /
Yen-
Sha
n C
hung
(N
ote
1) /
Chu
ng-H
sin
Lee
/ Chi
kaga
mi Y
asus
hi/ J
essi
e P
eng
(Not
e 2)
Reb
ecca
Ten
g / P
aul S
.P. H
su /
Yen-
Sha
n C
hung
(N
ote1
) /
Chu
ng-H
sin
Lee
/ Chi
kaga
mi
Yasu
shi/
Jess
ie P
eng
(Not
e 2)
NT
$2,0
00,0
00～
NT
$5,0
00,0
00 M
. L. C
hen
M. L
. Che
n
NT
$5,0
00,0
00～
NT
$10,
000,
000
M. L
. Che
n
Hsi
ng T
uan
/ Len
Mei
NT
$10,
000,
000～
NT
$15,
000,
000
M
. L. C
hen
NT
$15,
000,
000～
NT
$30,
000,
000
NT
$30,
000,
000～
NT
$50,
000,
000
NT
$50,
000,
000～
NT
$100
,000
,000
O
ver
NT
$100
,000
,000
T
otal
9
9 9
9 N
ote
1: T
he r
epre
sent
ativ
e of
an
inst
itutio
nal s
hare
hold
er, M
osel
Vite
lic In
c.
Not
e 2:
The
rep
rese
ntat
ive
of a
n in
stitu
tiona
l sha
reho
lder
,, B
ou D
a In
vest
men
t Ltd
-13-
ii.
Rem
uner
atio
n pa
id to
Sup
ervi
sors
in 2
007
U
nit:
Tho
usan
ds o
f NT
D /
Tho
usan
ds o
f Sha
res
Not
e 1:
The
rep
rese
ntat
ive
of a
n in
stitu
tiona
l sha
reho
lder
,, B
ou D
a In
vest
men
t Ltd
.
Ran
ge o
f Rem
uner
atio
n pa
id to
Sup
ervi
sors
in 2
007
Nam
e of
Sup
ervi
sors
Tot
al A
mou
nt P
aid
from
the
Firs
t Thr
ee It
ems(
A+B
+C
)
Ran
ge
Pro
MO
S
Con
solid
ated
Und
er N
T$2
,000
,000
Te
d H
siao
/ Te
r-C
hao
Pen
g / C
hon-
Shi
n Jo
u (N
ote1
) Te
d H
siao
/ Te
r-C
hao
Pen
g / C
hon-
Shi
n Jo
u (N
ote1
) N
T$2
,000
,000～
NT
$5,0
00,0
00
NT
$5,0
00,0
00～
NT
$10,
000,
000
NT
$10,
000,
000～
NT
$15,
000,
000
NT
$15,
000,
000～
NT
$30,
000,
000
NT
$30,
000,
000～
NT
$50,
000,
000
NT
$50,
000,
000～
NT
$100
,000
,000
O
ver
NT
$100
,000
,000
T
otal
3
3 N
ote
1: T
he r
epre
sent
ativ
e of
an
inst
itutio
nal s
hare
hold
er, .
Bou
Da
Inve
stm
ent L
td.
Rem
uner
atio
n P
aid
to S
uper
viso
rs
Com
pens
atio
n (A
) S
uper
viso
r P
rofit
Sha
ring
(B)
E
xpen
ses
from
Pro
fess
iona
l P
ract
ice
(C)
Tot
al A
mou
nt P
aid
from
Ite
m(A
) to
Item
(C)
as %
of
2007
Net
Inco
me
Afte
r T
ax
Titl
e N
ame
Sta
nd A
lone
C
onso
lidat
ed
Sta
nd A
lone
C
onso
lidat
ed
Sta
nd A
lone
C
onso
lidat
ed
Sta
nd A
lone
C
onso
lidat
ed
Rem
uner
atio
n fr
om O
ther
R
einv
estm
ent
Com
pani
es
Exc
ept
Sub
sidi
arie
s
Sup
ervi
sor
Te
d H
siao
S
uper
viso
r Te
r-C
hao
Pen
g
Sup
ervi
sor
Cho
n-S
hin
Jou
(Not
e 1
)
- -
- -
360
360
-0.0
05%
-0
.005
%
-
-14-
iii.
Com
pens
atio
n P
aid
to P
resi
dent
and
Vic
e P
resi
dent
s in
200
7
Uni
t: T
hous
ands
of N
TD
/ T
hous
ands
of S
hare
Sal
ary(
A)
Exp
ense
s fr
om
Pro
fess
iona
l Pra
ctic
e(B
) E
mpl
oyee
Pro
fit S
harin
g(C
)
Tot
al
Com
pens
atio
n P
aid
to D
irect
ors
as%
of 2
007
Net
In
com
e
Ava
ilabl
e S
hare
s fo
r E
mpl
oyee
Sto
ck
Opt
ion
Pro
gram
Sta
nd A
lone
C
onso
lidat
ed
Titl
e N
ame
Sta
nd
Alo
ne
Con
soli-
da
ted
Sta
nd
Alo
ne
Con
soli-
da
ted
Cas
h S
tock
C
ash
Sto
ck
Sta
nd
Alo
ne
Con
soli-
da
ted
Sta
nd
Alo
ne
Con
soli-
da
ted
Rem
uner
atio
n fr
om O
ther
R
einv
estm
ent C
ompa
nies
E
xcep
t Sub
sidi
arie
s
Pre
side
nt
M.L
. Che
n
Exe
cutiv
e V
.P.
Hsi
ng T
uan
E
xecu
tive
V.P
. P
resi
dent
Len
Mei
Vic
e P
resi
dent
B
en T
seng
Vic
e P
resi
dent
Je
ssie
Pen
g
Vic
e P
resi
dent
J.
T. L
in
Vic
e P
resi
dent
Li
Chu
n Li
Vic
e P
resi
dent
C
hih-
Hua
ng
Che
n
14,8
60
46,9
15
6,30
9 6,
309
-
-
- -
-0.2
9%
-0.7
3%
2,46
5 2,
465
-
R
ange
of R
emun
erat
ion
paid
to P
resi
dent
and
Vic
e P
resi
dent
s in
200
7
N
ame
of P
resi
dent
and
Vic
e P
resi
dent
s R
ange
P
roM
OS
C
onso
lidat
ed
Und
er N
T$2
,000
,000
H
sing
Tua
n, L
en M
ei, L
i Chu
n Li
, Chi
h-H
uang
Che
n C
hih-
Hua
ng C
hen
NT
$2,0
00,0
00～
NT
$5,0
00,0
00
Ben
Tse
ng
NT
$5,0
00,0
00～
NT
$10,
000,
000
M.L
. Che
n, J
essi
e P
eng,
J. T
. Lin
M
.L. C
hen,
Hsi
ng T
uan,
Len
Mei
, Ben
Tse
ng,
Jes
sie
Pen
g, L
i Chu
n Li
, J. T
. Lin
NT
$10,
000,
000～
NT
$15,
000,
000
NT
$15,
000,
000～
NT
$30,
000,
000
NT
$30,
000,
000～
NT
$50,
000,
000
NT
$50,
000,
000～
NT
$100
,000
,000
O
ver
NT
$100
,000
,000
T
otal
8
8
-15-
iv.
Em
ploy
ee B
onus
Gra
nted
to M
anag
emen
t Tea
m
U
nit：
Tho
usan
ds o
f NT
D/ T
hous
ands
of S
hare
s
T
itle
Nam
e
Sto
ck B
onus
C
ash
Bon
us
Tota
l Am
ount
of
Em
ploy
ee B
onus
to
Man
agem
ent T
eam
Tota
l Am
ount
of E
mpl
oyee
B
onus
to M
anag
emen
t Tea
m
as %
of N
et In
com
e (
% )
P
resi
dent
M
.L. C
hen
Exe
cutiv
e V
ice
Pre
side
nt
Hsi
ng T
uan
Exe
cutiv
e V
ice
Pre
side
nt
Len
Mei
V
ice
Pre
side
nt
Ben
Tse
ng
Vic
e P
resi
dent
Je
ssie
Pen
g V
ice
Pre
side
nt
J. T
. Lin
V
ice
Pre
side
nt
Li C
hun
Li
Vic
e P
resi
dent
C
hih-
Hua
ng C
hen
Dire
ctor
Acc
ount
ing
Dep
t. S
andr
a C
hen
Man
agem
ent
Team
Dire
ctor
Fin
ance
Dep
t. M
onic
a F
an
- -
- -
v.
Dur
ing
the
past
two
fisca
l yea
rs, t
he c
ompa
rison
and
des
crip
tion
of to
tal r
emun
erat
ion
as a
per
cent
age
of n
et
inco
me
as p
aid
by th
e co
mpa
ny to
its
dire
ctor
s, s
uper
viso
rs, t
he g
ener
al m
anag
er, a
nd a
ssis
tant
gen
eral
m
anag
ers;
and
rem
uner
atio
n po
licie
s, s
tand
ards
, and
pac
kage
s, th
e pr
oced
ure
for
setti
ng r
emun
erat
ion,
and
lin
kage
to p
erfo
rman
ce:
F
or 2
007
and
2006
, tot
al a
mou
nt o
f rem
uner
atio
n pa
id b
y P
roM
OS
and
all
com
pani
es li
sted
in th
e co
nsol
idat
ed in
depe
nden
t aud
it re
port
was
-0.
38%
and
2.4
% o
f net
inco
me
afte
r ta
x fo
r 20
07 a
nd 2
006,
indi
vidu
ally
. Pro
MO
S p
aid
rem
uner
atio
ns to
peo
ple
liste
d ab
ove
acco
rdin
g to
Pro
MO
S’ A
rtic
les
of In
corp
orat
ion
and
Reg
ulat
ions
of s
alar
y m
anag
emen
t and
pay
men
t.
-16-
(3) The State of the Company's Implementation of Corporate Governance
A. The State of Operations of the Board of Directors
Number of meetings 10 (A) (01/01/2006 ~ 04/15/2007)：
Title Name
Number of
Attendance Ｂ
Number of Authorization
Attendance rate of director (%)
【Ｂ/Ａ】 Remark
Chairman M.L.Chen 10 0 100% -
Director Hsing Tuan 8 2 80% -
Director Len Mei 9 1 90% -
Director Mosel Vitelic Inc. Representative: Yen-Shan Chung 9 0 90% -
Director Paul S.P. Hsu 8 2 80% -
Director Bou Da Investment Ltd. Representative：Jessie Peng
9 1 90% -
Director Rebecca Teng 7 3 70% -
Independent Director
Chikagami Yasushi 6 2 60% -
Independent Director
Chung-Hsin Lee 5 3 50% -
Supervisor Ted Hsiao 7 0 70% -
Supervisor Bou Da Investment Ltd. Representative： Chon-Shin Jou 9 0 90% -
Supervisor Ter-Chao Peng 6 0 60% -
B. The State of Operations of the Audit Committee : not applicable
-17-
C. The State of the Company's Implementation of Corporate Governance, any Departure of Such Implementation from the Corporate Governance Best-Practice Principles for TSEC/GTSM Listed Companies, and the reason for any such departure
Item Current status Explanation for
incompletion
1. Shareholding Structure & Shareholders’ Rights
(1) The way of handling shareholder suggestion or disputes
(2) The Company’s possession of major
shareholder’s list and the list of ultimate owners of these major shareholders
(3)Risk Management Mechanism and Fire Wall
between the Company and its affiliates
(1) The Company has designated specific
personnel to handle stockholders’ recommendation and disputes.
(2) The Company has access to the list of major stock holders who have management control over the Company at any time
(3) ProMOS has established appropriate policy and procedures.
None None None
2. Composition and Responsibilities of the Board of Directors (1) Independent Directors (2)Regular evaluation of external auditors’ independency
(1)The Company had elected 2
independent directors in 2005. (2)The Company’s independent auditor
(certifying CPA) is appointed by the resolution of the board.
None None
3. Composition and Responsibilities of Supervisors
(1) Independent Supervisor(s) (2) Communication channel with employees or
shareholders
(1)The Company had elected 1
independent supervisor in 2005. (2) If needed, Company employees and
shareholders can contact the supervisor at any time.
None None
4. Communication channels established for stakeholders
If needed, stakeholders can contact the Company at any time.
None
5. Information Disclosure (1) Establishment of corporate website to
disclose information regarding the Company’s financials, business and corporate governance status
(2) Other information disclosure channels (e.g. English website, appointing responsible people to handle information collection and disclosure, appointing spokesperson, web-casting investors conference)
(1) The Company has set up a website
and Disclosed related information on it.
(2) The Company has designated a
person to be in charge of collecting and disclosing Company information and implemented the spokesperson system.
None None
6. Operations of the Company’s audit committee and other committees of the Board Directors
None None
7. If the Company has established corporate governance policies based on TSE Corporate Governance Best Practice Principles, pleased describe discrepancy between the policies and their implementation: The Company had not established corporate governance policies in 2007.
8. Implementation of social responsibilities (e.g. human rights, employees’ interests, environmental protection, community participation, suppliers’ relationship and stakeholders’ rights and interests, etc.): The Company keeps developing the technology and proposes the best solution to the industry in order to provide the suitable and the best service to the human beings. We attend public welfare and serve the minority in order to feedback the society and contribute what enterprise need to do for the country.
9.Other material information helpful for others to gain knowledge of the Company’s status of corporate governance
practice (e.g. the continuing education of directors and supervisors, attendance of board meetings by directors and supervisors, implementation of risk management policy and risk measure standards, implementation of consumer protection or customer policy, directors withdrawing themselves from motions in which they have a stake, purchase of liability insurance for directors and supervisors, etc.): Information concerning the purchase of liability insurance for directors and supervisors has been executed.
10.If there is a assessment report of corporate governance prepared by the Company itself or other professional institutions, it should include descriptions of results, major defects (or suggestions) and improvements: None.
D. Disclosure of How These Are to Be Searched If the Company Has Adopted Corporate
Governance Best-practice Principles or Related Bylaws : Not applicable
-18-
E. Disclosure of Other Significant Information That Will Provide a Better Understanding of the State of the Company's Implementation of Corporate Governance : None
F. The State of Implementation of the Company's Internal Control System
a. Internal Control Announcement
PROMOS Technologies, Inc.
Internal Control Statement Date:21.Mar.2008
The Company states the following with regard to its internal control system during the period from 01.Jan.2007 to 31.Dec.2007, based on the findings of a self-evaluation:
1. The Company is fully aware that establishing, operating, and maintaining an internal control system are the responsibility of its Board of Directors and management. The Company has established such a system aimed at providing reasonable assurance of the achievement of objectives in the effectiveness and efficiency of operations (including profits, performance, and safeguard of asset security), reliability of financial reporting, and compliance with applicable laws and regulations.
2. An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can provide only reasonable assurance of accomplishing the three goals mentioned above. Furthermore, the effectiveness of an internal control system may change along with changes in environment or circumstances. The internal control system of the Company contains self-monitoring mechanisms, however, and the Company takes corrective actions as soon as a deficiency is identified.
3. The Company judges the design and operating effectiveness of its internal control system based on the criteria provided in the Regulations Governing the Establishment of Internal Control Systems by Public Companies promulgated by the Securities and Futures Commission, Ministry of Finance (hereinbelow, the “Regulations”). The internal control system judgment criteria adopted by the Regulations divide internal control into five elements based on the process of management control: 1. control environment 2. risk assessment 3. control activities 4. information and communications 5. monitoring. Each element further contains several items. Please refer to the Regulations for details.
4. The Company has evaluated the design and operating effectiveness of its internal control system according to the aforesaid criteria.
5. Based on the findings of the evaluation mentioned in the preceding paragraph, the Company believes that during the stated time period its internal control system (including its supervision of subsidiaries), encompassing internal controls for knowledge of the degree of achievement of operational effectiveness and efficiency objectives, reliability of financial reporting, and compliance with applicable laws and regulations, was effectively designed and operating, and reasonably assured the achievement of the above-stated objectives.
6. This Statement will become a major part of the content of the Company's Annual Report and Prospectus, and will be made public. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171, and 174 of the Securities and Exchange Law.
7. This statement has been passed by the Board of Directors Meeting of the Company held on 21.Mar.2008, where ○ of the ○ attending directors expressed dissenting opinions, and the remainder all affirmed the content of this Statement.
PROMOS Technologies, Inc.
Chairman:
President:
b. Independent Auditor’s Review Report of Internal Control System: None.
-19-
G. Disclose of any sanctions imposed in accordance with the law upon the company or its internal personnel, any sanctions imposed by the company upon its internal personnel for violations of internal control system provisions, principal deficiencies, and the state of any efforts to make improvements for the most recent fiscal year or during the current fiscal year up to the date of printing of the annual report : None
H. Material resolutions of a shareholders meeting or a board of directors meeting during the most recent fiscal year or during the current fiscal year up to the date of printing of the annual report :
a. Important resolutions from shareholders meeting held on Jun. 13, 2006：
(1) 2006 final budget for ratification. (2) Ratify the proposed distribution of 2006 surplus. (3) Approved of the revised Articles of Incorporation of the Company. (4) Approved of the revised Company’s Operation Procedure Concerning Acquisition or Disposal of Assets. (5) Approved the revised Company’s Operation Procedure for Loan-out of Capital to Other Party. (6) Approved of the revised Company’s Operation Procedure for Endorsement Guarantee. (7) Approved the Company’s proposed case of capital increase in cash for 2006 with the plan for tax exemption as the taxation planning option. (8) Approved the revised Company’s Rules for Election of Directors and Supervisors.
b. Important resolutions from board meetings on 2007：
(1) Approved of the Company invests and establish 8-inch fab in China. (2) Approved of application to the government for enhance technology node from 0.25 micron to 0.18 micron applied in out China 8’ fab. (3) Approved of the Company establish an overseas subsidiary which major business in related to CMOS image sensor. (4) Approved of 2006 financial report. (5) Approved of 2006 consolidated audited financial statements. (6) Approved of Internal “2006 Internal Audit Plan”. (7) Approved of the Company’s proposed case of capital increase in cash for 2006 with the plan for tax exemption as the taxation planning option. (8) Approved of agenda for 2007 general shareholders’ meeting. (9) Approved of the proposed distribution of 2006 surplus. (10) Approved the revised Company’s Rules for Board meeting. (11) Approved of acquirement of IP of technology and product design ProMOS Technologies PTE. Ltd. (12)Approved of revised Articles of Incorporation of the Company. (13) Approved of the revised Company’s rules for election of directors and supervisors. (14) Approved of the revised Company’s operation procedure concerning acquisition or disposal of assets. (15) Approved of Company proposed issue Employee stock option. (16) Approved of the date of ex-dividend for cash dividend of 2006. (17) Approved of revised Regulations of Subsidiary Management. (18) Approved of acquirement of shares of ChipMOS Technologies ( Bermuda) Ltd. (19) Approved of audited financial statements for the first half of 2007. (20) Approved of consolidated audited financial statements for the first half of 2007. (21) Approved of revised Internal Audit Plans of 2007. (22) Approved of Internal Audit Plans of 2008.
c. Board meeting important resolutions from Jan. 1, 2008 to Mar. 31, 2008：
(1) Approved of the revised Company’s operation procedure concerning acquisition or disposal of assets. (2) Approved of revised Internal Control System. (3) Approved of revised Guidelines for Internal Audit. (4) Approved of 2007 final budget for ratification. (5) Approved of 2007 financial report. (6) Approved of 2007 proposals relating to offset deficit. (7) Approved of election of the company’s 5th term of directors. (8) Approved of Internal Control Statement of 2007. (9) Approved of agenda for 2008 Shareholder’s meeting.
I. Disclosure of the principal content of a director or supervisor who has expressed a dissenting opinion with respect to a material resolution passed by the board of directors, and said dissenting opinion which has been recorded or prepared as a written declaration during the most recent fiscal year or during the current fiscal year up to the date of printing of the annual report : None
J. A summary of resignations and dismissals, during the most recent fiscal year or during the current fiscal year up to the date of printing of the annual report, of persons connected with the company's financial report (including the chairman of the board of directors, general manager, principal accounting officer, and chief internal auditor : None
(4) Information on CPA Professional Fees
A. Non-audit fees paid to the certified public accountant, to the accounting firm of the certified
-20-
public accountant, and/or to any affiliated enterprise of such accounting firm are equivalent to one quarter or more of the audit fees paid thereto, the amounts of both audit and non-audit fees as well as details of non-audit services shall be disclosed : Not applicable
B. Disclosure of the company changing its accounting firm and the audit fees paid for the fiscal year in which such change took place being lower than those for the previous year, the reduction in the amount of audit fees, reduction percentage, and reason(s) : Not applicable
C. Disclosure of the audit fees paid for the current year being lower than those for the previous fiscal year by 15 percent or more, the reduction in the amount of audit fees, reduction percentage, and reason(s) : Not applicable
(5) Information on replacement of certified public accountant: None
(6) Status of the company's chairperson, general manager, or any managerial officer in charge of finance or accounting matters has in the most recent year held a position at the
accounting firm of its certified public accountant or at an affiliated enterprise of such
accounting firm: None.
(7) Any transfer of equity interests and/or pledge of or change in equity interests (during the most recent fiscal year or during the current fiscal year up to the date of printing of the
annual report) by a director, supervisor, managerial officer, or shareholder with a stake of
more than 10 percent during the most recent fiscal year or during the current fiscal year up
to the date of printing of the annual report :
A. Net Change in Shareholding and in Shares Pledged by Directors, Supervisors and Shareholders of 10% Shareholding or More
2007( Thousands of Shares ) 01/01/2008 ~ 04/15/2008 ( Thousands of Shares )
Tit le Name Net Change in Shareholding
Net Change in Shares Pledged
Net Change in Shareholding
Net Change in Shares Pledged
Chairman & President M.L.Chen - - - - Director & Executive Vice President
Hsing Tuan - - - -
Director & Executive Vice President
Len Mei (270) - (10) -
Director Yen-Shan Chung ( Note 1) - (5,000) - -
Director Paul S.P. Hsu - - - -
Director Jessie Peng ( Note 2 ) 3,500 23,000 - 14,000
Independent Director Chung-Hsin Lee - - - -
Independent Director Chikagami Yasushi - - - -
Director Rebecca Teng (400) - - -
Supervisor Ted Hsiao - - - -
Supervisor Chon-Shin Jou ( Note 2 ) 3,500 23,000 - 14,000
Supervisor Ter-Chao Peng - - - -
Vice President Ben Tseng - - - - Vice President Jessie Peng - - - - Vice President JT Lin 400 - - -
Vice President Li Chun Li - - - -
Vice President Chih-Huang Chen - - - -
Note 1: Representative of corporate shareholder, Mosel Vitelic Inc. . Note 2: Representatives of corporate shareholder, Bou Da Investment Ltd.
-21-
B. Disclosure of the counterparty in any such transfer or pledge of equity interests being a related
party : None
(8) Any of the company's 10 largest shareholders being related parties as defined under the Statement of Financial Accounting Standards No. 6.
Unit : Thousands of Shares / Date：April 15, 2008
Shareholding Spouse &
Minor Shareholding
Shareholding by Nominee Arrangement
The company's 10 largest shareholders are related parties as defined under
the Statement of Financial Accounting Standards No.
6 Name
No. of Shares %
No. of Shares % No. of
Shares % Name Relation
Remark
Mosel Vitelic Inc. Representative: Yen-Shan Chung
651,252 9.71% - - - - Bou Da Investment Ltd.
Note 1 -
Bou Da Investment Ltd. Representative： Jessie Peng Chon-Shin Jou
234,028 3.49% - - - - Mosel Vitelic Inc.
Note 1 -
Note : Mosel Vitelic Inc. is the parent company of Bou Da Investment Ltd.
(9) The total number of shares and total equity stake held in any single enterprise by the company, its directors and supervisors, managers, and any companies controlled either directly or indirectly by the company : Unit : Thousands of Shares / Date：March 31, 2008
Directly Held by ProMOS Held by Directors, Supervisors
and Managers / Directly or Indirectly controlled
Total Investees
Shares % of Share Holdings Shares % of Share
Holdings Shares % of Share Holdings
Mosel Vitelic Corporation 0.5 50% 0.5 50% 1 100%
United Memorise, Inc. 1,112 100% - - 1,112 100%
ProMOS Technologies PTE.LTD. 20,000 100% - - 20,000 100%
Flourishihg Moment Limited 1,000 100% - - 1,000 100%
Putian Maoda Technologies (Chongqing) Corp. - 49% - - - 49%
ProMOS Technologies Japan Limited - 100% - - - 100%
Epileds Technologies, Inc. 16,000 29.09% - - 16,000 29.09%
Inapac Technology,Inc. 16,449 26.14% - - 16,449 26.14%
Capso Vision ,Inc. 5,556 30.48% - - 5,556 30.48%
ProQ Technologies Incorporated - 100% - - - 100%
ProImage Technologies Inc. 16,200 100% - - 16,200 100%
-22-
Information on Capital Raising Activities
(1) Capital and Share
A. Source of Capital Registered Capital Outstanding Capital Remark
Date Issuance Price per
share Shares (Thousand)
Value (Thousands of
NTD)
Shares (Thousand)
Value (Thousands of
NTD) Source of Capital Other
Source Other
1996.12 10.00 2,000,000 20,000,000 1,100,000 11,000,000 Original investment - Note1
1997.07 10.00 2,000,000 20,000,000 1,650,000 16,500,000 Rights Issue - Note2
1998.07 12.00 2,000,000 20,000,000 1,950,000 19,500,000 Rights Issue - Note3
1999.11 46.60 2,150,000 21,500,000 2,100,000 21,000,000 Rights Issue - Note4
2000.08 10.00 4,000,000 40,000,000 2,708,024 27,080,238 Earnings Issue - Note5
2001.07 10.00 4,000,000 40,000,000 3,269,848 32,698,478 Earnings Issue - Note6
2002.05 16.80 4,000,000 40,000,000 3,569,848 35,698,478 Rights Issue - Note7
2003.08 - 4,000,000 40,000,000 3,869,198 38,691,982 ECB Convert - Note8
2004.04 15.71 6,500,000 65,000,000 4,444,198 44,441,982 Rights Issue - Note9
2004.09 - 6,500,000 65,000,000 4,449,804 44,498,038 ECB Convert - Note10
2005.08 10.00 6,500,000 65,000,000 4,906,066 49,060,658 Earnings Issue - Note11
2005.10 - 6,500,000 65,000,000 4,965,697 49,656,972 ECB Convert - Note12
2006.01 - 6,500,000 65,000,000 4,989,333 49,893,328 ECB Convert & 2nd
Buyback of Treasury Stock Retire
- Note13
2006.03 - 6,500,000 65,000,000 5,034,850 50,348,497 ECB Convert - Note14
2006.07 - 6,500,000 65,000,000 5,060,040 50,600,403 ECB Convert - Note15
2006.08 10.76 9,000,000 90,000,000 6,060,040 60,600,403 Rights Issue - Note16
2006.10 - 9,000,000 90,000,000 6,143,497 61,434,968 ECB Convert - Note17
2007.01 - 9,000,000 90,000,000 6,534,396 65,343,958 ECB Convert - Note18
2007.04 - 9,000,000 90,000,000 6,560,350 65,603,499 ECB Convert - Note19
2007.08 - 12,000,000 120,000,000 6,582,928 65,829,285 ECB Convert Note20
2007.12 - 12,000,000 120,000,000 6,706,954 67,069,537 ECB Convert Note21
Note: 1. The company was established on December 12, 1996 with NT$20 billion registered capital and NT$11 billion
paid-in. The application was approved by the Administration of Hsinchu Science-based Industrial Park on Oct. 28, 1996. Yen. Tou No. 18579 Letter.
2. Issuance of new shares for cash subscription：June 2, 1997 (86) Tai. Chai. Jen (1) No. 43605 Letter. 3. Issuance of new shares for cash subscription： April 22, 1998 (87) Tai. Chai. Jen (1) No.33763Letter. 4. Issuance of new shares for cash subscription：September 2,1999 (88) Tai.Chai.Jen (1)No.62482Letter. 5. Issuance of new shares for earnings subscription：June 5,2000 (89) Tai. Chai. Jen (1) No. 48329 Letter. 6. Issuance of new shares for earnings subscription：May 25,2001 (90) Tai. Chai. Jen (1) No. 132421 Letter. 7. Issuance of new shares for cash subscription：April 29,2002 (91) Tai. Chai. Jen (1) No. 115599 Letter. 8. ECB converted to common shares：Aug 14, 2003 (92) Yuan Shang No. 9200021991 Letter. 9. Issuance of new shares for cash subscription：Mar 2, 2004 (93) Tai Chai Jen (1) No. 105028 Letter. 10. ECB converted to common shares：Sep 02, 2004 (93) Yuan Shang No. 9300024526 Letter. 11. Issuance of new shares for earnings subscription：May 31, 2005 (94) Jin Guan Jen (1) No. 940121776
Letter, Aug 8, 2005 (94) Yuan Shang No. 9400021443 Letter. 12. ECB converted to common shares：Oct 25, 2005 (94) Yuan Shang No. 940029533 Letter. 13. ECB converted to common shares & 2nd Buyback of Treasury Stock Retire：Jan 25, 2006 (95) Yuan Shang
No. 950001416 Letter.
-23-
14. ECB converted to common shares：Mar. 16, 2006 (95) Yuan Shang No. 950005748 Letter. 15. ECB converted to common shares：July 20, 2006 (95) Yuan Shang No. 950018233 Letter. 16. Issuance of new shares for cash subscription：June 7, 2006 (95) Jin Guan Jen (1) No. 950121871 Letter,
Aug 8, 2006 (95) Yuan Shang No. 9500019883 Letter. 17. ECB converted to common shares：Oct 23, 2006 (95) Yuan Shang No. 950027317 Letter. 18. ECB converted to common shares：Jan. 31, 2007 (96) Yuan Shang No. 960003169 Letter. 19. ECB converted to common shares：Apr. 27, 2007 (96) Yuan Shang No. 960010921 Letter. 20. Increase of registered capital from NT$90 billion to NT$120 billion：(96) Yuan Shang No. 960021497
Letter；ECB converted to common shares：Aug. 10, 2007 (96) Yuan Shang No. 960021013 Letter. 21. ECB converted to common shares：Dec.18, 2007 (96) Yuan Shang No. 960034494 Letter.
a. Types of Issued Shares Unit : Shares / Date：April 15, 2008
Registered Capital
Stock Outstanding Capital Unissued Capital Total Remark
Common Stock 6,706,953,672 5,293,046,328 12,000,000,000 Listed and traded on the OTC Securities Exchange
b. Information on Shelf Registration: Not Applicable
B. Shareholder structure
Unit : Shares / Date：April 15, 2008 Foreign
Institutions and Nature Persons
Other Juridical Person
Financial Institutions
Government Agencies
Domestic Nature Persons
Total
Number of Shareholders 324 256 31 5 241,297 241,913
Shareholding 598,298,166 1,443,989,263 314,338,454 47,981,584 4,302,346,205 6,706,953,672
Holding Percentage
(%) 8.91% 21.53% 4.68% 0.72% 64.16% 100%
C. Diffusion of ownership
Diffusion of Ownership (Par Value NT$10 Per Share) Unit: Shares / As of Apr. 15, 2008
Shareholder Ownership Number of Shareholders Total Shares Owned Ownership %
1 ～ 999 31,653 11,566,125 0.17%
1,000 ～ 5,000 95,043 248,743,667 3.73%
5,001 ～ 10,000 43,537 343,600,736 5.12%
10,001 ～ 15,000 19,060 231,934,514 3.46%
15,001 ～ 20,000 13,421 249,965,087 3.73%
20,001 ～ 30,000 13,067 329,274,958 4.91%
30,001 ～ 50,000 11,339 455,731,273 6.79%
50,001 ～ 100,000 8,395 610,634,136 9.10%
100,001 ～ 200,000 3,744 532,438,763 7.94%
200,001 ～ 400,000 1,569 437,570,626 6.52%
400,001 ～ 600,000 483 239,709,300 3.57%
600,001 ～ 800,000 189 131,478,746 1.96%
800,001 ～ 1,000,000 102 93,383,078 1.39%
1,000,001 ～ *********** 311 2,790,922,663 41.61%
Total 241,913 6,706,953,672 100.00%
-24-
D. List of principal shareholders ( shareholders with a stake of 5 % or greater )
As of Apr. 15, 2008
Shareholders Total Shares Owned
(Thousands of Shares) Ownership %
Mosel Vitelic Inc. 651,252,247 9.71%
United Microelectronics Corp. 471,400,000 7.03%
E. Share prices for the past two fiscal years, together with the company's net worth per share,
earnings per share, dividends per share, and related information
Item Year 2006 2007 As of Mar. 31, 2008
Highest 15.00 14.60 8.69 Market Value Per Share
Lowest 10.05 7.70 7.06
Average 12.62 11.53 7.83
Before Distribution 13.42 11.38 10.14 Net Worth Per Share (Note 2) After Distribution 12.18 11.38 -
Earnings Weighted-Average Shares (thousand shares) 5,510,481 6,598,383 6,684,942
Per Share Earnings Per Share(Note 3) 2.64 (1.11) (1.2)
Dividend Cash Dividend 1.0158 - -
From Retained Earnings - - - Stock Dividend Distributed From Capital Surplus - - - Per Share
Accumulated Unpaid Dividend (Note 4) - - -
Price / Earning Ratio (Note 5) 4.78 - -
Price / Dividend Ratio (Note 6) 12.42 - - The Analysis of Return on Investment
Cash Dividend Yield Rate (Note 7) 8.05% - -
� If shares are distributed in connection with a capital increase out of earnings or capital reserve, further disclose information on market prices and cash dividends retroactively adjusted based on the number of shares after distribution.
1. Please refer to issued shares as of Dec. 31, 2007 and the dividend distributed resolution of next annual shareholder meeting.
2. If a stock dividend resolved by next annual shareholders meeting, Earnings Per Share before adjustment and after adjustment should be listed separately.
3. If issuing covenants of given equity securities stipulate that undistributed dividends for current year may be postponed to distribute on the following profitable year, the amount of accumulatively undistributed dividends as of the end of current year should be disclosed separately.
4. Price / Earning Ratio=Average Market Price/Earnings Per Share
5. Price / Dividend Ratio=Average Market Price/ Cash Dividends Per Share
6. Cash Dividend Yield Rate = Cash Dividends Per Share / Average Market Price
7. The numbers of book value per share and earnings per share were numbers from quarterly auditor’s report for the most recent quarter up to the printing date of this annual report. The numbers in other columns were numbers from the current fiscal year as of the printing date of this annual report
F. Dividend policy and implementation
Net income after paying taxes shall be appropriated based on the financial statements of the
Company,
certified by the independent public accountant, in the following orders:
-25-
a. Offsetting previously accumulated loss;
b. Provision for legal reserve at 10% of the net income or the remaining net income after
deducting the accumulated loss, if such remaining net income is less than 10% of current
year’s net income;
c. Provision for special reserve under the regulation of statutes or authorities if deemed
necessary;
d. Bonus to employees equivalent to 2% - 10% of the net income after deducting items (a) to
(c) above, as applicable;
e. Bonus to director and supervisors equivalent to 1% - 2% of the remaining net income after
deducting items (a) to (c) above, as applicable.
f. After the foregoing allocation to net income has been made, the shareholders shall make
a decision on the disposition of the remaining net income based on the following criteria:
i. The dividends to shareholders may be paid in cash or in the form of stock dividends.
Since the Company operates in an emerging industry that is both capital-intensive
and technology-intensive, its demand for cash is expected to be high. Accordingly, its
dividend policy should take into account the cash demand of its future capital
expenditure requirements, and then the combination of the cash and stock dividend
percentage shall be determined. On the premises that the company can finance its
annual capital planning, and the appropriable earning to shareholders exceeds
(including) NTD2 per share, the portion of appropriable earning which exceeds NTD
2 should be distributed no less than 10% in cash.
ii. The Company can not distribute any dividend and bonus if it has no current year net
income and has no un-appropriated retained earnings from prior years. However,
after taking into account the Company’s financial, business, operating situations,
capital structure and other relevant factors, it is allowed to transfer all or portion of
paid-in capital into common stock as stock dividend.
iii. The proposals relating to offset deficit of 2007 had been planned by Board meeting
held on March 21, 2008. It is proposed to offset the deficit from legal reserve
NT$1,631,142,115 and capital surplus NT$698,150,631, which will be finalized after
2008 annual shareholder meeting.
G. Effect upon business performance and earnings per share of any stock dividend distribution proposed or adopted at the most recent shareholders' meeting : Not Applicable
H. Employee dividends and compensation of directors and supervisors
a. According to Company’s Articles of Incorporations, ProMOS’ percentage of distributable earnings to profit sharing of employees and compensation of directors and supervisors: details refer to section (F) Dividend policy and implementation.
b. Information on proposals of any employee dividend distribution and compensation for directors and supervisors adopted at shareholders' meetings：Not Applicable (No distribution of employee dividends and director/supervisor compensation for Year 2007)
-26-
c. Use of earnings in the preceding fiscal year for distribution of employee dividends and director/supervisor compensation:
i. The shareholders during the 2007 annual shareholders’ meeting declared cash
dividends of $6,663,019 ($1.016 (in dollars) per share).
ii. Details of the appropriation of 2006 earnings are summarized below:
Unit: Thousands of NTD
Appropriation of 2006 earnings as approved by the
shareholders and the Board of Directors
A) Appropriation of 2006 earnings
a) Employees’ cash bonus $1,311,745
b) Directors’ and supervisors’ remuneration $150,850
B) Earnings per share (in dollars)
a) Original earnings per share $2.64
b) Estimated earnings per share (Note) $2.37
Note: Estimated earnings per share = (Net income －employees’ bonuses －directors’ and supervisors’
remuneration) / weighted-average outstanding common shares for 2006.
iii. Share Repurchases
Information for Transfer of Repurchase the Company’s own shares As of Apr. 15, 2008
Share Repurchases First Time Second Time Third Time
Purpose Transfer to Employee Transfer to Employee Transfer to Employee
Period 10/08/2001 ~ 11/18/2001 10/07/2002 ~ 12/06/2002 10/05/2005 ~ 12/04/2005
Price Range NTD12 ~ NTD22 NTD12 ~ NTD22 NTD8 ~ NTD13
Type Common Stock 15,396,000 Shares
Common Stock 94,885,000 Shares
Common Stock 107,481,000 Shares
Total Amount NTD193,415,400 NTD1,199,398,914 NTD997,122,620
Number of Shares Retired or Resold 15,396,000 Shares 94,885,000 Shares 85,468,800 Shares
The Quantity of Total Treasury Stock Holdings 0 Shares 0 Shares 22,012,200 Shares
Total Treasury Stock Holdings as a Percentage of Total Shares Issued
0% 0% 0.33%
Note: Following the ProMOS “Guidelines for Transfer of Repurchased Shares to Employees”. The transfer of repurchased shares listed below:
1. February 26, 2004 Tai. Chai. Jen (3) No.0930106158 Letter approved to transfer 1st time repurchased stock 15,396,000 shares and 2nd repurchased stock 14,261,300 shares. Transfer price was NT$12.6.
2. March 12, 2004 Tai. Chai. Jen (3) No.0930108170 Letter approved to transfer 2nd time repurchased stock 603,000 shares. Transfer price was NT$12.6.
3. March 17, 2004 Tai. Chai. Jen (3) No.0930109559 Letter approved to transfer 2nd time repurchased stock 2,779,300 shares. Transfer price was NT$12.6.
4. April 12, 2004 Tai. Chai. Jen (3) No.0930113608 Letter approved to transfer 2nd time repurchased stock 692,000 shares. Transfer price was NT$12.6.
5. May 14, 2004 Tai. Chai. Jen (3) No.0930121165 Letter approved to transfer 2nd time repurchased stock 863,000 shares. Transfer price was NT$12.6.
6. June 08, 2004 Tai. Chai. Jen (3) No.0930126450 Letter approved to transfer 2nd time repurchased stock 461,000 shares. Transfer price was NT$12.6.
7. July 12, 2004 Tai. Chai. Jen (3) No.0930131119 Letter approved to transfer 2nd time repurchased stock 692,000 shares. Transfer price
-27-
was NT$12.6. 8. August 06, 2004 Chi. Kuan. Jen (3) No.0930136344 Letter approved to transfer 2nd time repurchased stock 611,000 shares. Transfer
price was NT$12.6. 9. September 09, 2004 Chi. Kuan. Jen (3) No.0930142323 Letter approved to transfer 2nd time repurchased stock 663,000 shares.
Transfer price was NT$12.6. 10. October 08, 2004 Chi. Kuan. Jen (3) No.0930146178 Letter approved to transfer 2nd time repurchased stock 880,000 shares. Transfer
price was NT$12.6. 11. November 09, 2004 Chi. Kuan. Jen (3) No.0930151329 Letter approved to transfer 2nd time repurchased stock 422,000 shares.
Transfer price was NT$12.6. 12. November 30, 2004 Chi. Kuan. Jen (3) No.0930154790 Letter approved to transfer 2nd time repurchased stock 26,157 shares.
Transfer price was NT$12.6. 13. January 04, 2005 Chi. Kuan. Jen (3) No.0930159803 Letter approved to transfer 2nd time repurchased stock 744,000 shares. Transfer
price was NT$12.6. 14. February 01, 2005 Chi. Kuan. Jen (3) No.0940104147 Letter approved to transfer 2nd time repurchased stock 452,000 shares.
Transfer price was NT$12.6. 15. March 09, 2005 Chi. Kuan. Jen (3) No.0940108246 Letter approved to transfer 2nd time repurchased stock 1,335,000 shares. Transfer
price was NT$12.6. 16. April 22, 2005 Chi. Kuan. Jen (3) No.0940112082 Letter approved to transfer 2nd time repurchased stock 7,620,000 shares. Transfer
price was NT$12.6 17. 33,345,400 shares of 2nd Buyback of Treasury Stock Retirement：Approved by Jan 25, 2006 (95) Yuan Shang No. 950001416 Letter 18. As of Feb. 28, 2006, 1st time repurchased stocks had been transferred completely. 61,539,600 shares of 2nd time repurchased stocks
had been transferred and 33,345,400 shares had been retired. 19. June 2, 2006 Chi. Kuan. Jen (3) No.0950122547 Letter approved to transfer 3rd time repurchased stock 80,775,800 shares. Transfer
price was NT$9.49 20. May 9, 2007 Chi. Kuan. Jen (3) No.0960025166 Letter approved to transfer 3rd time repurchased stock 2,200,000 shares. Transfer
price was NT$9.49 21. July 2, 2007 Chi. Kuan. Jen (3) No.0960034984 Letter approved to transfer 3rd time repurchased stock 935,000 shares. Transfer price
was NT$9.49 22. Aug. 31, 2007 Chi. Kuan. Jen (3) No.0960048483 Letter approved to transfer 3rd time repurchased stock 1,558,000 shares. Transfer
price was NT$9.49
-28-
(2) Issuance of corporate bonds, preferred shares, global depository receipts and employee share subscription warrants
A. Issuance of corporate bonds (including Euro bonds)
Issuance The 1st Secured Local Straight
Bonds
The 2nd Secured Euro Convertible Bonds
The 3rd Unsecured Euro Convertible Bonds
The 4th Unsecured Euro Convertible Bonds
Issuing Date 2002.May.23 ~ June.04 2003.Oct.8 2005.June.20 2007.Feb. 14
Per Value NTD$1,000,000 USD$1,000 USD$1,000 USD$1,000
Listing - Luxembourg Singapore Singapore
Offering Price Par 105% of Par Par Par
Total Amount NTD$2,700,000,000 USD$90,000,000 USD$225,000,000 USD$350,000,000
Coupon Rate 4.2% 0% 0% 0%
Tenure
5Years Maturity：
2007.May.23 ~ June.04
5Years Maturity：2008.Oct.8
5Years Maturity：2010.June.20
5Years Maturity：2012.Feb. 14
Underwriter - ABN AMRO Rothschild and JPMorgan
ABN AMRO Rothschild and JPMorgan
ABN AMRO Rothschild and JPMorgan
Trustee ICBC Bank Bank of New York Bank of New York Bank of New York
Legal Counsel Lee & Li Lee & Li Baker & McKenzie- Taipei Lee & Li Auditor TN Soong & Co BDO Taiwan Union & Co. BDO Taiwan Union & Co. PricewaterhouseCopper
Repayment Method
From the third to fifth year, repay 30%, 30%
and 40% of total amount
Repay total amount at maturity
Repay total amount at maturity Repay total amount at maturity
Outstanding - USD$32,725,000 - USD$349,00,000
Redemption or Early Repayment Clause -
1. The bondholders have
right to require the company to repurchase holders’ bonds on October 7, 2004 at 100% par.
2. Unless previously redeemed, the bonds will be redeemed on the maturity date at 100% par.
3. The company may redeem at a redemption price 100% of the unpaid principle if the closing price of the common shares on each of 20 consecutive trading days is at least 125% of the conversion price. In addition, the company may redeem the outstanding at par when more than 90% of the bonds has been redeemed, repurchased
1. The bondholders have
right to require the company to repurchase holders’ bonds on December 20, 2006 at 110.07% of par.
2. Unless previously redeemed, the bonds will be redeemed on the maturity date at 100% par.
3. The company may redeem at a redemption price 100% of the unpaid principle if the closing price of the common shares on each of 20 consecutive trading days is at least 125% of the conversion price. In addition, the company may redeem the outstanding at par when more than 90% of the bonds have been redeemed repurchased or cancelled.
1. The bondholders have right to
require the company to repurchase holders’ bonds on Feb. 14, 2009 at 100% of par.
2. Unless previously redeemed, the bonds will be redeemed on the maturity date at 100% par.
3. The company may redeem at a redemption price 100% of the unpaid principle if the closing price of the common shares on each of 30 consecutive trading days is at least 120% of the conversion price. In addition, the company may redeem the outstanding at par when more than 90% of the bonds have been redeemed repurchased or cancelled.
Conversion Right - Yes Yes Yes
Other Rights
of Bond holders
Amount of Converted or Exchanged Common
Shares, GDR or Other
Securities as of 4/15/2008
-
1.US$57,275,000 has been
transferred into common shares.
1.US$224,449,000 has been
transferred into common shares
2.USD$551,000 has been redeemed. 3.No more outstanding.
1. US$100,000 has been transferred into common shares.
Dilution Effect and Other Adverse Effects on Existing Shareholders
-
Current after-adjusted conversion price is NT$11.06 per common share. If total amount of US$90 million are fully converted, it will be a 1.48% of potential dilution. It is a moderate influence on existing shareholders.
Current after-adjusted conversion price is NT$10.46 per common share. If total amount of US$225 million are fully converted, it will be a 10.06% of potential dilution. It is a moderate influence on existing shareholders.
Current after-adjusted conversion price is NT$10.86 per common share. If total amount of US$350 million are fully converted, it will be a 15.84% of potential dilution. It is a moderate influence on existing shareholders.
-29-
B. Information on Conversion of Existing ECBs
Type of Corporate Bond The 2nd Secured Euro Convertible Bonds
Year Item
2006 2007 Current Fiscal Year Up to Mar. 31, 2008
Highest 126.2500 114.8750 97.7000
Lowest 101.0000 105.0000 82.8000 Market
Price of ECB
Average 108.2640 109.0290 95.0620
Conversion Price NT$11.94 NT$11.06 NT$11.06 Issued Date & Conversion
Price when Issued Issued Date: Oct.8, 2003, Conversion Price when Issued: NT$17.14元
Obligation of Conversion New shares issued for a claim of conversion
Type of Corporate Bond The 4th Unsecured Euro Convertible Bonds
Year Item
2006 2007 Current Fiscal Year Up to Mar. 31, 2008
Highest - 111.7708 97.0000
Lowest - 95.6458 85.0000 Market
Price of ECB
Average - 102.3171 91.9450
Conversion Price NT$ NT$10.86 NT$10.86 Issued Date &
Conversion Price when Issued
Issued Date: Feb. 14, 2007, Conversion Price when Issued: NT$14.7
Obligation of Conversion New shares issued for a claim of conversion
C. Preferred Shares : None
-30-
D. Issuance of Global Depositary Receipts
Issuing Date May 16, 2002 March 11, 2004 July 11, 2006
Issuance & Listing Luxembourg Luxembourg Luxembourg
Total Amount USD$145,920,000 USD$271,400,000 USD$333,000,000
Offering Price per GDS USD$4.864 USD$4.72 USD$3.33
Units Issued 30,000,000 57,000,000 100,000,000
Underlying Securities Common Shares Common Shares Common Shares
Common Shares Represented 300,000,000 Shares 575,000,000 Shares 1,000,000,000 Shares
Rights and Obligations of
GDS Holders
Same as those of Common
Share Holders
Same as those of
Common Share Holders
Same as those of Common
Share Holders
Trustee New York Bank New York Bank New York Bank
Depositary Bank New York Bank New York Bank New York Bank
Custodian Bank ICBC Bank ICBC Bank ICBC Bank
GDS Outstanding 2,046,172 shares
Apportionment of Expenses
for the Issuance and
Maintenance
Paid by New York Bank Paid by New York Bank Paid by New York Bank
Terms and Conditions in the Deposit Agreement and Custody Agreement
- - -
High USD$4.44
Low USD$2.38 2008
Average USD$3.428
High USD$2.69
Low USD$1.326
Closing
Price
per
GDS 01/01/2008
03/31/2008 Average USD$2.008
-31-
E. Status of Employee Stock Option Plan a. Issuance of Employee Stock Options
Apr. 15, 2008
Employee Stock Options Granted First Grant Second Grant
Approval Date by the Securities & Futures Bureau
10/02/2007 10/02/2007
Issue Date 12/10/2007 02/29/2008
Number of Options Granted 136,500 3,958
Percentage of Shares Exercisable to Outstanding Common Shares
2.03% 0.06%
Option Duration 6 Years 6 Years
Source of Option Shares New Common Share New Common Share
Vesting Schedule（%） Second Year: up to 50% Third Year: up to 75%
Fourth Year: up to 100%
Second Year: up to 50% Third Year: up to 75%
Fourth Year: up to 100%
Shares Exercise - -
Value of Shares Exercised (NT$)
- -
Shares Un Exercise 136,500,000 3,958,000
Grant Price Per Share (NT$) 10 10
Percentage of Shares Un Exercised to Outstanding Common Shares
2.03% 0.06%
Impact to Shareholder’s Equity Dilution to Shareholders’ Equity is Limited.
Dilution to Shareholders’ Equity is Limited.
-32-
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-33-
(3) Information on mergers, acquisitions, and issuance of new shares due to acquisition of shares of other companies : None
(4) Implementation of funds utilization plans :
A. description and implementation of the plans
Plan
Date of Input Data to Market
Observation Post System
Amount (Thousand) Fund Usage Status
Issuance of Euro Unsecured Convertible Bonds on Feb.10, 2007
2007.02.10 US$350,000 Purchasing Facilities , Machinery & Equipment for 12-inch Fab
Planning to be Complete on Sep. 2007
B. Comparison and explanation of actual benefits and expected benefits
Unit: Thousands of NTD
Variance 2007.12.31 2006.12.31
Amount Explanation
Property and Equipment
127,183,273 86,811,784 40,371,489
Resulting from Purchasing machinery & equipment for capacity expansion in 2007.
Revenue 47,594,236 60,071,324 (12,477,088)
Resulting from DRAM is glut and the average price is going down in 2007
Cost of Goods Sold 48,200,588 37,186,180 11,014,408
Resulting from the increase of capacity expansion and shipment volume in 2007.
Gross Profit (6,183,183) 17,259,924 (23,443,107)
Resulting from DRAM is glut and the average price is going down in 2007.
Overview of Business Operation
(1) Description of Business
A. Scope of Business
It includes research, design, development, manufacture, marketing, and sale of semiconductor products as well as related import/export trading activities.
a. 2007 Products
64Mb/128Mb/256Mb SDRAM,128Mb/256Mb/512Mb DDR SDRAM, 256Mb/512Mb DDR2 SDRAM, and specialty memory products.
b. 2008 New Products
1Gb DDR2 SDRAM, 128Mb/256Mb Mobile DRAM, NAND Flash, CMOS Image Sensor, and other specialty memory products.
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B. Industry Introduction
a. Industry Status & Development In order to cope with the down cycle in 2008, DRAM vendors are decreasing the capital spending, slowing down the fab expansion plan. Process upgrade is the major way to gain the growth of output. Diversification and increasing the foundry business still are the major strategies for DRAM companies. Comprehensive product portfolio, nimble business model, and stable foundry business can reduce the impact from price erosion of standard DRAM. According to iSuppli research, year 2008 DRAM bit growth rate will reach 61.2%, much less than 88.6% of year 2007 DRAM bit growth rate. It means that the over investment situation could be improved in this year.
b. IC Industry Framework Semi conducting products can be categorized into three segments, which are integrated circuit, passive components, and optical semiconductor devices. Integrated circuit is a finished or intermediate product having electronic circuitry functions and with transistors, capacitors, resistors, or other electronic components and their interconnections integrated onto or within a semi conducting material. IC can be classified by function into four categories, including memory IC, micro component, logic IC, and analog IC. The framework of semiconductor industry are the IC design and mask manufacturer in upstream, wafer manufacturers in midstream, and the IC assembling and testing in downstream.
c. Product developing trend and competition
DRAM demand mainly comes from desktop, laptop, and server. Based on iSuppli 2008 Q1 forecasted, those related applications take 82.5% of 2008 total demand. The rest of major applications such as digital TV, Set-Top-Box, mobile phone, networking, consumer products will grow rapidly because of the prosperous emerging market. The mainstream DRAM product in 2008 is DDR2, high density and DDR3 are getting important in the coming year. Low power consumption and speed improving are the critical DRAM developing directions in DRAM industry. For example, handheld devices require mobile SDRAM/DDR/DDR2 for power saving, and the vest image processing applications require high speed GDDR series products. Process migration is a powerful weapon for cost reduction, continuous improvement keeps product competitiveness. Memory companies not only compete but also cooperate with each other. Besides Samsung, each company has their partner in somehow. For instance, ProMOS and Hynix continue the strategic alliance; Elpida and Qimonda start their technology partnership. IDC 2008 Q1 reports that both Samsung and Hynix’s market share is more than 20% in 2007. Qimonda, Elipda, and Micron remain 10% more market share. Taiwan makers ProMOS, Nanya, Powerchip took less than 10% share.
C. 2007 Technology, Research and Development Status
a. R&D Expenditures and R&D strategy :
ProMOS spent NT$2,186 Million, NT$2,446 Million and NT$2,846 Million in 2005, 2006 and 2007 for the research and development. The research and development expense accounted for 7.4%, 4.1% and 5.98% of total ProMOS annual sales revenue in 2005, 2006 and 2007 respectively.
In 2007 ProMOS Taichung 300 mm Fab. Started 70nm mass production and 100% converted to 70 nm 512Mb DDR2 DRAM with good yield. ProMOS also lunched a 70 nm 1Gb DDR2 DRAM project in 2007 for cost reduction of DDR2 DRAM module. The 70 nm 1 GB DDR2 DRAM was in pilot line verification stage in the end of 2007.
In Hsinchu 300 mm Fab. ProMOS did DRAM technology diversification based on 95 nm DWF (Dual Work Function) technology with emphasizing of low voltage and low
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power niche DRAM applications.
For business diversification, and more efficient use of Hsinchu 200mm/300 mm Fab. Equipments, ProMOS lunched other process technology projects for future wafer foundry business. The diversification technology development including CMOS image Sensor, LCD Driver and Non-volatile memory.
ProMOS started NAND Flash Memory development project in 2006 with 1 GB NAND based on 120 nm technology. In 2007 ProMOS started 70 nm 4Gb NAND Flash Memory development project.
b. Results and outlook :
Base line 95 nm DWF (Dual Work Function) low power DRAM technology was established in Hsinchu 300 mm Fab. With 256Mb Low Power SDRAM. Product. The technology is capable for external VCC = 1.5 v low power DRAM applications.
Flash Memory is one of important product diversification of ProMOS. In Q4, 2007, 1 GB NAND Flash engineering samples were verified in application. We expect the 1GB NAND Products will be in pilot line production 2008. We also expect 4 GB NAND product to be verified in 2008.
In 2007 ProMOS successfully expanded 110 nm technologies for Niche DRAM foundry in Hsinchu 300 mm Fab. Our Hsinchu 300 mm Fab. Plans to provide more foundries for niche DRAM in 2008 including the 95 nm technology with low power applications.
D. Long- and short-term business development plans
The short-term plan focus on design-in ProMOS’ DRAM in various consumer applications, expanding the customer base of consumer and industrial market, and promoting ProMOS brand and visibility in the global market.
The long-term plans include strengthening product portfolio of SDRAM/ DDR SDRAM/ DDR2 SDRAM/ mobile DRAM, and continuously cooperating with strategic partners to develop non-DRAM business like NAND Flash, LCD driver IC, CMOS image sensor, one-time-programmable memory, and power IC.
(2) Analysis of the Market as well as the Production and Marketing Situation
A. Market Analysis
a. Markets
In 2007, ProMOS exported 62% of products and sold the remaining 38% to the local market.
b. Market Share
In 2007, ProMOS shipped 719 million pieces in 512 Mb equivalents. According to iSuppli report published in the first quarter of 2008, worldwide DRAM shipment was 10,666 million pieces in 512 Mb equivalents. ProMOS took around 6.7% of global market share for the year 2007.
c. Market Forecast
i. DRAM demand growth from personal computer
Based on the in Spectrum forecast, PC DRAM bit growth rate would grow up to 65% in 2008. The strong growth will come from laptop computer, which shipment will be more than 20% growth in 2008. Many PC companies also plan to introduce low price laptop segment to expand market size. In the same time, the Megabytes per laptop will achieve 2.3GB and desktop will catch 2.2GB in the end of 2008. The DRAM demand will obviously increase due to above reasons.
ii. The prevalence of Digital Broadcasting
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Many countries will popularize digital broadcasting service. According to China’s digital broadcasting plan, they will stop the analog signal broadcasting in 2015. Based on the IMS Re-search report, more than 3.3 million Chinese families would receive high quality channels through satellite TV service. The set-top-box market will reach 50 billion at that moment. China would require 600 million units of set-top-box before 2015. American TV stations will stop the analog signal before 2009 February 17th. All the signals will be switch into digital signals on the next day. Therefore, more than 100 millions American families have to upgrade their TV or set-top-box to receive digital broadcasting programs. Informal research indicated that more than 500 millions families will have digital TV before 2011, which is mostly contributed by China, America, India, and Japan. Both of Digital TV and set-top-box will require lots of DRAM as memory buffer. iSuppli 2008 first quarter reported both Set Top Box shipment and DRAM bit growth would exceed 18%. The prevalence of Digital Broadcasting will definitely increase the DRAM demand of consumer market.
iii. Mobile phone market growth remains steady
From iSuppli research, the average annual growth rate of mobile phone will be 11% from 2005 to 2011. The feature phone and smart phone require lots of mobile DRAM as memory buffer. These two segments will take 86% of total mobile phone shipment in 2011. Most of these phones need CIS as image sensor, and memory as the buffer of storage and computing. The stable growth of mobile phone market will drive the demand of Mobile DRAM, NAND Flash, and CMOS Image Sensor.
iv. The rapid growth of industrial PC and automobile electronics
Based on iSuppli’s information, the yearly growth of industrial PC and automobile electronics was 160% in 2007 and will be more than 70% in 2008. The main industrial PC growth will come from medical, networking, and gambling segments. The future trend of Industrial PC will focus on the integration with service to fulfill the high value-added market. With regarding to automobile application, navigation system, digital audio/video and satellite radio will be more and more popular as standard equipment.
d. Outlook of ProMOS: Opportunities and Threats
i. Opportunities
� Growing consumer market
After several years’ endeavors, ProMOS builds comprehensive product portfolio to fulfill various consumer applications. ProMOS has established cooperative relationship with consumer electronic chipset vendors, and generated around 10% revenue from consumer market. Consumer and mobile applications are developing vigorously. Digital TV, set-top-box, photo printer, blu-ray DVD player, personal media player, and smart phone bring abundant opportunities to expand business in the future.
� Diversified foundry business
ProMOS have steady DRAM foundry business for several years. Foundry customers are always seeking proper process and long-term cooperation. However, DRAM foundry business still has the need to upgrade the process. In order to optimize the utilization of fab equipments, ProMOS has begun the diversification of foundry business. Beside DRAM foundry, ProMOS will also involve the LCD driver IC; CMOS image sensor, one-time-programmable memory, and power IC and NAND flash foundry.
� Emerging Market
The sub prime mortgage crisis has impacted the economic growth of the developed countries. Asia and emerging countries will become more important market. ProMOS cooperate with value-added agents and distributors to develop these
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markets. Following the growing emerging markets, our sales channels could be more complete and market domains will be more expansive.
� 100% 12-inch fab production lines
ProMOS fab1, the 8-inch fab, will be shutdown and moved to China in early of next year. At that moment, all ProMOS capacity will come from 12-inch fabs. That will enhance the competitiveness of ProMOS.
� Long-term strategic alliance partner
ProMOS and Hynix have established solid strategic alliance relationship. Hynix will transfer 54nm stacked process technology to ProMOS. Early adoption in advance technology would be helpful for capacity planning, and improve the cost structure.
ii. Threats
� 8-inch fab burden
8-inch fab’s equipments can not produce standard DRAM products efficiently. In order to well utilized 8-inch capacity, DRAM companies either find proper business model for 8-inch fab, or sell out the equipments. After considering the China market potentiality and business diversification, ProMOS will move 8-inch Fab equipments to ChongQing fab. ChongQing fab will focus on foundry business and optimize the value of 8-inch fab equipments.
� Over investment impact
Along with the fluctuant industrial cycle, price erosion of standard DRAM is the major threat of DRAM industry. The over investment made this down turn more serious than ever. ProMOS adopts omnibus diversification strategies to reduce the impact. For product diversification, ProMOS has standard DRAM products and special memory products like mobile DRAM, SiP DRAM, and Pseudo SRAM. For market diversification, ProMOS has contract customers, module houses, consumer electronic customers, and foundry customers. For business diversification, ProMOS involves new business like NAND Flash, LCD driver IC, CMOS image sensor, one-time-programmable memory, and power IC. ProMOS could enhance business portfolio following with these strategies.
B. Important Applications and Manufacturing Process of Major Products
ProMOS mainly produces high-performance and high-density memory products. Our commodity DRAM is used for PCs as memory buffer. The major usage is accelerating computer calculation speed. PCs include Desktop, Laptops, Servers, Workstations and high-end computers. ProMOS specialty DRAM targets at graphics’ 3D image processing and consumer applications and includes low-power memory products, such as pseudo SRAM and low-power SDRAM. Those products are used for cell phone and portable electronic devices to support fast access between processor and storage memory. System in Package (SiP) and Multi-Chip Package (MCP) products is a single chip, which assembles the logic component and memory or couple types of memory. This kind of package methodology will have the benefits of fast processing speed, space saving, and lower power consumption. However, the application of SiP depends on the function of logic component.
C. Supply Situation for Major Raw Materials
Raw Material Supplier Origin (Manufacturing site) Market Condition
Silicon wafers *S.E.H. *SUMCO *MEMC *SILTRONIC *FST *LG
Japan/Taiwan Japan/Taiwan USA/ Taiwan Germany/Singapore/ Japan Taiwan Korea
1. These six companies are the major 8” wafer suppliers, and the preceding four companies also supply ProMOS 12” wafers. The quality of their products has maintained a certain standard required by the industry. Their combined capacity and sales constitute to more than 80% of the world market. They are also the long-term supplier of ProMOS.
2. These six companies are located in USA, Asia and
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Raw Material Supplier Origin (Manufacturing site)
Market Condition
Europe with manufacturing sites in different locations to meet market demand.
Production chemical
*BASF *T.Y.S.
Taiwan Taiwan
1. These two companies are a world-class famous manufactures.
2. BASF & T.Y.S. purchase major raw materials from
everywhere (ex. Japan、Germany and Taiwan etc.),
then purified、mixed、filtered and packed in local manufacture site before supplying to the semiconductor in Taiwan and Mainland China.
3. BASF has its products packed in Taiwan to ensure stable supply, to shorten lead-time and to maintain quality.
Slurry *CABOT *ROHM AND HAAS
USA USA
1. CABOT/ ROHM AND HAAS are global-renowned slurry manufactures.
2. To meet J.I.T. request, both CABOT/ ROHM AND HAAS have products warehoused in Taiwan.
Photo resist *ROHM AND HAAS *JSR *TOK *AZ *Asahi
USA Japan Japan Japan Japan
1. These five companies are well-known suppliers to the semiconductor industry.
2. ROHM AND HAAS / JSR have products warehoused in Taiwan to meet J.I.T. demand.
3. TOK & AZ are major ArF photoresist (For 193nm scanner use) suppliers.
4. Asahi catches more than 80% of the Polyimide market in Taiwan and is big capable of product allocation due to big customer base in Taiwan.
Specialty gas *Showa *Taiyo Nippon Sanso Group (Matheson) *Air Products San Fu *Air Liquid
Japan Japan / USA USA / Japan Japan
1. These four companies mainly supply products to chip makers in Taiwan.
2. The specialty gases supplied by these four manufactures are interchangeable and promoting to company competition.
Critical consumable parts
*ROHM AND HAAS (CMP Pad) *HERAEUS/TOPOC (Quartz ware) *TOSOH (Quartz ware) *GE (Quartz ware)
USA Germany / Taiwan USA / Taiwan USA / Taiwan
1. ROHM AND HAAS is the largest CMP pad supplier and also has the best technologies in it. Its global market share is over 90% in semiconductor industry.
2. HERAEUS/TOPOC, TOSOH and GE are makers/agents in quartz ware and supply their product to customers of semiconductor in Taiwan. Most quartz wares are interchangeable and promoting to company competition.
D. List of Major Suppliers and Customers over 10 % of Purchase and Sales Amount in Either
of the Two Most Recent Fiscal Years a. Major Customers over 10% of Net Sales Amount in the Two Most Recent Years
Unit: in NT$ Thousand
2006 2007 Year Customers Amount
% of annual Net Sales
Amount % of annual Net
Sales Customer A 9,086,748 15% 5,995,866 13% Customer B 15,452,875 26% 14,025,144 29% Customer C 9,852,984 16% 7,207,319 15%
b. Major Suppliers over 10% of Purchase Amount in Two Most Recent Years
Unit: in NT$ Thousand
2006 2007 Year Customers Amount
% of Annual Purchase
Amount % of Annual Purchase
Supplier A 1,955,950 16% 4,317,375 23%
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E. An Indication of the Production Volume for the Two Most Recent Fiscal Years
Unit: Wafers / Thousand Pieces / NT$ Thousand
2006 2007 Production Year
QTY and Amount Major Product
Capacity Production Product Value Capacity Production Product Value
WAFER - 394,574 6,612,238 - 698,266 10,777,352
IC - 404,990 31,797,259 - 581,050 41,073,728 Total 1,797,268 38,409,497 2,758,609 51,851,080
F. An Indication of the Volume of Units Sold for the Two Most Recent Fiscal Years
Unit: Wafers / Thousand Pieces / NT$ Thousand
2006 2007
Local Overseas Local Overseas
Sales Year
QTY and Amount
Major Product
QTY Amount QTY Amount QTY Amount QTY Amount
DARM 4,689 134,383 381,311 11,995,978 16,127 411,148 620,168 8,969,802
IC 97,927 11,062,651 291,213 34,458,881 205,396 13,433,412 358,539 23,500,494
OTHERS - 1,754,679 - 664,751 - 1,279,380 - -
Total 12,951,713 47,119,610 15,123,940 32,470,385
(3) The Information of Employees
Year 2005 2006 2007 As of Mar. 31, 2008
Managers and above 128 138 156 157
Engineers 2,317 2,725 3,429 3,445
Administrators 193 240 261 263
Technicians 1,684 1,922 3,088 3,064
Number Of
Employee
Total 4,322 5,025 6,934 6,929
Average age 29 30 30 30
Average Years of Employment 2.86 3.07 2.83 2.97
Ph.D. 1.04% 0.92% 0.68% 0.69%
Master's Degree 21.74% 21.38% 19.37% 19.56%
Bachelor's and Associate Degree 57.08% 58.70% 59.36% 59.26%
Senior High School 20.05% 18.76% 20.42% 20.31%
Level Of Education
(%)
Others 0.09% 0.24% 0.17% 0.18%
(4) Disbursements for Environmental Protection
ProMOS is dedicated itself to environmental protection to implement the ESH Policy- ' Provision of safe and comfortable work environment, effective prevention of occupational hazards, thorough responsiveness to environmental protection duties, and green operations '. ProMOS is
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certified with ISO 14001 and OHSAS 18001. To fulfill the spirit of the two management systems, we execute and promote some improvement projects such as wastes reduction in manufacturing, energy and resources conservation, pollution prevention, use low toxicity/ low harmful materials, wastes recycling to reduce the impacts on environment. In 2007, all activities complied with the relevant regulations and there were no loss or fine resulted from environmental pollution.
For inspiring employees to implement Environment, Safety and Hygiene to fulfill ESH Policy, we have promoted the ESH activities annually such as prizes during Q&A session about ESH, ecology tour and poster competition. These activities help to instill the employees’ concepts of environmental protection in their workdays. We also co-work with HSPA and participate in related ESH activities to fulfill the social duty of a sustainable corporate.
(5) Labor Relations
ProMOS provides fringe benefits to employees in compliance with the Labor Standard Law, Labor Insurance Regulations, Employee Benefits Rules and related rules and regulations. In addition to Labor Insurance and National Health Insurance, we also offer employees, their spouse, children and parents a group insurance that provide accidental, life, medical and cancer benefits. We also offer the benefits of annual physical check-up and on- job training to furnish employees with both secures and growth environment. We support some employees with transportation and accommodation. The Welfare Committee provides employees’ wedding, funeral, illness and childbirth as well as organizes company trips, both domestic and overseas, recreational contests, year-end banquet and club activities to support good physical and mental condition of employees.
For formal employees, ProMOS provides them two statutory pension systems based on related labor acts. By July 1, 2005, all formal employees were suitable to apply the “Labor Standards Act Pension System” (Old System). ProMOS is required to deduct between 2% to 15% of a worker's total monthly wage and set aside this amount as a reserve fund for said worker's old-age benefits payments. The pension payments reserve fund contributed by the Central Trust of China Co., Ltd.
After July 1, 2005, formal employees might choose to continue the old pension system or to apply the new pension system, established by Labor Pension Act. Under the new Act, ProMOS is required to deposit 6% (or more) of a worker's monthly wages into an individual labor pension account managed by the Bureau of Labor Insurance, with ownership going to the worker.
During year 2007 up to the date of printing of the annual report, ProMOS’ have not occurred any loss resulting from labor disputes.
(6) Important Contracts
Nature Parties Duration Content Restrictive Clauses
Long-Term Loan Agreement
China Development Industrial ProMOS Technologies Inc.
Nov. 18, 2005 ~ Nov. 18, 2009
Long Term Loan for NTD$500M
1.The machinery and equipment financed with the loan should be mortgaged to the bank
2.The company should comply with articles which are required by loan agreement
Long-Term Loan Agreement
BOWA Bank ProMOS Technologies Inc.
Aug. 18, 2006 ~ Aug. 18, 2008
NTD$100M The company should comply with articles which are required by loan agreement
Long -Term Loan Agreement
Taiwan Life Insurance Co. Ltd. ProMOS Technologies Inc.
Sep. 29, 2006 ~ Sep. 29, 2009
NTD$300M The company should comply with articles which are required by loan agreement
Lease Agreement Chailease Finance Co. Ltd. ProMOS Technologies Inc.
Jan.05, 2005 ~ Jan.05, 2008
NT$50M Machinery and Equipment Sale-Leaseback
None
Lease Agreement Chailease Finance Co. Ltd. ProMOS Technologies Inc.
Mar. 25, 2005 ~ Mar. 25, 2008
NT$250M Machinery and Equipment Sale-Leaseback
None
Lease Agreement Chailease Finance Co. Jul. 08, 2005 ~ NT$300M None
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Nature Parties Duration Content Restrictive Clauses
Ltd. ProMOS Technologies Inc.
Jul. 08, 2008 Machinery and Equipment Sale-Leaseback
Lease Agreement GE Capital Corporation ProMOS Technologies Inc.
Jul. 01, 2005 ~ Jul. 01, 2008
US$11M Machinery and Equipment Sale-Leaseback
None
Lease Agreement GE Capital Corporation ProMOS Technologies Inc.
Jan. 18, 2006 ~ Jan. 18, 2009
US$33,862,791 Machinery and Equipment Sale-Leaseback
None
Rental Agreement Macquarie（Asia）
Pte..Ltd.Taiwan Branch Aug. 22, 2006 ~ Aug. 22, 2008
NT$7,196,200,000 Machinery and Equipment Sale-Leaseback
None
Syndicated Loan Agreement
Taiwan Cooperative Bank & other 10 banks ProMOS Technologies Inc.
Aug. 15, 2005 ~ Aug. 15, 2010
Long Term Loan for NTD$10,000M
1.The Buildings and Structures & imported machinery and equipment financed with the loan should be mortgaged to the bank
2.The company should comply with financial covenants and other articles which are required by loan agreement
Syndicated Loan Agreement
Taiwan Cooperative Bank & other 14 banks ProMOS Technologies Inc.
Dec. 26, 2005 ~ Dec. 26, 2010
Long Term Loan for NTD$13,000M
1.The Buildings and Structures & imported machinery and equipment financed with the loan should be mortgaged to the bank
2.The company should improve it’s collection of Account Receivable
3.The company should comply with financial covenants and other articles which are required by loan agreement
Syndicated Loan Agreement
Taiwan Cooperative Bank & other 20 banks ProMOS Technologies Inc.
The period is 5 years from the first drawdown day.
Long Term Loan for NTD$20,000M
1.The Buildings and Structures & imported machinery and equipment financed with the loan should be mortgaged to the bank
2.The company should improve it’s collection of Account Receivable
3.The company should comply with financial covenants and other articles which are required by loan agreement
Syndicated Loan Agreement
Taiwan Bank & other 12 banks ProMOS Technologies Inc.
The period is 5 years from the first drawdown day.
Long Term Loan for NTD$20,700M
1.The Buildings and Structures & imported machinery and equipment financed with the loan should be mortgaged to the bank
2.The company should comply with financial covenants and other articles which are required by loan agreement
Sales Agreement International Business Machines Corp. ; Dell Products L.P. ; ProMOS Technologies Inc.
3-5 years duration since 2004
DRAM and DRAM module Procurement Agreement
None
Investment Agreement
ChongQing Municipal Government ProMOS Technologies Inc.
Feb. 14, 2007 Set up ProQ Technologies Incorporated
None.
Intellectual Property License Agreement
Siemens AG ProMOS Technologies Inc.
Jan.25, 1997 0.35um~0.20um Intellectual Property License Agreement
1. For a defined period certain percentage of the product must be sold to Siemens AG or other specified companies
2. The technology acquired may not be licensed to any third party
Intellectual Property License Agreement
Mosel Vitelic Inc. Infineon Technologies AG ProMOS Technologies Inc.
Mar. 15, 2000 License Agreement
ProMOS was licensed from Infineon the next generations technologies and the right to use for the new products
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Overview of the financial status (1) Abbreviated Balance Sheets and Income Statements for the Past Five Fiscal Years
Abbreviated Balance Sheet
Unit: Thousands of NTD
Year Item
2003 2004 2005 2006 2007
Current Fiscal Year Up to Mar. 31, 2008 (Note 2)
Current Assets 19,473,288 32,912,579 26,973,477 45,131,150 29,736,534 22,663,101
Fund and Long-term Investment 1,940,110 2,585,332 4,629,393 2,433,805 4,814,147 4,729,398
Fixed Assets 34,925,294 41,089,794 69,027,218 86,811,784 127,183,273 124,626,896
Intangible Assets 5,959,490 4,528,318 3,331,444 4,676,646 5,041,903 4,779,889
Other Assets 4,982,275 4,136,330 3,711,692 3,534,719 2,871,758 3,593,712
Total Assets 67,280,457 85,252,353 107,673,224 142,588,104 169,647,615 160,392,996
Before Distribution 13,212,646 14,456,441 26,803,778 29,392,515 28,541,222 38,663,327 Current Liabilities
After Distribution 13,212,646 14,456,441 26,803,778 29,392,515 Note 3 Note 3
Long-term Liabilities 13,841,301 10,704,303 25,854,939 25,120,720 62,970,842 52,110,380
Other Liabilities 117,758 142,551 153,868 364,808 1,794,104 1,596,496
Before Distribution 27,171,705 25,303,295 52,812,585 54,878,043 93,306,168 92,370,203 Total Liabilities
After Distribution 27,171,705 25,303,295 52,812,585 54,878,043 Note 3 Note 3
Capital Stock 38,691,982 44,498,038 49,893,328 65,343,958 67,069,537 67,069,537
Capital Surplus 2,478,981 5,638,639 5,786,855 7,828,893 10,310,394 10,310,724
Before Distribution 330,603 10,428,663 212,969 14,748,595 (698,151) (8,750,433) Retained Earnings
After Distribution 330,603 1,153,423 212,969 6,622,981 Note 3 Note 3
Unrealized loss on financial instruments - - - - (261,001) (433,798)
Cumulative Translation Adjustment - (74,328) (35,390) 36,138 124,640 30,735
Before Distribution 40,108,752 59,949,058 54,860,639 87,710,061 76,341,447 68,022,793 Shareholder’s Equity
After Distribution 40,108,752 55,236,438 54,860,639 79,584,447 Note 3 Note 3 Note1: All financial figures had been audited by independent auditor. Note2: All financial figures had been reviewed by independent auditor. Note3: The proposal relating to offset deficit of 2007 has not been approved by 2008 annual shareholder’s meeting yet.
Nature Parties Duration Content Restrictive Clauses
Intellectual Property License Agreement
Hynix Semiconductor ProMOS Technologies Inc.
Jan. 13, 2005 License Agreement
ProMOS was licensed from Hynix the next generations technologies
Joint Development Agreement
Hynix Semiconductor ProMOS Technologies Inc
Mar.1,2006 Joint Development Agreement
Hynix Semiconductor ProMOS Technologies Inc joint development for the manufacture and products
Co-development and Manufacturing Agreement
Some Customers ProMOS Technologies Inc.
3-5 years duration since 2002
Jointly develop memory products and manufacture in ProMOS
None
Intellectual Property License Agreemen
Toppan Printing Co., Ltd. ProMOS Technologies Inc.
Aug. 6, 2007 License Agreement
None
Syndicated Loan Agreement
Ta Chong bank & other 4 banks ProMOS Technologies Inc.
The period is 3 years from the first drawdown day.
Long Term Loan for NTD$1,250M
1. The machinery and equipment financed with the loan should be mortgaged to the bank.
2. The company should comply with articles which are required by loan agreement.
Lease Agreement Chailease Finance Co. Ltd. ProMOS Technologies Inc.
Dec.26, 2007 ~ Dec.26,2011
NT$800M Machinery and Equipment Sale-Leaseback
None
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Abbreviated Income Statement Unit: Thousands of NTD
Year
Item
2003 2004 2005 2006 2007
Current Fiscal Year Up to Mar. 31,
2008
(Note 2)
Net Sales 25,129,967 42,958,711 29,504,841 60,071,324 47,594,236 7,642,627
Gross Profit 3,627,419 16,653,574 4,246,800 22,285,144 (606,352) (5,410,523)
Operating Income 847,731 11,584,630 69,102 17,259,924 (6,183,183) (6,605,733)
Other non-operating Income 340,173 582,128 435,307 658,371 1,356,272 741,889
Other non-operating Losses 981,100 1,803,697 1,340,166 3,136,443 3,796,851 2,188,439
Income (Loss) before Income
Tax 206,804 10,363,061 (835,757) 14,781,852 (8,623,762) (8,052,283)
Income (Loss) after Income
Tax 330,603 10,098,061 (889,158) 14,533,206 (7,321,132) (8,052,283)
Cumulative effect of changes
in accounting principles - - - 2,420 - -
Net Income 330,603 10,098,061 (889,158) 14,535,626 (7,321,132) (8,052,283)
Earnings Per Share 0.09 2.37 (0.18) 2.64 (1.11) (1.20)
Note1: All financial figures had been audited by independent auditor.
Note2: All financial figures had been reviewed by independent auditor.
Auditors’ Name and Opinion
Year Name of CPA Firm Name of CPA Auditors’ Opinion
2007 PricewaterhouseCoopers Fang-Yu Wen & Wei-Chang Wang Modified Unqualified Opinion
2006 PricewaterhouseCoopers Fang-Yu Wen & Wei-Chang Wang Modified Unqualified Opinion
2005 PricewaterhouseCoopers Fang-Yu Wen & Wei-Chang Wang Modified Unqualified Opinion
2004 BDO Taiwan Union ε Co Winner Hsu & Beatrice Liu Unqualified Opinion
2003 BDO Taiwan Union ε Co Winner Hsu & Beatrice Liu Modified Unqualified Opinion
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(2) Financial Analysis for the Past Five Year
2003 2004 2005 2006 2007
Current Fiscal
Year Up to
Mar.31,2008
Debts Ratio 40.39 29.69 49.05 38.49 55.00 57.59 Capital Structure
Analysis (%) Long-term Funds to Fixed Assets 154.81 172.30 117.16 130.39 110.95 97.68
Current Ratio 147.38 227.67 100.63 153.55 104.19 58.62
Quick Ratio 101.91 183.36 63.92 111.64 51.89 27.66 Liquidity Analysis
(%)
Interest Guarantee (Time) 1.27 19.88 0.11 9.32 (3.35) (9.86)
Average Collection Turnover (Time) 3.26 4.94 3.97 7.31 5.95 7.24
Average Collection Days 112.00 74.00 92.00 50.00 61.00 50.00
Average Inventory Turnover (Times) 6.17 6.08 5.05 5.30 4.95 5.27
Average Sales Days 59.00 60.00 72.00 69.00 74.00 69.00
Fixed Assets Turnover (Time) 0.72 1.05 0.43 0.69 0.37 0.06
Operating
Performance
Analysis
Total Assets Turnover (Time) 0.37 0.50 0.27 0.42 0.28 0.05
Return on Total Assets (%) 1.35 13.78 (0.38) 12.37 (3.74) (4.54)
Return on Equity (%) 0.87 20.18 (1.55) 20.39 (8.93) (11.16)
Operation Income
(Loss) 2.19 26.03 0.14 26.41 (9.22) (9.85)
Ratio to Capital
Stock (%) Income ( Loss)
before Income
Tax
0.53 23.29 (1.68) 22.63 (12.86) (12.01)
Net Income (Loss) to Sales (%) 1.32 23.51 (3.01) 24.20 (15.38) (105.36)
Return on
Investment
Analysis (%)
Earnings Per Share (NTD) 0.09 2.37 (0.18) 2.64 (1.11) (1.20)
Cash Flow Ratio 90.32 137.95 44.59 87.57 51.24 -
Cash Flow Adequacy Ratio 102.67 101.75 58.52 73.82 54.71 46.83 Cash Flow (%)
Cash Flow Reinvestment Ratio 12.88 17.01 5.95 14.66 4.20 -
Degree of Operating Leverage 17.16 2.18 182.89 1.97 (2.18) (0.03) Degree
Degree of Financial Leverage 9.68 1.05 0.00 1.11 0.76 0.90
-45-
(3) Supervisor’s Report for the Most Recent Year’s Financial Statement
The Board of Directors have prepared and submitted to us the Company’s 2007 Balance
Sheets, Statements of Income, Changes in Shareholders’ Equity and Cash Flow. These
statements have been audited by Pricewaterhouse Coopers. The financial statements present
fairly the financial position of the Company and the results of its operations and the cash flows.
We as the Supervisors of the Company have reviewed these statements, report of operations
and the proposals relating to offset deficit. According to the Article 219 of Company Law, we
hereby submit this report.
ProMOS Technologies Inc.
Supervisors: Ted Hsiao
Mar 21, 2008
-46-
The Board of Directors have prepared and submitted to us the Company’s 2007 Balance
Sheets, Statements of Income, Changes in Shareholders’ Equity and Cash Flow. These
statements have been audited by Pricewaterhouse Coopers. The financial statements present
fairly the financial position of the Company and the results of its operations and the cash flows.
We as the Supervisors of the Company have reviewed these statements, report of operations
and the proposals relating to offset deficit. According to the Article 219 of Company Law, we
hereby submit this report.
ProMOS Technologies Inc.
Supervisors: T. C. Peng
Mar 21, 2008
-47-
The Board of Directors have prepared and submitted to us the Company’s 2007 Balance
Sheets, Statements of Income, Changes in Shareholders’ Equity and Cash Flow. These
statements have been audited by Pricewaterhouse Coopers. The financial statements present
fairly the financial position of the Company and the results of its operations and the cash flows.
We as the Supervisors of the Company have reviewed these statements, report of operations
and the proposals relating to offset deficit. According to the Article 219 of Company Law, we
hereby submit this report.
ProMOS Technologies Inc.
Supervisors: C. S. Jou
Mar 21, 2008
-48-
PROMOS TECHNOLOGIES INC.
NON-CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 2007 AND 2006
For the convenience of readers and for information purpose only, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.
(4) 2007 Non-Consolidated Financial Statements and Independent Auditor’s Report
-49-
Report of Independent Accountants
PWCR07002302
To the Board of Directors and Shareholders of
ProMOS Technologies Inc.
We have audited the accompanying non-consolidated balance sheets of ProMOS
Technologies Inc. as of December 31, 2007 and 2006, and the related non-consolidated
statements of operations, of changes in shareholders’ equity and of cash flows for the years
then ended, expressed in thousands of New Taiwan dollars. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial statements of
certain investees accounted for under the equity method. These long-term equity investments
amounted to ($535,476) thousand and ($68,661) thousand as of December 31, 2007 and 2006,
respectively, and the related investment loss for 2007 and 2006 was $492,879 thousand and
$587,954 thousand, respectively. The financial statements of these companies were audited by
other auditors whose reports thereon have been furnished to us, and our opinion expressed
herein, insofar as it relates to long-term equity investments in these companies, is based solely
on the reports of the other auditors.
We conducted our audits in accordance with the “Rules Governing the Examination of
Financial Statements by Certified Public Accountants” and generally accepted auditing
standards in the Republic of China. Those standards and rules require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits and
the reports of the other auditors provide a reasonable basis for our opinion.
-50-
In our opinion, based on our audits and the reports of the other auditors, the non-consolidated
financial statements referred to above present fairly, in all material respects, the financial
position of ProMOS Technologies Inc. as of December 31, 2007 and 2006, and the results of
its operations and its cash flows for the years then ended in conformity with the “Rules
Governing the Preparation of Financial Statements by Securities Issuers”, “Business Entity
Accounting Law”, “Regulation on Business Entity Accounting Handling” and generally
accepted accounting principles in the Republic of China.
We have also audited the consolidated financial statements of ProMOS Technologies Inc. and
its subsidiaries (not presented herein) as of and for the years ended December 31, 2007 and
2006. In our report dated February 25, 2008, we expressed a modified unqualified opinion on
the consolidated financial statements based on our audits and the reports of the other auditors
of certain investee companies.
Hsinchu, Taiwan February 25, 2008
-----------------------------------------------------------------------------------------------------------------
The accompanying non-consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying non-consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.
-51-
PROMOS TECHNOLOGIES INC. NON-CONSOLIDATED BALANCE SHEETS
DECEMBER 31, (Expressed in Thousands of New Taiwan Dollars)
2007 2006
ASSETS
Current Assets
Cash and cash equivalents (Note 4 (1)) $ 8,298,881 $ 17,941,164
Financial assets at fair value through profit or loss - current (Note 4 (2)) 37,271 3,024,512
Available-for-sale financial assets - current (Notes 4 (3) and 5) 558,130 -
Notes and accounts receivable (Note 4 (4)) 4,831,939 10,907,653
Accounts receivable - related parties (Notes 4 (4) and 5) 35,938 211,912
Other receivables 885,711 621,839
Other receivables - related parties (Note 5) 161,913 106,164
Inventories, net (Note 4 (5)) 10,980,716 8,493,665
Prepaid expenses (Note 4 (10)) 1,088,651 1,900,195
Prepayments 17,145 82,592
Temporary payments 1,851 35,493
Deferred income tax assets - current (Note 4 (21)) 1,348,354 867,080
Restricted assets (Note 6) 1,490,034 938,881
Total current assets 29,736,534 45,131,150
Funds and Investments
Derivative financial assets for hedging - noncurrent (Note 10) 20,214 -
Financial assets carried at cost - noncurrent (Note 4 (6)) 318,400 796,632
Investments in bonds without active markets - noncurrent (Notes 4 (7) and 6) 750,000 900,000
Long-term equity investments accounted for under the equity method (Note 4 (8))
3,725,533
737,173
Total funds and investments 4,814,147 2,433,805
Property, Plant and Equipment, Net (Notes 4 (9), 5 and 6)
Cost
Land 207,762 207,762
Buildings 38,451,818 30,282,545
Machinery and equipment 101,425,893 105,975,028
Computer and communication equipment 920,240 1,048,393
Transportation equipment 8,349 8,349
Office equipment 1,686 1,686
Leased assets 3,500,114 2,550,886
Leasehold improvements 2,286 2,286
Cost 144,518,148 140,076,935
Less: Accumulated depreciation ( 53,242,108 ) ( 67,102,757 )
Construction in progress and prepayments for equipment 35,907,233 13,837,606
Total property, plant and equipment, net 127,183,273 86,811,784
Intangible Assets (Notes 4 (10) and 5)
Patents 2,396,737 2,052,747
Other intangible assets 2,645,166 2,623,899
Total intangible assets 5,041,903 4,676,646
Other Assets
Rental assets 48,713 66,626
Refundable deposits 44,777 56,196
Deferred charges 558,849 453,236
Deferred income tax assets - noncurrent (Note 4 (21)) 2,219,419 1,891,990
Other assets - other (Note 6) - 1,066,671
Total other assets 2,871,758 3,534,719
TOTAL ASSETS $ 169,647,615 $ 142,588,104
(Continued)
-52-
PROMOS TECHNOLOGIES INC. NON-CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, (Expressed in Thousands of New Taiwan Dollars)
2007 2006
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term loans (Notes 4 (11) and 6) $ 213,431 $ -
Commercial papers payable (Notes 4 (12) and 6) - 380,000
Financial liabilities at fair value through profit or loss - current (Note 4 (13)) - 77,907
Accounts payable 5,698,193 4,049,643
Income tax payable (Note 4 (21)) - 1,132,664
Accrued expenses 2,540,465 3,172,811
Other payables - related parties (Note 5) 1,515,181 1,798,492
Other payables (Note 4 (14)) 12,374,190 10,994,564
Long-term liabilities - current portion (Notes 4 (14) and 6) 6,199,762 7,786,434
Total current liabilities 28,541,222 29,392,515
Long-term Liabilities, net of current portion (Notes 4 (14) and 6)
Financial liabilities at fair value through profit or loss - noncurrent 830,860 -
Bonds payable 8,761,161 2,853,692
Long-term loans 51,573,842 15,528,523
Long-term payables 709,813 6,227,277
Capital lease payable - noncurrent 645,339 511,228
Long-term notes and accounts payable - related parties (Note 5) 449,827 -
Total long-term liabilities 62,970,842 25,120,720
Other Liabilities
Accrued pension liabilities (Note 4 (20)) 118,957 134,687
Guarantee deposits received 1,822 2,009
Other liabilities - other (Notes 4 (8), 4 (9) and 5) 1,673,325 228,112
Total other liabilities 1,794,104 364,808
Total Liabilities 93,306,168 54,878,043
Shareholders' Equity
Capital (Note 4 (15))
Common stock 67,069,537 65,343,958
Capital Surplus (Note 4 (16))
Additional paid-in capital 7,870,431 7,811,930
Treasury stock 17,948 16,963
Long-term investment 2,148 -
Stock warrants (Note 4 (14)) 2,419,867 -
Retained Earnings (Note 4 (17))
Legal reserve 1,631,142 177,579
Special reserve - 35,390
(Accumulated deficit) retained earnings ( 2,329,293 ) 14,535,626
Unrealized loss on financial instruments (Notes 4 (3) and 10) ( 261,001 ) -
Cumulative Translation Adjustments 124,640 36,138
Treasury Stock (Note 4 (18)) ( 203,972 ) ( 247,523 )
Total Shareholders' Equity 76,341,447 87,710,061
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 169,647,615 $ 142,588,104
The accompanying notes are an integral part of these non-consolidated financial statements.
See report of independent accountants dated February 25, 2008.
-53-
PROMOS TECHNOLOGIES INC. NON-CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, (Expressed in Thousands of New Taiwan Dollars, Except for (Loss) Earnings Per Share Amounts)
2007 2006 Operating revenues (Note 5) Sales revenues $ 48,683,149 $ 62,283,295
Sales returns ( 1,088,913 ) ( 2,211,971 )
Net operating revenues 47,594,236 60,071,324
Operating costs (Notes 4 (23) and 5)
Cost of goods sold ( 48,200,588) ( 37,786,180 )
Gross (loss) profit ( 606,352) 22,285,144
Operating expenses (Notes 4 (23) and 5)
Selling and marketing expenses ( 1.506.140) ( 1,357,758 )
General and administrative expenses ( 1,224,446) ( 1,221,427 )
Research and development expenses ( 2,846,245) ( 2,446,035 )
( 5,576,831) ( 5,025,220 )
Operating (loss) income ( 6,183,183) 17,259,924
Non-operating income and gains
Interest income (Note 5) 584,409 534,041
Gain on valuation of financial assets (Note 4 (2)) 77,134 23,348
Gain on disposal of property, plant and equipment, net (Note 5) 4,626 145
Foreign exchange gain, net 404,302 -
Rental income (Note 5) 39,253 41,558
Other non-operating income (Note 5) 246,548 59,279
1,356,272 658,371
Non-operating expenses and losses
Interest expense (Note 4 (9)) ( 1,543,216 ) ( 1,264,796 )
Loss on valuation of financial liabilities (Notes 4 (13) and 4 (14)) ( 240,963 ) ( 77,907 )
Investment loss accounted for under the equity method, net (Note 4 (8))
( 836,011 ) ( 635,910 )
Foreign exchange loss, net - ( 97,418 )
Provision for obsolescence and decline in market value of inventory
( 1,058,170 )
( 72,349 )
Impairment loss (Notes 4 (7) and 4 (8)) - ( 958,606 )
Other non-operating losses (Notes 4 (23) and 7) ( 118,491) ( 29,457 )
( 3,796,851) ( 3,136,443 )
(Loss) income before income tax ( 8,623,762) 14,781,852
Income tax benefit (expense) (Note 4 (21)) 1,302,630 ( 248,646 )
(Loss) income before cumulative effect ( 7,321,132) 14,533,206
Cumulative effect of changes in accounting principles - 2,420
Net (loss) income ( $ 7,321,132) $ 14,535,626
Before tax
After tax
Before tax
After tax
Basic (loss) earnings per share (Note 4 (22))
Net (loss) income ($ 1.31) ($ 1.11) $ 2.68 $ 2.64
Diluted (loss) earnings per share (Note 4 (22))
Net (loss) income ($ 1.31) ($ 1.11) $ 2.48 $ 2.42
The accompanying notes are an integral part of these non-consolidated financial statements. See report of independent accountants dated February 25, 2008.
-54-
PR
OM
OS
TE
CH
NO
LOG
IES
IN
C.
NO
N-C
ON
SO
LID
AT
ED
ST
AT
EM
EN
TS
OF
CH
AN
GE
S I
N SH
AR
EH
OLD
ER
S’ E
QU
ITY
FO
R T
HE
YE
AR
S E
ND
ED
DE
CE
MB
ER
31
,
(Exp
ress
ed in
Th
ousa
nd
s o
f Ne
w T
aiw
an D
olla
rs)
Ret
aine
d E
arni
ngs
C
omm
on
Sto
ck
Cap
ital
Sur
plus
Le
gal R
eser
ve
Spe
cial
R
eser
ve
Ret
aine
d
Ear
ning
s
(Acc
umul
ated
D
efic
it)
Unr
ealiz
ed L
oss
on
Fin
anci
al
I I
nstr
umen
ts
C
umul
ativ
e
Tra
nsla
tion
A
djus
tmen
ts
T
reas
ury
Sto
ck
T
otal
20
06
Bal
ance
at J
anua
ry 1
, 200
6
$ 49
,893
,328
$ 5,
786,
855
$
1,0
42,8
66
$
74,3
28
( $
90
4,22
5 )
$ -
( $
35
,390
) (
$
997,
123
)
$ 54
,860
,639
Con
vers
ion
of c
onve
rtib
le b
onds
5,
450,
630
1,16
2,75
5
-
-
-
-
-
-
6,
613,
385
Rec
lass
ifica
tion
of c
ompe
nsat
ion
inte
rest
pay
able
to
cap
ital
re
serv
e du
e to
exp
iratio
n of
red
empt
ion
optio
ns
-
223,
669
-
-
-
-
-
-
223,
669
Issu
ance
of g
loba
l dep
osita
ry r
ecei
pts
10,0
00,0
00
638,
651
-
-
-
-
-
-
10,6
38,6
51
App
ropr
iatio
n of
200
5 ea
rnin
gs:
Rev
ersa
l of s
peci
al r
eser
ve
-
-
- (
38
,938
)
38
,938
-
-
-
-
Lega
l res
erve
use
d to
cov
er a
ccum
ulat
ed d
efic
it
-
- (
86
5,28
7 )
-
86
5,28
7
-
-
-
-
Tra
nsfe
r of
tre
asur
y st
ocks
to
empl
oyee
s
-
16,9
63
-
-
-
-
-
74
9,60
0
76
6,56
3
Net
inco
me
for
2006
-
-
-
-
14
,535
,626
-
-
-
14,5
35,6
26
Tra
nsla
tion
adju
stm
ent
of lo
ng-t
erm
inve
stm
ents
-
-
-
-
-
-
71
,528
-
71,5
28
Bal
ance
at D
ecem
ber
31, 2
006
$
65,3
43,9
58
$ 7,
828,
893
$
177,
579
$
35,3
90
$
14,5
35,6
26
$ -
$
36,1
38
( $
24
7,52
3 )
$
87,7
10,0
61
20
07
Bal
ance
at J
anua
ry 1
, 200
7
$ 65
,343
,958
$ 7,
828,
893
$
177
,579
$ 35
,390
$ 14
,535
,626
$ -
$
36,1
38
( $
24
7,52
3 )
$ 87
,710
,061
Con
vers
ion
of c
onve
rtib
le b
onds
1,
725,
579
57,8
09
-
-
-
-
-
-
1,78
3,38
8
App
ropr
iatio
n of
200
6 ea
rnin
gs:
Lega
l res
erve
-
-
1,
453,
563
- (
1,
453,
563
)
-
-
-
-
Rev
ersa
l of s
peci
al r
eser
ve
-
-
- (
35
,390
)
35
,390
-
-
-
-
Em
ploy
ees’
cas
h bo
nus
-
-
-
-
(
1,31
1,74
5 )
-
-
- (
1,
311,
745
)
Rem
uner
atio
n to
dire
ctor
s an
d su
perv
isor
s
-
-
-
- (
15
0,85
0 )
-
-
- (
15
0,85
0 )
Cas
h di
vide
nds
-
-
-
-
(
6,66
3,01
9 )
-
-
- (
6,
663,
019
)
Net
loss
for
2007
-
-
-
- (
7,
321,
132
)
-
-
-
(
7,32
1,13
2 )
Tra
nsfe
r of
tre
asur
y st
ocks
to
empl
oyee
s
-
986
-
-
-
-
-
43
,551
44
,537
Cap
ital r
eser
ve fr
om s
tock
war
rant
s
-
2,42
0,55
8
-
-
-
-
-
-
2,
420,
558
Adj
ustm
ent
of a
vaila
ble-
for-
sale
fina
ncia
l ass
ets
-
-
-
-
- (
28
1,21
5 )
-
-
(
281,
215
)
Adj
ustm
ents
of d
eriv
ativ
e fin
anci
al a
sset
s fo
r he
dgin
g
-
-
-
-
-
20
,214
-
-
20
,214
Tra
nsla
tion
adju
stm
ent
of lo
ng-t
erm
inve
stm
ents
-
-
-
-
-
-
88
,502
-
88,5
02
Pro
port
iona
l adj
ustm
ent d
ue t
o ch
ange
of i
nves
tee’
s eq
uity
-
2,14
8
-
-
-
-
-
-
2,
148
Bal
ance
at D
ecem
ber
31, 2
007
$
67,0
69,5
37
$ 10
,310
,394
$
1,63
1,14
2
$ -
( $
2,
329,
293 )
( $
26
1,00
1 )
$
124,
640
( $
20
3,97
2 )
$ 76
,341
,447
The
acc
om
pan
ying
no
tes
are
an
inte
gral
par
t of t
hese
no
n-co
nso
lidat
ed
fina
ncia
l sta
tem
ent
s.
See
rep
ort
of i
ndep
end
ent a
cco
unta
nts
dat
ed F
ebru
ary
25
, 2
00
8.
-55-
PROMOS TECHNOLOGIES INC. NON-CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, (Expressed in Thousands of New Taiwan Dollars)
2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ( $ 7,321,132 ) $ 14,535,626 Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation 16,427,126 13,289,309 Amortization 2,016,356 1,809,541
Rent expense ( 1,798,423 ) - Gain on valuation of financial assets ( 77,134 ) ( 23,348 ) Gain on disposal of property, plant and equipment, net ( 4,626 ) ( 145 )
Compensation interest payable - 506,833
Amortization of discount on convertible bonds 486,941 -
Loss on valuation of financial liabilities 240,963 77,907 Investment loss accounted for under the equity method 836,011 635,910 Foreign exchange gain on convertible bonds ( 132,166 ) ( 18,257 ) Provision for obsolescence and decline in market value of inventory 1,058,170 72,349 Impairment loss - 958,606 Loss on disposal of obsolete inventory 19,639 3,483 Cumulative effect of changes in accounting principles - ( 2,420 )
Changes in assets and liabilities
(Increase) decrease in assets:
Notes and accounts receivable 6,075,714 ( 7,075,805 ) Accounts receivable - related parties 175,974 1,260,843 Other receivables 146,128 ( 36,035 ) Other receivables - related parties 98,299 14,584 Inventories ( 3,564,860 ) ( 2,802,434 ) Prepaid expenses and prepayments 356,748 ( 1,146,095 ) Deferred income tax assets ( 808,703 ) ( 973,170 )
Increase (decrease) in liabilities:
Accounts payable 1,648,550 1,523,908 Income tax payable ( 1,132,664 ) 1,132,664 Accrued expenses ( 632,345 ) 1,536,609 Other payables 357,795 75,975 Other payables - related parties 166,516 401,026
Accrued pension liabilities ( 15,730 ) ( 17,227 )
Net cash provided by operating activities 14,623,147 25,740,237
(Continued)
-56-
PROMOS TECHNOLOGIES INC. NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, (Expressed in Thousands of New Taiwan Dollars)
2007 2006
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (increase) in financial assets at fair value through profit or loss $ 3,064,375 ( $ 2,791,744 )
Increase in available-for-sale financial assets ( 839,345 ) -
Decrease in restricted assets 515,518 392,520
Acquisition of financial assets carried at cost ( 23,400 ) ( 77,862 )
Decrease in investments in bonds without active markets 150,000 200,000
Acquisition of long-term equity investments accounted for under the equity method ( 2,757,853 ) ( 162,796 )
Proceeds from capital reduction of a long-term equity investment accounted for under the equity method - 957,600
Acquisition of property, plant and equipment ( 56,292,101 ) ( 27,585,320 )
Proceeds from disposal of property, plant and equipment - 2,505
Decrease (increase) in refundable deposits 11,419 ( 13,605 )
Increase in deferred charges ( 374,151 ) ( 223,787 )
Acquisition of intangible assets and patents ( 1,451,075 ) ( 754,335 )
Net cash used in investing activities ( 57,996,613 ) ( 30,056,824 )
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans 213,431 ( 1,938,078 )
Decrease in commercial papers payable ( 380,000 ) ( 350,000 )
Proceeds from issuance of convertible bonds 11,347,980 -
Payment of convertible bonds ( 1,098,078 ) ( 810,000 )
Proceeds from long-term loans 40,520,000 5,142,000
Payment of long-term loans ( 6,053,609 ) ( 7,814,483 )
Decrease in long-term payables ( 1,457,402 ) ( 907,473 )
(Decrease) increase in obligations under capital leases - financing ( 1,424,970 ) 6,401,189
Increase in capital lease payable 145,095 258,750
(Decrease) increase in guarantee deposits received ( 187 ) 55
Issuance of global depositary receipts - 10,638,651
Payment of cash dividends ( 6,663,019) -
Payment of remuneration to directors and supervisors ( 150,850) -
Payment of employees’ bonus ( 1,311,745) -
Proceeds from disposal of treasury stocks 44,537 766,563
Net cash provided by financing activities 33,731,183 11,387,174
Net (decrease) increase in cash and cash equivalents ( 9,642,283) 7,070,587
Cash and cash equivalents at beginning of year 17,941,164 10,870,577
Cash and cash equivalents at end of year $ 8,298,881 $ 17,941,164
Supplemental disclosures of cash flow information
Interest paid $ 2,025,023 $ 1,280,605
Less: Capitalized interest ( 437,543) ( 511,380 )
Interest paid, excluding capitalized interest $ 1,587,480 $ 769,225
Income tax paid $ 688,658 $ 79,935
Non-cash flows from financing activities
Bonds payable converted into common stocks and additional paid-in capital $ 1,783,388 $ 6,837,054
Investing activities partially received by cash
Proceeds from disposal of property, plant and equipment $ 5,648,382 $ -
Less: Decrease in obligations under capital leases - financing ( 4,976,219) -
Less: Other receivables at end of year ( 564,048) -
Less: Prepaid rent expense at end of year ( 108,115) -
Cash received during the year $ - $ -
The accompanying notes are an integral part of these non-consolidated financial statements. See report of independent accountants dated February 25, 2008.
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PROMOS TECHNOLOGIES INC. NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006 (Expressed in Thousands of New Taiwan Dollars, Except as Otherwise Indicated)
1. HISTORY AND ORGANIZATION
ProMOS Technologies Inc. (the “Company”) was incorporated on December 12, 1996 as a
joint venture company of Mosel Vitelic Inc. (MVI) and Siemens Aktiengesellschaft
(Siemens) and is headquartered in Hsinchu Science-Based Industrial Park. The Company’s
shares have been traded on the GreTai Securities Market (GTSM) in the Republic of China
since May 13, 1999. In March 2002, Siemens transferred a portion of its shareholding to
Infineon Technologies A.G. (Infineon). Infineon sold all of its shareholding in 2003.
The Company is engaged in the design, research, development, manufacture, sales and
import/export of semiconductor products.
As of December 31, 2007, the Company had approximately 7,000 employees.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in accordance with the “Rules
Governing the Preparation of Financial Statements by Securities Issuers”, “Business Entity
Accounting Law”, “Regulation on Business Entity Accounting Handling” and accounting
principles generally accepted in the Republic of China. The Company’s significant
accounting policies are summarized below:
(1) Foreign currency transactions
The accounts of the Company are maintained in New Taiwan dollars. Transactions
arising in foreign currencies are translated into New Taiwan dollars at the exchange
rates prevailing at the relevant dates of the transactions. The exchange gains or losses
arising from the difference between the exchange rates at the dates of transactions and
the related dates of actual receipts and payments are charged to current year’s results
of operations.
Assets and liabilities denominated in foreign currencies are translated into New
Taiwan dollars at the exchange rate prevailing at the balance sheet date. Gains or
losses from foreign currency translations are included in current year’s results of
operations.
When a gain or loss on a nonmonetary item is recognized directly in equity, any
exchange component of that gain or loss shall be recognized directly in equity.
Conversely, when a gain or loss on a nonmonetary item is recognized in profit or loss,
any exchange component of that gain or loss shall be recognized in profit or loss.
However, nonmonetary items that are measured on a historical cost basis are translated
using the exchange rate at the transaction date.
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The initial investments in foreign subsidiaries and investee companies accounted for
under the equity method are carried at cost using the historical rates, and investment
income or losses recognized are translated into New Taiwan dollars at the average
rates of exchange prevailing during the year. Assets and liabilities of foreign
subsidiaries and equity investee companies are translated into New Taiwan dollars at
the exchange rate prevailing at the balance sheet date; equity accounts are translated at
historical rates, except for retained earnings as of the beginning of the year which is
transferred from retained earnings as of the end of last year; income and expense
accounts are translated into New Taiwan dollars at the average rates of exchange
prevailing during the year. Translation adjustments are taken directly to a separate
component of shareholders’ equity under “Cumulative translation adjustments.”
(2) Classification of current and noncurrent assets and liabilities
A. Assets that meet one of the following criteria are classified as current assets;
otherwise they are classified as noncurrent assets:
a) Assets arising from operating activities that are expected to be realized or
consumed, or are intended to be sold within the normal operating cycle;
b) Assets held mainly for trading purposes;
c) Assets that are expected to be realized within twelve months from the balance
sheet date; and
d) Cash and cash equivalents, excluding restricted cash and cash equivalents and
those that are to be exchanged or used to pay off liabilities more than twelve
months after the balance sheet date.
B. Liabilities that meet one of the following criteria are classified as current liabilities;
otherwise they are classified as noncurrent liabilities:
a) Liabilities arising from operating activities that are expected to be paid off
within the normal operating cycle;
b) Liabilities arising mainly from trading activities;
c) Liabilities that are to be paid off within twelve months from the balance sheet
date; and
d) Liabilities for which the repayment date cannot be extended unconditionally to
more than twelve months after the balance sheet date.
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(3) Cash equivalents
Cash equivalents are short-term, highly liquid investments, which are readily
convertible to known amount of cash and which are subject to insignificant risk of
changes in value resulting from fluctuations in interest rates. The Company’s
non-consolidated statements of cash flows are prepared on the basis of cash and cash
equivalents.
(4) Financial assets and liabilities at fair value through profit or loss
Financial assets and liabilities at fair value through profit or loss are initially
recognized at fair value. Those in the form of equity securities are accounted for using
the trade date accounting, while those in the form of debt securities, beneficiary
certificates, and derivative instruments are accounted for using the settlement date
accounting.
These financial instruments are subsequently remeasured and stated at fair value, and
the gain or loss is recognized in profit or loss. The fair values of listed equity securities,
closed-end funds and beneficiary certificates are determined by the closing prices at
the balance sheet date. The fair value of open-end funds is determined by the net asset
value at the balance sheet date.
When a derivative is an ineffective hedging instrument, it is initially recognized at fair
value on the date a derivative contract is entered into and is subsequently remeasured
at its fair value. If a derivative is a non-option derivative, the fair value initially
recognized is zero.
For call options and put options, which are embedded in bonds payable, please refer to
Note 2 (15).
(5) Available-for-sale financial assets
A. Equity investments are recognized and derecognized using trade date accounting
and are initially stated at fair value plus transaction costs that are directly
attributable to the acquisition of the financial asset.
B. The financial assets are remeasured and stated at fair value, and the gain or loss is
recognized in equity, until the financial asset is derecognized, at which time the
cumulative gain or loss previously recognized in equity shall be recognized in
profit or loss. The fair values of listed stocks and OTC stocks are based on the
latest quoted fair prices at the balance sheet date.
C. If there is any objective evidence that the financial asset is impaired, the cumulative
loss that had been recognized directly in equity shall be transferred from equity to
profit or loss. When the fair value of an equity instrument subsequently increases,
impairment losses recognized previously in profit or loss shall not be reversed and
the reduction of impairment losses shall be recognized in equity.
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(6) Derivative financial instruments for hedging
Derivatives are initially recognized at fair value on the date a contract is entered into
and are subsequently remeasured at their fair value. The method of recognizing the
resulting gain or loss depends on whether the derivative is designated as a hedging
instrument and the nature of the hedged item.
Cash flow hedges: the changes in the fair value of derivatives that are designated and
qualify as cash flow hedges are recognized in equity.
a. If a hedge of a forecast transaction subsequently results in the recognition of a
financial asset or a financial liability, the associated gains or losses that were
recognized directly in equity are transferred to profit or loss in the same period or
periods when the hedged item affects profit or loss.
b. If a hedge of a forecast transaction subsequently results in the recognition of a
non-financial asset or a non-financial liability, the associated gains and losses that
were recognized directly in equity are transferred into profit or loss in the same
period or periods during which the asset acquired or liability assumed affects profit
or loss. The Company shall apply the above method consistently.
(7) Financial assets carried at cost
Financial assets carried at cost are initially recognized at fair value plus transaction
costs and are accounted for using the trade date accounting.
Impairment loss is recognized when there is objective evidence that the assets are
impaired. Reversal of the foregoing impairment loss is not allowed.
(8) Investments in bonds without active markets
Investments in bonds without active markets are initially recognized at fair value plus
transaction costs and are accounted for using the trade date accounting. Subsequent
measurements are based on amortized costs.
Impairment loss is recognized when there is objective evidence that the investments
are impaired. If, in a subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event occurring after the impairment
was recognized, the previously recognized impairment loss shall be reversed. The
reversal shall not result in a carrying amount of the financial asset that exceeds what
the amortized cost would have been had the impairment not been recognized at the
date the impairment is reversed. The amount of the reversal shall be recognized in
profit or loss.
(9) Allowance for doubtful accounts
Allowance for doubtful accounts is provided for according to the evaluation of the
collectibility of ending balances of notes, accounts and other receivables.
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(10) Inventories
Inventories are stated at standard costs, which are adjusted to actual costs based on the
weighted-average method at the balance sheet date. At the end of period, inventories
are evaluated at the lower of aggregate cost or market value. The market value is
determined based on the replacement cost for raw materials and supplies and net
realizable value for work in process and finished goods. Allowance for slow moving
items and decline in the market value is provided when necessary.
(11) Long-term equity investments accounted for under the equity method
Long-term equity investments in which the Company owns at least 20% of the
investee company’s voting rights and has the ability to exercise significant influence
over the investee company are accounted for under the equity method. The excess of
the acquisition cost over the investee company's fair values of identifiable net assets is
recognized as goodwill, which is subject to an annual impairment assessment.
Retrospective adjustment for prior years is not required. The Company prepares
semiannual and annual consolidated financial statements which include investee
companies in which the Company owns more than 50% of voting rights or has
effective control.
Effective January 1, 2005, in the case of controlled entities, the Company recognizes
all the losses incurred by such entities that will not be covered by other stockholders.
When the operations of such investees become profitable, the Company recognizes the
profits until the amount of losses previously recognized by the Company is fully
recovered.
The capital reserve and long-term equity investment amounts are adjusted for the
variance between the investment costs and net asset values of the investee companies
arising from the disproportionate changes of interest in connection with the capital
increase or reduction by the investee company.
(12) Property, plant and equipment
Property, plant and equipment are stated at cost. Interest incurred relating to the
acquisition and construction of property, plant and equipment is capitalized.
Significant renewals and improvements are capitalized and depreciated accordingly.
Maintenance and repairs are expensed as incurred. Depreciation is provided using the
straight-line method over the estimated economic service lives that range as follows:
1) Building: 20 years
2) Facilities: 10 years
3) Machinery and equipment: 5 years
4) Computer and communication equipment: 3 years
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5) Transportation equipment: 3 to 5 years
6) Office equipment: 3 years
7) Leasehold improvements: 3 years
8) Leased assets: Remaining useful lives of leasehold objects.
When the estimated economic lives expire, the property, plant and equipment that are
still in service are depreciated over the newly estimated remaining useful lives based
on their salvage values.
Properties under capital leases are carried at the lower of the market value of the
leased equipments or the present value of the minimum lease payments at the
inception of the leases and are depreciated over the useful lives of the leased
properties. Interest expense is accrued on the basis of the outstanding capital lease
obligation using the effective interest rate method. The gain or loss resulting from the
sale of leased property should be deferred using the unearned gain or loss on
sale-leaseback account. If the fair value of the leased property is smaller than its book
value, then the difference between the fair value and the book value should be
recognized as a loss. The amortization of the unearned gain or loss on sale-leaseback
depends on the nature of the lease. For operating leases, the unearned gain or loss
should be amortized using the lease term and charged to rent expense. For capital
leases, however, the unearned gain or loss should be amortized over the remaining
useful lives of the leased properties and charged to depreciation.
Assets held for lease are classified as other assets. Depreciation of such assets is
charged to non-operating expense.
The Company entered into a sale-leaseback agreement for certain equipments. Due to
the repurchase option with specific criteria, significant risks and rewards of
ownership were not fully transferred to the buyer. In accordance with the Emerging
Issues Task Force (“EITF”) 95-297 issued by the Accounting Research and
Development Foundation of the R.O.C. on December 14, 2006, the Company
accounted for the foregoing sale-leaseback as a financing transaction and accordingly,
recognized related liabilities and interest expense.
(13) Intangible assets
Patents and acquired technology know-how are amortized using the straight-line
method over their economic service lives or the related contract periods.
(14) Deferred charges
Computer software costs are amortized using the straight-line method over 3 to 7
years.
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(15) Convertible bonds
For bonds payable issued after January 1, 2006, the issuer of a financial instrument
shall classify the instrument, or its component parts, on initial recognition as a
financial liability, a financial asset or an equity instrument in accordance with the
substance of the contractual arrangement and the definitions of a financial liability, a
financial asset and an equity instrument. These bonds are accounted for as follows:
(A) The fair value of the liability portion of a convertible bond is determined using a
market interest rate for an equivalent non-convertible bond. This amount is
recorded as a liability on an amortized cost basis until extinguished on conversion
or maturity of the bond.
(B) The value of any derivative features (such as a call option, put option and
conversion price reset option) embedded in the compound financial instrument is
recognized as “financial assets and financial liabilities at fair value through profit
or loss”. At the maturity of the redemption period, if the fair value of common
stock exceeds the redemption price, the fair value of the derivative is recognized
as “paid-in capital”; however, if the fair value of common stock is less than the
redemption price, the fair value of the derivative is recognized as “gain or loss”.
(C) A conversion option embedded in the bonds issued by the Company, which is
convertible to an equity instrument, is recognized and included in “capital reserve
from stock warrants”, net of income tax effects. When a bondholder exercises
his/her conversion rights, the liability component of the bonds (including
corporate bonds and embedded derivatives) shall be revalued, and the resulting
difference shall be recognized as “gain or loss” in the current period. The book
value of the common stock issued due to the conversion shall be based on the
adjusted book value of the abovementioned liability component plus the book
value of the stock warrants.
For convertible bonds issued prior to and including December 31, 2005, in
accordance with the EITF 95-78 issued by the Accounting Research and
Development Foundation of the R.O.C. on March 10, 2006, the Company elected not
to bifurcate the embedded derivatives and accounted for those convertible bonds as
follows:
(A) The entire convertible bond is recorded as a liability at an amount equal to the
proceeds received, and no value is allocated to the conversion rights and the
embedded derivative instruments.
(B) Any discount or premium to the par value of the convertible bond is amortized
using the effective interest rate method during the period from the issuance date
to the maturity, or over the period to redemption date if the convertible bond
contains a redemption option. Where bonds are not redeemed during the
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redemption period, the interest on redemption is amortized under the interest
method over the remaining life of the bonds. If the fair value of the underlying
shares at the expiry date of the redemption option exceeds the redemption price,
the interest on redemption is reclassified to capital reserve.
(C) The excess of the stated redemption price over the par value is recognized as
interest expense and compensation interest payable using the effective interest
rate method for the period from the issuance date to the last day of redemption
period. When bondholders exercise their conversion rights, the book value of
bonds is credited to common stock at an amount equal to the par value of the
common stock and the excess is credited to capital reserve; no gain or loss is
recognized on bond conversion.
(16) Retirement plan and net periodic pension cost
Under the defined benefit pension plan, net periodic pension cost, which includes
service cost, interest cost, expected return on plan assets, and amortization of
unrecognized net transition obligation and gains or losses on plan assets, is
recognized based on an actuarial valuation report. Unrecognized net transition
obligation is amortized on a straight-line basis over 15 years.
Under the defined contribution pension plan, net periodic pension cost is recognized
as incurred.
(17) Treasury stock
Treasury stocks are accounted for in accordance with R.O.C. Statement of Financial
Accounting Standards (“SFAS”) No. 30 “Accounting for Treasury Stocks”. Related
policies are summarized as follows:
A. When the Company repurchases its outstanding common stock, the cost of the
reacquired stock is recorded as treasury stock as a deduction to shareholders’
equity.
B. When treasury stock is sold, the related gain is first credited to capital
reserve-treasury stock and any loss is offset against this capital reserve account.
Any remaining amount is charged to retained earnings.
C. When treasury stock is retired, the treasury stock account is credited and all
capital account balances related to the treasury shares, including capital reserve
from additional paid-in capital in excess of par, are debited on a proportionate
basis. When the book value of treasury stock exceeds the sum of the par value
and additional paid-in capital, the difference is first charged to capital
reserve-treasury stock and any remaining amount is charged to retained earnings.
When the book value of treasury stock is less than the sum of the par value and
additional paid-in capital, the difference is credited to capital reserve-treasury
stock.
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(18) Employee stock options (intrinsic value method)
The employee stock options granted or amended on or after January 1, 2004 are
accounted for in accordance with EITF 92-072, “Accounting for Employee Stock
Options”, prescribed by the R.O.C. Accounting Research and Development
Foundation. Under the stock-based employee compensation plan, compensation cost
is recognized using the intrinsic value method and pro forma disclosures of net
income and earnings per share is prepared under the fair value method.
(19) Income tax
The Company uses inter-period as well as intra-period tax allocation for income tax.
Any over-provision or under-provision of prior years’ income tax liabilities is
included in current year’s income tax expense.
Any tax credit arising from the purchase of machinery and equipment and research
and development expenditures is recognized in the year the related expenditure is
incurred.
The additional 10% income tax on undistributed earnings is recognized in the year the
shareholders approve the resolution to retain the earnings.
(20) Revenue, cost and expense recognition
Revenue is recognized when the earning process is substantially completed and is
considered realized or realizable. Costs and expenses are recognized as incurred.
(21) Capital expenditures and operating expenditures
Costs and expenditures which have future economic benefits are capitalized as assets.
Otherwise they are expensed when incurred.
(22) Impairment of non-financial assets
The Company recognizes impairment loss when there is indication that the
recoverable amount of an asset is less than its carrying amount. The recoverable
amount is the higher of the fair value less costs to sell and value in use. The fair value
less costs to sell is the amount obtainable from the sale of the asset in an arm’s length
transaction after deducting any direct incremental disposal costs. The value in use is
the present value of estimated future cash flows to be derived from continuing use of
the asset and from its disposal at the end of its useful life. When the impairment no
longer exists, the impairment loss recognized in prior years shall be recovered.
However, impairment loss of goodwill is not recoverable.
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(23) Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying notes.
Actual results could differ from those assumptions and estimates.
(24) Settlement date accounting
Under the settlement date accounting, any change in the fair value of the asset to be
received during the period between the trade date and the settlement date is not
recognized for assets carried at cost or amortized cost. Such change in fair value is
recognized in profit or loss for assets classified as financial assets at fair value
through profit or loss, and is recognized in equity for assets classified as
available-for-sale.
3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES
(1) Goodwill
Effective January 1, 2006, the Company adopted the amended SFAS No. 1, No. 5, No.
7, No. 25 and No. 35, which discontinued amortization of goodwill. These changes in
accounting principles resulted in an increase in total assets of the Company of
$84,844 as of December 31, 2006 and an increase in net income of $84,844 for the
year ended December 31, 2006.
(2) Financial instruments
Effective January 1, 2006, the Company adopted SFAS No. 34 “Accounting for
Financial Instruments” and SFAS No. 36 “Disclosure and Presentation of Financial
Instruments”.
The impact of the changes in accounting principles to the statement of income for the
year ended December 31, 2006 is as follows:
Impact on
Income (loss)
Earnings (loss) per share
Loss before income tax ( $ 58,395 ) ($ 0.01 )
Cumulative effect of changes in accounting principles 2,420 - ($ 55,975 ) ($ 0.01 )
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4. DETAILS OF SIGNIFICANT ACCOUNTS
(1) Cash and cash equivalents
December 31,
2007 2006
Cash and bank deposits $ 3,111,908 $ 7,089,865
Time deposits 5,186,973 9,851,299
Cash equivalents - 1,000,000
$ 8,298,881 $ 17,941,164
(2) Financial assets at fair value through profit or loss - current
December 31,
2007 2006
Financial assets for trading - beneficiary certificates $ - $ 3,005,000
Fair value adjustment - 12,042
- 3,017,042
Fair value adjustment - financial derivatives 37,271 7,470
$ 37,271 $ 3,024,512
A. In 2007 and 2006, income recognized for the changes in fair values of the financial
assets at fair value through profit or loss were $77,134 and $23,348, respectively.
B. The nature and contractual terms of derivatives are as follows:
December 31, 2007
Financial instruments
Contract amount
(in thousands)
Fair value
Contract term
Cross currency and interest rate swap
JPY 4,715,601 $ 34,638 2006.06.20~2008.10.24
Forward foreign U.S. $20,000 2,633 2007.12.18~2008.01.22
$ 37,271
December 31, 2006
Financial instruments
Contract amount
(in thousands)
Fair value
Contract term
Non-delivery forward contracts U.S. $60,000 $ 7,470 2006.12.26~2007.01.29
a) In 2007, the Company entered into cross currency and interest rate swap contracts
to sell NTD and buy JPY for the purpose of reducing the foreign exchange rate
risks on machinery and equipment purchases. In addition, the Company used NTD
fixed-to-JPY fixed interest rate swaps, without adopting hedge accounting.
b) In 2007 and 2006, the Company entered into forward foreign and non-delivery
forward contracts to sell USD and buy NTD for the purpose of reducing foreign
exchange rate risk on accounts receivable denominated in USD without adopting
hedge accounting.
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(3) Available-for-sale financial assets - current
December 31, 2007 2006 Overseas listed stocks $ 839,345 $ - Adjustment of available-for-sale financial assets ( 281,215 ) -
$ 558,130 $ -
1. The fair values of overseas listed stocks are based on their closing prices from the
NASDAQ Stock Exchange at the balance sheet date.
2. In accordance with the Company’s investment strategy and funds utilization plans,
the Company expects to dispose the above available-for-sale financial assets within
one year.
(4) Notes and accounts receivable
December 31,
2007 2006
Notes receivable $ 2,136 $ 157
Accounts receivable 4,829,803 10,907,496
Accounts receivable - related parties 35,938 211,912
$ 4,867,877 $ 11,119,565
(5) Inventories, net
December 31,
2007 2006
Raw materials and supplies $ 2,114,524 $ 1,765,435
Work in process 6,659,287 5,578,100
Finished goods 3,540,865 1,425,920
12,314,676 8,769,455
Less: Allowance for obsolescence and decline in market value of inventory
( 1,333,960 )
( 275,790 )
$ 10,980,716 $ 8,493,665
(6) Financial assets carried at cost - noncurrent
December 31,
2007 2006 Chinese Bank $ 250,000 $ 250,000 Integrated Digital Technologies, Inc. 45,000 45,000
AMOS Technologies, Inc. 23,400 -
Inapac Technology, Inc. - 452,282
Capso Vision Inc. - 49,350
$ 318,400 $ 796,632
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A. The above financial assets are held at cost as they are not traded in active markets
and their fair values cannot be measured reliably.
B. In the fourth quarter of 2006, the Company increased its investments in Inapac
Technology, Inc. and Capso Vision, Inc. The investments have been accounted for
under the equity method effective January 1, 2007.
C. The shares held in Chinese Bank are preferred stocks. In December 2006, Chinese
Bank suffered a bank run due to the application for restructuring by China Rebar
Company, Ltd. and Chia Hsin Food and Synthetic Fiber Co., Ltd. with the Taipei
District Court. The Bank was taken over by Central Deposit Insurance Corporation
which was appointed by ROC Financial Supervisory Commission. The Company
currently holds preferred shares in Chinese Bank amounting to $250,000, and at the
same time, has a syndicated loan from the Bank amounting to $1,650,000. The
Company has started the legal proceeding to protect its investment.
(7) Investments in bonds without active markets - noncurrent
December 31, 2007 2006
Debenture of Chinese Bank $ 250,000 $ 250,000
Debenture of Chinfon Commercial Bank 500,000 500,000
Debenture of Standard Chartered Bank (formerly Hsinchu International Bank)
-
150,000
$ 750,000 $ 900,000
A. As of December 31, 2007 and 2006, the effective interest rates for the bond
investments ranged from 3.358% to 3.845% and 3.033% to 3.518%, respectively.
B. The debenture of Standard Chartered Bank was sold to third parties at carrying values
plus interest receivable in August 2007.
C. The 2004 first financial debenture of the Chinese Bank was issued on September 1,
2004, which is under the protection of the Financial Restructuring Fund of
Executive Yuan. The Company expects that this amount will be fully secured.
D. As of December 31, 2006, the Company pledged its investments in bonds, which
consisted of debentures of Chinese Bank and Standard Chartered Bank, for the
issuance of commercial papers. (Please refer to Note 6).
E. In 2006, the Company recognized a full impairment loss on its investments in the
unsecured bonds of China Rebar Company, Ltd. and Chia Hsin Food and Synthetic
Fiber Co., Ltd. amounting to $950,000 since these companies applied for
restructuring and bankruptcy protection with the Taipei District Court in December
2006.
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(8) Long-term equity investments accounted for under the equity method
A. Long-term equity investments
December 31,
2007 2006
Name of investee
Amount
% of ownership
Amount
% of ownership
Mosel Vitelic Corporation $ 193,038 50% $ 372,770 50%
United Memories, Inc. 179,616 100% 174,001 100%
ProMOS Technologies PTE. Ltd. ( 697,217 ) 100% ( 224,589 ) 100%
Flourishing Moment Limited 32,430 100% 32,600 100%
Putian Maode Technologies (Chongqing) Corporation
119,436
49%
1,874
49%
ProMOS Technologies Japan Limited ( 5,131 ) 100% ( 3,523 ) 100%
Epileds Technologies, Inc. 161,741 29.09% 155,928 30.15%
Inapac Technology, Inc. 406,702 26.14% - -
Capso Vision, Inc. 23,551 30.48% - -
ProQ Technologies Incorporated 2,599,288 100% - -
ProImage Technologies Inc. 9,731 100% - -
3,023,185 509,061
Add: Long-term investments with negative balances which are classified as other liabilities
702,348
228,112
$ 3,725,533 $ 737,173
B. The investment income (loss) recognized based on each equity investee’s audited financial statements is summarized as follows:
For the years ended December 31,
2007 2006
Mosel Vitelic Corporation ( $ 181,292 ) $ 14,546
United Memories, Inc. 6,356 4,215
ProMOS Technologies PTE. Ltd. ( 497,584 ) ( 583,882 )
Putian Maode Technologies (Chongqing) Corporation 27,951 ( 60,323 )
ProMOS Technologies Japan Limited ( 20,900 ) ( 6,394 )
Epileds Technologies, Inc. 4,705 ( 4,072 )
Inapac Technology, Inc. ( 46,281 ) -
Capso Vision, Inc. ( 26,572 ) -
ProQ Technologies Incorporated ( 95,826 ) -
ProImage Technologies Inc. ( 6,568 ) -
( $ 836,011 ) ( $ 635,910 )
C. In the fourth quarter of 2007 and first quarter of 2006, the Company invested
$20,475 and $2,796, respectively, in ProMOS Technologies Japan Limited.
Although ProMOS Technologies Japan Limited did not operate well during the
industrial recession, the Company intends to provide support to ProMOS
Technologies Japan Limited and accordingly, continues to recognize its investment
loss in excess of the investment’s carrying amount. The Company classified the
negative balance as deferred credit and is shown under “Other liabilities - other”.
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D. ProMOS Technologies PTE. Ltd. operates in a highly competitive environment and
incurs operating losses. The Company intends to provide support to ProMOS
Technologies PTE. Ltd. and accordingly, continues to recognize its investment loss
in excess of the investment’s carrying amount. The Company classified the
negative balance as deferred credit and is shown under “Other liabilities - other”.
E. During the second and fourth quarter of 2006, the Company received $684,000 and
$273,600, respectively, from Mosel Vitelic Corporation in proportion to its
shareholding as a result of the capital reduction of Mosel Vitelic Corporation. There
is no change in the Company’s shareholding percentage subsequent to the capital
reduction.
F. In April 2007 and June 2006, the Company purchased patents from ProMOS
Technologies PTE. Ltd. The unrealized gain of $792,175 and $681,099 were
eliminated in proportion to the Company’s shareholding. In 2007, the Company
amortized and recognized the unrealized gain amounting to $105,623 and $204,330,
respectively. (Please refer to (Note 4 (10)).
G. In accordance with the resolution adopted by the Board of Directors in June 2006,
the Company invested $160,000 in Epileds Technologies, Inc. in July 2006.
Afterwards, the Company adjusted capital surplus and long-term equity investment
amounting to $1,108 due to disproportionate changes of interest in connection with
the capital increase of the investee company.
H. In December 2006, the Company’s Board of Directors resolved to increase its
investment in preferred stocks of Inapac Technology, Inc. Accordingly, the method
in accounting for the investment in Inapac Technology, Inc. has been changed from
the cost method to the equity method effective January 1, 2007. The original
investment in Inapac Technology, Inc. amounted to U.S. $13,600 thousand.
Afterwards, the Company adjusted capital surplus and long-term equity investment
amounting to $364 due to the exercise of employee stock in connection with the
capital increase of the investee company.
I. In October 2006, the Company’s Board of Directors resolved to invest U.S. $1,500
thousand in preferred stocks of Capso Vision, Inc. Accordingly, the method in
accounting for the investment in Capso Vision, Inc. has been changed from the cost
method to the equity method effective January 1, 2007. Afterwards, the Company
adjusted capital surplus and long-term equity investment amounting to $676 due to
the retirement of treasury stock in connection with the capital increase of the
investee company.
J. The Company’s shareholders during their meeting resolved to authorize the
Company to invest in 8-inch wafer fabrication plant which was named ProQ
Technologies Incorporated, a mainland China-based company. The investment was
approved by the Investment Commission of the R.O.C. Ministry of Economic
Affairs in December 2006. The incorporation of ProQ Technologies Incorporated
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was approved by the governing authority in mainland China in April 2007. As of
December 31, 2007, the investment amount was U.S. $80 million.
K. In June 2007, the Company proportionately invested U.S. $2,602 thousand in the
increase in capital of Putian Maode Technologies (Chongqing) Corporation, as
resolved by the Company’s Board of Directors in March 2007. There was no
change in the Company’s shareholding percentage after the issuance of common
stock for cash by Putian Maode Technologies (Chongqing) Corporation. In 2006,
Putian Maode Technologies (Chongqing) Corporation continued to incur net loss.
The Company adopted SFAS No. 5 and recognized an impairment loss on the
excess of the acquisition cost over the investee company’s net asset value
amounting to $8,606.
L.The Company invested U.S. $500 thousand in its wholly-owned subsidiary,
ProImage Technologies Inc., in August 2007, as resolved by the Company’s Board
of Directors in January 2007.
M.In 2007 and 2006, the Company adopted the amended SFAS No. 7 “Consolidated
Financial Statements” and prepared the consolidated financial statements which
included all of its equity investees over which the Company had common control.
(9) Property, plant and equipment
December 31,
2007 2006
Land $ 207,762 $ 207,762
Buildings 38,451,818 30,282,545
Machinery and equipment 101,425,893 105,975,028
Computer and communication equipment 920,240 1,048,393
Transportation equipment 8,349 8,349
Office equipment 1,686 1,686
Leased assets 3,500,114 2,550,886
Leasehold improvements 2,286 2,286
144,518,148 140,076,935
Less: Accumulated depreciation ( 53,242,108 ) ( 67,102,757 )
91,276,040 72,974,178
Construction in progress and prepayments for equipment 35,907,233 13,837,606
$ 127,183,273 $ 86,811,784
A. Certain machinery and equipment are financed through sale-leaseback transactions
entered with domestic and foreign leasing companies and are accounted for as
capital leases. The lease payments are payable on a quarterly basis. Please refer to
Note 4 (14).
B. The Company entered into a sale-leaseback agreement with a foreign equipment
supplier in August 2006. Due to the repurchase option with specific criteria,
significant risks and rewards of ownership were not fully transferred to the buyer.
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In accordance with EITF 95-297 issued by the Accounting Research and
Development Foundation of the R.O.C. on December 14, 2006, the Company
accounted for the foregoing sale-leaseback as a financing transaction and
accordingly, recognized related liabilities and interest expense. Afterwards, the
Company and the foreign equipment supplier came to an agreement in October
2007 that the Company disclaimed the repurchase option and significant risks and
rewards of ownership were fully transferred to the buyer. As a result, the Company
instead adopted the “sale-leaseback - operating leases” accounting, and unrealized
gain on the sale and leased back is shown under “Other liabilities - other”.
C. Certain property, plant and equipment were pledged as guarantees for loans. Please
refer to Note 6.
D. In 2007 and 2006, the 12-inch wafer fabrication plants were under construction and
the related interest capitalized were $437,543 and $511,380, respectively.
(10) Intangible assets
December 31,
2007 2006
Patents $ 2,396,737 $ 2,052,747
Technology know-how 2,645,166 2,623,899
$ 5,041,903 $ 4,676,646
A. To enhance the Company’s core capability in memory manufacturing processes,
design ability, patent portfolio and global logistics, on December 22, 2003, the
Company’s Board of Directors approved the purchase of dynamic random access
memory (DRAM) related patents and the process technologies for flash memory
from Mosel Vitelic Inc. in the amount of U.S.$72,500 thousand.
B. In April 2007 and June 2006, the Company’s Board of Directors approved the
purchase of DRAM-related patents and intellectual property rights from ProMOS
Technologies PTE. Ltd. The acquisition price was determined based on the
appraised value from the appraiser and the fairness opinion of an independent
accountant.
C. The technology know-how was the technology transfer fees paid to Siemens
Aktiengesellschaft, Infineon Technologies AG and Hynix Semiconductor Inc. in
connection with the acquisition of the DRAM manufacturing process and product
technologies.
D. In November 2004, the Company and Infineon Technologies AG entered into the
First Amendment to the License Agreement (the “Amendment”). This Amendment
confirms that the Company has the perpetual license to the proprietary technology
transferred from Infineon Technologies AG. In addition, the Company was
authorized to develop its own advanced processes and products, and to sublicense
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to its subsidiaries. The parties agreed to amend the variable royalty payments
provided for in the original license agreement, which was determined based on a
certain percentage of total sales of the Company, to a fixed royalty payment,
payable in accordance with the payment schedule below. Under the Amendment,
the Company would have no obligations to pay any license fees or royalties
thereafter other than the following payments.
The fixed installment payment terms are as follows:
a) U.S.$70 million before December 15, 2004;
b) U.S.$36 million before March 30, 2005;
c) U.S.$25 million before August 31, 2005; and
d) U.S.$25 million before April 30, 2006.
As of December 31, 2007, amounts paid for royalties and technology know-how
are shown in prepaid expenses and intangible assets.
E. The Company entered into the Technology Transfer and License Agreement with
Hynix Semiconductor Inc. (“Hynix”) in January 2005. Hynix agreed to license the
90 nm and 70 nm DRAM technologies on the stack process and provide related
product and technical support to the Company. As of December 31, 2007, the
transfer of 90 nm and 70 nm technologies has been completed, and the related
technology transfer and license fees paid are classified as intangible assets.
(11) Short-term loans
December 31,
2007 2006
Borrowings for material purchases $ 213,431 $ -
Interest rates 1.49%~5.93% -
(12) Commercial papers payable
December 31,
2007 2006
Commercial papers payable $ - $ 380,000
Interest rates - 1.453%~1.72%
(13) Financial liabilities at fair value through profit or loss - current
December 31,
2007 2006
Cross currency and interest rate swap $ - $ 72,557 Non-delivery forward contracts - 5,350
$ - $ 77,907
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A. In 2007 and 2006, income and loss recognized for the changes in fair values of the
financial liabilities at fair value through profit and loss were $77,907 and $77,907,
respectively.
B. The nature and contractual items of derivatives are as follows:
December 31, 2006
Financial instruments
Contract amount
(in thousands)
Contract term
Cross currency and interest rate swap JPY 4,968,985 2006.06.20~2008.10.24
Cross currency and interest rate swap JPY 1,987,594 2006.09.05~2008.10.24
Cross currency and interest rate swap JPY 2,533,858 2006.09.14~2008.10.24
Non-delivery forward contracts U.S. $ 25,000 2006.12.11~2007.01.12
a)In 2006, the Company entered into cross currency and interest rate swap contracts
to sell NTD and buy JPY for the purpose of reducing the foreign exchange rate
risks on machinery and equipment purchases. In addition, the Company used NTD
fixed-to-JPY fixed interest rate swaps, without adopting hedge accounting.
b) In 2006, the Company entered into a non-delivery forward contract to sell USD
and buy NTD for the purpose of reducing foreign exchange rate risk on accounts
receivable denominated in USD without adopting hedge accounting.
(14) Long-term liabilities
A. Bonds payable
December 31,
2007 2006
First domestic secured bonds payable $ - $ 1,080,000
Less: Current portion - ( 1,080,000 )
- -
Second overseas secured convertible bonds payable 2,918,700 2,933,550
Less: Conversion of convertible bonds payable ( 1,857,428 ) ( 1,866,879 )
Less: Current portion ( 1,061,272 ) -
- 1,066,671
Third overseas unsecured convertible bonds payable 7,296,750 7,333,875
Less: Conversion of convertible bonds payable ( 7,278,881 ) ( 5,546,854 )
Less: Payment of convertible bonds payable ( 17,869 ) ( - )
- 1,787,021
Fourth overseas unsecured convertible bonds payable 11,350,500 -
Less: Conversion of convertible bonds payable ( 3,243 ) -
Less: Discount of bonds payable ( 2,586,096 ) -
8,761,161 -
$ 8,761,161 $ 2,853,692
a) The Company issued its first domestic secured bonds payable with a par value of
$2,700,000 during the period from May 23, 2002 to June 4, 2002. The bonds bear
interest at 4.2%, payable annually, and are due in annual installments starting
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from May 2005. The bonds were fully settled by June 2007. A guarantee has
been provided from a syndicated agreement with a consortium of 12 banks led by
the Bank of Taiwan.
As of December 31, 2006, the Company provided time deposits amounting to
$540,000 as a pledge (shown as “Restricted assets - current”). Please refer to
Note 6.
b) On October 8, 2003, the Company issued its second overseas zero coupon
secured convertible bonds, with a par value of U.S. $90 million, issued at 105%
of par. The bonds are traded on the Luxembourg Stock Exchange. The principal
is due in lump sum at maturity on October 8, 2008, endorsed by ABN AMRO
Bank. In addition, bondholders may require the Company to redeem the bonds at
par value on October 8, 2004. As of December 31, 2007, the conversion price
was $11.06 (in dollars) and bonds totaling U.S. $57,275 thousand were converted
into 158,192 thousand common shares.
As of December 31, 2007 and 2006, the Company pledged cash amounting to
U.S. $32,725 thousand to ABN AMRO Bank as guarantees (shown in “Restricted
assets - current” and “Other assets - other”, respectively.), please refer to Note 6.
In connection with bond conversions, redemptions and cancellations, the
Company may reduce the pledged amounts in proportion to the bonds’
outstanding balance.
c) On June 20, 2005, the Company issued its third overseas zero coupon unsecured
convertible bonds in the amount of U.S. $225 million at par value. The bonds are
traded on the Singapore Stock Exchange. Starting from 30 days after bonds
issuance to 10 days prior to maturity, bondholders may request to convert the
bonds into the Company’s shares. In addition, bondholders may request to
redeem the bonds at 110.07% of par on December 20, 2006. On December 20,
2006, the fair value of the underlying shares at the expiry date of the redemption
option exceeds the redemption price, thus, the interest on redemption amounting
to $223,669, was reclassified to capital reserve. At any time on or after December
20, 2006, if the closing price of the Company’s common shares traded at the
R.O.C. GreTai Securities Market exceeds 125% of the conversion price in effect
for 20 consecutive business days, the Company may redeem the outstanding
bonds in full or in increments. The Company had redeemed the outstanding
bonds in the amount of U.S. $551 thousand at par value on August 28, 2007.
Accordingly, the bonds were delisted from the Singapore Stock Exchange on
October 1, 2007. As of August 28, 2007, bonds totaling U.S. $224,449 thousand
were converted into 681,404 thousand common shares.
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d) On February 14, 2007, the Company issued its fourth overseas zero coupon
unsecured convertible bonds in the amount of U.S. $350 million at par value. The
bonds are traded on the Singapore Stock Exchange. The principal is due in lump
sum at maturity on February 14, 2012. Starting from 30 days after bonds issuance
to 10 days prior to maturity, bondholders may request to convert the bonds into
the Company’s shares. In addition, bondholders may request to redeem the bonds
at 100% of par on February 14, 2009. At any time on or after February 14, 2009,
if the closing price of the Company’s common shares traded at the R.O.C. GreTai
Securities Market exceeds 120% of the conversion price in effect for any 20
business days within 30 consecutive business days, the Company may redeem the
outstanding bonds in full or in increments. As of December 31, 2007, the
conversion price was $10.86 (in dollars) and bonds totaling U.S. $100 thousand
were converted into 243 thousand common shares.
e) The fair value of convertible option embedded in the fourth overseas zero coupon
unsecured convertible bonds amounting to $2,420,558 was separated from bonds
payable, and was recognized as “Capital reserve from stock warrants” in
accordance with SFAS No. 36. The fair value of put options, call options and
conversion price reset option embedded in bonds payable was separated from
bonds payable in accordance with SFAS No. 34 and were recognized as
“Financial liabilities at fair value through profit or loss”. The effective interest
rate of bonds payable was 6.32% after separation. Gain/loss on valuation of
embedded derivative is shown under “Gain/loss on valuation of financial
liabilities”.
f) The fair value of put and call options embedded in bonds payable issued before
December 31, 2005 was not separated in accordance with EITF 95-078.
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B. Long-term loans
December 31, 2007 2006 Bank of Taiwan (BOT)-led 13 bank consortium:
$20,700,000 repayable in 7 consecutive semiannual installments from September 2009; semiannual repayment - $2,957,143
$20,700,000
$ -
Taiwan Cooperative Bank-led 21 bank consortium: tranche a) $4,558,600 repayable in 7 consecutive semiannual installments from June 2009; semiannual repayment - $651,229 and tranche b) $15,261,400 repayable in 7 consecutive semiannual installments from June 2009; semiannual repayment - $2,180,200
19,820,000
-
Taiwan Cooperative Bank-led 11 bank consortium: tranche a) $2,500,000, repayable in 8 consecutive semiannual installments from February 2007; semiannual repayment - $312,500 and tranche b) $7,500,000, repayable in 8 consecutive semiannual installments from March 2007; semiannual repayment - $937,500
7,500,000
10,000,000 Taiwan Cooperative Bank-led 15 bank consortium:
tranche a) $2,500,000 repayable in lump sum in December 2010; and tranche b) $6,650,000 repayable in 8 consecutive semiannual installments from June 2007; semiannual repayment - $831,250
7,487,500
9,150,000
China Development Industrial Bank Inc. (CDIB): $500,000, repayable in 13 consecutive quarterly installments from November 2006; quarterly repayment - $38,462
307,690
461,538
Taiwan Life Insurance Co., Ltd.: $300,000, repayable in 12 consecutive quarterly installments from December 2006; quarterly repayment - $25,000
175,000
275,000
Bowa Commercial Bank: $100,000, repayable in 8 consecutive quarterly installments from November 2006; quarterly repayment $8,333, remaining balance will be paid off at one time
58,333
91,667
Bank of Taiwan (BOT)-led 6 bank consortium: $5,000,000, repayable in 6 consecutive semiannual installments from August 2004; semiannual repayment - $833,333
-
833,333
China Development Industrial Bank Inc. (CDIB): $400,000, repayable in 17 consecutive quarterly installments from August 2003; quarterly repayment - $23,529
-
70,594
Taiwan Cooperative Bank-led 9 bank consortiums: $3,000,000, repayable in 5 consecutive semiannual installments from March 2005; semiannual repayment - $600,000
-
600,000
Ta Chong Commercial Bank (TCB): $300,000, repayable in 6 consecutive semiannual installments from December 2004; semiannual repayment - $50,000
-
50,000
Bank of Kaohsiung (BOK): $150,000, repayable in 6 consecutive semiannual installments from January 2005; semiannual repayment - $25,000
-
50,000
Sub-total 56,048,523 21,582,132 Less: Current portion ( 4,474,681 ) ( 6,053,609 )
Total $51,573,842 $15,528,523 Interest rates 3.55%~4.65% 2.86%~4.46%
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a) The syndicated loans led by Bank of Taiwan and Taiwan Cooperative Bank were
obtained to finance the acquisition of machinery and equipment for the 12-inch
wafer fabrication plant. Under the terms of the loan agreements, the Company is
required to maintain certain annual and semiannual financial ratios, including
current ratio, liability ratio, and interest coverage ratio and endorsement amount
over capital ratio, at certain levels throughout the term of the loans.
b) Under the terms of tranche A syndicated loans led by Taiwan Cooperative Bank,
the Company is required to deposit collections from certain accounts receivable in
the account established in the managing bank, and maintain specific accounts
receivable at a certain level at the beginning of each month.
c) Please refer to Note 6 for guarantees provided for long-term loans.
C. Long-term payables
December 31,
2007 2006
Long-term payables for equipment $ 1,800,907 $ 3,258,309
Less: Current portion (shown in “Other payables”) ( 1,704,042 ) ( 1,526,538 )
96,865 1,731,771
Obligations under capital lease - financing - 6,401,189
Less: Current portion (shown in “Other payables”) - ( 1,905,683 )
- 4,495,506
Long-term payables for processing expenditures 612,948 -
$ 709,813 $ 6,227,277
a) In 2005, the Company entered into a long-term equipment purchase agreement
amounting to JPY 12 billion with a foreign equipment supplier. Under the terms
of the agreement, repayments were made semiannually, starting from six months
after date of shipment. The first two repayments represented payoffs of interest,
while the principal and remaining interest were to be repaid from the third to
sixth repayments. The effective interest rates for 2007 and 2006 ranged from
0.96% to 1.94%.
b) The Company entered into a sale-leaseback agreement with a foreign equipment
supplier in August 2006. The Company accounted for the sale-leaseback as a
financing transaction and accordingly, recognized related liabilities and interest
expense in accordance with EITF 95-297 issued by the Accounting Research
and Development Foundation of the R.O.C. on December 14, 2006. Under the
terms of the agreement, lease payments are made monthly after date of
leaseback over the contract period from August 22, 2006 to August 21, 2008. In
addition, the Company instead adopted the “sale-leaseback - operating leases”
accounting from October 2007 for the foregoing transaction. Please refer to
Note 4(9) for the information.
c) In 2007, the Company entered into agreements with major processing factories
to extend the payment period of payables for certain processing expenditures.
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d) Please refer to Note 6 for details of the collaterals pledged for obligations under
capital lease - financing at December 31, 2006.
D. Capital leases payable
December 31,
2007 2006
Obligations under capital lease $ 1,309,148 $ 1,164,053 Less: Current portion ( 663,809 ) ( 652,825 ) $ 645,339 $ 511,228
The Company entered into sale-leaseback agreements with domestic and foreign
leasing companies to finance the acquisition of certain machinery and equipment.
These leases are accounted for as capital leases. The lease payments are payable
quarterly from January 2005 to December 2011.
(15) Capital
As of December 31, 2007, total common stock issued amounted to $67,069,537,
consisting of 6,706,954 thousand shares with a par value of NT$10 (in dollars) per
share, and total common stock outstanding was 6,684,942 thousand shares.
On November 14, 2003, it was resolved in the special shareholders’ meeting to issue
additional 575 million common shares at NT$15.71 (in dollars) per share for the
issuance of global depositary receipts (GDRs), traded on the Luxembourg Stock
Exchange.
During the shareholders’ meeting and the Board of Directors’ meeting on April 11,
2006 and April 13, 2006, respectively, it was resolved to issue additional common
shares at U.S. $3.33 (equivalent to NT$10.76) (in dollars) per share for the issuance
of GDRs. On July 11, 2006, the issuance of GDRs was completed and the GDRs
were traded on the Luxembourg Stock Exchange. The total GDRs issued were
100,000,000 units amounting to U.S. $333 million.
As of December 31, 2007, the Company had 204,617 units of GDRs outstanding.
(One unit of GDR represents 10 shares of common stock).
(16) Capital surplus
A. Pursuant to the R.O.C. Securities and Exchange Law, capital reserve shall be
exclusively used to cover accumulated deficit or to increase capital and shall not
be used for any other purpose. However, capital reserve arising from paid-in
capital in excess of par value on issuance of common stock and donations can be
capitalized once a year, provided that the Company has no accumulated deficit and
the amount to be capitalized does not exceed 10% of the paid-in capital.
B. Please see Note 4 (14) for detailed information of capital reserve from stock
warrants.
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(17) Retained earnings
A. Legal reserve
Pursuant to the Company Law, 10% of current year’s earnings, after payment of
all taxes, shall be appropriated as legal reserve, until the total equals to the issued
share capital. Such reserve can only be used to offset accumulated deficit and
cannot be distributed as cash dividends. However, when the legal reserve has
reached 50% of the Company’s issued share capital, up to 50% thereof can be
appropriated as stock dividends upon shareholders’ approval.
B. Special reserve
In accordance with the R.O.C. Securities and Exchange Law, earnings equivalent
to the debit balance of any account shown in shareholders’ equity shall be
appropriated as special reserve. The special reserve is allowed to be appropriated
to the extent that the debit balance of the foregoing accounts is reversed.
C. Retained earnings
In accordance with the Company’s Articles of Incorporation, current year’s earnings, if any, shall be distributed in the following order:
(1) Pay all taxes and dues;
(2) Offset prior years’ operating losses;
(3) Set aside 10% of remaining amount after deducting items (1) and (2) as legal reserve;
(4) Appropriate special reserve pursuant to legal or regulatory requirements, and
(5) After deducting items (1), (2), (3) and (4) above from the current year’s earnings, the remainder shall be allocated as follows:
I. 2% to 10% as employee bonus;
II. 1% to 2% as remuneration to directors and supervisors, and
III. Distribution of the remaining portion, if any, as dividends to be
proposed by the Board of Directors and approved by the Shareholders.
The Company’s dividend policy is to consider factors such as actual
results of operations and its funding position. The Board of Directors
shall make the distribution proposal and present it at the Shareholders’
meeting. When the Company can obtain sufficient funding to satisfy
the needs for current year’s operations as well as issuing dividends at
the amount of or greater than NT$2 (in dollars) per share, at least 10%
of the distributable dividends over NT$2 (in dollars) shall be issued in
cash.
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D. The shareholders during the 2007 annual shareholders’ meeting declared cash
dividends of $6,663,019 ($1.016 (in dollars) per share).
E. Details of the appropriation of 2006 earnings are summarized below:
Appropriation of 2006 earnings as approved by the shareholders and the Board of Directors
A) Appropriation of 2006 earnings
a) Employees’ cash bonus $1,311,745
b) Directors’ and supervisors’ remuneration $150,850
B) Earnings per share (in dollars) a) Original earnings per share $2.64
b) Estimated earnings per share (Note) $2.37
Note: Estimated earnings per share = (Net income－employees’ bonuses－directors’ and supervisors’ remuneration) / weighted-average outstanding common shares for 2006.
F. As of February 25, 2008, the appropriation of retained earnings to cover
accumulated deficit had not been resolved by the Board of Directors. Information
on the appropriation as resolved by the Board of Directors and approved by the
stockholders will be posted in the “Market Observation Post System” at the
website of the Taiwan Stock Exchange.
(18) Treasury stock
Changes in treasury stocks in 2007 is summarized as follows:
Purpose
Beginning balance
Increase
Decrease
Ending balance
(Expressed in thousands of shares)
Sales to employees 26,705 - ( 4,693) 22,012
The foregoing treasury stocks amounting to $997,123 were reacquired during the
period from October 5, 2005 to December 4, 2005. In accordance with Article 28-2 of
Securities and Exchange Law of the R.O.C., the shares bought back shall be
transferred to employees within three years from the date of buyback or else shall be
retired.
In 2007, the Company transferred 4,693 thousand shares of treasury stocks totaling
$44,537 to its employees.
Pursuant to the R.O.C. Securities and Exchange Law, the number of shares bought
back as treasury stock should not exceed 10% of the number of the Company’s issued
and outstanding shares and the amount bought back should not exceed the sum of
retained earnings, paid-in capital in excess of par value and realized capital reserve. In
addition, treasury stock shall not be pledged, nor be entitled to any shareholder
privilege.
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(19) Employee stock options
A. In June 2007, the Board of Directors of the Company resolved to issue 160,000 units
of employee stock options, with one unit representing 1,000 shares of common stock.
The vesting period of the Company’s employee stock option plan is 6 years. The
employees may exercise the stock options in installments within a period of two
years after the stock options are granted. The exercise price is subject to adjustments
due to changes in the number of common shares and issuance of cash dividends.
B. The exercise price under the stock-based employee compensation plan is based on
the par value of NT$10 the Company’s common stock at the grant date.
C. Details of the employee stock options are set forth below:
For the year ended
December 31, 2007
No. of shares Exercise price
Stock options (in thousands) (in dollars) Options outstanding at beginning of year - $ -
Options granted 136,500 10.00 Options outstanding at end of year 136,500 $ 10.00
Options authorized but not granted at end of year 23,500
D. Details of the employee stock options outstanding as of December 31, 2007 are set
forth below:
Stock options outstanding as at Stock options exercisable at
December 31, 2007 December 31, 2007
Expected
Exercise price No. of shares remaining Exercise price No. of shares Exercise price
(in dollars) (in thousands) vesting period (in dollars) (in thousands) (in dollars)
$ 10.00 136,500 4.375 years $ 10.00 - $ -
E. The following sets forth the pro forma net loss and loss per share based on the
assumption that the compensation cost is accounted for using the fair value method
for the stock options:
For the year ended
December 31, 2007 Net loss Net loss stated in the statement of
operations ($ 7,321,132)
Pro forma net loss ($ 7,330,558)
Basic loss per share (in dollars)
Basic loss per share stated in the statement of operations ($ 1.11)
Pro forma basic loss per share ($ 1.11)
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For the stock options with the compensation cost accounted for using the fair value
method, their fair value on the grant date is estimated using the Black-Scholes
option-pricing model. The weighted-average parameters used in the estimation of
the fair value are as follows:
For the year ended
December 31, 2007
Dividend yield rate 0%
Expected price volatility 41.97%
Risk-free interest rate 2.43%
Expected vesting period 4.375 years
Options granted 136,500
Weighted-average fair value per share (in dollars) $ 2.90
(20)Retirement expenses
The Company has a defined benefit pension plan in accordance with the Labor
Standards Law, covering all regular employees for services provided prior to July 1,
2005, and employees who choose to remain in the defined benefit pension plan
subsequent to the enforcement of the Labor Pension Act on July 1, 2005. Under the
defined benefit pension plan, employees are entitled to two base points for every year
of service for the first 15 years and one base point for each additional year thereafter,
up to a maximum of 45 base points. The pension payment to employees is computed
based on years of service and average salaries or wages of the last six months prior to
approved retirement. The Company contributes an amount equal to 2% of salaries and
wages paid each month to a pension fund. The pension fund is administered by a
pension fund monitoring committee (the “Committee”) and deposited under the
Committee’s name in the Bank of Taiwan.
The following tables set forth information from the actuarial reports regarding the
defined benefit pension plan:
1. Actuarial assumptions:
For the years ended December 31,
2007 2006
Discount rate 3.00% 2.75%
Future salary increase rate 3.00% 3.00%
Expected rate of return on plan assets 3.00% 2.75%
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2. The funded status of the pension plan is listed as follows:
December 31, (The actuarial date )
2007 2006
Benefit obligation
Vested benefit obligation $ 8,524 $ 4,585
Non-vested benefit obligation 251,714 225,570
Accumulated benefit obligation 260,238 230,155
Additional benefit based on future salaries 182,906 222,540
Projected benefit obligation 443,144 452,695
Fair value of plan assets ( 257,734 ) ( 216,257 )
Funded status 185,410 236,438
Unrecognized transition obligations ( 3,894 ) ( 4,111 )
Unrecognized net actuarial losses ( 59,535 ) ( 93,355 )
Accrued pension liabilities $ 121,981 $ 138,972
Vested benefit $ 8,524 $ 4,585
3. The components of net periodic pension cost are as follows:
For the years ended December 31,
2007 2006
Service cost $ 9,887 $ 11,503
Interest cost 12,449 12,876
Expected return on plan assets ( 6,428 ) ( 5,775 )
Amortization of unrecognized net transition obligation
217
217
Amortization of loss on plan assets 2,004 2,183
Net periodic pension cost $ 18,129 $ 21,004
Pursuant to the new “Labor Pension Act” enacted on July 1, 2005, the Company set up
a defined contribution pension plan. For domestic employees who choose to
participate in the defined contribution pension plan, the Company contributes an
amount no less than 6% of the employees’ salaries and wages paid each month to the
employees’ individual pension accounts at the Bureau of Labor Insurance. Benefits
accrued are portable upon a change of employment. Pension payments to employees
are made either by monthly installments or in lump sum from the accumulated
contributions and earnings in employees’ individual accounts. The net pension costs
recognized under the defined contribution plan for the years ended December 31, 2007
and 2006 were $173,874 and $138,586, respectively.
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(21)Income tax
A. Income tax (benefit) expense consist of the following:
December 31,
2007 2006
Income tax expense on pretax income at statutory tax rate $ - $ 3,695,463
Net changes in deferred income tax assets and liabilities:
Permanent differences ( 1,320,009 ) ( 82,673 )
Additional 10% income tax on unappropriated earnings 499,184 -
Investment tax credits ( 4,219,325) ( 2,373,335 )
(Over) under provision of income tax expense in prior years
( 498,432 ) 10,215
Tax on offshore income subject to withholding tax 4,505 37,549
Loss carryforwards ( 695,156 ) ( 482,169 )
Valuation allowance 4,926,603 ( 556,404 )
Income tax (benefit) expense ( 1,302,630 ) 248,646
Less: Net change in deferred income tax assets 808,703 973,170
Over (under) provision of income tax expense in prior years
498,432
( 10,215 )
Prepaid and withholding tax ( 51,926 ) ( 41,388 )
Tax on offshore income subject to withholding tax ( 4,505 ) ( 37,549 )
Income tax (receivable) payable ( $ 51,926 ) $ 1,132,664
B. The components of deferred income tax assets (liabilities) are as follows:
December 31,
2007 2006
Current:
Temporary differences $ 248,353 $ 266,778
Investment tax credits from acquisition of machinery and equipment
866,889
532,639
Investment tax credits from R & D expenditures 233,112 67,663
$ 1,348,354 $ 867,080
Noncurrent:
Temporary differences $ 17,779 ( $ 1,320,655 )
Loss carryforwards 695,156 -
Investment tax credits from acquisition of machinery and equipment
6,554,712
3,337,456
Investment tax credits from R & D expenditures 438,376 435,189
Less: Valuation allowance ( 5,486,604 ) ( 560,000 )
$ 2,219,419 $ 1,891,990
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C. Information on imputed credit account (ICA):
December 31,
2007 2006
Balance of ICA $ 231,890 $ 672
For the years ended December 31,
2007 (Budget)
2006 (Actual)
Creditable tax ratio - 4.65%
D. (Accumulated deficit) undistributed retained earnings:
December 31,
2007 2006
After 1998 ( $ 2,329,293 ) $ 14,535,626
E. As of December 31, 2007, the Company's income tax returns through 2004 have
been assessed and approved by the Tax Authority.
F. The Company used the proceeds raised from the issuance of common shares in the
design, research and development, manufacture and sales of semiconductor
products and was granted a four-year tax holiday with respect to income derived
from the foregoing activities. The tax-exempt period is from 2005 to 2008.
G. The Company’s unutilized investment tax credits as of December 31, 2007 are as
follows:
Items
Total creditable amount
Unused amount
Expiry year
Acquisition of machinery and equipment $ 1,116,256 $ 866,889 2008
″ 2,590,946 2,236,539 2009
″ 1,195,626 1,195,626 2010
″ 3,122,547 3,122,547 2011
$ 8,025,375 $ 7,421,601
Research and development expenditures $ 104,901 $ 104,901 2008
″ 310,395 310,395 2009
″ 256,192 256,192 2010
$ 671,488 $ 671,488
Loss carryforwards $ 695,156 $ 695,156 2012
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(22)(Loss) earnings per share
For the year ended December 31, 2007
Weighted average
Amount outstanding Loss per share (in dollars)
Loss before common shares Loss before
income tax Net loss (in thousands) income tax Net loss
Basic loss per share
Loss from continuing operations
($ 8,623,762)
($ 7,321,132)
6,598,383
($ 1.31)
($ 1.11)
In 2007, the potential common shares issuable upon the conversion of convertible
bonds and employee stock options were not included in the calculation of diluted EPS
as the inclusion of such shares would have been anti-dilutive.
For the year ended December 31, 2006
Weighted average
Amount outstanding Earnings per share (in dollars)
Income before common shares Income before
income tax Net income (in thousands) income tax Net income
Basic earnings per share
Income from continuing operations
$ 14,781,852
$ 14,533,206
5,510,481 $ 2.68 $ 2.64
Cumulative effect of changes in accounting principles
2,420
2,420
Dilutive effect of common stock equivalents:
Convertible bonds
506,833
380,125 656,423
Diluted earnings
per share
Net income attributable to common stockholders plus dilutive effect of common stock equivalents $ 15,291,105 $ 14,915,751 6,166,904 $ 2.48 $ 2.42
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(23)The breakdown of personnel, depreciation and amortization expenses is as follows:
For the year ended December 31, 2007 For the year ended December 31, 2006 Classification
Expenses
Operating costs
Operating expenses
Non- operating expenses and losses Total
Operating costs
Operating expenses
Non- operating expenses and losses Total
Personnel expenses
Salaries and wages $3,084,495 $888,889 $ - $3,973,384 $2,650,607 $736,688 $ - $3,387,295
Labor and health insurance 208,044 55,407 - 263,451 167,263 44,857 - 212,120
Pension 150,892 43,788 - 194,680 122,931 35,214 - 158,145
Others 36,328 8,957 - 45,285 29,470 7,714 - 37,184
Depreciation 16,136,372 272,841 17,913 16,427,126 12,997,917 273,479 17,913 13,289,309
Amortization 1,259,324 757,032 - 2,016,356 1,072,698 736,843 - 1,809,541
5. RELATED PARTY TRANSACTIONS
(1) Names and relationship of related parties
Names Relationship with the Company
Mosel Vitelic Inc. (MVI) Same Board Chairman
ChipMOS Technologies Inc. (ChipMOS) Indirect investee company of Mosel Vitelic Inc.
Giant Haven Investments Ltd. Subsidiary of Mosel Vitelic Inc.
Mosel Vitelic Corporation (MVC) Investee company accounted for under the equity method
United Memories, Inc. (UMI) Investee company accounted for under the equity method
ProMOS Technologies PTE. Ltd. (ProMOS - PTE)
Investee company accounted for under the equity method
Flourishing Moment Limited (BVI) Investee company accounted for under the equity method
Putian Maode Technologies (Chongqing) Corporation (Putian ProMOS)
Investee company accounted for under the equity method
ProMOS Technologies Japan Limited (PTJ) Investee company accounted for under the equity method
Inapac Technology, Inc. (Inapac) Investee company accounted for under the equity method
ProQ Technologies Incorporated (ProQ) Investee company accounted for under the equity method ProImage Technologies Inc. (ProImage Cayman)
Investee company accounted for under the equity method
ProImage Technologies Limited U.S.A .(ProImage USA)
Subsidiary of ProImage Cayman
(2) Significant transactions and balances with related parties
A. Sales
For the years ended December 31,
2007 2006
Amount % Amount %
PTJ $ 85,238 - $ 216,468 -
MVI 13,693 - 926,647 2%
Inapac 7,336 - - -
ProMOS - PTE - - 7,648 -
$ 106,267 - $ 1,150,763 2%
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The sales price to the above related parties was determined through mutual agreement
based on the market conditions. The collection terms were 30-180 days after
shipment. The Company’s collection term for sales to PTJ is 180 days longer than
that for third parties in accordance with PTJ’s collection term for sales to its major
customers.
B. Manufacturing expenses - processing and testing expenditures
For the years ended December 31,
2007 2006
Amount % Amount %
ChipMOS $6,491,721 13% $5,400,745 14%
C. Rental income
For the years ended December 31,
2007 2006
Amount % Amount %
UMI $ 14,413 37% $ 14,257 35%
MVC 8,443 21% 8,398 20%
$ 22,856 58% $ 22,655 55%
D. Other income
For the years ended December 31,
2007 2006
Amount % Amount %
MVI $ 222,714 91% $ 5,793 10%
Inapac 594 - - -
Putian ProMOS - - 4,109 7%
$ 223,308 91% $ 9,902 17%
In April 2007, the Company’s investee company - Mosel Vitelic Corporation (MVC)
came to a settlement and paid compensation for the Anti-Trust lawsuit. Over that
period of time, MVC was engaged in operating activities in America as a sales agent
for Mosel Vitelic Inc. (MVI). Thus, MVI should take responsibility for all related
settlement expenses. The Company claimed compensation from MVI in proportion to
the Company’s shareholding in MVC (shown as “Other non-operating income”).
E. Rental expenses
For the years ended December 31,
2007 2006
Amount % Amount %
ChipMOS $ 16,381 5% $ 9,371 2%
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F. Other expenses
For the years ended December 31,
2007 2006
Sales support - MVC $ 30,825 $ 35,610
Sales support - Inapac $ 30,576 $ -
Maintenance expense - ChipMOS $ 543 $ 175
Maintenance expense - MVI $ 186 $ 3,070
Charges on purchased merchandise - Putian ProMOS $ - $ 79,019
G. Accounts receivable
December 31,
2007 2006
Amount % Amount %
PTJ $ 33,058 1% $ 211,912 2%
MVI 1,681 - - -
Inapac 1,199 - - -
$ 35,938 1% $ 211,912 2%
H. Other receivables
I. Other payables
December 31,
2007 2006
Amount % Amount %
ChipMOS $1,490,802 11% $1,737,930 14%
MVC 24,207 - 5,981 -
MVI 172 - 54,581 -
$1,515,181 11% $1,798,492 14%
December 31,
2007 2006
Amount % Amount %
ProQ $ 158,095 15% $ - -
MVC 2,086 - 2,097 -
MVI 1,705 - 2,681 -
Inapac 27 - - -
Putian ProMOS - - 84,803 12%
PTJ - - 16,583 3%
$ 161,913 15% $ 106,164 15%
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J. Long-term notes and accounts payable
December 31,
2007 2006
Amount % Amount %
ChipMOS $ 449,827 100% $ - -
In 2007, the Company entered into an agreement with ChipMOS to extend the
payment period of payables for certain processing expenditures, which are subject to
an annual interest rate at 4.69%. The maximum balance of long-term payables for
processing expenditures in 2007 was $449,827. No interest expense was accrued in
2007.
K. Sales / Purchases of Assets:
a. In December 2007, the Company sold its machinery, equipment and raw materials
totaling $157,326 (shown under “Other receivables - related parties”) to ProQ
resulting a disposal gain of $125,077. The Company fully eliminated the unrealized
gain on those assets and is shown under “Other liabilities - other”.
b. In April 2007 and June 2006, the Board of Directors approved the purchase of
DRAM-related patents and intellectual property rights from ProMOS-PTE. The
acquisition prices determined based on the appraisal report were U.S. $23,940
thousand and U.S. $21,500 thousand, respectively. As of December 31, 2007, the
title transfer of the patents is still in process.
c. In July 2007, the Company’s Board of Directors resolved to purchase 4,060,633
common shares of ChipMOS Technologies (Bermuda) LTD. from Giant Haven
Investments Ltd. The acquisition price was U.S. $25,582 thousand at U.S. $6.3 (in
dollars) per share.
d. In 2006, the Company sold transportation equipment to MVI. The selling price was
$524 and related loss on disposal was $117.
L. Loans
For the year ended December 31, 2006
Maximum balance Ending balance Interest income
PTJ $ 16,830 $ 16,446 $ 128
In April 2006, the Board of Directors approved the infusion of JPY 80 million into
ProMOS Technologies Japan Limited as its working capital. As of December 31,
2006, the loan balance amounted to JPY 60 million (Shown in “Other receivable -
related parties”).
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6. ASSETS PLEDGED AS COLLATERAL
December 31,
Item 2007 2006 Purpose of pledge
Time deposits (shown in “Restricted assets - current”)
$ 428,762 $ 938,881 Collateral for custom duties, bank loans, foreign labor and first domestic secured bonds payable
Demand deposit denominated in USD (shown in “Restricted assets - current” and “Other assets - other”, respectively)
1,061,272 1,066,671 Collateral for second overseas secured bonds payable
Long-term investments in bonds - (shown in “Investments in bonds without active markets - noncurrent”)
- 400,000 Collateral for commercial papers payable
Property, plant and equipment, net 75,705,297
35,979,749
Collateral for short-term, long-term loans and long-term payables
$ 77,195,331 $ 38,385,301
7. COMMITMENTS AND CONTINGENT LIABILITIES
(1) As of December 31, 2007 and 2006, the Company signed several construction contracts
for the expansion of 12-inch wafer fabrication plants. These construction contracts
amounted to $9,771,234 and $30,257,554, respectively.
(2) As of December 31, 2007 and 2006, the balance of unused letters of credit are as follows
(in thousands):
December 31,
Currency 2007 2006
USD USD 50,679 USD 57,910
YEN YEN 3,245,147 YEN 4,664,009
EUR EUR 5,505 EUR 5,315
GBP GBP - GBP 58
(3) On July 25, 2006, Mosaid Technologies Inc. filed a lawsuit with the United States
District Court of the Eastern District of Texas Marshall Division against Micron
Technology Inc., Powerchip Technologies Corporation and the Company, alleging
infringement, among others, of its patent. As the Company came to a settlement with
Mosaid Technologies Inc. on January 31, 2008, the settlement amount was recognized
under ”Other non-operating losses”.
(4)Freescale Semiconductors Inc. filed a lawsuit with the United States District Court of
the Eastern District of Texas Marshall Division against the Company on December 7,
2006, alleging infringement, among others, of its patent. On December 22, 2006, the
Company also filed a lawsuit with the State of Delaware against Freescale
Semiconductors Inc. for infringement of the Company’s patents. At present, the
Company has attorneys in this area tending to this case and although it is not possible to
predict the outcome of this litigation due to initial discovery proceedings, the Company
believes any such outcome will not adversely affect normal business operations of the
Company.
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(5) Tessera, Inc. filed a lawsuit with the United States District Court of the Eastern District
of Texas Marshall Division against the Company on December 7, 2007, alleging
infringement, among others, of its patent. At present, the Company has attorneys in
this area tending to this case and although it is not possible to predict the outcome of
this litigation due to initial discovery proceedings, the Company believes any such
outcome will not adversely affect normal business operations of the Company.
(6) The Company leases several parcels of land from the HsinChu Science Park
Administration and Taichung Science Park Administration, and leases machinery and
equipment from foreign equipment suppliers under operating leases. Leases on land
and machinery and equipment have terms expiring in December 2026 and August
2008, respectively. Future lease payments required under these operating leases are
shown below:
Year Amount
2008 $ 1,263,076
2009 73,986
2010 73,986
2011 73,986
2012 and thereafter 664,741
$ 2,149,775
8. SIGNIFICANT LOSS FROM DISASTERS
None.
9. SIGNIFICANT SUBSEQUENT EVENTS
The Company made an additional investment amounting to U.S. $12 million in its
wholly-owned subsidiary, ProQ Technologies Incorporated, on January 10, 2008. As of
February 25, 2008, the report date, the Company’s total investment in ProQ Technologies
Incorporated totaled U.S. $92 million.
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10. OTHERS
(1) Fair value of financial instruments
December 31, 2007
Fair value
Book value Market Estimate
Non-derivative financial instruments
Financial assets
Financial assets with fair value equal to book value $ 15,751,044 $ - $ 15,751,044
Available-for-sale financial assets 558,130 558,130 -
Financial assets carried at cost 318,400 - -
Investments in bonds without active markets 750,000 - 750,000
$ 17,377,574
Financial liabilities
Financial liabilities with fair value equal to book value
( $ 20,639,240 )
$ -
( $ 20,639,240 )
Bonds payable (including current portion) ( 1,061,272 ) ( 1,114,335 ) -
Bonds payable (fourth overseas convertible bonds) ( 8,761,161) - ( 8,761,161 )
Long-term liabilities (including current portion) ( 60,221,353 ) - ( 60,221,353 )
( $ 90,683,026 )
Derivative financial instruments without adopting hedge accounting
Financial assets
Cross currency and interest rate swap $ 34,638 $ - $ 34,638
Forward foreign 2,633 - 2,633
$ 37,271
Financial liabilities
Put and call options embedded in convertible bonds
( $ 814,686 ) $ - ( $ 814,686 )
Conversion price reset option embedded in convertible bonds
( 16,174 )
-
( 16,174 )
( $ 830,860 )
Derivative financial instruments for hedging
Interest rate swap $ 20,214 $ - $ 20,214
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December 31, 2006
Fair value
Book value Market Estimate
Non-derivative financial instruments
Financial assets
Financial assets with fair value equal to book value $ 31,885,973 $ - $ 31,885,973
Financial assets at fair value through profit or loss 3,017,042 3,017,042 -
Financial assets carried at cost 796,632 - -
Investments in bonds without active markets 900,000 - 900,000
$ 36,599,647
Financial liabilities
Financial liabilities with fair value equal to book value ( $ 18,232,649 ) $ - ( $ 18,232,649 )
Bonds payable (including current portion) ( 3,933,692 ) ( 4,678,584 ) -
Long-term liabilities (including current portion) ( 32,405,683 ) - ( 32,405,683 )
( $ 54,572,024 )
Derivative financial instruments without adopting hedge accounting
Financial assets
Non-delivery forward contracts $ 7,470 $ - $ 7,470
Financial liabilities
Cross currency and interest rate swap ( $ 72,557 ) $ - ( $ 72,557 )
Non-delivery forward contracts ( 5,350 ) - ( 5,350 )
( $ 77,907 )
The methods and assumptions used to measure the fair value of financial instruments
are summarized below:
a) Financial assets / liabilities with fair value equal to book value: The carrying
amounts of these assets / liabilities approximate their fair values due to their
short maturities. This applies to cash and cash equivalents, notes and accounts
receivable, short-term loans, notes and accounts payable.
b) Financial assets at fair value through profit or loss (non-derivative financial
instruments): Instruments classified in this category are mainly investments in
open-ended mutual funds. The fair value is determined based on the net asset
value of the mutual fund at the balance sheet date.
c) Available-for-sale financial assets: Fair value is based on the quoted prices on
the overseas stock exchange as the stocks are listed overseas.
d) Investments in bonds without active markets: Fair value is estimated based on
the discounted future cash flows due to the bonds not being traded in active
markets. Discount rates range from 3.033% to 3.845%, which approximate the
floating interest rates. Accordingly, the carrying values of the bond investments
approximate their fair values.
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e) Bonds payable: The fair values of convertible bonds issued prior to and
including December 31, 2005 are determined based on the quoted market prices.
The fair values of convertible bonds issued after December 31, 2005 are
estimated based on the discounted future cash flows.
f) Long-term liabilities (including long-term loans, long-term payables and capital
leases payable): Fair value is estimated based on the discounted future cash
flows. Discount rate is determined based on the Company's credit adjusted
borrowing rate on long-term loans, ranging from 0.96% to 4.69%, which
approximate the floating interest rates. Accordingly, the carrying values of the
long-term liabilities approximate their fair values.
g) Derivative financial instruments: Fair value is estimated based on the amount
receivable from or payable to the counterparty assuming the contracts are
terminated at the balance sheet date, which includes the contracts’ unrealized
gain or loss.
h) In 2007 and 2006, the net loss recognized from the changes in fair values
determined using the foregoing valuation techniques amounted to $211,161 and
$70,437, respectively.
i) For available-for-sale financial assets, in 2007, the amount of loss recognized
directly in equity was $281,215.
(2) Information on interest rate fluctuation
As of December 31, 2007 and 2006, financial assets that are exposed to fair value
interest rate risk are $34,638 and $1,000,000, respectively, and financial liabilities
that are exposed to fair value interest rate risk are $10,885,208 and $10,407,438,
respectively. Financial assets that are exposed to cash flow interest rate risk are
$10,559,129 and $19,846,716, respectively, and financial liabilities that are exposed
to cash flow interest rate risk are $59,372,009 and $26,384,494, respectively.
(3) Financial risk management
In order to identify, evaluate and manage market risk, credit risk, liquidity risk and
cash flow risk, the Company has established a risk management program and carries
out procedures to monitor the fluctuations in exchange rate and interest rate, as well
as implement credit controls over its transaction counterparties.
By considering factors such as changes in industrial environment, funding position,
overall cash requirement, and market risks, the Company adjusts related positions of
financial assets and liabilities in order to optimize its risk exposure, maintain liquidity
and centrally manage all market risks.
In order to manage its risk exposure, the Company established a risk management
program as follows:
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a) Interest risk:
The Company manages its cash flow interest rate risk and fair value risk by using
interest rate swap and cross currency contracts. The Company also monitors the
fluctuations in interest rates and compares to its targeted interest rates on a
periodic basis to reduce the interest risk.
b) Foreign exchange risk:
To manage the foreign exchange risk arising from future commercial transactions
and recognized assets and liabilities denominated in foreign currencies, the
Company enters into forward contracts and knock out forward. The company also
monitors the fluctuations in foreign exchange rates and compares to targeted
foreign exchange rates on a periodic basis to reduce the foreign exchange risk.
c) Credit risk:
The Company establishes credit policies to ensure customers are with an
appropriate credit history. Credit assessment is performed to determine the sales
terms provided to the customers. To reduce credit risk, the Company periodically
reviews the quality of the receivables and maintains close contact with customers.
(4) Information on significant financial risks
1. Market risk
(i) Foreign exchange risk:
The Company entered into forward contracts to manage the foreign exchange
rate risk. The contract terms and amounts approximate the recognized assets
and liabilities; therefore, the fluctuation in exchange rates could be offset
effectively. The Company does not expect to have significant market risk.
The Company entered into the knock out forward which consisted of one call
option and one put option like forward contracts. Under the terms of the
agreement, the Company can receive certain amount of foreign currency at
agreed contract exchange rate to reduce the foreign exchange rate risk. On the
contrary, it might be ineffective to avoid the foreign exchange rate risk as the
option is knocked out. The Company has evaluated the possibility of knock
out carefully and assessed the entire foreign exchange rate risk.
The majority of the sales and purchases of the Company is denominated in
U.S. dollars and therefore the fair value of the associated assets and liabilities
are exposed to foreign exchange rate risk. The Company monitors the
fluctuations in foreign exchange rates and adjusts the net positions in each
foreign currency, enters into forward contracts, if necessary, to reduce the
market rate risk.
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(ii) Interest risk:
The Company manages the interest rate risk by entering into cross currency
and interest rate swaps. Based on the changes in fair value of such contracts,
which is determined using the net present value method, the Company adjusts
the net positions of the underlying borrowings. Therefore, the market risk is
considered to be minimal.
The Company invests in debentures issued by domestic financial institutions
and unsecured corporate bonds of domestic listed companies (shown in
“Investments in bonds without active markets - noncurrent”). All investments
in bonds are at floating interest rates, which is expected to result in exposure
to a lesser degree of market risk.
Except for the first domestic secured bonds payable, all corporate bonds are
issued at zero interest rate. The Company’s bonds payable are exposed to
market interest rate risk and fair value risks of the embedded conversion
options. However, the Company expects to minimize the market risk by
performing periodic risk assessments.
Long-term liabilities are primarily issued at floating interest rates, which are
not exposed to significant market risk.
(iii) Price risk:
The investments (shown in “Financial assets at fair value through profit or
loss” and “Available-for-sale financial assets - noncurrent”) are mainly in
open-end mutual funds and overseas listed stocks and are exposed to market
price risk. The Company evaluates related investment performance on a
periodic basis and does not expect to have significant market risk in these
financial assets.
2. Credit risk
(i) Financial derivatives: The counterparties of the financial derivatives are
reputable financial institutions, with which the Company has established
long-term relationships. The Company also deals with multiple
counterparties to diversify the credit risks. Thus, the Company believes its
exposure to potential default risk is low.
(ii) Financial assets at fair value through profit or loss - beneficiary certificates:
The Company believes its exposure to potential default risk is low due to the
counterparties being reputable institutions and the Company diversifies the
credit risk by entering into transactions with multiple counterparties.
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(iii) Financial assets carried at cost - noncurrent and Available-for-sale financial
assets - noncurrent: In order to minimize the credit risk exposure of these
financial assets, the Company evaluates the credit ratings of the investing
targets at the time of investing. Subsequent to the investment, a periodic
review on investees’ financial information is performed to assess the
investment performance. In addition, the Company assesses at each balance
sheet date whether there is objective evidence that such financial assets are
impaired in accordance with SFAS No. 34 and SFAS No. 35. The Company
holds preferred shares of Chinese Bank, which suffered a bank run due to the
application for restructuring by China Rebar Company, Ltd. and Chia Hsin
Food and Synthetic Fiber Co., Ltd. with the Taipei District Court in
December 2006. As Chinese Bank is taken over by Central Deposit Insurance
Corporation (CDIC), and CDIC is a government institution, the Company
believes its exposure to default risk is low. In addition, the Company has
engaged an attorney to process the legal proceeding in order to effectively
reduce default risk of the investment.
(iv) Investments in bonds without active markets - noncurrent: The Company
invests in debentures issued by domestic financial institutions. The Company
also deals with multiple counterparties to diversify the credit risk, and there
is no objective evidence, such as default or delay in interest payments, that
indicates that such financial assets are impaired. The 2004 first financial
debenture of Chinese Bank was issued on September 1, 2004, which is under
the protection of the RTC Fund; therefore, the default risk of this investment
is effectively reduced.
(v) The Company performs credit assessments on its customers prior to the sales
of products; therefore, the default risk is expected to be minimal.
3. Liquidity risk
(i) Forward contracts: Since the expected cash outflow and inflow on the
forward contracts are likely to be offset by the underlying assets and
liabilities, and the Company has sufficient operating capital to meet the cash
requirement of the forward contracts, the liquidity risk is believed to be
minimal.
(ii) Interest rate swap: Since the expected cash outflow and inflow on the interest
rate swap contracts are determined based on the net settlement amount
calculated by the notional amount times the differences between the fixed
and floating interest rates, which are immaterial compared with the
underlying notional amount, and the Company has sufficient operating
capital to meet the cash requirement of the interest rate swap contracts, the
liquidity risk is believed to be minimal.
-101-
(iii) The Company entered into the knock out forward which consisted of one call
option and one put option like forward contracts. Under the terms of the
agreement, the Company can receive certain amount of foreign currency at
agreed contract exchange rate. On the contrary, the Company is obligated to
buy double the agreed amount of foreign currency at agreed contract
exchange rate as the option is knocked out.
(iv) Financial assets at fair value through profit or loss - beneficiary certificates
and available-for-sale financial assets - noncurrent: The beneficiary
certificates and overseas listed stocks are traded in active markets and can be
readily converted into certain amount of cash approximate their fair value.
Thus, the liquidity risk is believed to be minimal.
(v) Financial assets carried at cost and investments in bonds without active
markets: The Company is exposed to a higher liquidity risk for holding these
assets since there is no active market. However, the Company has no
intention to hold these financial assets for trading purpose and does not
expect to sell these financial assets frequently. Therefore, the exposure to
liquidity risk would be effectively reduced.
(vi) The Company manages its financing and investing activities based on its
operating capital requirements and capital expenditure budgets, thus, the
liquidity risk is expected to be low.
4. Cash flow interest rate risk
(i) Interest rate swap: Since the expected cash outflow and inflow on the interest
rate swap contracts are determined based on the net settlement amount
calculated by the notional amount times the differences between the fixed
and floating interest rates, which are immaterial compared with the
underlying notional amount, the cash flow interest rate risk is believed to be
minimal.
(ii) Investments in bonds without active markets - noncurrent: The Company’s
investments in bonds are at floating interest rates. The Company is exposed
to a higher cash flow interest rate risk on these floating interest rate bond
investments due to the fact that changes in market interest rate will be
reflected in the effective interest rates of these investments which will result
in fluctuations in the Company’s future cash flows.
(iii) Long-term and short-term liabilities: The Company’s long-term liabilities are
issued at floating interest rates and are exposed to a higher cash flow interest
rate risk due to the fact that changes in market interest rate would be reflected
in the effective interest rates of these liabilities, resulting in fluctuations in
the Company’s future cash flows. The Company evaluates the cash flow risk
-102-
arising from the fluctuations of interest rate on a periodic basis, and manages
the risk using derivative financial instruments, when necessary, in order to
reduce the impact of cash flow interest rate risk.
(iv) Bonds payable: Except for the first domestic secured bonds payable, all
corporate bonds are issued at zero interest rates. For the fixed interest rate
bonds payable, the Company is not exposed to cash flow interest rate risk.
(5) Cash flow hedge
The Company’s liabilities issued at floating interest rates expose the Company to
cash flow risk due to the fact that changes in market interest rate would cause the
fluctuations in the Company’s future cash flows. As such, the Company undertakes
interest rate swaps to hedge cash flow risk.
Designated for hedging instrument
Fair value
Hedge item
Financial instrument designated as
hedging instrument
December
31, 2007
December
31, 2006
Period of anticipated
cash flow
Period of gain ( loss)
recognized in income
statement
Floating rate long-term loan
Interest exchange $ 20,214 $ - 2007.09.11 ~
2012.06.13
2007.09.11 ~
2012.06.13
For the years ended December 31,
Item 2007 2006 Amount of gain recognized directly in equity $ 20,214 $ -
-103-
11
. S
PE
CIA
L D
ISC
LOS
UR
E I
TE
MS
1)
Info
rma
tion
on
Sig
nific
ant
Tra
nsa
ctio
ns
a)
Loa
ns to
oth
ers
att
rib
ute
d t
o fi
nanc
ing
act
iviti
es
as
of D
ece
mb
er
31
, 20
07
: No
ne.
b)
End
ors
em
ent
s a
nd g
uara
nte
es
pro
vid
ed
by
the
Co
mp
an
y to
oth
ers
as
of D
ece
mb
er
31
, 20
07
: No
ne.
c) D
eta
ils o
f m
ark
eta
ble
se
curi
ties
held
as
of D
ece
mb
er
31
, 20
07
:
Dec
emb
er 3
1, 2
007
Inve
stor
Typ
es o
f ma
rket
ab
le
secu
ritie
s
Na
me
of m
ark
etab
le s
ecu
ritie
s
Rel
atio
nsh
ip
with
the
Com
pan
y
Gen
era
l led
ger
acc
ount
s
Nu
mb
er o
f sha
res
( in
thou
sand
s)
B
ook
valu
e
P
erce
nta
ge
Ma
rket
va
lue
(Not
e 1
)
Pro
MO
S T
ech
nol
ogie
s In
c.
S
tock
C
hipM
OS
Tec
hnol
ogie
s (B
erm
ud
a)
LTD
. I
nd
irect
inve
stee
co
mp
any
of
Mos
el V
itelic
In
c.
Ava
ilab
le-f
or-s
ale
fin
anc
ial
ass
ets
- cu
rren
t
4,0
61
$
558
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-
$55
8,1
30
″
″
M
osel
Vite
lic C
orp
orat
ion
I
nve
stee
co
mp
any
acc
ount
ed fo
r u
nder
the
equ
ity m
eth
od
Lon
g-te
rm e
qu
ity in
vest
men
ts
acc
ount
ed fo
r un
der
th
e eq
uity
met
hod
0
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1
93,0
38
5
0%
(3
4,2
68
)
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″
U
nite
d M
emor
ies,
Inc.
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1,1
12
1
79,6
16
1
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132
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5
″
″
P
utia
n M
aod
e T
echn
olog
ies
(Ch
ongq
ing)
Cor
por
atio
n
″
″
-
1
19,4
36
4
9%
1
19,4
36
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″
P
roM
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Tec
hn
olog
ies
PT
E.
Ltd
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000
(697
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100
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4
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(Not
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F
lou
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Lim
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P
roM
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Tec
hn
olog
ies
Jap
an
Lim
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-
(5,1
31)
1
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(5,1
31)
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″
E
pile
ds
Tec
hnol
ogie
s, In
c.
″
″
1
6,00
0
1
61,7
41
2
9.09
%
1
61,7
41
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″
Pro
Q T
ech
nol
ogie
s In
corp
ora
ted
″
″
-
2,5
99,2
88
1
00%
2,5
99,2
88
″
P
refe
rred
sto
ck
In
ap
ac
Tec
hn
olog
y, In
c.
″
″
1
6,44
9
4
06,7
02
2
6.14
%
1
9,46
2
″
″
C
apso
Vis
ion
, In
c.
″
″
5
,556
23,
551
3
0.48
%
1
8,48
0
″
″
P
roIm
age
Tec
hn
olog
ies
Inc.
″
″
16,
200
9,7
31
1
00%
9,7
31
″
Sto
ck
In
tegr
ate
d D
igita
l T
ech
nol
ogie
s, In
c.
N
one
Fin
anc
ial a
sset
s ca
rrie
d a
t cos
t -
non
curr
ent
3
,000
45,
000
-
-
″
″
A
MO
S T
ech
nol
ogie
s In
c.
S
am
e B
oard
C
hairm
an
″
2,3
40
2
3,40
0
-
-
″
P
refe
rred
sto
ck
Chi
nes
e B
ank
Non
e
″
2
5,00
0
2
50,0
00
-
-
″
Deb
entu
re
Chi
nfo
n C
omm
erci
al B
ank
Deb
entu
re
″
I
nve
stm
ents
in b
ond
s w
ithou
t a
ctiv
e m
ark
ets
- n
oncu
rren
t
-
5
00,0
00
-
5
00,0
00
″
″
C
hin
ese
Ban
k D
eben
ture
″
″
-
250
,00
0
-
250
,00
0
No
te 1
: a.
Ava
ilab
le-f
or-
sale
fin
anc
ial a
sse
ts: M
ark
et v
alu
e is
de
ter
min
ed
ba
sed
on
the
clo
sin
g p
rice
fro
m th
e N
AS
DA
Q s
tock
exc
han
ge a
t th
e b
ala
nce
she
et d
ate
.
b.
Long
-te
rm e
qui
ty in
vest
me
nts
acc
ou
nte
d f
or
und
er
the
eq
uity
me
tho
d: M
ark
et
valu
e is
de
term
ine
d b
ase
d o
n th
e n
et
ass
et
valu
e o
f in
vest
ee
co
mp
ani
es
at t
he b
ala
nce
she
et
da
te.
c. I
nve
stm
ent
s in
bo
nds
with
out
act
ive
ma
rke
ts -
no
ncur
rent
: F
air
va
lue
is e
stim
ate
d b
ase
d o
n th
e d
isco
unt
ed
fut
ure
ca
sh f
low
s.
No
te 2
: Unr
ea
lize
d g
ain
or
loss
on
dis
po
sal o
f ass
ets
wa
s e
limin
ate
d in
pro
po
rtio
n to
the
Co
mp
an
y’s
sha
reho
ldin
g.
-104-
d)
Ind
ivid
ual s
ecu
rity
fo
r w
hich
tota
l bu
yin
g o
r se
lling
am
ou
nts
exc
ee
d th
e lo
we
r o
f $1
00
,00
0 o
r 2
0 p
erce
nt o
f the
Co
mp
an
y’s
com
mo
n st
ock
for
the
ye
ar
end
ed
De
cem
be
r 3
1,
20
07:
Beg
inni
ng
bala
nce
A
dd
ition
s
Dis
pos
als
End
ing
bala
nce
Inve
stor
Na
me
of t
he
secu
ritie
s
Gen
era
l led
ger
acc
ount
Nu
mb
er o
f sh
are
s (in
th
ousa
nd
s)
Am
oun
t
Nu
mb
er o
f sh
are
s (in
th
ousa
nd
s)
Am
oun
t
Nu
mb
er o
f sh
are
s (in
th
ousa
nd
s)
Am
oun
t B
ook
valu
e G
ain
/Los
s on
d
isp
osa
l N
um
ber
of
sha
res
(in
thou
san
ds)
A
mou
nt
Ga
in
(Los
s) o
n
valu
atio
n P
roM
OS
T
ech
nol
ogie
s In
c.
AIG
Bon
d F
und
F
ina
ncia
l ass
ets
at fa
ir va
lue
thro
ugh
pro
fit
or lo
ss -
cu
rren
t
-
$
-
23,
503
$30
0,0
00
2
3,50
3
$30
1,0
48
$
300
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$1,
048
-
$
-
$
-
″
JF
(T
aiw
an
) F
irst
Bon
d
Fu
nd
″
2
0,74
4
2
91,5
10
-
-
20,
744
2
92,6
82
2
90,7
32
1
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JF
(T
aiw
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ond
Fu
nd
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1
3,17
2
2
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76
19,
531
300
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0
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703
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02,9
04
5
00,0
00
2
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-
-
″
Pol
aris
De-
Ba
o F
un
d
″
22,
584
250
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5
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9
6
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850
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″
Ca
tha
y B
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Fun
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25,
972
300
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25,
972
3
00,7
79
3
00,0
00
7
79
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-
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Pru
den
tial F
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l B
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Fu
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″
17,
189
251
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3
4
0,87
9
6
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00
5
8,06
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853
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8
850
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0
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98
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-
-
″
En
Tru
st P
hoe
nix
Bon
d
Fu
nd
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6
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100
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2
-
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100
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1,1
42
-
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-
″
En
tru
st K
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d
Fu
nd
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-
4
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8
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50,0
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4
9,47
8
552
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8
550
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0
2,2
28
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-
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″
Fu
bon
Ju
-I I
II B
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F
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″
20,
544
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9
4
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5
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6
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9
800
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0
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-
″
Fu
bon
Chi
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ang
Fu
nd
″
1
7,26
3
2
51,2
52
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17,
263
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2
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- ″
T
ais
hin
Lu
cky
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nd
″
4
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5
5
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110
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4
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Fu
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BT
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Ch
ong
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nd
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50,2
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IN
G T
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Sel
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2
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2
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30
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2
50,0
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1
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IN
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″
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-
19,
774
300
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0
19,
774
3
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3
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1
96
-
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″
Meg
a D
iam
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Bon
d F
un
d
″
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-
94,
875
1
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0
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875
1,1
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1,1
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″
Fu
hw
a B
ond
Fu
nd
″
-
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38,
612
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612
5
00,6
99
5
00,0
00
6
99
-
-
-
″
Chi
pMO
S T
echn
olog
ies
(Ber
mu
da
) LT
D.
Ava
ilab
le-f
or-s
ale
fin
anci
al a
sset
s
-
-
4,0
61
8
39,3
45
-
-
-
-
4
,061
558
,13
0
(281
,215
)
″
Pro
Q T
ech
nol
ogie
s In
corp
ora
ted
L
ong-
term
eq
uity
in
vest
men
t acc
oun
ted
for
und
er t
he
equ
ity
met
hod
-
-
-
2,6
35,0
50
-
-
-
-
-
2
,599
,28
8
(95
,82
6)
e)
Acq
uisi
tion
of r
ea
l est
ate
with
an
am
oun
t exc
ee
din
g th
e lo
we
r o
f $
10
0,0
00 o
r 2
0 p
erc
ent o
f the
Co
mp
an
y’s
com
mo
n st
ock
fo
r th
e y
ea
r e
nde
d D
ece
mb
er
31
, 20
07
: No
ne.
f) D
isp
osa
l of r
ea
l est
ate
with
an
am
oun
t exc
ee
din
g th
e lo
we
r o
f $1
00,
000
or
20
pe
rce
nt o
f the
Co
mp
an
y’s
com
mo
n st
ock
for
the
ye
ar
end
ed
De
ce
mb
er
31
, 20
07
: No
ne.
-105-
g) R
ela
ted
pa
rty
tra
nsa
ctio
ns
with
pur
cha
ses
or
sale
s a
mo
unts
exc
ee
din
g th
e lo
we
r o
f $1
00
,00
0 o
r 2
0 p
erce
nt o
f the
Co
mp
an
y’s
com
mo
n st
ock
fo
r th
e y
ea
r e
nde
d D
ece
mb
er
31
, 2
007
:
Tra
nsa
ctio
ns
D
iffer
ence
with
ge
ner
al t
ran
sact
ion
s
A
ccou
nts
rec
eiva
ble
(p
aya
ble
)
Com
pan
y
Na
me
of c
ount
erp
art
y
Rel
atio
nsh
ip w
ith
the
Com
pan
y
P
urc
hase
s / s
ale
s
A
mou
nt
P
erce
nta
ge o
f p
urc
hase
s /
sale
s
Te
rm
Un
it p
rice
T
erm
Am
oun
t
Per
cen
tage
of t
ota
l a
ccou
nts
rece
iva
ble
/
pa
yab
le
N
ote
Pro
MO
S
Tec
hn
olog
ies
Inc.
Chi
pMO
S
Tec
hn
olog
ies
Inc.
Ind
irect
inve
stee
co
mp
any
of
Mos
el V
itelic
In
c.
P
roce
ssin
g ex
pen
se
$
6,49
1,7
21
1
3%
-
N/A
N/A
($1
,94
0,62
9)
(1
4%)
-
h) R
ece
iva
ble
s fr
om
re
late
d p
art
ies
exc
ee
din
g th
e lo
we
r o
f $1
00
,00
0 o
r 2
0 p
erc
ent
of t
he C
om
pa
ny’
s co
mm
on
sto
ck a
s o
f D
ece
mb
er
31
, 20
07
:
Ba
lanc
e of
rec
eiva
ble
from
re
late
d p
artie
s
Ove
rdu
e re
ceiv
ab
les
Com
pan
y
Na
me
of c
ount
erp
art
y R
ela
tion
ship
with
the
Com
pan
y
A
ccou
nts
re
ceiv
ab
le
O
ther
re
ceiv
ab
les
T
ota
l
Tu
rnov
er r
ate
A
mou
nt
Act
ion
ad
opte
d fo
r ov
erd
ue
acc
oun
ts
Su
bse
quen
t co
llect
ion
Allo
wa
nce
for
dou
btfu
l a
ccou
nts
pro
vid
ed
Pro
MO
S
Tec
hn
olog
ies
Inc.
P
roQ
Tec
hn
olog
ies
Inco
rpor
ate
d
Lon
g-te
rm e
qu
ity
inve
stm
ent
acc
ount
ed fo
r un
der
th
e eq
uity
met
hod
$
-
$
158
,095
$15
8,0
95
N
/A
$
-
-
$
-
$
-
i) I
nfo
rma
tion
on
de
riva
tive
tra
nsa
ctio
ns:
Re
fer
to N
ote
s 4
(2
), 4
(1
3) a
nd
10
.
-106-
2)
Info
rma
tion
of S
ubsi
dia
rie
s:
a)
Re
late
d in
form
atio
n o
f sub
sid
iary
co
mp
ani
es
as
of D
ece
mb
er
31,
200
7:
Orig
ina
l am
oun
t
Sh
are
s h
eld
by
the
Com
pan
y
Inve
stor
Inve
stee
co
mp
any
Lo
catio
n
Mai
n bu
sin
ess
scop
e
Dec
emb
er
3
1, 2
007
Dec
emb
er
31
, 200
6
Nu
mb
er o
f sh
are
s (in
th
ousa
nd
s)
Per
cen
tage
B
ook
valu
e N
et in
com
e (lo
ss)
of
the
inve
stee
Inco
me
(loss
) re
cord
ed b
y th
e C
omp
any
N
ote
Pro
MO
S
Tec
hn
olog
ies
Inc.
Mos
el V
itelic
C
orp
ora
tion
C
alif
orn
ia
U.S
.A.
IC
res
earc
h, d
esig
n,
dev
elop
men
t,
ma
nufa
ctu
ring
and
ma
rket
ing
$
466
,83
0
$
4
66,8
30
0.5
50
%
$
193
,038
($36
2,58
4)
($
181,
292
)
″
Un
ited
M
emor
ies,
In
c.
Col
ora
do
U.S
.A.
Dev
elop
men
t of
p
roto
typ
e in
tegr
ate
d c
ircui
ts
and
ser
vice
ge
ner
ate
d
1
94,9
40
194
,94
0
1
,112
100
%
1
79,6
16
6
,356
6,3
56
″
Pro
MO
S
Tec
hn
olog
ies
PT
E.
Ltd
.
Sin
gap
ore
Des
ign
, d
evel
opm
ent,
co
nsu
ltin
g,
licen
sin
g an
d m
ark
etin
g
6
67,4
00
667
,40
0
2
0,00
0
1
00 %
(697
,217
)
52,
747
(497
,584
)
Not
e 1
″
Flo
uris
hin
g M
omen
t Li
mite
d
BV
I H
old
ing
corp
orat
ion
33,
370
33,
370
1,0
00
1
00 %
32,
430
-
-
″
Pu
tian
Ma
ode
Tec
hn
olog
ies
(Ch
ongq
ing)
C
orp
ora
tion
Ch
ongq
ing
Chi
na
Fla
sh r
esea
rch
, d
esig
n,
dev
elop
men
t,
ma
nufa
ctu
ring,
sa
les
an
d te
chn
olog
ies
serv
ice
1
62,7
42
76,
820
-
49
%
1
19,4
36
5
7,04
4
2
7,95
1
″
Pro
MO
S
Tec
hn
olog
ies
Japa
n Li
mite
d Tok
yo
Japa
n
Sa
les,
imp
ort a
nd
exp
ort
of
sem
icon
duct
or a
nd
rela
ted
ele
ctro
nic
p
rod
ucts
2
3,27
1
2
,796
-
1
00 %
(5,1
31)
(2
0,9
00
)
(20
,90
0)
″
E
pile
ds
Tec
hn
olog
ies ,
Inc.
Ta
iwa
n
W
hol
esa
le o
f el
ectr
onic
ma
teria
ls
and
ma
nufa
ctu
re o
f el
ectr
onic
co
mp
onen
ts
1
60,0
00
1
60,0
00
1
6,00
0
29.
09%
161
,74
1
15,
652
4,7
05
″
In
ap
ac
Tec
hn
olog
y,
Inc.
Ca
lifor
nia
U
.S.A
. P
rovi
der
of m
emor
y te
chn
olog
y a
nd
se
rvic
es fo
r sy
stem
-in-p
ack
age
(S
ip)
and
M
ulti
-ch
ip-p
ack
age
(N
CP
) so
lutio
ns
4
52,2
82
452
,28
2
1
6,44
9
2
6.14
%
4
06,7
02
(1
77,0
75)
(4
6,2
81
)
Not
e 2
″
C
apso
Vis
ion
, In
c.
Ca
lifor
nia
U
.S.A
. D
evel
op a
nd
com
mer
cia
lize
sma
ll ca
mer
a in
ca
psu
le fo
rm t
hat
can
be
swa
llow
ed
by
pa
tien
ts a
nd
use
d to
dia
gnos
e a
varie
ty o
f ga
stro
inte
stin
al
dis
ord
ers.
4
9,35
0
4
9,35
0
5
,556
30.
48%
23,
551
(8
7,7
41
)
(26
,57
2)
N
ote
2
-107-
Orig
ina
l am
oun
t
Sh
are
s h
eld
by
the
Com
pan
y
Inve
stor
Inve
stee
co
mp
any
Lo
catio
n
Mai
n bu
sin
ess
scop
e
Dec
emb
er
3
1, 2
007
Dec
emb
er
31
, 200
6
Nu
mb
er o
f sh
are
s (in
th
ousa
nd
s)
Per
cen
tage
B
ook
valu
e N
et in
com
e (lo
ss)
of
the
inve
stee
Inco
me
(loss
) re
cord
ed b
y th
e C
omp
any
N
ote
Pro
MO
S
Tec
hn
olog
ies
Inc.
P
roQ
T
ech
nol
ogie
s In
corp
ora
ted
Ch
ongq
ing
Chi
na
D
evel
opm
ent,
m
anu
fact
urin
g an
d m
ark
etin
g of
se
mic
ondu
ctor
and
re
late
d t
echn
olog
y se
rvic
es
$
2,63
5,0
50
$
-
-
100
%
$
2,59
9,2
88
($
95,8
26)
($
95,8
26)
″
P
roIm
age
T
ech
nol
ogie
s In
c.
CA
YM
AN
H
old
ing
Cor
por
atio
n
16,
405
-
16,
200
100
%
9
,731
(6,5
68)
(6
,568
)
No
te 1
: In
Ap
ril 2
00
7 a
nd J
une
20
06,
the
Co
mp
an
y p
urch
ase
d p
ate
nts
fro
m P
roM
OS
Te
chno
logi
es
PT
E.
Ltd
. The
unr
ea
lize
d g
ain
wa
s e
limin
ate
d in
pro
po
rtio
n to
the
Co
mp
an
y’s
sha
reho
ldin
g.
No
te 2
: The
me
tho
d o
f acc
oun
ting
has
be
en
cha
nge
d fr
om
th
e c
os
t m
eth
od
to th
e e
qui
ty m
eth
od
effe
ctiv
e J
anu
ary
1,
20
07.
b)
Loa
ns to
oth
ers
attr
ibut
ed
to fi
nanc
ial a
ctiv
itie
s a
s o
f De
cem
be
r 3
1,
200
7: N
one
.
c) E
ndo
rse
me
nts
and
gua
rant
ee
s p
rovi
de
d to
oth
ers
as
of D
ece
mb
er
31
, 20
07
: No
ne.
d)
De
tails
of
ma
rke
tab
le s
ecu
ritie
s he
ld a
s o
f De
cem
be
r 3
1,
20
07
:
Dec
emb
er 3
1, 2
007
Inve
stor
Typ
e of
ma
rket
ab
le
secu
ritie
s
Na
me
of m
ark
etab
le s
ecu
ritie
s
R
ela
tion
ship
with
the
Com
pan
y
Gen
era
l led
ger
acc
ount
s
N
um
ber
of s
hare
s (in
thou
sand
s)
B
ook
valu
e
Per
cen
tage
M
ark
et v
alu
e (N
ote)
Flo
uris
hin
g M
omen
t Li
mite
d
P
refe
rred
sto
ck
Na
noA
mp
Sol
utio
ns,
Inc.
Non
e
Fin
anc
ial a
sset
s ca
rrie
d a
t
cost
- n
oncu
rren
t
2
50
$
32,4
30
-
$
-
Pro
Ima
ge T
ech
nol
ogie
s In
c.
C
omm
on s
tock
P
roIm
age
Tec
hn
olog
ies
Lim
ited
U.S
.A.
In
vest
ee c
omp
an
y a
ccou
nted
for
und
er
the
equ
ity m
eth
od
Lon
g-te
rm in
vest
men
ts
acc
ount
ed fo
r un
der
th
e eq
uity
met
hod
5
,000
9,7
31
1
00%
9,7
31
No
te: L
on
g-t
erm
eq
uity
inve
stm
ent
s a
cco
unt
ed
for
und
er
the
eq
uity
me
tho
d: M
ark
et v
alu
e is
de
term
ine
d b
ase
d o
n th
e n
et
ass
et v
alu
e o
f in
vest
ee
co
mp
ani
es
at t
he b
ala
nce
she
et
da
te.
e)
Ind
ivid
ual s
ecu
rity
for
wh
ich
tota
l bu
yin
g o
r se
lling
am
ou
nts
exc
ee
d th
e
low
er
of $
10
0,0
00
or
20
per
cent
of t
he C
om
pa
ny’
s co
mm
on
sto
ck fo
r th
e y
ea
r e
nde
d D
ece
mb
er
31
, 2
007
: N
one
.
f) A
cqui
sitio
n o
f re
al e
sta
te w
ith a
n a
mo
unt
exc
ee
din
g th
e lo
we
r o
f $1
00
,00
0 o
r 2
0 p
erc
ent
of t
he C
om
pa
ny’
s co
mm
on
sto
ck fo
r th
e y
ea
r e
nde
d D
ece
mb
er
31,
200
7: N
one
.
g) D
isp
osa
l of r
ea
l est
ate
with
an
am
oun
t exc
ee
din
g th
e lo
we
r o
f $1
00,
000
or
20
pe
rce
nt o
f the
Co
mp
an
y’s
com
mo
n st
ock
for
the
ye
ar
end
ed
De
cem
be
r 3
1,
200
7: N
one
.
h) R
ela
ted
pa
rty
tra
nsa
ctio
ns
with
pur
cha
ses
or
sale
s a
mo
unts
exc
ee
din
g th
e l
ow
er
of $
10
0,0
00
or
20
per
cent
of t
he C
om
pa
ny’
s co
mm
on
sto
ck f
or
the
ye
ar
end
ed
De
cem
be
r 3
1,
200
7:
No
ne.
i) R
ece
iva
ble
s fr
om
re
late
d p
art
ies
exc
ee
din
g th
e lo
we
r o
f $1
00
,00
0 o
r 20
pe
rce
nt o
f the
Co
mp
an
y’s
com
mo
n st
ock
as
of
De
cem
be
r 3
1,
200
7: N
one
.
j) I
nfo
rma
tion
on
de
riva
tive
tra
nsa
ctio
ns: N
one
.
-108-
3)
Re
leva
nt i
nfo
rma
tion
of i
nve
stm
ent
in m
ain
land
Chi
na:
a)
Info
rma
tion
of i
nve
stm
en
t in
ma
inla
nd C
hina
:
Am
oun
t of
rem
itta
nce
or
colle
ctio
n fo
r th
e ye
ar
end
ed D
ecem
ber
31
, 2
007
N
am
e of
inve
stee
in
ma
inla
nd C
hin
a
M
ain
act
iviti
es o
f in
vest
ee
Cap
ital
(in th
ousa
nds)
M
eth
od o
f in
vest
men
t
Beg
inni
ng
ba
lan
ce o
f re
mitt
ance
for
the
yea
r en
ded
D
ecem
ber
31
, 2
007
R
emitt
ance
C
olle
ctio
n
End
ing
bala
nce
of r
emitt
ance
fr
om T
aiw
an
on
D
ecem
ber
31
, 2
007
Per
cen
tage
of
sha
reh
old
ing
(Not
e)
Pro
fit/lo
ss
reco
gniz
ed fo
r th
e ye
ar
end
ed
Dec
emb
er 3
1,
200
7
End
ing
bala
nce
of t
he
inve
stm
ent a
s of
Dec
emb
er
31,
200
7
Acc
um
ula
ted
b
ala
nce
of
inve
stm
ent i
nco
me
rem
itted
bac
k th
rou
gh D
ecem
ber
3
1, 2
007
Pu
tian
Ma
ode
Tec
hn
olog
ies
(Ch
ongq
ing)
C
orp
ora
tion
F
lash
res
earc
h, d
esig
n,
dev
elop
men
t,
ma
nufa
ctu
ring,
sa
les
and
tech
nol
ogy
serv
ices
.
U
.S.
$10
,31
0 In
vest
in
ma
inla
nd
Chi
na d
irect
ly
$
76
,820
$
8
5,9
22
$
-
$
16
2,74
2 4
9%
$
2
7,95
1
$
119
,43
6
$
-
Pro
Q T
ech
nol
ogie
s In
corp
ora
ted
D
evel
opm
ent,
m
anu
fact
urin
g an
d m
ark
etin
g of
se
mic
ondu
ctor
and
re
late
d t
echn
olog
y se
rvic
es
U
.S.
$80
,00
0 In
vest
in
ma
inla
nd
Chi
na d
irect
ly
-
2,6
35,0
50
-
2
,635
,05
0 1
00%
(95
,82
6)
2,5
99,2
88
-
End
ing
bala
nce
of in
vest
men
t fr
om T
aiw
an
as
of
Dec
emb
er 3
1, 2
007
Ap
pro
ved
inve
stm
ent a
mou
nt b
y M
inis
try
of E
con
omic
Affa
irs
R.O
.C.
(in th
ousa
nds)
C
eilin
g of
inve
stm
ent i
n m
ain
land
Chi
na
$2,
797
,792
U.S
. $3
70,
052
$16
,76
8,28
9
No
te: T
he in
vest
me
nt g
ain
(lo
ss)
wa
s re
cog
nize
d b
ase
d o
n th
e in
vest
ee
co
mp
an
y’s
aud
ited
fina
ncia
l sta
tem
ent
s.
b)
Ma
jor
tra
nsa
ctio
ns w
ith in
vest
ee
co
mp
ani
es
in m
ainl
and
Chi
na:
i)
Oth
er
rece
iva
ble
s
D
ecem
ber
31
, 20
07
Am
oun
t
%
Oth
er r
ecei
vab
les
- P
roQ
T
ech
nol
ogie
s In
corp
ora
ted
$
1
58,0
95
$
1
5%
D
ecem
ber
31
, 20
06
Am
oun
t
%
Oth
er r
ecei
vab
les
- P
utia
n
Ma
ode
Tec
hnol
ogie
s (C
hon
gqin
g) C
orp
orat
ion
- (N
ote)
$ 8
4,80
3
$
12%
No
te: T
he C
om
pa
ny
pur
cha
sed
inve
nto
ry o
n b
eha
lf o
f Put
ian
Ma
od
e T
ech
nolo
gie
s (C
hon
gqin
g) C
orp
ora
tion.
ii).S
ale
s o
f A
sse
ts：In
De
cem
be
r 2
007
, th
e C
om
pa
ny
sold
its
ma
chin
ery
, eq
uip
me
nt a
nd r
aw
ma
teri
als
tota
ling
$1
57
,326
(sh
ow
n in
“O
the
r re
ceiv
ab
les
- re
late
d p
art
ies”
) to
Pro
Q
Te
chno
logi
es
Inco
rpo
rate
d r
esu
ltin
g to
a d
isp
osa
l ga
in o
f $1
25
,077
.
-109-
12. SEGMENT INFORMATION
(1)Financial information by industry: The Company operates principally in the semiconductor related industry.
(2)Financial information by geographic area: Not applicable.
(3)Information on export sales:
For the years ended December 31,
Area 2007 2006
Asia $ 14,148,543 $ 20,679,948
Europe 13,530,747 3,428,275
America 4,791,006 23,011,387
$ 32,470,296 $ 47,119,610
(4) Major customer information:
In 2007 and 2006, revenues from specific customers representing over 10% of total revenues are listed below:
For the years ended December 31,
2007 2006
Customer Sales amount % Sales amount % A $ 14,025,144 29% $ 15,452,875 26%
C 5,995,866 13% 9,086,748 15%
D 7,207,319 15% 9,852,984 16%
-110-
PROMOS TECHNOLOGIES INC.
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 2007 AND 2006
For the convenience of readers and for information purpose only, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.
(5) 2007 Consolidated Financial Statements and Independent Auditor’s Report
-111-
Report of Independent Accountants
PWCR07000188
To the Board of Directors and Shareholders of ProMOS Technologies Inc.
We have audited the accompanying consolidated balance sheets of ProMOS Technologies Inc. (the
“Company”) and its subsidiaries as of December 31, 2007 and 2006, and the related consolidated
statements of operations, of changes in shareholders’ equity and of cash flows for the years then
ended, expressed in thousands of New Taiwan dollars. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial statements of ProMOS
Technologies PTE. LTD., a wholly-owned subsidiary, which statements reflect total assets of
$530,340 thousand and $451,840 thousand, representing 0.3% of the related consolidated totals as
of December 31, 2007 and 2006, respectively, and net operating revenues of $0 thousand and
$7,959 thousand, representing 0% of the related consolidated totals for the years then ended,
respectively. Also we did not audit the financial statements of certain investees accounted for under
the equity method. These long-term equity investments amounted to $161,741 thousand and
$155,928 thousand as of December 31, 2007 and 2006, respectively, and the related investment gain
and loss for 2007 and 2006 were $4,705 thousand and $4,072 thousand, respectively. The financial
statements of these companies were audited by other auditors whose reports thereon have been
furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for
ProMos Technologies PTE. LTD. and long-term equity investments in these companies, is based
solely on the reports of the other auditors.
We conducted our audits in accordance with the “Rules Governing the Examination of Financial
Statements by Certified Public Accountants” and generally accepted auditing standards in the
Republic of China. Those standards and rules require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a reasonable basis for our
opinion.
-112-
In our opinion, based on our audits and the reports of other auditors, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of
ProMOS Technologies Inc. and its subsidiaries as of December 31, 2007 and 2006, and the results
of their operations and their cash flows for the years then ended in conformity with the “Rules
Governing the Preparation of Financial Statements by Securities Issuers”, “Business Entity
Accounting Law”, “Regulation on Business Entity Accounting Handling” and generally accepted
accounting principles in the Republic of China.
Hsinchu, Taiwan
February 25, 2008
...............................................................................................................................................................
The accompanying consolidated financal statements are not intended to present the financial
position and results of operations and cash flows in accordance with accounting principles generally
accepted in countries and jurisdictions other than the Republic of China. The standards, procedures
and practices in the Republic of China governing the audit of such financial statements may differ
from those generally accepted in countries and jurisdictions other than the Republic of China.
Accordingly, the accompanying consolidated financial statements and report of independent
accountants are not intended for use by those who are not informed about the accounting principles
or auditing standards generally accepted in the Republic of China, and their applications in practice.
-113-
PROMOS TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, (Expressed in Thousands of New Taiwan Dollars)
(Continued)
2007 2006 ASSETS Current Assets Cash and cash equivalents (Note 4 (1)) $ 9,293,332 $ 18,615,279
Financial assets at fair value through profit or loss - current (Note 4 (2)) 37,271 3,024,512
Available-for-sale financial assets - current (Note 4 (3)) 558,130 -
Notes and accounts receivable (Note 4 (4)) 5,014,297 11,110,267
Accounts receivable - related parties (Notes 4 (4) and 5) 2,880 -
Other receivables 894,312 621,838
Other receivables - related parties (Note 5) 7,002 240,301
Inventories, net (Note 4 (5)) 10,983,990 8,501,609
Prepaid expenses (Note 4 (10)) 1,144,827 1,945,115
Prepayments 17,605 82,594
Temporary payments 4,496 35,741
Deferred income tax assets - current (Note 4 (21)) 1,348,354 867,080
Restricted assets (Note 6) 1,498,876 938,881
Total current assets 30,805,372 45,983,217
Funds and Investments Derivative financial assets held for hedging - noncurrent (Note 10) 20,214 -
Financial assets carried at cost - noncurrent (Note 4 (6)) 350,830 829,232
Investments in bonds without active markets - noncurrent (Notes 4 (7) and 6) 750,000 900,000
Long-term equity investments accounted for under the equity method (Note 4 (8))
711,430
157,802
Total funds and investments 1,832,474 1,887,034
Property, Plant and Equipment, Net (Notes 4 (9), 5 and 6)
Cost
Land 207,762 207,762
Buildings 38,568,013 30,282,545
Machinery and equipment 102,672,440 106,456,783
Computer and communication equipment 921,619 1,048,393
Transportation equipment 8,349 8,349
Office equipment 72,647 74,583
Leased assets 3,500,114 2,559,776
Leasehold improvements 26,599 17,494
Cost 145,977,543 140,655,685
Less: Accumulated depreciation ( 54,449,880) ( 67,567,132)
Construction in progress and prepayments for equipment 37,922,793 13,837,606
Total property, plant and equipment, net 129,450,456 86,926,159
Intangible Assets (Note 4 (10)) Patents 1,226,929 1,431,418
Goodwill 274,717 274,717
Other intangible assets 2,645,166 2,623,899
Total intangible assets 4,146,812 4,330,034
Other Assets Refundable deposits 45,830 57,204
Deferred charges 565,511 461,684
Deferred income tax assets - noncurrent (Note 4 (21)) 2,236,446 1,899,362
Other assets - other (Note 6) - 1,066,671
Total other assets 2,847,787 3,484,921
TOTAL ASSETS $ 169,082,901 $ 142,611,365
-114-
PROMOS TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, (Expressed in Thousands of New Taiwan Dollars)
2007 2006
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term loans (Notes 4 (11) and 6) $ 213,431 $ -
Commercial papers payable (Notes 4 (12) and 6) - 380,000
Financial liabilities at fair value through profit or loss - current (Note 4 (13)) - 77,907
Accounts payable (Note 5) 5,889,399 4,078,184
Income tax payable (Note 4 (21)) 39,080 1,179,060
Accrued expenses 2,589,788 3,204,637
Other payables - related parties (Note 5) 1,490,974 1,792,511
Other payables (Note 4 (14)) 12,415,324 10,999,690
Long-term liabilities - current portion (Notes 4 (14) and 6) 6,199,762 7,786,434
Total current liabilities 28,837,758 29,498,423
Long-term Liabilities, net of current portion (Notes 4 (14) and 6)
Financial liabilities at fair value through profit or loss - noncurrent 830,860 -
Bonds payable 8,761,161 2,853,692
Long-term loans 51,573,842 15,528,523
Long-term payables 709,813 6,227,277
Capital lease payables - noncurrent 645,339 511,228
Long-term notes and accounts payable - related parties (Note 5) 449,827 -
Total long-term liabilities 62,970,842 25,120,720
Other Liabilities
Accrued pension liabilities (Note 4 (20)) 118,957 134,687
Guarantee deposits received 2,266 2,009
Other liabilities - other (Note 4 (9)) 845,899 -
Total other liabilities 967,122 136,696
Total Liabilities 92,775,722 54,755,839
Shareholders' Equity
Capital (Note 4 (15))
Common stock 67,069,537 65,343,958
Capital Surplus (Note 4 (16))
Additional paid-in capital 7,870,431 7,811,930
Treasury stock 17,948 16,963
Long-term investments 2,148 -
Stock warrants (Note 4 (14)) 2,419,867 -
Retained Earnings (Note 4 (17))
Legal reserve 1,631,142 177,579
Special reserve - 35,390
(Accumulated deficit) retained earnings ( 2,329,293 ) 14,535,626
Unrealized loss on financial instruments (Notes 4 (3) and 10) ( 261,001) -
Cumulative Translation Adjustments 124,640 36,138
Treasury Stock (Note 4 (18)) ( 203,972 ) ( 247,523 )
Shareholders' Equity 76,341,447 87,710,061
Minority interest ( 34,268 ) 145,465
Total Shareholders' Equity 76,307,179 87,855,526
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 169,082,901 $ 142,611,365
The accompanying notes are an integral part of these consolidated financial statements.
See report of independent accountants dated February 25, 2008.
-115-
PROMOS TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, (Expressed in Thousands of New Taiwan Dollars, Except for (Loss) Earnings Per Share Amounts)
2007 2006 Operating revenues (Note 5) Sales revenues $ 48,979,683 $ 62,542,181
Sales returns ( 1,102,046 ) ( 2,211,971 )
Net operating revenues 47,877,637 60,330,210
Operating costs (Notes 4 (23) and 5)
Cost of goods sold ( 48,330,392 ) ( 38,046,199 )
Gross (loss) profit ( 452,755 ) 22,284,011
Operating expenses (Notes 4 (23) and 5)
Selling and marketing expenses ( 1,525,713 ) ( 1,379,728 )
General and administrative expenses ( 1,319,630 ) ( 1,287,433 )
Research and development expenses ( 3,415,278 ) ( 3,007,181 )
( 6,260,621 ) ( 5,674,342 )
Operating (loss) income ( 6,713,376 ) 16,609,669
Non-operating income and gains
Interest income 626,842 570,173
Gain on valuation of financial assets (Note 4 (2)) 77,134 23,348
Gain on disposal of property, plant and equipment, net (Note 5) 4,626 145
Foreign exchange gain, net 307,211 -
Rental income 16,396 18,903
Other non-operating income (Note 5) 249,442 68,268
1,281,651 680,837
Non-operating expenses and losses
Interest expense (Note 4 (9)) ( 1,543,216 ) ( 1,267,128 )
Loss on valuation of financial liabilities (Notes 4 (13) and 4 (14)) ( 240,963 ) ( 77,907 )
Investment loss accounted for under the equity method, net (Note 4 (8)) ( 40,197 ) ( 7,902 )
Foreign exchange loss, net - ( 131,068 )
Provision for obsolescence and decline in market value of inventory ( 1,058,170 ) ( 72,349 )
Impairment loss (Notes 4 (7) and 4 (10)) - ( 958,606 )
Other non-operating losses (Note 7) ( 496,519 ) ( 15,877 )
( 3,379,065 ) ( 2,530,837 )
(Loss) income before income tax ( 8,810,790) 14,759,669
Income tax benefit (expense) (Note 4 (21)) 1,308,366 ( 270,716 )
(Loss) income before cumulative effect ( 7,502,424) 14,488,953
Cumulative effect of changes in accounting principles - 2,420
Consolidated net (loss) income ( $ 7,502,424 ) $ 14,491,373
Attributable to:
Equity holders of the Company ( $ 7,321,132 ) $ 14,535,626
Minority interest ( 181,292 ) ( 44,253 )
Consolidated net (loss) income ( $ 7,502,424 ) $ 14,491,373
Before tax After tax Before tax After tax
Basic (loss) earnings per share (Note 4 (22)) Net (loss) income ($ 1.31) ($ 1.11) $ 2.68 $ 2.64
Diluted (loss) earnings per share (Note 4 (22))
Net (loss) income ($ 1.31) ($ 1.11) $ 2.48 $ 2.42
The accompanying notes are an integral part of these consolidated financial statements. See report of independent accountants dated February 25, 2008.
-116-
PR
OM
OS
TE
CH
NO
LOG
IES
IN
C.
AN
D S
UB
SID
IAR
IES
CO
NS
OLI
DA
TE
D S
TA
TE
ME
NT
S O
F C
HA
NG
ES
IN
SH
AREH
OLD
ER
S’ E
QU
ITY
FO
R T
HE
YE
AR
S E
ND
ED
DE
CE
MB
ER
31
,
(Exp
ress
ed in
Th
ousa
nd
s o
f Ne
w T
aiw
an D
olla
rs)
R
etai
ned
Ear
nings
Com
mon
S
tock
C
Cap
ital S
urpl
us
L
egal
Res
erve
S
peci
al R
eser
ve
Ret
aine
d
Ear
ning
s (A
ccum
ulat
ed
D
Def
icit)
Unr
ealiz
ed L
oss
on
Fin
anci
al
In
stru
men
ts
Cum
ulat
ive
Tra
nsla
tion
Adj
ustm
ents
Tre
asur
y
S
tock
Min
ority
Int
eres
t
Tot
al
2
006
Bal
ance
at J
anua
ry 1
, 200
6
$ 49
,893
,328
$ 5,
786,
855
$
1,04
2,86
6
$ 74
,328
($
9
04,2
25)
$ -
( $
35,3
90 )
( $
99
7,12
3 )
$ 1,
116,
216
$
55
,976
,855
Con
vers
ion
of c
onve
rtib
le b
onds
5,
450,
630
1,16
2,75
5
-
-
-
-
-
-
-
6,61
3,38
5
Rec
lass
ifica
tion
of c
ompe
nsat
ion
inte
rest
pay
abl
e
to c
apita
l res
erve
due
to e
xpira
tion
of
rede
mpt
ion
optio
ns
-
223,
669
-
-
-
-
-
-
-
223,
669
Issu
ance
of g
loba
l dep
osita
ry r
ecei
pts
10,0
00,0
00
638,
651
-
-
-
-
-
-
-
10,6
38,6
51
App
ropr
iatio
n of
200
5 ea
rnin
gs:
Rev
ersa
l of s
peci
al r
eser
ve
-
-
- (
38
,938
)
38
,938
-
-
-
-
-
Lega
l res
erve
use
d to
cov
er a
ccum
ulat
ed d
efic
it
-
-
(
865,
287
)
-
865,
287
-
-
-
-
-
Tra
nsfe
r of
trea
sury
sto
cks
to e
mpl
oyee
s
-
16,9
63
-
-
-
-
-
74
9,60
0
-
76
6,56
3
Net
inco
me
for
2006
-
-
-
-
14
,535
,626
-
-
-
(
44,2
53 )
14,4
91,3
73
Tra
nsla
tion
adju
stm
ent o
f lon
g-te
rm in
vest
men
ts
-
-
-
-
-
-
71,5
28
-
-
71,5
28
Cha
nges
in m
inor
ity in
tere
st
-
-
-
-
-
-
-
-
(
926,
498)
(
926
,498
)
Bal
ance
at D
ecem
ber
31, 2
006
$
65,3
43,9
58
$ 7,
828,
893
$
177,
579
$
35,3
90
$
14,5
35,6
26
$ -
$
36,1
38
($
247,
523 )
$
145,
465
$
87
,855
,526
2
007
Bal
ance
at J
anua
ry 1
, 200
7
$ 65
,343
,958
$ 7,
828,
893
$ 17
7,57
9
$ 35
,390
$ 14
,535
,626
$
- $
36
,138
($
24
7,52
3 )
$ 14
5,46
5
$
87,8
55,5
26
Con
vers
ion
of c
onve
rtib
le b
onds
1,
725,
579
57,8
09
-
-
-
-
-
-
-
1,78
3,38
8
App
ropr
iatio
n of
200
6 ea
rnin
gs:
Lega
l res
erve
-
-
1,
453,
563
- (
1,4
53,5
63 )
-
-
-
-
-
Rev
ersa
l of s
peci
al r
eser
ve
-
-
- (
35
,390
)
35,3
90
-
-
-
-
-
Em
ploy
ees’
cas
h bo
nus
-
-
-
-
(
1,31
1,74
5)
-
-
-
-
( 1,
311,
745
)
Rem
uner
atio
n to
dire
ctor
s an
d su
perv
isor
s
-
-
-
- (
1
50,8
50)
-
-
-
-
( 15
0,85
0 )
Cas
h di
vide
nds
-
-
-
-
(
6
,663
,019
)
-
-
-
-
( 6,
663,
019
)
Net
loss
for
2007
-
-
-
- (
7,3
21,1
32 )
-
-
- (
18
1,29
2)
( 7,
502,
424
)
Tra
nsfe
r of
trea
sury
sto
cks
to e
mpl
oyee
s
-
986
-
-
-
-
-
43
,551
-
44
,537
Cap
ital r
eser
ve fr
om s
tock
war
rant
s
-
2,42
0,55
8
-
-
-
-
-
-
-
2,
420,
558
Adj
ustm
ent o
f ava
ilabl
e-fo
r-sa
le fi
nanc
ial a
sset
s
-
-
-
-
-
(
281,
215)
-
-
-
( 28
1,21
5 )
Adj
ustm
ent o
f der
ivat
ive
finan
cial
ass
ets
for
hedg
ing
-
-
-
-
-
20
,214
-
-
-
20,2
14
Tra
nsla
tion
adju
stm
ent o
f lon
g-te
rm in
vest
men
ts
-
-
-
-
-
-
88,5
02
-
-
88,5
02
Pro
port
iona
l adj
ustm
ent d
ue to
cha
nge
of
inve
stee
’s
equi
ty
-
2,
148
-
-
-
-
-
-
-
2,
148
Cha
nges
in m
inor
ity in
tere
st
-
-
-
-
-
-
-
-
1,55
9
1,
559
Bal
ance
at D
ecem
ber
31, 2
007
$
67,0
69,5
37
$ 10
,310
,394
$
1,63
1,14
2
$ -
($
2,3
29,2
93)
( $
261,
001)
$
124,
640
( $
20
3,97
2 )
( $
34,2
68 )
$
76,3
07,1
79
Th
e ac
com
pan
yin
g n
otes
are
an
inte
gral
par
t of
thes
e co
nso
lidat
ed fi
nanc
ial s
tate
men
ts.
S
ee r
epor
t of
ind
epen
den
t acc
oun
tant
s d
ated
Feb
ruar
y 2
5, 2
008
.
-117-
PROMOS TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, (Expressed in Thousands of New Taiwan Dollars)
2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES
Consolidated net (loss) income ( $ 7,502,424 ) $ 14,491,373
Adjustments to reconcile consolidated net (loss) income to net cash provided by operating activities:
Depreciation 16,448,209 13,312,543
Amortization 1,772,686 1,740,530
Rent expense ( 1,798,423 ) -
Gain on valuation of financial assets ( 77,134 ) ( 23,348 )
Gain on disposal of property, plant and equipment, net ( 4,626 ) ( 145 )
Compensation interest payable - 506,833
Amortization of discount on convertible bonds 486,941 -
Loss on valuation of financial liabilities 240,963 77,907
Investment loss accounted for under the equity method 40,197 7,902
Foreign exchange gain on convertible bonds ( 132,166 ) ( 18,257 )
Provision for obsolescence and decline in market value of inventory 1,058,170 72,349
Impairment loss - 958,606
Loss on disposal of obsolete inventory 19,639 3,483
Cumulative effect of changes in accounting principles - ( 2,420 )
Changes in assets and liabilities
(Increase) decrease in assets:
Notes and accounts receivable 6,106,752 ( 7,282,640 )
Accounts receivable - related parties ( 2,880 ) 1,529,998
Other receivables 137,421 ( 123,373 )
Other receivables - related parties 233,299 827,076
Inventories ( 3,560,035 ) ( 2,797,554 )
Prepaid expenses and prepayments 345,082 ( 1,177,461 )
Deferred income tax assets ( 818,358 ) ( 973,113 )
Increase (decrease) in liabilities:
Accounts payable 1,804,618 1,734,618
Income tax payable ( 1,139,832 ) 1,130,679
Accrued expenses ( 614,787 ) 1,531,133
Other payables 354,714 85,804
Other payables - related parties 148,290 395,389
Accrued pension liabilities ( 15,730 ) ( 17,227 )
Net cash provided by operating activities 13,530,586 25,990,685
(Continued)
-118-
PROMOS TECHNOLOGIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, (Expressed in Thousands of New Taiwan Dollars)
CASH FLOWS FROM INVESTING ACTIVITIES 2007 2006
Decrease (increase) in financial assets at fair value through profit or loss $ 3,064,375 ( $ 2,791,744 )
Increase in available-for-sale financial assets ( 839,345 ) -
Decrease in restricted assets 506,676 392,678
Acquisition of financial assets carried at cost ( 23,400 ) ( 77,862 )
Decrease in investments in bonds without active markets 150,000 200,000
Acquisition of long-term equity investments accounted for under the equity method ( 85,923 ) ( 160,000 )
Acquisition of property, plant and equipment ( 58,357,950 ) ( 27,599,266 )
Proceeds from disposal of property, plant and equipment - 2,505
Decrease (increase) in refundable deposits 11,419 ( 14,430 )
Increase in deferred charges ( 372,384 ) ( 232,105 )
Acquisition of intangible assets ( 658,900 ) ( 63,970 )
Net cash used in investing activities ( 56,605,432 ) ( 30,344,194 )
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term loans 213,431 ( 1,938,078 )
Decrease in commercial papers payable ( 380,000 ) ( 350,000 )
Proceeds from issuance of convertible bonds 11,347,980 -
Payment of convertible bonds ( 1,098,078 ) ( 810,000 )
Proceeds from long-term loans 40,520,000 5,142,000
Payment of long-term loans ( 6,053,609 ) ( 7,814,483 )
Decrease in long-term payables ( 1,457,402 ) ( 907,473 )
(Decrease) increase in obligations under capital leases - financing ( 1,424,970 ) 6,401,189
Increase in capital lease payable 145,095 258,750
Increase in guarantee deposits received 257 55
Issuance of global depositary receipts - 10,638,651
Payment of cash dividends ( 6,663,019 ) -
Payment of remuneration to directors and supervisors ( 150,850 ) -
Payment of employees’ bonus ( 1,311,745 ) -
Proceeds from disposal of treasury stocks 44,537 766,563
Return of capital by investees to minority interest - ( 957,600 )
Net cash provided by financing activities 33,731,627 10,429,574
Effect of losing control on subsidiaries - 37,552
Effect of foreign currency exchange 21,272 115,290
Net (decrease) increase in cash and cash equivalents ( 9,321,947 ) 6,228,907
Cash and cash equivalents at beginning of year 18,615,279 12,386,372
Cash and cash equivalents at end of year $ 9,293,332 $ 18,615,279
Supplemental disclosures of cash flow information
Interest paid $ 2,025,023 $ 1,280,605
Less: Capitalized interest ( 437,543) ( 511,380 )
Interest paid, excluding capitalized interest $ 1,587,480 $ 769,225
Income tax paid $ 699,814 $ 104,932
Non-cash flows from financing activities
Bonds payable converted into common stocks and additional paid-in capital $ 1,783,388 $ 6,837,054
Investing activities partially received
Proceeds from disposal of property, plant and equipment $ 5,494,334 $ -
Less: Decrease in obligations under capital leases - financing ( 4,976,219 ) -
Less: Other receivable at end of year ( 410,000 ) -
Less: Prepaid rent expense at end of year ( 108,115 ) -
Cash received during the year $ - $ - The accompanying notes are an integral part of these consolidated financial statements.
See report of independent accountants dated February 25, 2008.
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PROMOS TECHNOLOGIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2007 AND 2006 (Expressed in Thousands of New Taiwan Dollars, Except as Otherwise Indicated)
1. HISTORY AND ORGANIZATION
A. ProMOS Technologies Inc. (the “Company”) was incorporated on December 12,
1996 as a joint venture company of Mosel Vitelic Inc. (MVI) and Siemens
Aktiengesellschaft (Siemens) and is headquartered in Hsinchu Science-Based
Industrial Park. The Company’s shares have been traded on the GreTai Securities
Market (GTSM) in the Republic of China since May 13, 1999. In March 2002,
Siemens transferred a portion of its shareholding to Infineon Technologies A.G.
(Infineon). Infineon sold all of its shareholding in 2003.
The Company is engaged in the design, research, development, manufacture, sales
and import/export of semiconductor products.
As of December 31, 2007, the Company and its subsidiaries had approximately 7,500
employees.
B. Subsidiaries included in the consolidated financial statements and their changes in
2007:
Percentage of ownership as of December 31,
Name of subsidiaries Location 2007 2006 Note
Mosel Vitelic Corporation California U.S.A. 50% 50%
United Memories, Inc. Colorado U.S.A. 100% 100%
ProMOS Technologies PTE. Ltd. Singapore 100% 100%
Flourishing Moment Limited British Virgin Islands (“BVI”)
100% 100%
Putian Maode Technologies (Chongqing) Corporation
Chongqing China 49% 49% Note
ProMOS Technologies Japan Limited Tokyo Japan 100% 100%
ProQ Technologies Incorporated Chongqing China 100% -
ProImage Technologies Inc. Cayman Islands 100% -
ProImage Technologies Limited U.S.A. California U.S.A. 100% -
Note:Putian Maode Technologies (Chongqing) Corporated (Putian ProMOS) is engaged in
flash research, design, development, manufacture, sales and technical services. For the
six-month period ended June 30, 2006, it was included in the consolidated financial
statements since the Company had control over Putian ProMOS’ operating policies.
Starting June 30, 2006, its chief executive officer was no longer assigned by the
Company and the Company lost control over Putian ProMOS’ operating policies.
Accordingly, Putian ProMOS was excluded from the consolidated financial
statements.
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The major business activities of each subsidiary are summarized as follows:
1) Mosel Vitelic Corporation: IC research, design, development, manufacture and
marketing. In 2006, the company reduced its capital in the amount of U.S. $56
million in cash and returned it to the shareholders. The reduction in capital did
not change the ownership percentage of the Company.
2) United Memories, Inc.:Development of prototype integrated circuits and service
generated.
3) ProMOS Technologies PTE. Ltd.: IC design, development, consulting, licensing
and marketing. In 2006, the Company reduced its capital amounting to U.S. $25
million to offset against its accumulated deficit.
4) Flourishing Moment Limited and ProImage Technologies Inc.: Holding
corporation.
5) ProMOS Technologies Japan Limited: A new equity investment acquired by the
Company in 2006. In 2007, the company increased its capital and the increase in
capital did not change the ownership percentage of the Company. The company is
engaged in the sales, import and export of semiconductor and related electronic
products.
6) ProQ Technologies Incorporated: A new equity investment acquired by the
company in 2007. The company is engaged in the development, manufacture, and
marketing of semiconductor products and related technology services.
7) ProImage Technologies Limited U.S.A.: A new equity investment acquired by
the company in 2007. The company is engaged in the research and design of
semiconductor and related products.
C. Subsidiaries not included in the consolidated financial statements: None.
D. Adjustments for subsidiaries with different balance sheet dates: Not applicable.
E. Special operating risks in foreign subsidiaries: None.
F. Nature and extent of the restrictions on fund remittance from subsidiaries to the parent
company: None.
G. Contents of subsidiaries’ securities issued by the parent company: None.
H. Information on convertible bonds and common stock issued by subsidiaries: In
December 2007, ProMOS Technologies Japan Limited issued additional 1,400 shares
with a par value of JPY 50,000 (in yen) per share.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Company and its subsidiaries (together
referred herein as the Group) are prepared in accordance with the “Rules Governing the
Preparation of Financial Statements by Securities Issuers”, “Business Entity Accounting
Law”, “Regulation on Business Entity Accounting Handling” and accounting principles
generally accepted in the Republic of China. The Group’s significant accounting policies
are summarized below:
(1) Principles of consolidation
All majority-owned subsidiaries and controlled entities are included in the
consolidated financial statements. The income (loss) of the subsidiaries is included in
the consolidated statement of income effective on the date the Company gains control
over the subsidiaries. The income (loss) of the subsidiaries is excluded from the
consolidated statement of income effective the date on which the Company loses
control over the subsidiaries.
(2) Foreign currency transactions
The accounts of the Company and its subsidiaries are maintained in New Taiwan
dollars and their respective functional currencies, respectively. Transactions arising in
foreign currencies are translated into New Taiwan dollars and functional currencies at
the exchange rates prevailing at the relevant dates of the transactions. The exchange
gains or losses arising from the difference between the exchange rates at the dates of
transactions and the related dates of actual receipts and payments are charged to
current year’s results of operations.
Assets and liabilities denominated in foreign currencies are translated into New
Taiwan dollars and functional currencies at the exchange rate prevailing at the
balance sheet date. Gains or losses from foreign currency translations are included in
current year’s results of operations.
When a gain or loss on a nonmonetary item is recognized directly in equity, any
exchange component of that gain or loss shall be recognized directly in equity.
Conversely, when a gain or loss on a nonmonetary item is recognized in profit or loss,
any exchange component of that gain or loss shall be recognized in profit or loss.
However, nonmonetary items that are measured on a historical cost basis are
translated using the exchange rate at the transaction date.
The initial investments in foreign subsidiaries and investee companies accounted for
under the equity method are carried at cost using the historical rates, and investment
income or losses recognized are translated into New Taiwan dollars at the average
rates of exchange prevailing during the year. Assets and liabilities of foreign
subsidiaries and equity investee companies are translated into New Taiwan dollars at
the exchange rate prevailing at the balance sheet date; equity accounts are translated
at historical rates, except for retained earnings as of the beginning of the year which is
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transferred from retained earnings as of the end of last year; income and expense
accounts are translated into New Taiwan dollars at the average rates of exchange
prevailing during the year. Translation adjustments are taken directly to a separate
component of shareholders’ equity under “Cumulative translation adjustments.”
(3) Classification of current and noncurrent assets and liabilities
A. Assets that meet one of the following criteria are classified as current assets;
otherwise they are classified as noncurrent assets:
a) Assets arising from operating activities that are expected to be realized or
consumed, or are intended to be sold within the normal operating cycle;
b) Assets held mainly for trading purposes;
c) Assets that are expected to be realized within twelve months from the balance
sheet date; and
d) Cash and cash equivalents, excluding restricted cash and cash equivalents and
those that are to be exchanged or used to pay off liabilities more than twelve
months after the balance sheet date.
B. Liabilities that meet one of the following criteria are classified as current
liabilities; otherwise they are classified as noncurrent liabilities:
a) Liabilities arising from operating activities that are expected to be paid off
within the normal operating cycle;
b) Liabilities arising mainly from trading activities;
c) Liabilities that are to be paid off within twelve months from the balance sheet
date; and
d) Liabilities for which the repayment date cannot be extended unconditionally to
more than twelve months after the balance sheet date.
(4) Cash equivalents
Cash equivalents are short-term, highly liquid investments, which are readily
convertible to known amount of cash and which are subject to insignificant risk of
changes in value resulting from fluctuations in interest rates. The Group’s
consolidated statements of cash flows are prepared on the basis of cash and cash
equivalents.
(5) Financial assets and liabilities at fair value through profit or loss
Financial assets and liabilities at fair value through profit or loss are initially
recognized at fair value. Those in the form of equity securities are accounted for
using the trade date accounting, while those in the form of debt securities, beneficiary
certificates, and derivative instruments are accounted for using the settlement date
accounting.
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These financial instruments are subsequently remeasured and stated at fair value, and
the gain or loss is recognized in profit or loss. The fair values of listed equity
securities, closed-end funds and beneficiary certificates are determined by the closing
prices at the balance sheet date. The fair value of open-end funds is determined by
the net asset value at the balance sheet date.
When a derivative is an ineffective hedging instrument, it is initially recognized at
fair value on the date a derivative contract is entered into and is subsequently
remeasured at its fair value. If a derivative is a non-option derivative, the fair value
initially recognized is zero.
For call options and put options, which are embedded in bonds payable, please refer
to Note 2 (16).
(6) Available-for-sale financial assets
A. Equity investments are recognized and derecognized using trade date accounting
and are initially stated at fair value plus transaction costs that are directly
attributable to the acquisition of the financial asset.
B. The financial assets are remeasured and stated at fair value, and the gain or loss is
recognized in equity, until the financial asset is derecognized, at which time the
cumulative gain or loss previously recognized in equity shall be recognized in
profit or loss. The fair values of listed stocks and OTC stocks are based on the
latest quoted fair prices at the balance sheet date.
C. If there is any objective evidence that the financial asset is impaired, the
cumulative loss that had been recognized directly in equity shall be transferred
from equity to profit or loss. When the fair value of an equity instrument
subsequently increases, impairment losses recognized previously in profit or loss
shall not be reversed and the reduction of impairment losses shall be recognized in
equity.
(7) Derivative financial instruments for hedging
Derivatives are initially recognized at fair value on the date a contract is entered into
and are subsequently remeasured at their fair value. The method of recognizing the
resulting gain or loss depends on whether the derivative is designated as a hedging
instrument and the nature of the hedged item.
Cash flow hedges: the changes in the fair value of derivatives that are designated and
qualify as cash flow hedges are recognized in equity.
a. If a hedge of a forecast transaction subsequently results in the recognition of a
financial asset or a financial liability, the associated gains or losses that were
recognized directly in equity are transferred to profit or loss in the same period or
periods when the hedged item affects profit or loss.
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b. If a hedge of a forecast transaction subsequently results in the recognition of a
non-financial asset or a non-financial liability, the associated gains and losses that
were recognized directly in equity are transferred into profit or loss in the same
period or periods during which the asset acquired or liability assumed affects profit
or loss. The Group shall apply the above method consistently.
(8) Financial assets carried at cost
Financial assets carried at cost are initially recognized at fair value plus transaction
costs and are accounted for using the trade date accounting.
Impairment loss is recognized when there is objective evidence that the assets are
impaired. Reversal of the foregoing impairment loss is not allowed.
(9) Investments in bonds without active markets
Investments in bonds without active markets are initially recognized at fair value plus
transaction costs and are accounted for using the trade date accounting. Subsequent
measurements are based on amortized costs.
Impairment loss is recognized when there is objective evidence that the investments
are impaired. If, in a subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event occurring after the impairment
was recognized, the previously recognized impairment loss shall be reversed. The
reversal shall not result in a carrying amount of the financial asset that exceeds what
the amortized cost would have been had the impairment not been recognized at the
date the impairment is reversed. The amount of the reversal shall be recognized in
profit or loss.
(10) Allowance for doubtful accounts
Allowance for doubtful accounts is provided for according to the evaluation of the
collectibility of ending balances of notes, accounts and other receivables.
(11) Inventories
Inventories are stated at standard costs, which are adjusted to actual costs based on
the weighted-average method at the balance sheet date. At the end of period,
inventories are evaluated at the lower of aggregate cost or market value. The market
value is determined based on the replacement cost for raw materials and supplies and
net realizable value for work in process and finished goods. Allowance for slow
moving items and decline in market value is provided when necessary.
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(12) Long-term equity investments accounted for under the equity method
Long-term equity investments in which the Company owns at least 20% of the
investee company’s voting rights and has the ability to exercise significant influence
over the investee company are accounted for under the equity method. The excess of
the acquisition cost over the investee company's fair values of identifiable net assets is
recognized as goodwill, which is subject to an annual impairment assessment.
Retrospective adjustment for prior years is not required.
The capital reserve and long-term equity investment amounts are adjusted for the
variance between the investment costs and net asset values of the investee companies
arising from the disproportionate changes of interest in connection with the capital
increase or reduction by the investee company.
(13)Property, plant and equipment
Property, plant and equipment are stated at cost. Interest incurred relating to the
acquisition and construction of property, plant and equipment is capitalized.
Significant renewals and improvements are capitalized and depreciated accordingly.
Maintenance and repairs are expensed as incurred. Depreciation is provided using the
straight-line method over the estimated economic service lives that range as follows:
1) Building: 20 years
2) Facilities: 10 years
3) Machinery and equipment: 5 years
4) Computer and communication equipment: 3 to 5 years
5) Transportation equipment: 3 to 5 years
6) Office equipment: 3 to 5 years
7) Leasehold improvements: 3 to 5 years
8) Leased assets: Remaining useful lives of leasehold objects.
When the estimated economic lives expire, the property, plant and equipment that
are still in service are depreciated over the newly estimated remaining useful lives
based on their salvage values.
Properties under capital leases are carried at the lower of the market value of the
leased equipments or the present value of the minimum lease payments at the
inception of the leases and are depreciated over the useful lives of the leased
properties. Interest expense is accrued on the basis of the outstanding capital lease
obligation using the effective interest rate method. The gain or loss resulting from
the sale of leased property should be deferred using the unearned gain or loss on
sale-leaseback account. If the fair value of the leased property is smaller than its
book value, then the difference between the fair value and the book value should be
recognized as a loss. The amortization of the unearned gain or loss on sale-leaseback
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depends on the nature of the lease. For operating leases, the unearned gain or loss
should be amortized using the lease term and charged to rent expense. For capital
leases, however, the unearned gain or loss should be amortized over the remaining
useful lives of the leased properties and charged to depreciation.
The Company entered into a sale-leaseback agreement for certain equipments. Due
to the repurchase option with specific criteria, significant risks and rewards of
ownership were not fully transferred to the buyer. In accordance with the Emerging
Issues Task Force (“EITF”) 95-297 issued by the Accounting Research and
Development Foundation of the R.O.C. on December 14, 2006, the Company
accounted for the foregoing sale-leaseback as a financing transaction and
accordingly, recognized related liabilities and interest expense.
(14) Intangible assets
Patents and acquired technology know-how are amortized using the straight-line
method over their economic service lives or the related contract periods.
(15) Deferred charges
Computer software costs are amortized using the straight-line method over 3 to 7
years.
(16) Convertible bonds
For bonds payable issued after January 1, 2006, the issuer of a financial instrument
shall classify the instrument, or its component parts, on initial recognition as a
financial liability, a financial asset or an equity instrument in accordance with the
substance of the contractual arrangement and the definitions of a financial liability, a
financial asset and an equity instrument. These bonds are accounted for as follows:
(A) The fair value of the liability portion of a convertible bond is determined using a
market interest rate for an equivalent non-convertible bond. This amount is
recorded as a liability on an amortized cost basis until extinguished on
conversion or maturity of the bond.
(B) The value of any derivative features (such as a call option, put option and
conversion price reset option) embedded in the compound financial instrument is
recognized as “financial assets and financial liabilities at fair value through
profit or loss”. At the maturity of the redemption period, if the fair value of
common stock exceeds the redemption price, the fair value of the derivative is
recognized as “paid-in capital”; however, if the fair value of common stock is
less than the redemption price, the fair value of the derivative is recognized as
“gain or loss”.
(C) A conversion option embedded in the bonds issued by the Company, which is
convertible to an equity instrument, is recognized and included in “capital
reserve from stock warrants”, net of income tax effects. When a bondholder
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exercises his/her conversion rights, the liability component of the bonds
(including corporate bonds and embedded derivatives) shall be revalued, and the
resulting difference shall be recognized as “gain or loss” in the current period.
The book value of the common stock issued due to the conversion shall be based
on the adjusted book value of the abovementioned liability component plus the
book value of the stock warrants.
For convertible bonds issued prior to and including December 31, 2005, in
accordance with the EITF 95-78 issued by the Accounting Research and
Development Foundation of the R.O.C. on March 10, 2006, the Company elected
not to bifurcate the embedded derivatives and accounted for those convertible bonds
as follows:
(A) The entire convertible bond is recorded as a liability at an amount equal to the
proceeds received, and no value is allocated to the conversion rights and the
embedded derivative instruments.
(B) Any discount or premium to the par value of the convertible bond is amortized
using the effective interest rate method during the period from the issuance date
to the maturity, or over the period to redemption date if the convertible bond
contains a redemption option. Where bonds are not redeemed during the
redemption period, the interest on redemption is amortized under the interest
method over the remaining life of the bonds. If the fair value of the underlying
shares at the expiry date of the redemption option exceeds the redemption price,
the interest on redemption is reclassified to capital reserve.
(C) The excess of the stated redemption price over the par value is recognized as
interest expense and compensation interest payable using the effective interest
rate method for the period from the issuance date to the last day of redemption
period. When bondholders exercise their conversion rights, the book value of
bonds is credited to common stock at an amount equal to the par value of the
common stock and the excess is credited to capital reserve; no gain or loss is
recognized on bond conversion.
(17) Retirement plan and net periodic pension cost
Under the defined benefit pension plan, net periodic pension cost, which includes
service cost, interest cost, expected return on plan assets, and amortization of
unrecognized net transition obligation and gains or losses on plan assets, is
recognized based on an actuarial valuation report. Unrecognized net transition
obligation is amortized on a straight-line basis over 15 years.
Under the defined contribution pension plan, net periodic pension cost is recognized
as incurred.
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(18) Treasury stock
Treasury stocks are accounted for in accordance with R.O.C. Statement of Financial
Accounting Standards (“SFAS”) No. 30 “Accounting for Treasury Stocks”. Related
policies are summarized as follows:
A. When the Company repurchases its outstanding common stock, the cost of the
reacquired stock is recorded as treasury stock as a deduction to shareholders’
equity.
B. When treasury stock is sold, the related gain is first credited to capital
reserve-treasury stock and any loss is offset against this capital reserve account.
Any remaining amount is charged to retained earnings.
C. When treasury stock is retired, the treasury stock account is credited and all
capital account balances related to the treasury shares, including capital reserve
from additional paid-in capital in excess of par, are debited on a proportionate
basis. When the book value of treasury stock exceeds the sum of the par value
and additional paid-in capital, the difference is first charged to capital
reserve-treasury stock and any remaining amount is charged to retained earnings.
When the book value of treasury stock is less than the sum of the par value and
additional paid-in capital, the difference is credited to capital reserve-treasury
stock.
(19) Employee stock options (intrinsic value method)
The employee stock options granted or amended on or after January 1, 2004 are
accounted for in accordance with EITF 92-072, “Accounting for Employee Stock
Options”, prescribed by the R.O.C. Accounting Research and Development
Foundation. Under the stock-based employee compensation plan, compensation cost
is recognized using the intrinsic value method and pro forma disclosures of net
income and earnings per share is prepared under the fair value method.
(20) Income tax
The Group uses inter-period as well as intra-period tax allocation for income tax.
Any over-provision or under-provision of prior years’ income tax liabilities is
included in current year’s income tax expense.
Any tax credit arising from the purchase of machinery and equipment and research
and development expenditures is recognized in the year the related expenditure is
incurred.
The additional 10% income tax on undistributed earnings is recognized in the year
the shareholders approve the resolution to retain the earnings.
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(21) Revenue, cost and expense recognition
Revenue is recognized when the earning process is substantially completed and is
considered realized or realizable. Costs and expenses are recognized as incurred.
(22) Capital and operating expenditures
Costs and expenditures which have future economic benefits are capitalized as assets.
Otherwise they are expensed when incurred.
(23) Impairment of non-financial assets
The Group recognizes impairment loss when there is indication that the recoverable
amount of an asset is less than its carrying amount. The recoverable amount is the
higher of the fair value less costs to sell and value in use. The fair value less costs to
sell is the amount obtainable from the sale of the asset in an arm’s length transaction
after deducting any direct incremental disposal costs. The value in use is the present
value of estimated future cash flows to be derived from continuing use of the asset
and from its disposal at the end of its useful life. When the impairment no longer
exists, the impairment loss recognized in prior years shall be recovered. However,
impairment loss of goodwill is not recoverable.
(24) Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the accompanying notes.
Actual results could differ from those assumptions and estimates.
(25) Settlement date accounting
Under the settlement date accounting, any change in the fair value of the asset to be
received during the period between the trade date and the settlement date is not
recognized for assets carried at cost or amortized cost. Such change in fair value is
recognized in profit or loss for assets classified as financial assets at fair value
through profit or loss, and is recognized in equity for assets classified as
available-for-sale.
3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES
(1) Goodwill
Effective January 1, 2006, the Group adopted the amended SFAS No. 1, No. 5, No. 7,
No. 25 and No. 35, which discontinued amortization of goodwill. These changes in
accounting principles resulted in an increase in total assets of the Group of $84,844
as of December 31, 2006 and an increase in net income of $84,844 for the year
ended December 31, 2006.
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(2) Financial instruments
Effective January 1, 2006, the Group adopted SFAS No. 34 “Accounting for
Financial Instruments” and SFAS No. 36 “Disclosure and Presentation of Financial
Instruments”.
The impact of the changes in accounting principles to the statement of income for
the year ended December 31, 2006 is as follows:
Impact on
Income (loss)
Earnings (loss) per share
Loss before income tax ( $ 58,395 ) ($ 0.01 )
Cumulative effect of changes in accounting principles 2,420 - ($ 55,975 ) ($ 0.01 )
4. DETAILS OF SIGNIFICANT ACCOUNTS
(1) Cash and cash equivalents
December 31,
2007 2006
Cash and bank deposits $ 3,453,708 $ 7,681,893
Time deposits 5,839,624 9,933,386
Cash equivalents - 1,000,000
$ 9,293,332 $ 18,615,279
(2) Financial assets at fair value through profit or loss - current
December 31,
2007 2006
Financial assets for trading - beneficiary certificates $ - $ 3,005,000
Fair value adjustment - 12,042
- 3,017,042
Fair value adjustment - financial derivatives 37,271 7,470
$ 37,271 $ 3,024,512
A. In 2007 and 2006, income recognized for the changes in fair values of the financial
assets at fair value through profit or loss were $77,134 and $23,348, respectively.
B. The nature and contractual terms of derivatives are as follows:
December 31, 2007
Financial instruments
Contract amount
(in thousands)
Fair value
Contract term
Cross currency and interest rate swap
JPY 4,715,601 $ 34,638 2006.06.20~2008.10.24
Forward foreign U.S. $20,000 2,633 2007.12.18~2008.01.22
$ 37,271
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December 31, 2006
Financial instruments
Contract amount
(in thousands)
Fair value
Contract term
Non-delivery forward contracts U.S. $60,000 $ 7,470 2006.12.26~2007.01.29
a) In 2007, the Company entered into cross currency and interest rate swap contracts
to sell NTD and buy JPY for the purpose of reducing the foreign exchange rate
risks on machinery and equipment purchases. In addition, the Company used NTD
fixed-to-JPY fixed interest rate swaps, without adopting hedge accounting.
b) In 2007 and 2006, the Company entered into forward foreign and non-delivery
forward contracts to sell USD and buy NTD for the purpose of reducing foreign
exchange rate risk on accounts receivable denominated in USD without adopting
hedge accounting.
(3) Available-for-sale financial assets - current
December 31, 2007 2006 Overseas listed stocks $ 839,345 $ - Adjustment of available-for-sale financial assets ( 281,215 ) -
$ 558,130 $ -
1. The fair values of overseas listed stocks are based on their closing prices from the
NASDAQ Stock Exchange at the balance sheet date.
2. In accordance with the Company’s strategy and funds utilization plans, the
Company expects to dispose the above available-for-sale financial assets within
one year.
(4) Notes and accounts receivable
December 31,
2007 2006
Notes receivable $ 137,860 $ 192,244
Accounts receivable 4,876,437 10,918,023
Accounts receivable - related parties 2,880 -
$ 5,017,177 $ 11,110,267
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(5) Inventories, net
December 31,
2007 2006
Raw materials and supplies $ 2,117,746 $ 1,765,435
Work in process 6,659,287 5,585,742
Finished goods 3,540,917 1,426,222
12,317,950 8,777,399
Less: Allowance for obsolescence and decline in market value of inventory
( 1,333,960 )
( 275,790 )
$ 10,983,990 $ 8,501,609
(6) Financial assets carried at cost - noncurrent
December 31,
2007 2006
Chinese Bank $ 250,000 $ 250,000
Integrated Digital Technologies, Inc. 45,000 45,000
NanoAmp Solutions, Inc. 32,430 32,600
AMOS Technologies Inc. 23,400 -
Inapac Technology, Inc. - 452,282
Capso Vision, Inc. - 49,350
$ 350,830 $ 829,232
A. The above financial assets are held at cost as they are not traded in active markets
and their fair values cannot be measured reliably.
B. In the fourth quarter of 2006, the Company increased its investments in Inapac
Technology, Inc. and Capso Vision, Inc. The investments have been accounted for
under the equity method effective January 1, 2007.
C. The shares held in Chinese Bank are preferred stocks. In December 2006, Chinese
Bank suffered a bank run due to the application for restructuring by China Rebar
Company, Ltd. and Chia Hsin Food and Synthetic Fiber Co., Ltd. with the Taipei
District Court. The Bank was taken over by Central Deposit Insurance Corporation
which was appointed by ROC Financial Supervisory Commission. The Company
currently holds preferred shares in Chinese Bank amounting to $250,000, and at
the same time, has a syndicated loan from the Bank amounting to $1,650,000. The
Company has started the legal proceeding to protect its investment.
(7) Investments in bonds without active markets - noncurrent
December 31, 2007 2006
Debenture of Chinese Bank $ 250,000 $ 250,000
Debenture of Chinfon Commercial Bank 500,000 500,000
Debenture of Standard Chartered Bank (formerly Hsinchu International Bank)
-
150,000
$ 750,000 $ 900,000
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A. As of December 31, 2007 and 2006, the effective interest rates for the bond
investments ranged from 3.358% to 3.845% and 3.033% to 3.518%, respectively.
B. The debenture of Standard Chartered Bank was sold to third parties at carrying
values plus interest receivable in August 2007.
C. The 2004 first financial debenture of Chinese Bank was issued on September 1,
2004, which is under the protection of the Financial Restructuring Fund of
Executive Yuan. The Company expects that this amount will be fully secured.
D. As of December 31, 2006, the Company pledged its investments in bonds, which
consisted of debentures of Chinese Bank and Standard Chartered Bank, for the
issuance of commercial papers. (Please refer to Note 6).
E. In 2006, the Company recognized a full impairment loss on its investments in the
unsecured bonds of China Rebar Company, Ltd. and Chia Hsin Food and
Synthetic Fiber Co., Ltd. amounting to $950,000 since these companies applied for
restructuring and bankruptcy protection with the Taipei District Court in
December 2006.
(8) Long-term equity investments accounted for under the equity method
A. Long-term equity investments
December 31,
2007 2006
Name of investee
Amount
% of ownership
Amount
% of ownership
Putian Maode Technologies (Chongqing) Corporation
$ 119,436
49%
$ 1,874
49%
Epileds Technologies, Inc. 161,741 29.09% 155,928 30.15%
Inapac Technology, Inc. 406,702 26.14% - -
Capso Vision, Inc. 23,551 30.48% - -
$ 711,430 $ 157,802
B. The investment income (loss) recognized based on each equity investee’s audited financial statements is summarized as follows:
For the years ended December 31,
2007 2006
Putian Maode Technologies (Chongqing) Corporation $ 27,951 ( $ 60,323 )
Less: Loss included in the consolidated statement of operations prior to June 30, 2006, the date when the Company lost control over the subsidiary
-
56,493
27,951 ( 3,830 )
Epileds Technologies, Inc. 4,705 ( 4,072 )
Inapac Technology, Inc. ( 46,281 ) -
Capso Vision, Inc. ( 26,572 ) -
( $ 40,197 ) ( $ 7,902 )
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C. In accordance with the resolution adopted by the Board of Directors in June 2006,
the Company invested $160,000 in Epileds Technologies, Inc. in July 2006.
Afterwards, the Company adjusted capital surplus and long-term equity investment
amounting to $1,108 due to disproportionate changes of interest in connection with
the capital increase of the investee company.
D. In December 2006, the Company’s Board of Directors resolved to increase its
investment in preferred stocks of Inapac Technology, Inc. Accordingly, the
method in accounting for the investment in Inapac Technology, Inc. has been
changed from the cost method to the equity method effective January 1, 2007. The
original investment in Inapac Technology, Inc. amounted to U.S. $13,600
thousand. Afterwards, the Company adjusted capital surplus and long-term equity
investment amounting to $364 due to the exercise of employee stock options in
connection with the capital increase of the investee company.
E. In October 2006, the Company’s Board of Directors resolved to invest U.S. $1,500
thousand in preferred stocks of Capso Vision, Inc. Accordingly, the method in
accounting for the investment in Capso Vision, Inc. has been changed from the cost
method to the equity method effective January 1, 2007. Afterwards, the Company
adjusted capital surplus and long-term equity investment amounting to $676 due to
the retirement of treasury stock in connection with the capital decrease of the
investee company.
F. Effective June 30, 2006, Putian Maode Technologies (Chongqing) Corporation
(Putian ProMOS) was excluded in the consolidation since its chief executive
officer was not anymore assigned by the Company and the Company lost control
over its operations. The loss included in the consolidated statement of operations in
proportion to the Company’s shareholding was $56,493. In June 2007, the
Company proportionately invested U.S. $2,602 thousand in the increase in capital
of Putian ProMOS, as resolved by the Company’s Board of Directors in March
2007. There was no change in the Company’s shareholding percentage after the
issuance of common stock for cash by Putian ProMOS.
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(9) Property, plant and equipment
December 31,
2007 2006
Land $ 207,762 $ 207,762
Buildings 38,568,013 30,282,545
Machinery and equipment 102,672,440 106,456,783
Computer and communication equipment 921,619 1,048,393
Transportation equipment 8,349 8,349
Office equipment 72,647 74,583
Leased assets 3,500,114 2,559,776
Leasehold improvements 26,599 17,494
145,977,543 140,655,685
Less: Accumulated depreciation ( 54,449,880 ) ( 67,567,132 )
91,527,663 73,088,553
Construction in progress and prepayments for equipment 37,922,793 13,837,606
$ 129,450,456 $ 86,926,159
A. Certain machinery and equipment are financed through sale-leaseback
transactions entered with domestic and foreign leasing companies and are
accounted for as capital leases. The lease payments are payable on a quarterly
basis. Please refer to Note 4 (14).
B. The Company entered into a sale-leaseback agreement with a foreign equipment
supplier in August 2006. Due to the repurchase option with specific criteria,
significant risks and rewards of ownership were not fully transferred to the buyer.
In accordance with EITF 95-297 issued by the Accounting Research and
Development Foundation of the R.O.C. on December 14, 2006, the Company
accounted for the foregoing sale-leaseback as a financing transaction and
accordingly, recognized related liabilities and interest expense. Afterwards, the
Company and the foreign equipment supplier came to an agreement in October
2007 whereby the Company disclaimed the repurchase option and significant risks
and rewards of ownership were fully transferred to the buyer. As a result, the
Company instead adopted the “sale-leaseback - operating leases” accounting, and
the unrealized gain on the sale and lease back is shown under “Other liabilities -
other”.
C. Certain property, plant and equipment were pledged as guarantees for loans.
Please refer to Note 6.
D. In 2007 and 2006, the 12-inch wafer fabrication plants were under construction
and the related interest capitalized were $437,543 and $511,380, respectively.
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(10) Intangible assets
December 31,
2007 2006
Patents $ 1,226,929 $ 1,431,418
Goodwill 274,717 274,717
Technology know-how 2,645,166 2,623,899
$ 4,146,812 $ 4,330,034
A. To enhance the Company’s core capability in memory manufacturing processes,
design ability, patent portfolio and global logistics, on December 22, 2003, the
Company’s Board of Directors approved the purchase of dynamic random access
memory (DRAM) related patents and the process technologies for flash memory
from Mosel Vitelic Inc. in the amount of U.S.$72,500 thousand.
B. The technology know-how was the technology transfer fees paid to Siemens
Aktiengesellschaft, Infineon Technologies AG and Hynix Semiconductor Inc. in
connection with the acquisition of the DRAM manufacturing process and product
technologies.
C. In November 2004, the Company and Infineon Technologies AG entered into the
First Amendment to the License Agreement (the “Amendment”). This
Amendment confirms that the Company has the perpetual license to the
proprietary technology transferred from Infineon Technologies AG. In addition,
the Company was authorized to develop its own advanced processes and products,
and to sublicense to its subsidiaries. The parties agreed to amend the variable
royalty payments provided for in the original license agreement, which was
determined based on a certain percentage of total sales of the Company, to a fixed
royalty payment, payable in accordance with the payment schedule below. Under
the Amendment, the Company would have no obligations to pay any license fees
or royalties thereafter other than the following payments.
The fixed installment payment terms are as follows:
a) U.S.$70 million before December 15, 2004;
b) U.S.$36 million before March 30, 2005;
c) U.S.$25 million before August 31, 2005; and
d) U.S.$25 million before April 30, 2006.
As of December 31, 2007, amounts paid for royalties and technology know-how
are shown in prepaid expenses and intangible assets.
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D. The Company entered into the Technology Transfer and License Agreement with
Hynix Semiconductor Inc. (“Hynix”) in January 2005. Hynix agreed to license the
90 nm and 70 nm DRAM technologies on the stack process and provide related
product and technical support to the Company. As of December 31, 2007, the
transfer of 90 nm and 70 nm technologies has been completed, and the related
technology transfer and license fees paid are classified as intangible assets.
E. The difference between original investment costs and the amount of underlying
equity in net assets of investee companies was recorded as goodwill. Effective
January 1, 2006, the Company adopted the amendments of R.O.C. SFAS No. 1,
No. 5, No. 7, No. 25 and No. 35 which discontinued the amortization of goodwill.
F. In 2006, Putian Maode Technologies (Chongqing) Corporation continued to incur
net loss. The Company adopted SFAS No. 5 and recognized an impairment loss on
the excess of the acquisition cost over the investee company’s net asset value
amounting to $8,606.
(11)Short-term loans
December 31,
2007 2006
Borrowings for materials purchases $ 213,431 $ -
Interest rates 1.49%~5.93% -
(12) Commercial papers payable
December 31,
2007 2006
Commercial papers payable $ - $ 380,000
Interest rates - 1.453%~1.72%
(13) Financial liabilities at fair value through profit or loss - current
December 31,
2007 2006
Cross currency and interest rate swap $ - $ 72,557
Non-delivery forward contracts - 5,350
$ - $ 77,907
A. In 2007 and 2006, income and loss recognized for the changes in fair values of the
financial liabilities at fair value through profit and loss were $77,907 and $77,907,
respectively.
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B. The nature and contractual terms of derivatives are as follows:
December 31, 2006
Financial instruments
Contract amount
(in thousands)
Contract term
Cross currency and interest rate swap JPY 4,968,985 2006.06.20~2008.10.24
Cross currency and interest rate swap JPY 1,987,594 2006.09.05~2008.10.24
Cross currency and interest rate swap JPY 2,533,858 2006.09.14~2008.10.24
Non-delivery forward contracts U.S. 25,000 2006.12.11~2007.01.12
a)In 2006, the Company entered into cross currency and interest rate swap contracts
to sell NTD and buy JPY for the purpose of reducing the foreign exchange rate
risks on machinery and equipment purchases. In addition, the Company used
NTD fixed-to-JPY fixed interest rate swaps, without adopting hedging
accounting.
b) In 2006, the Company entered into a non-delivery forward contract to sell USD
and buy NTD for the purpose of reducing foreign exchange rate risk on accounts
receivable denominated in USD without adopting hedge accounting.
(14) Long-term liabilities
A. Bonds payable
December 31,
2007 2006
First domestic secured bonds payable $ - $ 1,080,000
Less: Current portion - ( 1,080,000 )
- -
Second overseas secured convertible bonds payable 2,918,700 2,933,550
Less: Conversion of convertible bonds payable ( 1,857,428 ) ( 1,866,879 )
Less: Current portion ( 1,061,272 ) -
- 1,066,671
Third overseas unsecured convertible bonds payable 7,296,750 7,333,875
Less: Conversion of convertible bonds payable ( 7,278,881 ) ( 5,546,854 )
Less: Payment of convertible bonds payable ( 17,869 ) ( - )
- 1,787,021
Fourth overseas unsecured convertible bonds payable 11,350,500 -
Less: Conversion of convertible bonds payable ( 3,243 ) -
Less: Discount of bonds payable ( 2,586,096 ) -
8,761,161 -
$ 8,761,161 $ 2,853,692
a) The Company issued its first domestic secured bonds payable with a par value of
$2,700,000 during the period from May 23, 2002 to June 4, 2002. The bonds
bear interest at 4.2%, payable annually, and are due in annual installments
starting from May 2005. The bonds were fully settled by June 2007. A guarantee
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has been provided from a syndicated agreement with a consortium of 12 banks
led by the Bank of Taiwan.
As of December 31, 2006, the Company provided time deposits amounting to
$540,000 as a pledge (shown as “Restricted assets - current”). Please refer to
Note 6.
b) On October 8, 2003, the Company issued its second overseas zero coupon
secured convertible bonds, with a par value of U.S. $90 million, issued at 105%
of par. The bonds are traded on the Luxembourg Stock Exchange. The principal
is due in lump sum at maturity on October 8, 2008, endorsed by ABN AMRO
Bank. In addition, bondholders may require the Company to redeem the bonds at
par value on October 8, 2004. As of December 31, 2007, the conversion price
was $11.06 (in dollars) and bonds totaling U.S. $57,275 thousand were
converted into 158,192 thousand common shares.
As of December 31, 2007 and 2006, the Company pledged cash amounting to
U.S. $32,725 thousand to ABN AMRO Bank as guarantees (shown in
“Restricted assets - current” and “Other assets - other”, respectively.), please
refer to Note 6. In connection with bond conversions, redemptions and
cancellations, the Company may reduce the pledged amounts in proportion to
the bonds’ outstanding balance.
c) On June 20, 2005, the Company issued its third overseas zero coupon unsecured
convertible bonds in the amount of U.S. $225 million at par value. The bonds
are traded on the Singapore Stock Exchange. Starting from 30 days after bonds
issuance to 10 days prior to maturity, bondholders may request to convert the
bonds into the Company’s shares. In addition, bondholders may request to
redeem the bonds at 110.07% of par on December 20, 2006. On December 20,
2006, the fair value of the underlying shares at the expiry date of the redemption
option exceeds the redemption price, thus, the interest on redemption amounting
to $223,669, was reclassified to capital reserve. At any time on or after
December 20, 2006, if the closing price of the Company’s common shares
traded at the R.O.C. GreTai Securities Market exceeds 125% of the conversion
price in effect for 20 consecutive business days, the Company may redeem the
outstanding bonds in full or in increments. The Company had redeemed the
outstanding bonds in the amount of U.S. $551 thousand at par value on August
28, 2007. Accordingly, the bonds were delisted from the Singapore Stock
Exchange on October 1, 2007. As of August 28, 2007, bonds totaling U.S.
$224,449 thousand were converted into 681,404 thousand common shares.
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d) On February 14, 2007, the Company issued its fourth overseas zero coupon
unsecured convertible bonds in the amount of U.S. $350 million at par value.
The bonds are traded on the Singapore Stock Exchange. The principal is due in
lump sum at maturity on February 14, 2012. Starting from 30 days after bonds
issuance to 10 days prior to maturity, bondholders may request to convert the
bonds into the Company’s shares. In addition, bondholders may request to
redeem the bonds at 100% of par on February 14, 2009. At any time on or after
February 14, 2009, if the closing price of the Company’s common shares traded
at the R.O.C. GreTai Securities Market exceeds 120% of the conversion price in
effect for any 20 business days within 30 consecutive business days, the
Company may redeem the outstanding bonds in full or in increments. As of
December 31, 2007, the conversion price was $10.86 (in dollars) and bonds
totaling U.S. $100 thousand were converted into 243 thousand common shares.
e) The fair value of convertible option embedded in the fourth overseas zero
coupon unsecured convertible bonds amounting to $2,420,558 was separated
from bonds payable, and was recognized as “Capital reserve from stock
warrants” in accordance with SFAS No. 36. The fair value of put options, call
options and conversion price reset option embedded in bonds payable was
separated from bonds payable in accordance with SFAS No. 34 and were
recognized as “Financial liabilities at fair value through profit or loss”. The
effective interest rate of bonds payable was 6.32% after separation. Gain/loss on
valuation of embedded derivative is shown under “Gain/loss on valuation of
financial liabilities”.
f) The fair value of put and call options embedded in bonds payable issued before
December 31, 2005 was not separated in accordance with EITF 95-078.
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B. Long-term loans
December 31,
2007 2006
Bank of Taiwan (BOT)-led 13 bank consortium: $20,700,000 repayable in 7 consecutive semiannual installments from September 2009; semiannual repayment - $2,957,143
$20,700,000
$ -
Taiwan Cooperative Bank-led 21 bank consortium: tranche a) $4,558,600 repayable in 7 consecutive semiannual installments from June 2009; semiannual repayment - $651,229 and tranche b) $15,261,400 repayable in 7 consecutive semiannual installments from June 2009; semiannual repayment - $2,180,200
19,820,000
-
Taiwan Cooperative Bank-led 11 bank consortium: tranche a) $2,500,000, repayable in 8 consecutive semiannual installments from February 2007; semiannual repayment - $312,500 and tranche b) $7,500,000, repayable in 8 consecutive semiannual installments from March 2007; semiannual repayment - $937,500
7,500,000
10,000,000
Taiwan Cooperative Bank-led 15 bank consortium: tranche a) $2,500,000 repayable in lump sum in December 2010; and tranche b) $6,650,000 repayable in 8 consecutive semiannual installments from June 2007; semiannual repayment - $831,250
7,487,500
9,150,000
China Development Industrial Bank Inc. (CDIB): $500,000, repayable in 13 consecutive quarterly installments from November 2006; quarterly repayment - $38,462
307,690
461,538
Taiwan Life Insurance Co., Ltd.: $300,000, repayable in 12 consecutive quarterly installments from December 2006; quarterly repayment - $25,000
175,000
275,000
Bowa Commercial Bank: $100,000, repayable in 8 consecutive quarterly installments from November 2006; quarterly repayment $8,333, remaining balance will be paid off at one time
58,333
91,667
Bank of Taiwan (BOT)-led 6 bank consortium: $5,000,000, repayable in 6 consecutive semiannual installments from August 2004; semiannual repayment - $833,333
-
833,333
China Development Industrial Bank Inc. (CDIB): $400,000, repayable in 17 consecutive quarterly installments from August 2003; quarterly repayment - $23,529
-
70,594
Taiwan Cooperative Bank-led 9 bank consortium: $3,000,000, repayable in 5 consecutive semiannual installments from March 2005; semiannual repayment - $600,000
-
600,000
Ta Chong Commercial Bank (TCB): $300,000, repayable in 6 consecutive semiannual installments from December 2004; semiannual repayment - $50,000
-
50,000
Bank of Kaohsiung (BOK): $150,000, repayable in 6 consecutive semiannual installments from January 2005; semiannual repayment - $25,000
-
50,000
Sub-total 56,048,523 21,582,132
Less: Current portion ( 4,474,681 ) ( 6,053,609 )
Total $ 51,573,842 $ 15,528,523
Interest rates 3.55%~4.65% 2.86%~4.46%
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a) The syndicated loans led by Bank of Taiwan and Taiwan Cooperative Bank were
obtained to finance the acquisition of machinery and equipment for the 12-inch
wafer fabrication plant. Under the terms of the loan agreements, the Company is
required to maintain certain annual and semiannual financial ratios, including
current ratio, liability ratio, and interest coverage ratio and endorsement amount
over capital ratio, at certain levels throughout the term of the loans.
b) Under the terms of tranche A syndicated loans led by Taiwan Cooperative Bank,
the Company is required to deposit collections from certain accounts receivable
in the account established in the managing bank, and maintain specific accounts
receivable at a certain level at the beginning of each month.
c) Please refer to Note 6 for guarantees provided for long-term loans.
C. Long-term payables
December 31,
2007 2006
Long-term payables for equipment $ 1,800,907 $ 3,258,309
Less: Current portion (shown in “Other payables”) ( 1,704,042 ) ( 1,526,538 )
96,865 1,731,771
Obligations under capital lease - financing - 6,401,189
Less: Current portion (shown in “Other payables”) - ( 1,905,683 )
- 4,495,506
Long-term payables for processing expenditures 612,948 -
$ 709,813 $ 6,227,277
a) In 2005, the Company entered into a long-term equipment purchase agreement
amounting to JPY 12 billion with a foreign equipment supplier. Under the
terms of the agreement, repayments were made semiannually, starting from six
months after date of shipment. The first two repayments represented payoffs of
interest, while the principal and remaining interest were to be repaid from the
third to sixth repayments. The effective interest rates for 2007 and 2006 ranged
from 0.96% to 1.94%.
b) The Company entered into a sale-leaseback agreement with a foreign
equipment supplier in August 2006. The Company accounted for the
sale-leaseback as a financing transaction and accordingly, recognized related
liabilities and interest expense in accordance with EITF 95-297 issued by the
Accounting Research and Development Foundation of the R.O.C. on December
14, 2006. Under the terms of the agreement, lease payments are made monthly
after date of leaseback over the contract period from August 22, 2006 to August
21, 2008. In addition, the Company instead adopted the “sale-leaseback -
operating leases” accounting from October 2007 for the foregoing transaction.
Please refer to Note 4(9) for the information.
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c) In 2007, the Company entered into agreements with major processing factories
to extend the payment period of certain processing expenditures.
d) Please refer to Note 6 for details of the collaterals pledged for obligations under capital lease - financing at December 31, 2006.
D. Capital leases payable
December 31,
2007 2006
Obligations under capital lease $ 1,309,148 $ 1,164,053 Less: Current portion ( 663,809 ) ( 652,825 ) $ 645,339 $ 511,228
The Company entered into sale-leaseback agreements with domestic and foreign
leasing companies to finance the acquisition of certain machinery and equipment.
These leases are accounted for as capital leases. The lease payments are payable
quarterly from January 2005 to December 2011.
(15) Capital
As of December 31, 2007, total common stock issued amounted to $67,069,537,
consisting of 6,706,954 thousand shares with a par value of NT$10 (in dollars) per
share, and total common stock outstanding was 6,684,942 thousand shares.
On November 14, 2003, it was resolved in the special shareholders’ meeting to issue
additional 575 million common shares at NT$15.71 (in dollars) per share for the
issuance of global depositary receipts (GDRs), traded on the Luxembourg Stock
Exchange.
During the shareholders’ meeting and the Board of Director’s meeting on April 11,
2006 and April 13, 2006, respectively, it was resolved to issue additional common
shares at U.S. $3.33 (equivalent to NT$10.76) (in dollars) per share for the issuance
of GDRs. On July 11, 2006, the issuance of GDRs was completed and the GDRs
were traded on the Luxembourg Stock Exchange. The total GDRs issued were
100,000,000 units amounting to U.S. $333 million.
As of December 31, 2007, the Company had 204,617 units of GDRs outstanding.
(One unit of GDR represents 10 shares of common stock).
(16)Capital surplus
A. Pursuant to the R.O.C. Securities and Exchange Law, capital reserve shall be
exclusively used to cover accumulated deficit or to increase capital and shall not
be used for any other purpose. However, capital reserve arising from paid-in
capital in excess of par value on issuance of common stock and donations can be
capitalized once a year, provided that the Company has no accumulated deficit
and the amount to be capitalized does not exceed 10% of the paid-in capital.
B. Please see Note 4 (14) for detailed information of capital reserve from stock
warrants.
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(17)Retained earnings
A. Legal reserve
Pursuant to the Company Law, 10% of current year’s earnings, after payment of
all taxes, shall be appropriated as legal reserve, until the total equals to the issued
share capital. Such reserve can only be used to offset accumulated deficit and
cannot be distributed as cash dividends. However, when the legal reserve has
reached 50% of the Company’s issued share capital, up to 50% thereof can be
appropriated as stock dividends upon shareholders’ approval.
B. Special reserve
In accordance with the R.O.C. Securities and Exchange Law, earnings equivalent
to the debit balance of any account shown in shareholders’ equity shall be
appropriated as special reserve. The special reserve is allowed to be appropriated
to the extent that the debit balance of the foregoing accounts is reversed.
C. Retained earnings
In accordance with the Company’s Articles of Incorporation, current year’s earnings, if any, shall be distributed in the following order:
(1) Pay all taxes and dues;
(2) Offset prior years’ operating losses;
(3) Set aside 10% of remaining amount after deducting items (1) and (2) as legal reserve;
(4) Appropriate special reserve pursuant to legal or regulatory requirements, and
(5) After deducting items (1), (2), (3) and (4) above from the current year’s
earnings, the remainder shall be allocated as follows:
I. 2% to 10% as employee bonus;
II. 1% to 2% as remuneration to directors and supervisors, and
III. Distribution of the remaining portion, if any, as dividends to be
proposed by the Board of Directors and approved by the Shareholders.
The Company’s dividend policy is to consider factors such as actual
results of operations and its funding position. The Board of Directors
shall make the distribution proposal and present it at the Shareholders’
meeting. When the Company can obtain sufficient funding to satisfy
the needs for current year’s operations as well as issuing dividends at
the amount of or greater than NT$2 (in dollars) per share, at least 10%
of the distributable dividends over NT$2 (in dollars) shall be issued in
cash.
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D. The shareholders during the 2007 annual stockholders’ meeting declared cash
dividends of $6,663,019 ($1.016 (in dollars) per share).
E. Details of the appropriation of 2006 earnings are summarized below:
Appropriation of 2006 earnings as approved by the shareholders
and the Board of Directors
A) Appropriation of 2006 earnings
a) Employees’ cash bonus $1,311,745
b) Directors’ and supervisors’ remuneration $150,850
B) Earnings per share (in dollars) a) Original earnings per share $2.64
b) Estimated earnings per share (Note) $2.37
Note: Estimated earnings per share = (Net income－employees’ bonuses－directors’ and supervisors’ remuneration) / weighted-average outstanding common shares for 2006.
F. As of February 25, 2008, the appropriation of retained earnings to cover
accumulated deficit had not been resolved by the Board of Directors. Information
on the appropriation as resolved by the Board of Directors and approved by the
stockholders will be posted in the “Market Observation Post System” at the
website of the Taiwan Stock Exchange.
(18)Treasury stock
Changes in treasury stocks in 2007 is summarized as follows:
Purpose
Beginning balance
Increase
Decrease
Ending balance
(Expressed in thousands of shares)
Sales to employees 26,705 - ( 4,693) 22,012
The foregoing treasury stocks amounting to $997,123 were reacquired during the
period from October 5, 2005 to December 4, 2005. In accordance with Article 28-2 of
Securities and Exchange Law of the R.O.C., the shares bought back shall be
transferred to employees within three years from the date of buyback or else shall be
retired.
In 2007, the Company transferred 4,693 thousand shares of treasury stocks totaling
$44,537 to its employees.
Pursuant to the R.O.C. Securities and Exchange Law, the number of shares bought
back as treasury stock should not exceed 10% of the number of the Company’s issued
and outstanding shares and the amount bought back should not exceed the sum of
retained earnings, paid-in capital in excess of par value and realized capital reserve. In
addition, treasury stock shall not be pledged, nor be entitled to any shareholder
privilege.
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(19)Employee stock options
A. In June 2007, the Board of Directors of the Company resolved to issue 160,000 units
of employee stock options, with one unit representing 1,000 shares of common stock.
The vesting period of the Company’s employee stock option plan is 6 years. The
employees may exercise the stock options in installments within a period of two
years after the stock options are granted. The exercise price is subject to adjustments
due to changes in the number of common shares and issuance of cash dividends.
B. The exercise price under the stock-based employee compensation plan is based on
the par value of NT$10 of the Company’s common stock at the grant date.
C. Details of the employee stock options are set forth below:
For the year ended
December 31, 2007
No. of shares Exercise price
Stock options (in thousands) (in dollars) Options outstanding at beginning of year - $ -
Options granted 136,500 10.00 Options outstanding at end of year 136,500 $ 10.00
Options authorized but not granted at end of year 23,500
D. Details of the employee stock options outstanding as of December 31, 2007 are set
forth below:
Stock options outstanding as at Stock options exercisable at
December 31, 2007 December 31, 2007
Expected
Exercise price No. of shares remaining Exercise price No. of shares Exercise price
(in dollars) (in thousands) vesting period (in dollars) (in thousands) (in dollars)
$ 10.00 136,500 4.375 years $ 10.00 - $ -
E. The following sets forth the pro forma net loss and loss per share based on the
assumption that the compensation cost is accounted for using the fair value method
for the stock options:
For the year ended
December 31, 2007 Net loss Net loss stated in the statement of
operations ($ 7,321,132)
Pro forma net loss ($ 7,330,558)
Basic loss per share (in dollars)
Basic loss per share stated in the statement of operations ($ 1.11)
Pro forma basic loss per share ($ 1.11)
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For the stock options with the compensation cost accounted for using the fair value
method, their fair value on the grant date is estimated using the Black-Scholes
option-pricing model. The weighted-average parameters used in the estimation of
the fair value are as follows:
For the year ended
December 31, 2007
Dividend yield rate 0%
Expected price volatility 41.97%
Risk-free interest rate 2.43%
Expected vesting period 4.375 years
Options granted 136,500
Weighted-average fair value per share (in dollars) $2.90
(20)Retirement expenses
The Company has a defined benefit pension plan in accordance with the Labor
Standards Law, covering all regular employees for services provided prior to July 1,
2005, and employees who choose to remain in the defined benefit pension plan
subsequent to the enforcement of the Labor Pension Act on July 1, 2005. Under the
defined benefit pension plan, employees are entitled to two base points for every year
of service for the first 15 years and one base point for each additional year thereafter,
up to a maximum of 45 base points. The pension payment to employees is computed
based on years of service and average salaries or wages of the last six months prior to
approved retirement. The Company contributes an amount equal to 2% of salaries
and wages paid each month to a pension fund. The pension fund is administered by a
pension fund monitoring committee (the “Committee”) and deposited under the
Committee’s name in the Bank of Taiwan.
The following tables set forth information from the actuarial reports regarding the
defined benefit pension plan:
1. Actuarial assumptions:
For the years ended December 31,
2007 2006
Discount rate 3.00% 2.75%
Future salary increase rate 3.00% 3.00%
Expected rate of return on plan assets 3.00% 2.75%
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2. The funded status of the pension plan is listed as follows:
December 31, (The actuarial date )
2007 2006
Benefit obligation
Vested benefit obligation $ 8,524 $ 4,585
Non-vested benefit obligation 251,714 225,570
Accumulated benefit obligation 260,238 230,155
Additional benefit based on future salaries 182,906 222,540
Projected benefit obligation 443,144 452,695
Fair value of plan assets ( 257,734 ) ( 216,257 )
Funded status 185,410 236,438
Unrecognized transition obligations ( 3,894 ) ( 4,111 )
Unrecognized net actuarial losses ( 59,535 ) ( 93,355 )
Accrued pension liabilities $ 121,981 $ 138,972
Vested benefit $ 8,524 $ 4,585
3. The components of net periodic pension cost are as follows:
For the years ended December 31,
2007 2006
Service cost $ 9,887 $ 11,503
Interest cost 12,449 12,876
Expected return on plan assets ( 6,428 ) ( 5,775 )
Amortization of unrecognized net transition obligation
217
217
Amortization of loss on plan assets 2,004 2,183
Net periodic pension cost $ 18,129 $ 21,004
Pursuant to the new “Labor Pension Act” enacted on July 1, 2005, the Company set
up a defined contribution pension plan. For domestic employees who choose to
participate in the defined contribution pension plan, the Company contributes an
amount no less than 6% of the employees’ salaries and wages paid each month to the
employees’ individual pension accounts at the Bureau of Labor Insurance. Benefits
accrued are portable upon a change of employment. Pension payments to employees
are made either by monthly installments or in lump sum from the accumulated
contributions and earnings in employees’ individual accounts. The net pension costs
recognized under the defined contribution plan for the years ended December 31,
2007 and 2006 were $173,874 and $138,586, respectively.
Employees in foreign subsidiaries are covered by defined contribution plans. Pursuant
to local regulations, participants and the subsidiaries each make contributions to the
pension funds based on certain percentages of the salaries and wages paid each month.
The net pension costs recognized under the defined contribution plan for the years
ended December 31, 2007 and 2006 were $21,179 and $37,743, respectively.
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(21)Income tax
A. Income tax (benefit) expense consists of the following: For the years ended December 31, 2007 2006 Income tax expense on pretax income at statutory
tax rate $ -
$ 3,695,463
Income tax expense on pretax income at subsidiaries’ statutory tax rate
5,982
21,940
Net changes in deferred income tax assets and liabilities:
Permanent differences ( 1,329,818 ) ( 82,673 )
Additional 10% income tax on unappropriated earnings
499,184 -
Investment tax credits ( 4,219,325 ) ( 2,373,335 )
(Over) under provision of income tax expense in prior years
( 500,543 )
10,215
Tax on offshore income subject to withholding tax
4,707
37,679
Loss carryforwards ( 695,156 ) ( 482,169 )
Valuation allowance 4,926,603 ( 556,404 )
Income tax (benefit) expense ( 1,308,366 ) 270,716
Less: Net change in deferred income tax assets 818,358 973,113
Income tax payable on January 1, 2007 44,811 -
Over (under) provision of income tax expense in prior years
500,543
( 10,215 )
Income tax payable paid by subsidiaries ( 11,478 ) 23,347
Effect of foreign currency 14 2,684
Prepaid and withholding tax ( 52,021 ) ( 43,036 )
Tax on offshore income subject to withholding tax
( 4,707 )
( 37,549 )
Income tax receivable 51,926 -
Income tax payable $ 39,080 $ 1,179,060
B. The components of deferred income tax assets (liabilities) are as follows:
December 31,
2007 2006
Current:
Temporary differences $ 248,353 $ 266,778
Investment tax credits from acquisition of machinery and equipment
866,889
532,639
Investment tax credits from R & D expenditures
233,112
67,663
$ 1,348,354 $ 867,080
Noncurrent:
Temporary differences $ 34,806 ( $ 1,313,283 )
Loss carryforwards 695,156 -
Investment tax credits from acquisition of machinery and equipment
6,554,712
3,337,456
Investment tax credits from R & D expenditures
438,376
435,189
Less: Valuation allowance ( 5,486,604 ) ( 560,000 )
$ 2,236,446 $ 1,899,362
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C. Information on imputed credit account (ICA):
December 31,
2007 2006
Balance of ICA $ 231,890 $ 672
For the years ended December 31,
2007
(Budget)
2006
(Actual)
Creditable tax ratio - 4.65%
D. (Accumulated deficit) undistributed retained earnings:
December 31,
2007 2006
After 1998 ( $ 2,329,293) $ 14,535,626
E. As of December 31, 2007, the Company's income tax returns through 2004 have
been assessed and approved by the Tax Authority.
F. The Company used the proceeds raised from the issuance of common shares in the
design, research and development, manufacture and sales of semiconductor
products and was granted a four-year tax holiday with respect to income derived
from the foregoing activities. The tax-exempt period is from 2005 to 2008.
G. The Company’s unutilized investment tax credits as of December 31, 2007 are as
follows:
Items
Total creditable amount
Unused amount
Expiry year
Acquisition of machinery and equipment $ 1,116,256 $ 866,889 2008
″ 2,590,946 2,236,539 2009
″ 1,195,626 1,195,626 2010
″ 3,122,547 3,122,547 2011
$ 8,025,375 $ 7,421,601
Research and development expenditures $ 104,901 $ 104,901 2008
″ 310,395 310,395 2009
″ 256,192 256,192 2010
$ 671,488 $ 671,488
Loss carryforwards $ 695,156 $ 695,156 2012
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(22) (Loss) earnings per share
For the year ended December 31, 2007
Weighted average
Amount outstanding Loss per share (in dollars)
Loss before common shares Loss before
income tax Net loss (in thousands) income tax Net loss
Consolidated net loss ($ 8,810,790 ) ( $ 7,502,424 )
Basic loss per share
Net loss attributable to common shareholders of parent company
( $ 8,623,762 )
( $ 7,321,132 )
6,598,383
( $ 1.31 )
( $ 1.11 )
In 2007, the potential common shares issuable upon the conversion of convertible
bonds and employee stock options were not included in the calculation of diluted
EPS as the inclusion of such shares would have been anti-dilutive.
For the year ended December 31, 2006
Weighted average
Amount outstanding Earnings per share (in dollars)
Income before common shares Income before
income tax Net income (in thousands) income tax Net income
Consolidated net income
$ 14,759,669
$ 14,491,373
Basic earnings per share
Net income attributable to common shareholders of parent company
$ 14,781,852
$ 14,533,206
5,510,481
$ 2.68
$ 2.64
Cumulative effect of changes in accounting principles
2,420
2,420
Dilutive effect of common stock equivalents:
Convertible bonds 506,833 380,125 656,423
Diluted earnings
per share
Income attributable to common shareholders of parent company, including the dilutive effect of common stock equivalents
$ 15,291,105
$ 14,915,751
6,166,904
$ 2.48
$ 2.42
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(23)The breakdown of personnel, depreciation and amortization expenses is as follows:
For the year ended December 31, 2007
For the year ended December 31, 2006
Classification
Expenses Operating costs
Operating expenses Total Operating costs
Operating expenses Total
Personnel expenses
Salaries and wages $3,096,908 $1,340,965 $4,437,873 $2,650,607 $1,141,118 $3,791,725
Labor and health insurance 208,891 106,421 315,312 167,263 115,188 282,451
Pension 153,031 62,828 215,859 122,931 72,957 195,888
Others 38,161 49,504 87,665 29,470 7,787 37,257
Depreciation 16,136,372 311,837 16,448,209 12,997,917 314,626 13,312,543
Amortization 1,088,736 683,950 1,772,686 1,024,373 716,157 1,740,530
5. RELATED PARTY TRANSACTIONS
(1) Names and relationship of related parties
Names Relationship with the Company
Mosel Vitelic Inc. (MVI) Same Board Chairman
ChipMOS Technologies Inc. (ChipMOS) Indirect investee company of Mosel Vitelic Inc.
Giant Haven Investment Ltd. Subsidiary of Mosel Vitelic Inc.
SyncMOS Technologies, Inc. (SyncMOS) Indirect investee company of Mosel Vitelic Inc.
Vision 2000 Venture Ltd. (Vision 2000) Indirect investee company of Mosel Vitelic Inc.
Putian Maode Technologies (Chongqing) Corporation (Putian ProMOS)
Investee company accounted for under the equity method
Inapac Technology, Inc. (Inapac) Investee company accounted for under the equity method
(2) Significant transactions and balances with related parties
A. Sales
For the years ended December 31,
2007 2006
Amount % Amount %
MVI $ 17,841 - $ 932,449 2%
Inapac 7,336 - - -
SyncMOS 2,710 - 2,686 -
$ 27,887 - $ 935,135 2%
The sales price to the above related parties was determined through mutual
agreement based on the market conditions. The collection terms were 30-75 days
after shipment.
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B. Manufacturing expenses - processing and testing expenditures
For the years ended December 31,
2007 2006
Amount % Amount %
ChipMOS $ 6,491,721 13% $ 5,400,745 14%
C. Other income
For the years ended December 31,
2007 2006
Amount % Amount %
MVI $ 222,714 89% $ 5,793 8%
Inapac 594 - - -
$ 223,308 89% $ 5,793 8%
In April 2007, the Company’s investee company - Mosel Vitelic Corporation (MVC)
came to a settlement and paid compensation for the Anti-Trust lawsuit. Over that
period of time, MVC was engaged in operating activities in America as a sales agent
for Mosel Vitelic Inc. (MVI). Thus, MVI should take responsibility for all related
settlement expenses. The Company claimed compensation from MVI in proportion
to the Company’s shareholding in MVC (shown as “Other non-operating income”).
D. Rental expenses
For the years ended December 31,
2007 2006
Amount % Amount %
ChipMOS $ 16,381 5% $ 9,371 2%
E. Other expenses
For the years ended December 31,
2007 2006
Sales support - Inapac $ 30,576 $ -
Maintenance expense - ChipMOS $ 543 $ 175
Maintenance expense - MVI $ 186 $ 3,070
Charges on purchased merchandise - Putian ProMOS $ - $ 79,019
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F. Accounts receivable
December 31,
2007 2006
Amount % Amount %
MVI $ 1,681 - $ - -
Inapac 1,199 - - -
$ 2,880 - $ - -
G. Other receivables
December 31,
2007 2006
Amount % Amount %
SyncMOS $ 4,270 - $ 10,101 1%
MVI 2,705 - 145,397 17%
Inapac 27 - - -
Putian ProMOS - - 84,803 10%
$ 7,002 - $ 240,301 28%
H. Accounts payable
December 31,
2007 2006
Amount % Amount %
MVI $ - - $ 398 -
I. Other payables
December 31,
2007 2006
Amount % Amount %
ChipMOS $ 1,490,802 11% $ 1,737,930 14%
MVI 172 - 54,581 -
$ 1,490,974 11% $ 1,792,511 14%
J. Long-term notes and accounts payable
December 31,
2007 2006
Amount % Amount %
ChipMOS $ 449,827 100% $ - -
In 2007, the Company entered into an agreement with ChipMOS to extend the
payment period of certain processing expenditures, which are subject to an annual
interest rate at 4.69%. The maximum balance of long-term payables for processing
expenditures in 2007 was $449,827. No interest expense was accrued in 2007.
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K. Sales / Purchase of Assets:
(a)In July 2007, the Company’s Board of Directors resolved to purchase 4,060,633
common shares of ChipMOS Technologies (Bermuda) LTD. from Giant Haven
Investments Ltd. The acquisition price was U.S. $25,582 thousand at U.S. $6.3
dollars per share.
(b)In 2006, the Company sold transportation equipment to MVI. The selling price
was $524 and related loss on disposal was $117.
L. Loans
For the year ended December 31, 2006
Maximum balance Ending balance Interest rate
Vision 2000 $ 1,051,993 $ - 3%
( U.S. $32,499 thousand)
6. ASSETS PLEDGED AS COLLATERAL
December 31,
Item 2007 2006 Purpose of pledge
Time deposits (shown in “Restricted assets - current”)
$ 437,604 $ 938,881 Collateral for custom duties, bank loans, foreign labor and first domestic secured bonds payable
Demand deposit denominated in USD (shown in “Restricted assets - current” and “Other assets - other”, respectively)
1,061,272 1,066,671 Collateral for second overseas secured bonds payable
Long-term investments in bonds - (shown in “Investments in bonds without active markets - noncurrent”)
- 400,000 Collateral for commercial papers payable
Property, plant and equipment, net 75,705,297 35,979,749 Collateral for short-term, long-term loans and long-term payables
$ 77,204,173 $ 38,385,301
7. COMMITMENTS AND CONTINGENT LIABILITIES
(1) As of December 31, 2007 and 2006, the Company signed several construction contracts
for the expansion of 12-inch wafer fabrication plants. These construction contracts
amounted to $9,771,234 and $30,257,554, respectively.
(2) As of December 31, 2007 and 2006, the balance of unused letters of credit are as
follows (in thousands):
December 31,
Currency 2007 2006
USD USD 50,978 USD 57,910
YEN YEN 3,342,183 YEN 4,664,009
EUR EUR 5,505 EUR 5,315
GBP GBP - GBP 58
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(3) On July 25, 2006, Mosaid Technologies Inc. filed a lawsuit with the United States
District Court of the Eastern District of Texas Marshall Division against Micron
Technology Inc., Powerchip Technologies Corporation and the Company, alleging
infringement, among others, of its patent. As the Company came to a settlement with
Mosaid Technologies Inc. on January 31, 2008, the settlement amount was recognized
under ”Other non-operating losses”.
(4) Freescale Semiconductors Inc. filed a lawsuit with the United States District Court of
the Eastern District of Texas Marshall Division against the Company on December 7,
2006, alleging infringement, among others, of its patent. On December 22, 2006, the
Company also filed a lawsuit with the State of Delaware against Freescale
Semiconductors Inc. for infringement of the Company’s patents. At present, the
Company has attorneys in this area tending to this case and although it is not possible
to predict the outcome of this litigation due to initial discovery proceedings, the
Company believes any such outcome will not adversely affect normal business
operations of the Company.
(5) Tessera, Inc. filed a lawsuit with the United States District Court of the Eastern District
of Texas Marshall Division against the Company on December 7, 2007, alleging
infringement, among others, of its patent. At present, the Company has attorneys in
this area tending to this case and although it is not possible to predict the outcome of
this litigation due to initial discovery proceedings, the Company believes any such
outcome will not adversely affect normal business operations of the Company.
(6) The Company leases several parcels of land from the HsinChu Science Park
Administration and Taichung Science Park Administration, and leases machinery and
equipment from foreign equipment suppliers under operating leases. Leases on land
and, machinery and equipment have terms expiring in December 2026 and August
2008, respectively. Future lease payments required under these operating leases are
shown as follows:
Year Amount
2008 $ 1,263,076
2009 73,986
2010 73,986
2011 73,986
2012 and thereafter 664,741
$ 2,149,775
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8. SIGNIFICANT LOSS FROM DISASTERS
None.
9. SIGNIFICANT SUBSEQUENT EVENTS
The Company made an additional investment amounting to U.S. $12 million in its
wholly-owned subsidiary, ProQ Technologies Incorporated, on January 10, 2008. As of
February 25, 2008, the report date, the Company’s total investment in ProQ Technologies
Incorporated totaled U.S. $92 million.
10. OTHERS
(1) Fair value of financial instruments
December 31, 2007
Fair value
Book value Market Estimate
Non-derivative financial instruments
Financial assets
Financial assets with fair value equal to book value $ 16,761,025 $ - $ 16,761,025
Available-for-sale financial assets 558,130 558,130 -
Financial assets carried at cost 350,830 - -
Investments in bonds without active markets 750,000 - 750,000
$ 18,419,985
Financial liabilities
Financial liabilities with fair value equal to book value
( $ 20,936,220 )
$ -
( $ 20,936,220 )
Bonds payable (including current portion) ( 1,061,272 ) ( 1,114,335 ) -
Bonds payable (fourth overseas convertible bonds )
( 8,761,161 )
-
( 8,761,161 )
Long-term liabilities (including current portion) ( 60,221,353 ) - ( 60,221,353 )
( $ 90,980,006 )
Derivative financial instruments without adopting hedge accounting
Financial assets
Cross currency and interest rate swap $ 34,638 $ - $ 34,638
Forward foreign 2,633 - 2,633
$ 37,271
Financial liabilities
Put and call options embedded in convertible bonds ( $ 814,686 ) $ - ($ 814,686 )
Conversion price reset option embedded in convertible bonds
( 16,174 )
-
( 16,174 )
( $ 830,860 )
Derivative financial instrument for hedging
Interest rate swap $ 20,214 $ - $ 20,214
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December 31, 2006
Fair value
Book value Market Estimate
Non-derivative financial instruments
Financial assets
Financial assets with fair value equal to book value $ 32,686,182 $ - $ 32,686,182
Financial assets at fair value through profit or loss 3,017,042 3,017,042 -
Financial assets carried at cost 829,232 - -
Investments in bonds without active markets 900,000 - 900,000
$ 37,432,456
Financial liabilities
Financial liabilities with fair value equal to book value
( $ 18,338,557 ) $ - ( $ 18,338,557 )
Bonds payable (including current portion) ( 3,933,692 ) ( 4,678,584 ) -
Long-term liabilities (including current portion) ( 32,405,683 ) - ( 32,405,683 )
( $ 54,677,932 )
Derivative financial instruments without adopting hedge accounting
Financial assets
Non-delivery forward contracts $ 7,470 $ - $ 7,470
Financial liabilities
Cross currency and interest rate swap ( $ 72,557 ) $ - ( $ 72,557 )
Non-delivery forward contracts ( 5,350 ) - ( 5,350 )
( $ 77,907 )
The methods and assumptions used to measure the fair value of financial instruments
are summarized below:
a) Financial assets / liabilities with fair value equal to book value: The carrying
amounts of these assets / liabilities approximate their fair values due to their
short maturities. This applies to cash and cash equivalents, notes and accounts
receivable, short-term loans, notes and accounts payable.
b) Financial assets at fair value through profit or loss (non-derivative financial
instruments): Instruments classified in this category are mainly investments in
open-ended mutual funds. The fair value is determined based on the net asset
value of the mutual fund at the balance sheet date.
c) Available-for-sale financial assets: Fair value is based on the quoted prices on
the overseas stock exchange as the stocks are listed overseas.
d) Investments in bonds without active markets: Fair value is estimated based on
the discounted future cash flows due to the bonds not being traded in active
markets. Discount rates range from 3.033% to 3.845%, which approximate the
floating interest rates. Accordingly, the carrying values of the bond
investments approximate their fair values.
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e) Bonds payable: The fair values of convertible bonds issued prior to and
including December 31, 2005 are determined based on the quoted market
prices. The fair values of convertible bonds issued after December 31, 2005
are estimated based on the discounted future cash flows.
f) Long-term liabilities (including long-term loans, long-term payables and
capital leases payable): Fair value is estimated based on the discounted future
cash flows. Discount rate is determined based on the Company's credit
adjusted borrowing rate on long-term loans, ranging from 0.96% to 4.69%,
which approximate the floating interest rates. Accordingly, the carrying values
of the long-term liabilities approximate their fair values.
g) Derivative financial instruments: Fair value is estimated based on the amount
receivable from or payable to the counterparty assuming the contracts are
terminated at the balance sheet date, which includes the contracts’ unrealized
gain or loss.
h) In 2007 and 2006, the net loss recognized from the changes in fair values
determined using the foregoing valuation techniques amounted to $211,161
and $70,437, respectively.
i) For available-for-sale financial assets, in 2007, the amount of loss recognized
directly in equity was $281,215.
(2) Information on interest rate fluctuation
As of December 31, 2007 and 2006, financial assets that are exposed to fair value
interest rate risk are $34,638 and $1,000,000, respectively, and financial liabilities
that are exposed to fair value interest rate risk are $10,885,208 and $10,407,438,
respectively. Financial assets that are exposed to cash flow interest rate risk are
$11,562,422 and $20,520,831, respectively, and financial liabilities that are exposed
to cash flow interest rate risk are $59,372,009 and $26,384,494, respectively.
(3) Financial risk management
In order to identify, evaluate and manage market risk, credit risk, liquidity risk and
cash flow risk, the Group has established a risk management program and carries out
procedures to monitor the fluctuations in exchange rate and interest rate, as well as
implement credit controls over its transaction counterparties.
By considering factors such as changes in industrial environment, funding position,
overall cash requirement, and market risks, the Group adjusts related positions of
financial assets and liabilities in order to optimize its risk exposure, maintain
liquidity and centrally manage all market risks.
In order to manage its risk exposure, the Group established a risk management
program as follows:
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a) Interest risk:
The Company manages its cash flow interest rate risk and fair value risk by
using interest rate swap and cross currency contracts. The Group also monitors
the fluctuations in interest rates and compares to its targeted interest rates on a
periodic basis to reduce the interest risk.
b) Foreign exchange risk:
To manage the foreign exchange risk arising from future commercial
transactions and recognized assets and liabilities denominated in foreign
currencies, the Group enters into forward contracts and knock out forward. The
Group monitors the fluctuations in foreign exchange rates which it compares to
targeted foreign exchange rates on a periodic basis to reduce the foreign
exchange risk.
c) Credit risk:
The Group establishes credit policies to ensure customers are with an
appropriate credit history. Credit assessment is performed to determine the sales
terms provided to the customers. To reduce credit risk, the Group periodically
reviews the quality of the receivables and maintains close contact with
customers.
(4) Information on significant financial risks
1. Market risk
(i) Foreign exchange risk:
The Group entered into forward contracts to manage the foreign exchange
rate risk. The contract terms and amounts approximate the recognized assets
and liabilities; therefore, the fluctuation in exchange rates could be offset
effectively. The Group does not expect to have significant market risk.
The Group entered into the knock out forward which consisted of one call
option and one put option like forward contracts. Under the terms of the
agreement, the Group can receive certain amount of foreign currency at
agreed contract exchange rate to reduce the foreign exchange rate risk. On the
contrary, it might be ineffective to avoid the foreign exchange rate risk as the
option is knocked out. The Group has evaluated the possibility of knock out
carefully and assessed the entire foreign exchange rate risk.
The majority of the sales and purchases of the Group is denominated in U.S.
dollars and therefore the fair value of the associated assets and liabilities are
exposed to foreign exchange rate risk. The Group monitors the fluctuations in
foreign exchange rates and adjusts the net positions in each foreign currency,
enters into forward contracts, if necessary, to reduce the market rate risk.
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(ii) Interest risk:
The Group manages the interest rate risk by entering into cross currency and
interest rate swaps. Based on the changes in fair value of such contracts,
which is determined using the net present value method, the Group adjusts
the net positions of the underlying borrowings. Therefore, the market risk is
considered to be minimal.
The Group invests in debentures issued by domestic financial institutions and
unsecured corporate bonds of domestic listed companies (shown in
“Investments in bonds without active markets - noncurrent”). All investments
in bonds are at floating interest rates, which is expected to result in exposure
to a lesser degree of market risk.
Except for the first domestic secured bonds payable, all corporate bonds are
issued at zero interest rate. The Group’s bonds payable are exposed to market
interest rate risk and fair value risks of the embedded conversion options.
However, the Group expects to minimize the market risk by performing
periodic risk assessments.
Long-term liabilities are primarily issued at floating interest rates, which are
not exposed to significant market risk.
(iii) Price risk:
The investments (shown in “Financial assets at fair value through profit or
loss” and “Available-for-sale financial assets - noncurrent”) are mainly in
open-end mutual funds and overseas listed stocks and are exposed to market
price risk. The Group evaluates related investment performance on a periodic
basis and does not expect to have significant market risk in these financial
assets.
2. Credit risk
(i) Financial derivatives: The counterparties of the financial derivatives are
reputable financial institutions, with which the Group has established
long-term relationships. The Group also deals with multiple counterparties
to diversify the credit risks. Thus, the Group believes its exposure to
potential default risk is low.
(ii) Financial assets at fair value through profit or loss - beneficiary certificates:
The Group believes its exposure to potential default risk is low due to the
counterparties being reputable institutions and the Group diversifies the
credit risk by entering into transactions with multiple counterparties.
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(iii) Financial assets carried at cost - noncurrent and Available-for-sale financial
assets - noncurrent: In order to minimize the credit risk exposure of these
financial assets, the Group evaluates the credit ratings of the investing
targets at the time of investing. Subsequent to the investment, a periodic
review on investees’ financial information is performed to assess the
investment performance. In addition, the Group assesses at each balance
sheet date whether there is objective evidence that such financial assets are
impaired in accordance with SFAS No. 34 and SFAS No. 35. The Group
holds preferred shares of Chinese Bank, which suffered a bank run due to
the application for restructuring by China Rebar Company, Ltd. and Chia
Hsin Food and Synthetic Fiber Co., Ltd. with the Taipei District Court in
December 2006. As Chinese Bank is taken over by Central Deposit
Insurance Corporation (CDIC), and CDIC is a government institution, the
Group believes its exposure to default risk is low. In addition, the Group has
engaged an attorney to process the legal proceeding in order to effectively
reduce default risk of the investment.
(iv) Investments in bonds without active markets - noncurrent: The Group
invests in debentures issued by domestic financial institutions. The Group
also deals with multiple counterparties to diversify the credit risk, and there
is no objective evidence, such as default or delay in interest payments, that
indicates that such financial assets are impaired. The 2004 first financial
debenture of Chinese Bank was issued on September 1, 2004, which is
under the protection of the RTC Fund; therefore, the default risk of this
investment is effectively reduced.
(v) The Group performs credit assessments on its customers prior to the sales of
products; therefore, the default risk is expected to be minimal.
3. Liquidity risk
(i) Forward contracts: Since the expected cash outflow and inflow on the
forward contracts are likely to be offset by the underlying assets and
liabilities, and the Group has sufficient operating capital to meet the cash
requirement of the forward contracts, the liquidity risk is believed to be
minimal.
(ii) Interest rate swap: Since the expected cash outflow and inflow on the
interest rate swap contracts are determined based on the net settlement
amount calculated by the notional amount times the differences between the
fixed and floating interest rates, which are immaterial compared with the
underlying notional amount, and the Group has sufficient operating capital
to meet the cash requirement of the interest rate swap contracts, the liquidity
risk is believed to be minimal.
-163-
(iii) The Group entered into the knock out forward which consisted of one call
option and one put option like forward contracts. Under the terms of the
agreement, the Group can receive certain amount of foreign currency at
agreed contract exchange rate. On the contrary, the Group is obligated to
buy double the agreed amount of foreign currency at agreed contract
exchange rate as the option is knocked out.
(iv) Financial assets at fair value through profit or loss - beneficiary certificates
and available-for-sale financial assets - noncurrent: The beneficiary
certificates and overseas listed stocks are traded in active markets and can be
readily converted into certain amount of cash approximate their fair value.
Thus, the liquidity risk is believed to be minimal.
(v) Financial assets carried at cost and investments in bonds without active
markets: The Group is exposed to a higher liquidity risk for holding these
assets since there is no active market. However, the Group has no intention
to hold these financial assets for trading purpose and does not expect to sell
these financial assets frequently. Therefore, the exposure to liquidity risk
would be effectively reduced.
(vi) The Group manages its financing and investing activities based on its
operating capital requirements and capital expenditure budgets, thus, the
liquidity risk is expected to be low.
4. Cash flow interest rate risk
(i) Interest rate swap: Since the expected cash outflow and inflow on the
interest rate swap contracts are determined based on the net settlement
amount calculated by the notional amount times the differences between the
fixed and floating interest rates, which are immaterial compared with the
underlying notional amount, the cash flow interest rate risk is believed to be
minimal.
(ii) Investments in bonds without active markets - noncurrent: The Group’s
investments in bonds are at floating interest rates. The Group is exposed to a
higher cash flow interest rate risk on these floating interest rate bond
investments due to the fact that changes in market interest rate will be
reflected in the effective interest rates of these investments which will result
in fluctuations in the Group’s future cash flows.
(iii) Long-term and short-term liabilities: The Group’s long-term liabilities are
issued at floating interest rates and are exposed to a higher cash flow interest
rate risk due to the fact that changes in market interest rate would be
reflected in the effective interest rates of these liabilities, resulting in
fluctuations in the Group’s future cash flows. The Group evaluates the cash
flow risk arising from the fluctuations of interest rate on a periodic basis,
and manages the risk using derivative financial instruments, when necessary,
-164-
in order to reduce the impact of cash flow interest rate risk.
(iv) Bonds payable: Except for the first domestic secured bonds payable, all
corporate bonds are issued at zero interest rates. For the fixed interest rate
bonds payable, the Group is not exposed to cash flow interest rate risk.
(5) Cash flow hedge
The Group’s liabilities issued at floating interest rates expose the Group to cash flow
risk due to the fact that changes in market interest rate would cause the fluctuations
in the Group’s future cash flows. As such, the Group undertakes interest rate swaps
to hedge cash flow risk.
Designated for hedging instrument
Fair value
Hedge item
Financial instrument designated as
hedging instrument
December
31, 2007
December
31, 2006
Period of anticipated
cash flow
Period of gain ( loss)
recognized in income
statement
Floating rate long-term loan
Interest exchange $ 20,214 $ - 2007.09.11 ~
2012.06.13
2007.09.11 ~
2012.06.13
For the years ended December 31,
Item 2007 2006 Amount of gain recognized directly in equity $ 20,214 $ -
.
-165-
(6) Eliminated transactions between parent company and subsidiaries as of and for the years ended December 31, 2007 and 2006 are summarized as follows:
Transaction eliminated Names of parties involved 2007 2006
1. Long-term investments
and shareholders’ equity
ProMOS Technologies Inc.
Mosel Vitelic Corporation
United Memories, Inc.
ProMOS Technologies PTE. Ltd.
Flourishing Moment Limited
ProMOS Technologies Japan Limited
ProQ Technologies Incorporated
ProImage Technologies Inc.
ProImage Technologies Limited U.S.A.
$2,311,755 $ 351,259
2. Receivables, payables and prepayments
ProMOS Technologies Inc.
Mosel Vitelic Corporation
United Memories, Inc.
ProMOS Technologies PTE. Ltd.
ProMOS Technologies Japan Limited
ProQ Technologies Incorporated
ProImage Technologies Inc.
ProImage Technologies Limited U.S.A.
88,084 299,992
3. Profit and loss accounts - sales, purchases and other profit and loss accounts
ProMOS Technologies Inc.
Mosel Vitelic Corporation
United Memories, Inc.
ProMOS Technologies PTE. Ltd.
ProMOS Technologies Japan Limited
ProQ Technologies Incorporated
Putian Maode Technologies (Chongqing) Corporation (Note)
369,040 568,736
Note: Eliminating the transactions for the six-month period ended June 30, 2006.
-166-
11
. S
PE
CIA
L D
ISC
LOS
UR
E I
TE
MS
1)
Info
rma
tion
on
Sig
nific
ant
Tra
nsa
ctio
ns
Pur
sua
nt to
the
dis
clo
sure
re
qui
rem
ent
s u
nde
r th
e S
ecu
ritie
s a
nd E
xcha
nge
Re
gula
tion
s, in
form
atio
n o
n su
bsi
dia
rie
s is
pre
pa
red
ba
sed
on
ea
ch o
f the
su
bsi
dia
ry’s
aud
ited
fin
anc
ial
sta
tem
ent
s. T
rans
act
ions
be
twe
en
pa
rent
co
mp
an
y a
nd s
ubsi
dia
rie
s, a
s p
rov
ide
d b
elo
w,
have
be
en
elim
ina
ted
dur
ing
con
solid
atio
n.
a)
Loa
ns to
oth
ers
att
rib
ute
d t
o fi
nanc
ing
act
iviti
es
as
of D
ece
mb
er
31
, 20
07
: No
ne.
b)
End
ors
em
ent
s a
nd g
uara
nte
es
pro
vid
ed
by
the
Co
mp
an
y to
o
the
rs a
s o
f De
cem
be
r 3
1,
200
7: N
one
.
c) D
eta
ils o
f m
ark
eta
ble
se
curi
ties
held
as
of D
ece
mb
er
31
, 20
07
:
Dec
emb
er 3
1, 2
007
Inve
stor
Typ
es o
f ma
rket
ab
le
secu
ritie
s
Na
me
of m
ark
etab
le s
ecu
ritie
s
Rel
atio
nsh
ip
with
the
Com
pan
y
Gen
era
l led
ger
acc
ount
s
Nu
mb
er o
f sha
res
( in
thou
sand
s)
B
ook
valu
e
P
erce
nta
ge
Ma
rket
va
lue
(Not
e 1
)
Pro
MO
S T
ech
nol
ogie
s In
c.
S
tock
C
hipM
OS
Tec
hnol
ogie
s (B
erm
ud
a)
LTD
. I
nd
irect
inve
stee
co
mp
any
of
Mos
el V
itelic
In
c.
Ava
ilab
le-f
or-s
ale
fin
anc
ial
ass
ets
- cu
rren
t
4,0
61
$
558
,130
-
$55
8,1
30
″
″
M
osel
Vite
lic C
orp
orat
ion
I
nve
stee
co
mp
any
acc
ount
ed fo
r u
nder
the
equ
ity m
eth
od
Lon
g-te
rm e
qu
ity in
vest
men
ts
acc
ount
ed fo
r un
der
th
e eq
uity
met
hod
0
.5
1
93,0
38
5
0%
(3
4,2
68
)
″
″
U
nite
d M
emor
ies,
Inc.
″
″
1,1
12
1
79,6
16
1
00%
132
,20
5
″
″
P
utia
n M
aod
e T
echn
olog
ies
(Ch
ongq
ing)
Cor
por
atio
n
″
″
-
1
19,4
36
4
9%
1
19,4
36
″
″
P
roM
OS
Tec
hn
olog
ies
PT
E.
Ltd
.
″
″
20,
000
(697
,217
)
100
%
4
66,1
03
(Not
e 2
)
″
″
F
lou
rish
ing
Mom
ent
Lim
ited
″
″
1,0
00
3
2,43
0
100
%
3
2,43
0
″
″
P
roM
OS
Tec
hn
olog
ies
Jap
an
Lim
ited
″
″
-
(5,1
31)
1
00%
(5,1
31)
″
″
E
pile
ds
Tec
hnol
ogie
s, In
c.
″
″
1
6,00
0
1
61,7
41
2
9.09
%
1
61,7
41
″
″
Pro
Q T
ech
nol
ogie
s In
corp
ora
ted
″
″
-
2,5
99,2
88
1
00%
2,5
99,2
88
″
P
refe
rred
sto
ck
In
ap
ac
Tec
hn
olog
y, In
c.
″
″
1
6,44
9
4
06,7
02
2
6.14
%
1
9,46
2
″
″
C
apso
Vis
ion
, In
c.
″
″
5
,556
23,
551
3
0.48
%
1
8,48
0
″
″
P
roIm
age
Tec
hn
olog
ies
Inc.
″
″
16,
200
9,7
31
1
00%
9,7
31
″
Sto
ck
In
tegr
ate
d D
igita
l T
ech
nol
ogie
s, In
c.
N
one
Fin
anc
ial a
sset
s ca
rrie
d a
t cos
t -
non
curr
ent
3
,000
45,
000
-
-
″
″
A
MO
S T
ech
nol
ogie
s In
c.
S
am
e B
oard
C
hairm
an
″
2,3
40
2
3,40
0
-
-
″
P
refe
rred
sto
ck
Chi
nes
e B
ank
Non
e
″
2
5,00
0
2
50,0
00
-
-
″
Deb
entu
re
Chi
nfo
n C
omm
erci
al B
ank
Deb
entu
re
″
I
nve
stm
ents
in b
ond
s w
ithou
t a
ctiv
e m
ark
ets
- n
oncu
rren
t
-
5
00,0
00
-
5
00,0
00
″
″
C
hin
ese
Ban
k D
eben
ture
″
″
-
250
,00
0
-
250
,00
0
No
te 1
: a.
Ava
ilab
le-f
or-
sale
fin
anc
ial a
sse
ts: M
ark
et v
alu
e is
de
term
ine
d b
ase
d o
n th
e c
losi
ng
pri
ce fr
om
the
NA
SD
AQ
sto
ck e
xcha
nge
at t
he b
al
anc
e s
hee
t da
te.
b.
Long
-te
rm e
qui
ty in
vest
me
nts
acc
ou
nte
d f
or
und
er
the
eq
uity
me
tho
d: M
ark
et
valu
e is
de
term
ine
d b
ase
d o
n th
e n
et a
sse
t va
lue
of i
nve
ste
e c
om
pa
nie
s a
t the
ba
lanc
e s
hee
t d
ate
.
-167-
c. I
nve
stm
ent
s in
bo
nds
with
out
act
ive
ma
rke
ts -
no
ncur
rent
: F
air
va
lue
is e
stim
ate
d b
ase
d o
n th
e d
isco
unt
ed
fut
ure
ca
sh f
low
s.
No
te 2
: Unr
ea
lize
d g
ain
or
loss
on
dis
po
sal o
f ass
ets
wa
s e
limi
nate
d in
pro
po
rtio
n to
the
Co
mp
an
y’s
sha
reho
ldin
g.
d)
Ind
ivid
ual s
ecu
rity
fo
r w
hich
tota
l bu
yin
g o
r se
lling
am
ou
nts
ex
cee
d th
e lo
we
r o
f $1
00
,00
0 o
r 2
0 p
erce
nt o
f the
Co
mp
an
y’s
com
mo
n st
ock
fo
r th
e y
ea
r e
nde
d D
ece
mb
er
31
, 2
007
:
B
egin
nin
g ba
lanc
e
Ad
diti
ons
D
isp
osa
ls
E
ndin
g ba
lanc
e
Inve
stor
Na
me
of t
he
secu
ritie
s
Gen
era
l led
ger
acc
ount
Nu
mb
er o
f sh
are
s (in
th
ousa
nd
s)
Am
oun
t
Nu
mb
er o
f sh
are
s (in
th
ousa
nd
s)
Am
oun
t
Nu
mb
er o
f sh
are
s (in
th
ousa
nd
s)
Am
oun
t B
ook
valu
e G
ain
/Los
s on
d
isp
osa
l N
um
ber
of
sha
res
(in
thou
san
ds)
A
mou
nt
G
ain
(L
oss)
on
va
lua
tion
Pro
MO
S
Tec
hn
olog
ies
Inc.
AIG
Bon
d F
und
F
ina
ncia
l ass
ets
at fa
ir va
lue
thro
ugh
pro
fit
or lo
ss -
cu
rren
t
-
$
-
23,
503
$30
0,0
00
2
3,50
3
$30
1,0
48
$
300
,000
$1,
048
-
$
-
$
-
″
JF
(T
aiw
an
) F
irst
Bon
d
Fu
nd
″
2
0,74
4
2
91,5
10
-
-
20,
744
2
92,6
82
2
90,7
32
1
,950
-
-
-
″
JF
(T
aiw
an
) B
ond
Fu
nd
″
1
3,17
2
2
00,9
76
19,
531
300
,00
0
32,
703
5
02,9
04
5
00,0
00
2
,904
-
-
-
″
Pol
aris
De-
Ba
o F
un
d
″
22,
584
250
,23
5
5
3,91
9
6
00,0
00
7
6,50
3
852
,68
1
850
,00
0
2,6
81
-
-
-
″
Ca
tha
y B
ond
Fun
d
″
-
-
25,
972
300
,00
0
25,
972
3
00,7
79
3
00,0
00
7
79
-
-
-
″
Pru
den
tial F
ina
ncia
l B
ond
Fu
nd
″
17,
189
251
,21
3
4
0,87
9
6
00,0
00
5
8,06
8
853
,69
8
850
,00
0
3,6
98
-
-
-
″
En
Tru
st P
hoe
nix
Bon
d
Fu
nd
″
6
,689
100
,49
2
-
-
6
,689
101
,14
2
100
,00
0
1,1
42
-
-
-
″
En
tru
st K
ivin
Bon
d
Fu
nd
″
-
-
4
9,47
8
5
50,0
00
4
9,47
8
552
,22
8
550
,00
0
2,2
28
-
-
-
″
Fu
bon
Ju
-I I
II B
ond
F
un
d
″
20,
544
251
,27
9
4
4,77
7
5
50,0
00
6
5,32
1
803
,81
9
800
,00
0
3,8
19
-
-
-
″
Fu
bon
Chi
-Hsi
ang
Fu
nd
″
1
7,26
3
2
51,2
52
-
-
17,
263
2
52,3
75
2
50,0
00
2
,375
-
-
- ″
T
ais
hin
Lu
cky
Fu
nd
″
4
8,98
5
5
02,4
05
48,
110
500
,00
0
97,
095
1,0
04,8
19
1,0
00,0
00
4
,819
-
-
- ″
P
resi
den
t Ja
mes
Bon
d
Fu
nd
″
-
-
5
1,42
9
8
00,0
00
5
1,42
9
801
,09
2
800
,00
0
1,0
92
-
-
-
″
NIT
C B
ond
Fu
nd
″
2,4
39
4
01,3
17
1,5
18
2
50,0
00
3
,957
654
,40
6
650
,00
0
4,4
06
-
-
-
″
NIT
C T
aiw
an
Bon
d
Fu
nd
″
-
-
9
1,32
6
1,3
00,0
00
9
1,32
6 1
,302
,69
3 1
,300
,00
0
2,6
93
-
-
-
″
Pol
aris
De
Li B
ond
Fu
nd
″
-
-
4
9,22
5
7
50,0
00
4
9,22
5
751
,86
9
750
,00
0
1,8
69
-
-
-
″
Fu
h H
wa
Bon
d F
und
″
-
-
1
01,8
33
1
,350
,00
0
101
,83
3 1
,351
,89
1 1
,350
,00
0
1,8
91
-
-
-
″
PC
A W
ell P
ool F
un
d
″
-
-
164
,57
1
2,1
00,0
00
1
64,5
71
2,1
01,6
05
2,1
00,0
00
1
,605
-
-
- ″
I
BT
Ta
Ch
ong
Bon
d
Fu
nd
″
1
9,21
5
2
50,2
42
117
,86
8
1,5
50,0
00
1
37,0
83
1,8
04,2
91
1,5
50,0
00
4
,291
-
-
-
″
IN
G T
aiw
an
Sel
ect
Bon
d F
und
″
2
2,07
9
2
50,2
30
-
-
22,
079
2
51,5
10
2
50,0
00
1
,510
-
-
-
″
IN
G T
aiw
an
Bon
d F
und
″
-
-
19,
774
300
,00
0
19,
774
3
00,1
96
3
00,0
00
1
96
-
-
-
″
Meg
a D
iam
ond
Bon
d F
un
d
″
-
-
94,
875
1
,100
,00
0
94,
875
1,1
01,9
86
1,1
00,0
00
1
,986
-
-
-
″
Fu
hw
a B
ond
Fu
nd
″
-
-
38,
612
500
,00
0
38,
612
5
00,6
99
5
00,0
00
6
99
-
-
-
″
Chi
pMO
S T
echn
olog
ies
(Ber
mu
da
) LT
D.
Ava
ilab
le-f
or-s
ale
fin
anci
al a
sset
s
-
-
4,0
61
8
39,3
45
-
-
-
-
4
,061
558
,13
0 (
281
,215
)
Pro
MO
S
Tec
hn
olog
ies
Inc.
Pro
Q T
ech
nol
ogie
s In
corp
ora
ted
L
ong-
term
eq
uity
in
vest
men
t acc
oun
ted
for
und
er t
he
equ
ity
met
hod
-
-
-
2,6
35,0
50
-
-
-
-
-
2,5
99,2
88
(9
5,8
26
)
-168-
e)
Acq
uisi
tion
of r
ea
l est
ate
with
an
am
oun
t exc
ee
din
g th
e lo
we
r o
f $1
00
,000
or
20
pe
rcen
t of t
he C
om
pa
ny’
s co
mm
on
sto
ck f
or
the
ye
ar
end
ed
De
cem
be
r 3
1,
200
7: N
one
.
f) D
isp
osa
l of r
ea
l est
ate
with
an
am
oun
t exc
ee
din
g th
e lo
we
r o
f $1
00,
000
or
20
pe
rce
nt o
f the
Co
mp
an
y’s
com
mo
n st
ock
for
the
ye
ar
end
ed
De
cem
be
r 3
1,
200
7: N
one
.
g) R
ela
ted
pa
rty
tra
nsa
ctio
ns
with
pur
cha
ses
or
sale
s a
mo
unts
exc
ee
din
g th
e lo
we
r o
f $1
00
,00
0 o
r 2
0 p
erce
nt o
f the
Co
mp
an
y’s
com
mo
n st
ock
fo
r th
e y
ea
r e
nde
d D
ece
mb
er
31
, 2
007
:
Tra
nsa
ctio
ns
D
iffer
ence
with
ge
ner
al t
ran
sact
ion
s
A
ccou
nts
rec
eiva
ble
(p
aya
ble
)
Com
pan
y
Na
me
of c
ount
erp
art
y
Rel
atio
nsh
ip w
ith
the
Com
pan
y
P
urc
hase
s / s
ale
s
A
mou
nt
P
erce
nta
ge o
f p
urc
hase
s /
sale
s
Te
rm
Un
it p
rice
T
erm
Am
oun
t
Per
cen
tage
of t
ota
l a
ccou
nts
rece
iva
ble
/
pa
yab
le
N
ote
Pro
MO
S
Tec
hn
olog
ies
Inc.
Chi
pMO
S
Tec
hn
olog
ies
Inc.
Ind
irect
inve
stee
co
mp
any
of
Mos
el V
itelic
In
c.
P
roce
ssin
g ex
pen
se
$
6,49
1,7
21
1
3%
-
N/A
N/A
($1
,94
0,62
9)
(1
4%)
-
h) R
ece
iva
ble
s fr
om
re
late
d p
art
ies
exc
ee
din
g th
e lo
we
r o
f $1
00
,00
0 o
r 2
0 p
erc
ent
of t
he C
om
pa
ny’
s co
mm
on
sto
ck a
s o
f D
ece
mb
er
31
, 20
07
:
Ba
lanc
e of
rec
eiva
ble
from
re
late
d p
artie
s
Ove
rdu
e re
ceiv
ab
les
Com
pan
y
Na
me
of c
ount
erp
art
y R
ela
tion
ship
with
the
Com
pan
y
A
ccou
nts
re
ceiv
ab
le
O
ther
re
ceiv
ab
les
T
ota
l
Tu
rnov
er r
ate
A
mou
nt
Act
ion
ad
opte
d fo
r ov
erd
ue
acc
oun
ts
Su
bse
quen
t co
llect
ion
Allo
wa
nce
for
dou
btfu
l a
ccou
nts
pro
vid
ed
Pro
MO
S
Tec
hn
olog
ies
Inc.
P
roQ
Tec
hn
olog
ies
Inco
rpor
ate
d
Lon
g-te
rm e
qu
ity
inve
stm
ent
acc
ount
ed fo
r un
der
th
e eq
uity
met
hod
$
-
$
158
,095
$15
8,0
95
N
/A
$
-
-
$
-
$
-
i) I
nfo
rma
tion
on
de
riva
tive
tra
nsa
ctio
ns:
Re
fer
to N
ote
s 4
(2
), 4
(1
3) a
nd
10
.
-169-
2)
Info
rma
tion
of S
ubsi
dia
rie
s:
a)
Re
late
d in
form
atio
n o
f sub
sid
iary
co
mp
ani
es
as
of D
ece
mb
er
31,
200
7:
Orig
ina
l am
oun
t
Sh
are
s h
eld
by
the
Com
pan
y
Inve
stor
Inve
stee
co
mp
any
Lo
catio
n
Mai
n bu
sin
ess
scop
e
Dec
emb
er
31,
200
7
D
ecem
ber
3
1, 2
006
Nu
mb
er o
f sh
are
s (in
th
ousa
nd
s)
Per
cen
tage
B
ook
valu
e N
et in
com
e (lo
ss)
of
the
inve
stee
Inco
me
(loss
) re
cord
ed b
y th
e C
omp
any
N
ote
Pro
MO
S
Tec
hn
olog
ies
Inc.
Mos
el V
itelic
C
orp
ora
tion
C
alif
orn
ia
U.S
.A.
IC
res
earc
h, d
esig
n,
dev
elop
men
t,
ma
nufa
ctu
ring
and
ma
rket
ing
$
466
,83
0
$
4
66,8
30
0.5
50
%
$
193
,038
($36
2,58
4)
($
181,
292
)
″
Un
ited
M
emor
ies,
In
c.
C
olor
ad
o U
.S.A
. D
evel
opm
ent
of
pro
toty
pe
inte
gra
ted
circ
uits
a
nd s
ervi
ce
gen
era
ted
1
94,9
40
194
,94
0
1
,112
100
%
1
79,6
16
6
,356
6,3
56
″
Pro
MO
S
Tec
hn
olog
ies
PT
E.
Ltd
.
S
inga
por
e D
esig
n,
dev
elop
men
t,
con
sulti
ng,
lic
ensi
ng
and
ma
rket
ing
6
67,4
00
667
,40
0
2
0,00
0
1
00 %
(697
,217
)
52,
747
(497
,584
)
Not
e 1
″
Flo
uris
hin
g M
omen
t Li
mite
d
B
VI
Hol
din
g co
rpor
atio
n
3
3,37
0
3
3,37
0
1
,000
100
%
3
2,43
0
-
-
″
Pu
tian
Ma
ode
Tec
hn
olog
ies
(Ch
ongq
ing)
C
orp
ora
tion
C
hon
gqin
g C
hina
F
lash
res
earc
h,
des
ign
, d
evel
opm
ent,
m
anu
fact
urin
g,
sale
s a
nd
tech
nol
ogie
s se
rvic
e
1
62,7
42
76,
820
-
49
%
1
19,4
36
5
7,04
4
2
7,95
1
″
Pro
MO
S
Tec
hn
olog
ies
Japa
n Li
mite
d T
okyo
Ja
pan
S
ale
s, im
por
t an
d ex
por
t of
se
mic
ondu
ctor
and
re
late
d e
lect
ron
ic
pro
duc
ts
2
3,27
1
2
,796
-
1
00 %
(5,1
31)
(2
0,9
00
)
(20
,90
0)
″
E
pile
ds
Tec
hn
olog
ies,
Inc.
T
aiw
an
W
hol
esa
le o
f el
ectr
onic
ma
teria
ls
and
ma
nufa
ctu
re o
f el
ectr
onic
co
mp
onen
ts
1
60,0
00
1
60,0
00
1
6,00
0
29.
09%
161
,74
1
15,
652
4,7
05
″
In
ap
ac
Tec
hn
olog
y,
Inc.
C
alif
orn
ia
U.S
.A.
P
rovi
der
of m
emor
y te
chn
olog
y a
nd
se
rvic
es fo
r sy
stem
-in-p
ack
age
(S
ip)
and
M
ulti
-ch
ip-p
ack
age
(N
CP
) so
lutio
ns
4
52,2
82
452
,28
2
1
6,44
9
2
6.14
%
4
06,7
02
(1
77,0
75)
(4
6,2
81
)
Not
e 2
″
C
apso
Vis
ion
, In
c.
C
alif
orn
ia
U.S
.A.
D
evel
op a
nd
com
mer
cia
lize
sma
ll ca
mer
a in
ca
psu
le fo
rm t
hat
can
be
swa
llow
ed
by
pa
tien
ts a
nd
use
d to
dia
gnos
e a
varie
ty o
f ga
stro
inte
stin
al
dis
ord
ers
4
9,35
0
4
9,35
0
5
,556
30.
48%
23,
551
(8
7,7
41
)
(26
,57
2)
N
ote
2
-170-
Orig
ina
l am
oun
t
Sh
are
s h
eld
by
the
Com
pan
y
Inve
stor
Inve
stee
co
mp
any
Lo
catio
n
Mai
n bu
sin
ess
scop
e
Dec
emb
er
31,
200
7
D
ecem
ber
3
1, 2
006
Nu
mb
er o
f sh
are
s (in
th
ousa
nd
s)
Per
cen
tage
B
ook
valu
e N
et in
com
e (lo
ss)
of
the
inve
stee
Inco
me
(loss
) re
cord
ed b
y th
e C
omp
any
N
ote
Pro
MO
S
Tec
hn
olog
ies
Inc.
P
roQ
T
ech
nol
ogie
s In
corp
ora
ted
Ch
ongq
ing
Chi
na
D
evel
opm
ent,
m
anu
fact
urin
g an
d m
ark
etin
g of
se
mic
ondu
ctor
and
re
late
d t
echn
olog
y se
rvic
es
$
2,63
5,0
50
$
-
-
100
%
$
2,59
9,2
88
($
95,8
26)
($
95,8
26)
″
P
roIm
age
T
ech
nol
ogie
s In
c.
C
AY
MA
N
Isla
nd
s H
old
ing
Cor
por
atio
n
16,
405
-
16,
200
100
%
9
,731
(6,5
68)
(6
,568
)
No
te 1
: In
Ap
ril 2
00
7 a
nd J
une
20
06,
the
Co
mp
an
y p
urch
ase
d p
ate
nts
fro
m P
roM
OS
Te
chno
logi
es
PT
E.
Ltd
. The
unr
ea
lize
d g
ain
wa
s e
limin
ate
d in
p
rop
ort
ion
to th
e C
om
pa
ny’
s sh
are
hold
ing.
No
te 2
: The
me
tho
d o
f acc
oun
ting
has
be
en
cha
nge
d fr
om
th
e c
ost
me
tho
d to
th
e e
qui
ty m
eth
od
effe
ctiv
e J
anu
ary
1,
20
07.
b)
Loa
ns to
oth
ers
attr
ibut
ed
to fi
nanc
ial a
ctiv
itie
s a
s o
f De
cem
be
r 3
1,
200
7: N
one
.
c) E
ndo
rse
me
nts
and
gua
rant
ee
s p
rovi
de
d to
oth
ers
as
of D
ece
mb
er
31
, 20
07
: No
ne.
d)
De
tails
of
ma
rke
tab
le s
ecu
ritie
s he
ld a
s o
f De
cem
be
r 3
1,
20
07
:
Dec
emb
er 3
1, 2
007
Inve
stor
Typ
e of
ma
rket
ab
le
secu
ritie
s
Na
me
of m
ark
etab
le s
ecu
ritie
s
R
ela
tion
ship
with
the
Com
pan
y
Gen
era
l led
ger
acc
ount
s
N
um
ber
of s
hare
s (in
thou
sand
s)
B
ook
valu
e
Per
cen
tage
M
ark
et v
alu
e (N
ote)
Flo
uris
hin
g M
omen
t Li
mite
d
P
refe
rred
sto
ck
Na
noA
mp
Sol
utio
ns,
Inc.
Non
e
Fin
anc
ial a
sset
s ca
rrie
d a
t
cost
- n
oncu
rren
t
2
50
$
32,4
30
-
$
-
Pro
Ima
ge T
ech
nol
ogie
s In
c.
C
omm
on s
tock
P
roIm
age
Tec
hn
olog
ies
Lim
ited
U.S
.A.
In
vest
ee c
omp
an
y a
ccou
nted
for
und
er
the
equ
ity m
eth
od
Lon
g-te
rm in
vest
men
ts
acc
ount
ed fo
r un
der
th
e eq
uity
met
hod
5
,000
9,7
31
1
00%
9,7
31
No
te: L
on
g-t
erm
eq
uity
inve
stm
ent
s a
cco
unt
ed
for
und
er
the
eq
uity
me
tho
d: M
ark
et v
alu
e is
de
term
ine
d b
ase
d o
n th
e n
et
ass
et v
alu
e o
f in
vest
ee
co
mp
ani
es
at t
he b
ala
nce
she
et
da
te.
e)
Ind
ivid
ual s
ecu
rity
for
wh
ich
tota
l bu
yin
g o
r se
lling
am
ou
nts
exc
ee
d th
e lo
we
r o
f $1
00
,00
0 o
r 2
0 p
erce
nt o
f the
Co
mp
an
y’s
com
mo
n st
ock
for
the
ye
ar
end
ed
De
cem
be
r 3
1,
20
07:
No
ne.
f) A
cqui
sitio
n o
f re
al e
sta
te w
ith a
n a
mo
unt
exc
ee
din
g th
e lo
we
r o
f $1
00
,00
0 o
r 2
0 p
erc
ent
of t
he C
om
pa
ny’
s co
mm
on
sto
ck fo
r th
e y
ea
r e
nde
d D
ece
mb
er
31,
200
7: N
one
.
g) D
isp
osa
l of r
ea
l est
ate
with
an
am
oun
t exc
ee
din
g th
e lo
we
r o
f $1
00
,000
or
20
pe
rce
nt o
f the
Co
mp
an
y’s
com
mo
n st
ock
for
the
ye
ar
end
ed
De
cem
be
r 3
1,
200
7: N
one
.
h) R
ela
ted
pa
rty
tra
nsa
ctio
ns
with
pur
cha
ses
or
sale
s a
mo
unts
exc
ee
din
g th
e
low
er
of $
10
0,0
00
or
20
per
cent
of t
he C
om
pa
ny’
s co
mm
on
sto
ck f
or
the
ye
ar
end
ed
De
cem
be
r 3
1,
200
7:
No
ne.
i) R
ece
iva
ble
s fr
om
re
late
d p
art
ies
exc
ee
din
g th
e lo
we
r o
f $1
00
,00
0 o
r 2
0 p
erc
ent
of t
he C
om
pa
ny’
s co
mm
on
sto
ck a
s o
f D
ece
mb
er
31
, 20
07
: No
ne.
j) I
nfo
rma
tion
on
de
riva
tive
tra
nsa
ctio
ns: N
one
.
-171-
3)
Re
leva
nt i
nfo
rma
tion
of i
nve
stm
ent
in m
ain
land
Chi
na:
a)
Info
rma
tion
of i
nve
stm
en
t in
ma
inla
nd C
hina
:
Am
oun
t of
rem
itta
nce
or
colle
ctio
n fo
r th
e ye
ar
end
ed D
ecem
ber
31
, 2
007
N
am
e of
inve
stee
in
ma
inla
nd C
hin
a
M
ain
act
iviti
es o
f in
vest
ee
Cap
ital
(in th
ousa
nds)
M
eth
od o
f in
vest
men
t
Beg
inni
ng
ba
lan
ce o
f re
mitt
ance
for
the
yea
r en
ded
D
ecem
ber
31
, 2
007
R
emitt
ance
C
olle
ctio
n
End
ing
bala
nce
of r
emitt
ance
fr
om T
aiw
an
on
D
ecem
ber
31
, 2
007
Per
cen
tage
of
sha
reh
old
ing
(Not
e)
Pro
fit/lo
ss
reco
gniz
ed fo
r th
e ye
ar
end
ed
Dec
emb
er 3
1,
200
7
End
ing
bala
nce
of t
he
inve
stm
ent a
s of
Dec
emb
er
31,
200
7
Acc
um
ula
ted
b
ala
nce
of
inve
stm
ent i
nco
me
rem
itted
bac
k th
rou
gh D
ecem
ber
3
1, 2
007
Pu
tian
Ma
ode
Tec
hn
olog
ies
(Ch
ongq
ing)
C
orp
ora
tion
F
lash
res
earc
h, d
esig
n,
dev
elop
men
t,
ma
nufa
ctu
ring,
sa
les
and
tech
nol
ogy
serv
ices
U
.S.
$10
,31
0 In
vest
in
ma
inla
nd
Chi
na d
irect
ly
$
76
,820
$
8
5,9
22
$
-
$
16
2,74
2 4
9%
$
2
7,95
1
$
119
,43
6
$
-
Pro
Q T
ech
nol
ogie
s In
corp
ora
ted
D
evel
opm
ent,
m
anu
fact
urin
g an
d m
ark
etin
g of
se
mic
ondu
ctor
and
re
late
d t
echn
olog
y se
rvic
es
U
.S.
$80
,00
0 In
vest
in
ma
inla
nd
Chi
na d
irect
ly
-
2,6
35,0
50
-
2
,635
,05
0 1
00%
(95
,82
6)
2,5
99,2
88
-
End
ing
bala
nce
of in
vest
men
t fr
om T
aiw
an
as
of
Dec
emb
er 3
1, 2
007
Ap
pro
ved
inve
stm
ent a
mou
nt b
y M
inis
try
of E
con
omic
Affa
irs
R.O
.C.
(in th
ousa
nds)
C
eilin
g of
inve
stm
ent i
n M
ain
lan
d C
hina
$2,
797
,792
U.S
. $3
70,
052
$16
,76
8,28
9
No
te: T
he in
vest
me
nt g
ain
(lo
ss)
wa
s re
cog
nize
d b
ase
d o
n th
e in
vest
ee
co
mp
an
y’s
aud
ited
fina
ncia
l sta
tem
ent
s.
b)
Ma
jor
tra
nsa
ctio
ns w
ith in
vest
ee
co
mp
ani
es
in m
ainl
and
Chi
na:
i)
Oth
er
rece
iva
ble
s
D
ecem
ber
31
, 20
07
Am
oun
t
%
Oth
er r
ecei
vab
les
- P
roQ
T
ech
nol
ogie
s In
corp
ora
ted
$
1
58,0
95
$
15%
D
ecem
ber
31
, 20
06
Am
oun
t
%
Oth
er r
ecei
vab
les
- P
utia
n
Ma
ode
Tec
hnol
ogie
s (C
hon
gqin
g) C
orp
orat
ion
- (N
ote)
$
84,
803
$
1
2%
No
te: T
he C
om
pa
ny
pur
cha
sed
inve
nto
ry o
n b
eha
lf o
f Put
ian
Ma
od
e T
ech
nolo
gie
s (C
hon
gqin
g) C
orp
ora
tion.
ii)S
ale
s o
f A
sse
ts：In
De
cem
be
r 2
007
, th
e C
om
pa
ny
sold
its
ma
chin
ery
, eq
uip
me
nt a
nd r
aw
ma
teri
als
tota
ling
$1
57
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(sh
ow
n in
“O
the
r re
ceiv
ab
les
- re
late
d p
art
ies”
) to
Pro
Q
Te
chno
logi
es
Inco
rpo
rate
d r
esu
ltin
g to
a d
isp
osa
l ga
in o
f $1
25
,077
.
-172-
4).
Inf
orm
atio
n o
f Tra
nsa
ctio
ns
Be
twe
en
Pa
rent
Co
mp
an
y a
nd
S
ubsi
dia
rie
s:
a)
Fo
r th
e y
ea
r e
nde
d D
ece
mb
er
31
, 20
07,
pur
cha
ses,
sa
les
and
oth
er
sig
nific
ant
tra
nsa
ctio
ns b
etw
ee
n th
e C
om
pa
ny
and
its
cons
olid
ate
d s
ubsi
dia
rie
s a
re
su
mm
ari
zed
as
follo
ws:
T
ran
sact
ion
s
Com
pan
y th
at i
niti
ated
th
e tr
an
sact
ion
Na
me
of c
ount
erp
art
y
Rel
atio
nsh
ip
A
ccou
nt
A
mou
nt
T
ran
sact
ion
term
Per
cen
tage
of
con
solid
ated
rev
enu
e or
tot
al a
sset
s
Pro
MO
S T
ech
nol
ogie
s In
c.
Mos
el V
itelic
Cor
por
atio
n
P
are
nt
com
pan
y a
nd s
ub
sid
iary
Ren
tal i
ncom
e
$8,
443
C
ond
ucte
d in
the
ord
ina
ry c
ours
e of
b
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nes
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ith te
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sim
ilar
to th
ose
with
th
ird p
art
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ppor
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pen
se
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pon
pric
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h is
ba
sed
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rice
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F
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3
6
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les
24,
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C
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s w
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″
Un
ited
Mem
orie
s, In
c.
″
Ren
tal i
ncom
e
1
4,41
3
Con
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in th
e or
din
ary
cou
rse
of
bu
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ess
with
term
s si
mila
r to
thos
e w
ith
third
pa
rtie
s
0
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″
Pro
MO
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ech
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TE
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ngi
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ass
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6
86,5
51
Mut
ua
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h is
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sed
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et p
rice
0
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A
mo
rtiz
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05,6
24
Mut
ua
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gree
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pon
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hic
h is
ba
sed
on m
ark
et p
rice
0
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Pro
MO
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ech
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s Ja
pan
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mite
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Sa
les
85,
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M
utu
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ich
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ase
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ma
rket
pric
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8%
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In
tere
st in
com
e
74
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t 1
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tere
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A
ccou
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rec
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corp
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158
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5
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duc
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ary
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term
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pa
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s
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E
quip
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ts
7
40,4
74
M
utu
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rice,
wh
ich
is b
ase
d on
ma
rket
pric
e
0.4
4%
″
″
″
A
ccu
mu
late
d d
epre
ciat
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711
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3
Mut
ua
lly a
gree
d-u
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hic
h is
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sed
on m
ark
et p
rice
0
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″
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O
ther
liab
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s -
oth
er
125
,07
7
Mut
ua
lly a
gree
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pon
pric
e, w
hic
h is
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sed
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ark
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rice
0
.07%
″
″
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C
ost
of g
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ld
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05
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ua
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h is
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sed
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ark
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″
In
ven
torie
s
3,1
73
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ua
lly a
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hic
h is
ba
sed
on m
ark
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rice
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-173-
T
ran
sact
ion
s
Com
pan
y th
at i
niti
ated
th
e tr
an
sact
ion
Na
me
of c
ount
erp
art
y
Rel
atio
nsh
ip
A
ccou
nt
A
mou
nt
T
ran
sact
ion
term
Per
cen
tage
of
con
solid
ated
rev
enu
e or
tot
al a
sset
s
Mos
el V
itelic
C
orp
ora
tion
P
roM
OS
Tec
hn
olog
ies
Inc.
S
ub
sidi
ary
and
pa
rent
com
pan
y R
enta
l exp
ense
$8,
443
C
ond
ucte
d in
the
ord
ina
ry c
ours
e of
b
usi
nes
s w
ith te
rms
sim
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to th
ose
with
th
ird p
art
ies
0
.02%
″
″
″
S
ale
s
20,
668
M
utu
ally
agr
eed
-up
on p
rice,
wh
ich
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ase
d on
ma
rket
pric
e
0.0
4%
″
″
″
A
dm
inis
tra
tive
exp
ense
s
10,
193
M
utu
ally
agr
eed
-up
on p
rice,
wh
ich
is b
ase
d on
ma
rket
pric
e
0.0
2%
″
″
″
O
ther
rec
eiva
ble
s
24,
207
C
ond
ucte
d in
the
ord
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ours
e of
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nes
s w
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ose
with
th
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0
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MO
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ech
nol
ogie
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TE
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Su
bsi
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dia
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Oth
er r
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vab
les
1
49,5
87
C
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the
ord
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ours
e of
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S
ale
s
493
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7
Mut
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F
ore
ign
exc
ha
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ga
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810
M
utu
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is b
ase
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ma
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pric
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ech
nol
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mite
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rec
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630
C
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the
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art
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Pro
MO
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nol
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s In
c.
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Acc
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2,0
86
Con
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e or
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ary
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ited
Mem
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c.
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R
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14,
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C
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TE
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d.
S
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ccou
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19,
245
C
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S
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s
218
,32
5
Mut
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0
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″
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″
F
ore
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ga
in
197
M
utu
ally
agr
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ase
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ma
rket
pric
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0.0
0%
Pro
MO
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nol
ogie
s P
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Pro
MO
S T
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ogie
s In
c.
Su
bsi
dia
ry a
nd p
are
nt c
omp
any
Oth
er in
com
e
793
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0
Mut
ua
lly a
gree
d-u
pon
pric
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hic
h is
ba
sed
on m
ark
et p
rice
1
.66%
″
″
″
F
ore
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exc
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nge
loss
1,4
65
Mut
ua
lly a
gree
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pric
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sed
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ark
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″
Mos
el V
itelic
Cor
por
atio
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sidi
ary
and
sub
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P
rep
aid
exp
ense
s
194
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0
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ary
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term
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third
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″
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A
ccou
nts
pa
yab
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4
4,99
3
Con
duc
ted
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e or
din
ary
cou
rse
of
bu
sin
ess
with
term
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mila
r to
thos
e w
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third
pa
rtie
s
0
.03%
-174-
T
ran
sact
ion
s
Com
pan
y th
at i
niti
ated
th
e tr
an
sact
ion
Na
me
of c
ount
erp
art
y
Rel
atio
nsh
ip
A
ccou
nt
A
mou
nt
T
ran
sact
ion
term
Per
cen
tage
of
con
solid
ated
rev
enu
e or
tot
al a
sset
s
Pro
MO
S T
ech
nol
ogie
s P
TE
. Lt
d.
Mos
el V
itelic
Cor
por
atio
n
S
ub
sidi
ary
and
sub
sid
iary
R
esea
rch
and
d
evel
opm
ent
exp
ense
$ 4
93,9
07
M
utu
ally
agr
eed
-up
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rice,
wh
ich
is b
ase
d on
ma
rket
pric
e
1.0
3%
″
Un
ited
Mem
orie
s, In
c.
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Acc
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ts p
aya
ble
19,
245
C
ond
ucte
d in
the
ord
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ry c
ours
e of
b
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s w
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rms
sim
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to th
ose
with
th
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ies
0
.01%
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″
″
R
esea
rch
and
d
evel
opm
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18,5
22
M
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agr
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-up
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ase
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e
0.4
6%
Pro
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S T
ech
nol
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s Ja
pan
Lim
ited
P
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OS
Tec
hn
olog
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Inc.
S
ub
sidi
ary
and
pa
rent
com
pan
y
C
ost
of g
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s so
ld
8
5,23
8
Mut
ua
lly a
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pon
pric
e, w
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h is
ba
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rice
0
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″
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″
In
tere
st e
xpen
se
7
4
At
1.5
%, s
ligh
tly lo
wer
th
an
ma
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inte
rest
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0
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A
ccou
nts
pa
yab
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3
3,05
8
180
da
ys a
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ship
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t
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2%
Pro
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corp
ora
ted
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Oth
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2
6
Con
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thos
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s
0
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″
O
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pa
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1
58,1
21
C
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d in
the
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e of
b
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s w
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rms
sim
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to th
ose
with
th
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0
.09%
.
″
″
″
P
rep
aym
ents
for
equ
ipm
ent
1
54,0
48
C
ond
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d in
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ord
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ry c
ours
e of
b
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nes
s w
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sim
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to th
ose
with
th
ird p
art
ies
0
.09%
″
″
″
C
ost
of g
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ld
1
05
Mut
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lly a
gree
d-u
pon
pric
e, w
hic
h is
ba
sed
on m
ark
et p
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0
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″
″
″
In
ven
torie
s
3,1
73
Mut
ua
lly a
gree
d-u
pon
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e, w
hic
h is
ba
sed
on m
ark
et p
rice
0
.00%
Pro
Ima
ge T
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s In
c.
Pro
Ima
ge T
ech
nol
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s Li
mite
d U
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Su
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nd s
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O
ther
pa
yab
les
3
24
Con
duc
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in th
e or
din
ary
cou
rse
of
bu
sin
ess
with
term
s si
mila
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ith
third
pa
rtie
s
0
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Pro
Ima
ge T
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nol
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s Li
mite
d U
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roIm
age
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hn
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Inc.
″
O
ther
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s
324
C
ond
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ours
e of
b
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s w
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sim
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to th
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with
th
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0
.00%
″
Mos
el V
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Cor
por
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″
O
ther
pa
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6
30
Con
duc
ted
in th
e or
din
ary
cou
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of
bu
sin
ess
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term
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thos
e w
ith
third
pa
rtie
s
0
.00%
-175-
b)
Fo
r th
e y
ea
r e
nde
d D
ece
mb
er
31
, 20
06,
pur
cha
ses,
sa
les
and
oth
er
sign
ifica
nt tr
ans
act
ions
be
twe
en
the
Co
mp
an
y a
nd it
s co
nso
lida
ted
sub
sid
iari
es
are
su
mm
ari
zed
as
follo
ws:
Tra
nsa
ctio
ns
Com
pan
y th
at i
niti
ated
th
e tr
an
sact
ion
Na
me
of c
ount
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-176-
Tra
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-178-
12. SEGMENT INFORMATION
(1) Financial information by industry:
The Company operates principally in the semiconductor related industry.
(2) Financia1 information by geographic areas: As of and for the year ended December 31, 2007
Asia North
America Taiwan Others Eliminating
Entries Consolidated
Balance
Sales to unaffiliated customers
$ 347,763
$ 20,876
$47,508,998
$ -
$ -
$ 47,877,637
Inter-segment sales - 732,090 85,238 - ( 817,328 ) - Net operating
revenues 347,763
752,966
47,594,236
-
( 817,328 )
47,877,637
Operating (loss) income
( $ 799,601 )
$ 26,414
( $ 6,183,184 )
( $ 6,618 )
$ 249,613
( 6,713,376 )
Investment loss ( 204,026 ) Interest expense ( 916,374 ) Others ( 977,014 ) Net loss before
income tax ( $ 8,810,790 )
Identifiable assets $ 3,537,441 $ 165,168 $168,233,837 $ 42,801 ( $3,607,776 ) $168,371.471 Long-term
investments
711,430
Total assets $169,082,901
As of and for the year ended December 31, 2006
Asia North
America Taiwan Others Eliminating
Entries Consolidated
Balance
Sales to unaffiliated customers
$ 451,531
$ 31,471
$59,847,208
$ -
$ -
$ 60,330,210
Inter-segment sales - 661,408 224,116 - ( 885,524 ) - Net operating
revenues 451,531
692,879
60,071,324
-
( 885,524 )
60,330,210
Operating (loss) income
( $ 762,994 )
$ 25,816
$17,259,924
$ -
$ 86,923
16,609,669
Investment loss ( 1,021,067 ) Interest expense ( 696,955 ) Others ( 131,978 ) Net income before
income tax $ 14,759,669
Identifiable assets $ 702,539 $ 505,758 $140,472,958 $ 32,600 ( $ 989,524 ) $140,724,331 Long-term
investments
1,887,034
Total assets $142,611,365
(3) Information on export sales:
For the years ended December 31,
Area 2007 2006
Asia $ 14,425,086 $ 21,139,967
Europe 13,530,747 3,428,275
America 4,804,140 23,034,370
$ 32,759,973 $ 47,602,612
-179-
(4) Major customer information:
In 2007 and 2006, revenues from specific customers representing over 10% of
total revenues are listed below: For the years ended December 31,
2007 2006
Customer Sales amount % Sales amount % A $ 14,025,144 29% $ 15,452,875 26%
C 5,995,866 13% 9,086,748 15%
D 7,207,319 15% 9,852,984 16%
-180-
(6) Financial Difficulties: None.
Review and Analysis of the financial condition, operating results and a listing of risks (1) Financial Condition
Financial Analysis
unit: Thousand of NTD
Variance Year
Item
2007 2006 Amount %
Current Assets 29,736,534 45,131,150 (15,394,616) (34.11)
Fixed Assets 127,183,273 86,811,784 40,371,489 46.50
Other Assets 2,871,758 3,534,719 (662,961) (18.76)
Total Assets 169,647,615 142,588,104 27,059,511 18.98
Current Liabilities 28,541,222 29,392,515 (851,293) (2.90)
Long-Term Liabilities 62,970,842 25,120,720 37,850,122 150.67
Total Liabilities 93,306,168 54,878,043 38,428,125 70.02
Capital Stock 67,069,537 65,343,958 1,725,579 2.64
Capital Surplus 10,310,394 7,828,893 2,481,501 31.70
Retained Earnings (698,151) 14,748,595 (15,446,746) (104.73)
Total Shareholders
Equity 76,341,447 87,710,061 (11,368,614) (12.96)
The main reasons for any item change, or more than 20% of change, in the company's assets, liabilities, or shareholders'
equity during the past two fiscal years:
1. Current assets: An decrease in current assets resulted from decrease of both cash and account receivable compare with
2006.
2. Fixed assets: Significant change in fixed assets resulted from capital expenditures on procurement of machinery and
equipment for 12-inch fab in Taichung.
3.Long-Term Liabilities: Significant change in long-term liabilities resulted from increased liabilities for expending 12-inch fab
in Tiachung.
4. Total Liabilities: Significant change in liabilities resulted from increased of both long-term liabilities and other liabilities.
5. Capital surplus: An increase resulted from the issuance of GDR and additional paid-in capital of existing ECBs converted
into common stock.
6.Retained earnings: Significant decrease in retained earnings resulted from loss income of 2007.
-181-
(2) Business Performance
Business Performance
Unit: Thousand of NTD
Year
Item
2007 2006 Variance % of Change
Gross Sales 48,683,149 62,283,295 (13,600,146) (21.84)
Less: Sales Returns and
Allowance (1,088,913) (2,211,971) 1,123,058 (50.77)
Net Sales 47,594,236 60,071,324 (12,477,088) (20.77)
Cost of Sales (48,200,588) (37,786,180) (10,414,408) 27.56
Gross Profit (606,352) 22,285,144 (22,891,496) (102.72)
Operating Expense (5,576,831) (5,025,220) (551,611) 10.98
Operating Income (6,183,183) 17,259,924 (23,443,107) (135.82)
Non-Operating Income 1,356,272 658,371 697,901 106.00
Non-Operating Expense (3,796,851) (3,136,443) (660,408) 21.06
Net Income before Income
Tax (8,623,762) 14,781,852 (23,405,614) (158.34)
Tax Benefit (Expense) 1,302,630 (248,646) 1,551,276 (623.89)
Income after Tax (7,321,132) 14,533,206 (21,854,338) (150.38)
Cumulative effect of
changes in accounting
principles
0 2,420 (2,420) (100.00)
Net Income (7,321,132) 14,535,626 (21,856,758) (150.37)
Variance analysis:
1. An decrease in sales was due to decrease of DRAM ASPs.
2. An increase in cost of goods sold was due to an increase of shipment volume.
3. An decrease in gross profit was due to an decrease of the average selling price of DRAM in 2007.
4. An increase in non-operating income was mainly due to and increase of both foreign exchange gain
and other income
5. An increase in non-operating expense was mainly due to increase of interest expense and decrease of
average selling price from other loss-L.C.M.
6. An increase in income profits was mainly due to net loss of 2007 and increase of deferred tax assets.
7. An increase in net income after income tax was as a result from the above 1 to 6.
-182-
(3) Cash Flow
A. Analysis of Liquidity for the Most Recent Two Years
Year
Item
For the year ended on Dec. 31, 2007
For the year ended on Dec. 31,2006
% of Change
Cash flow ratio (%) 51.24 87.57 -41.49%
Cash flow reinvestment ration (%) 4.20 14.66 -71.35%
Cash flow adequacy ratio (%) 54.75 73.82 -25.89%
Variance Analysis:
An decrease of cash flow rations was mainly due to decrease of DRAM ASPs and cash inflows from operating activities. An decrease of cash reinvestment ratio and cash adequate ratio was mainly due to paid to cash dividend and increase of capital expense.
B. Analysis of Liquidity for Next Year
Remedy for cash shortfall Cash balance at
beginning of year
(1)
Estimated net cash provided by
operating activities
(2)
Net cash
outflows
(3)
Cash
balance
(1) + (2) - (3)
Investment
plan
Financing
plan
$8,298,881 $5,131,162 $16,876,350 -$3,446,307 － $24,038,580
Cash flow variance analysis:
1. Operating activities: Cash inflows from operating activities are expecting to result from continuous
business growth and increase in sales and decrease in expense in 2008.
2. Investing activities: Cash outflows from investing activities are expecting to result from increases in
capital expenditure on the construction of Fab4 and capacity expansion at Fab3.
3. Financing activities: Cash inflows from financing activities are expecting to result from issuance of Euro
Convertible Bonds, GDR and bank syndicated loans.
(4) Major Capital Expenditure for 2007
A. Schedule of Fund Usage and Funding Resource
Unit：Thousand of NTD
Plan Funding Source
Estimated
Completion date
Fund Needed 2004 2005 2006 2007
Construction of 12-inch fab and expansion of capacity
ECB, GDR, Long term borrowing and own fund sources
March 2007 58,109,934 1,700,789 24,765,104 29,045,040 2,599,001
Construction of 12-inch fab and expansion of capacity
ECB, GDR, Long term borrowing and own fund sources
December 2007
43,117,695 - - 6,103,986 37,013,709
-183-
B. Projected Potential Benefit
i. Increase in quantity of production and sale, revenue and gross profit:
Unit: Thousands of NTD
Year Item Quantity of Production Quantity of Sales Revenue Gross Profit
2008 DRAM 593,793 639,191 4,682,238 (9,571,713)
2009 DRAM 451,167 451,167 17,676,924 17,042,314
2010 DRAM 1,550,566 1,550,566 45,985,056 32,581,534
2011 DRAM 313,146 313,146 6,896,073 2,385,205
ii. Explanations of other benefits: None
(5) Reinvestment policy for the most recent fiscal year, the main reasons for the profits/losses generated thereby, the plan for improving re-investment profitability, and investment plans for the coming year：
There are no reinvestment cases which amounts exceed 5% of our paid-in capital for the coming year.
(6) Risks analysis and assessment during the most recent fiscal year and as of the date of printing of the annual report.
A. The effect upon profits (losses) of interest and exchange rate fluctuations and changes in the inflation rate, and response measures to be taken in the future：
Because we are in a capital-intensive DRAM industry, we need a lot of money to construct a new fab and introduce more advanced process technologies. Most of our capital expenditures are denominated in Euro, US Dollars and Japanese Yen. Most of our revenue and accounts receivable are denominated in US Dollars. We currently take a measure of neutral hedging and other necessary hedging (ex. Forward Exchange contracts) with respect to our foreign exchange exposure because the majority of revenues are denominated in US Dollars. Our hedging strategies aim to lower the effect of foreign exchange exposure upon net profits and will continue to adopt any hedging trade if needed.
Following the strong growth of global economy, the interest rate seems to be higher in the future. To mitigate the impact from higher interest rate, we will enter an interest rate swap agreement in a proper manner to hedge interest rate movements. Importantly, we do not engage in interest rate derivative transactions for speculative purposes.
As for inflation issue, currently the high oil price and a rising price of raw materials have negative impacts to us. However, these impacts on profits are limited because our cost of raw materials does not account for a significant portion of total manufacturing cost.
B. Policies regarding high-risk investments, highly leveraged investments, loans to other parties, endorsements, guarantees, and derivatives transactions, the main reasons for the profits/losses generated thereby and response measures to be taken in the future：
We have not invested in fields related to high-risk and high-leveraged investments. As for loans to other parties in 2006, there were loans to ProMOS Technologies Japan Ltd., one of our reinvested companies, and those were following related regulations of our company. With regard to endorsements and guarantees for 2006, we had none except those for the Custom. We engage in derivative transactions just for purposes of hedging market risks. Therefore, results from these derivative transactions are limited and controllable compared to results from our operations.
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C. Research and development work to be carried out in the future, and further expenditures expected for research and development work Please refer to “ the section of Technology, R&D of Overview of Business Operations “on this annual report.
D. Effect on finance and operations of important policies adopted and changes in the legal environment at home and abroad, and measures to be taken in response ProMOS always keeps eyes on and controls all government policies and regulations which may affect our operations, and adjust our internal system accordingly. In 2007, there are no significant effects on our operations from any important policy adopted and changes in the legal environment at home and abroad.
E. Effect on finance and operations of developments in science and technology as well as industrial change, and measures to be taken in response. To mitigate the operational risks from fluctuation of commodity DRAM price, we are migrating our mass-production technology to 70nm and lower our production cost by expanding our 12” capacity. Meanwhile, we are expanding our customer base and diversifying our products applications. In addition, we may also intend to increase contract customers, stabilize sales volume and price, aggressively penetrate our market shares in consumer electronics, provide specialty DRAMs to solid our market base and diversify our product mix.
F. Effect on crisis management of changes in corporate image, and measures to be taken in response ProMOS indeed understand un expectable events may endanger our goodwill. To response our insistence on integrity and commitment, an emergency team is managed by and composed of our top management and related employees. Once un expectable events occur, this emergence team may execute related mechanisms, to detect them and analyze any following effects, to take necessary actions to protect safety of employees and environment and maintain the efficiency of ongoing production. Our stocks listed and traded in Taiwan OTC securities market. We have a good corporate image by following related mechanisms and regulations from our government.
G. Expected benefits and possible risks associated with any merger and acquisitions Not applicable
H. Expected benefits and possible risks associated with any plant expansion We operate principally in the highly volatile DRAM industry, which is characterized by rapid technological changes and severe industry-wide competition for market share resulting in aggressive pricing practices. To lower the manufacturing cost of DRAM and promote our competitiveness, we focus on the introduction of advanced process technologies, enhancement of yield rate and utilization of advanced machinery and equipment.
I. Risks associated with any consolidation of sales or purchasing operations As risks related to our sales or purchasing operations disclosed in this annual report, we are striving to properly diversify our sources of purchases and sales customers according to the growth trends of ProMOS and the industry. With these efforts we are striving, it is expecting to maintain balanced and steady results of operations.
J. Effect upon and risk in the event a major quantity of shares belonging to a director, supervisor, or shareholder holding greater than a 10 percent stake has been transferred or has otherwise changed hands: Not applicable
K. Effect upon and risk associated with any change in governance personnel or top management: Not applicable
L. Litigious and non-litigious matters
i. On July 25, 2006, Mosaid Technologies Inc. filed a lawsuit with the United States District Court of the Eastern District of Texas Marshall Division against Micron Technology Inc., Powerchip Technologies Corporation and the Company, alleging infringement, among others, of its patent. As the Company came to a settlement with
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Mosaid Technologies Inc. on January 31, 2008, the settlement amount was recognized under ”Other non-operating losses”.
ii. Freescale Semiconductors Inc. filed a lawsuit with the United States District Court of the Eastern District of Texas Marshall Division against the Company on December 7, 2006, alleging infringement, among others, of its patent. On December 22, 2006, the Company also filed a lawsuit with the State of Delaware against Freescale Semiconductors Inc. for infringement of the Company’s patents. At present, the Company has attorneys in this area tending to this case and although it is not possible to predict the outcome of this litigation due to initial discovery proceedings, the Company believes any such outcome will not adversely affect normal business operations of the Company.
iii. Tessera, Inc. filed a lawsuit with the United States District Court of the Eastern District of Texas Marshall Division against the Company on December 7, 2007, alleging infringement, among others, of its patent. At present, the Company has attorneys in this area tending to this case and although it is not possible to predict the outcome of this litigation due to initial discovery proceedings, the Company believes any such outcome will not adversely affect normal business operations of the Company.
iv. Lin Packaging Techynoloiges Ltd. filed a lawsuit with the United States District Court of the Eastern District of Texas Marshall Division against the Company on February 20, 2008, alleging infringement, among others, of its patent. At present, the Company has attorneys in this area tending to this case and although it is not possible to predict the outcome of this litigation due to initial discovery proceedings, the Company believes any such outcome will not adversely affect normal business operations of the Company.
M. Other important risks : None
(7) Other important matters : None
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Special Items (1) Information Related to Affiliates
A. Consolidated Business Report of Affiliates
a. Organization Chart of Affiliates
b. Basic Information on Each of Affiliates
Name Acquired Date Location Paid-in Capital Major Scopes of Business
Mosel Vitelic Corporation 2003/12/31 3910 North First Street San Jose, CA 95134-1501
USD 36,469,566
IC research, design, develop ,manufacturing and marketing
United Memories, Inc. 2003/12/31 4815 List Drive, Suite 109 Colorado Springs, CO 80919
USD 1,111,952
Develop of prototype integrated circuits and service generated
ProMOS Technologies Pte. Ltd. 2004/5/31 8 Cross Street #11-00 PWC Building Singapore 048424
USD 20,000,000
Design development, consulting, licensing and marketing
Flourishing Moment Limited 2004/6/10
P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands
USD 1,000,000
Holding corporation
ProMOS Technologies Japan Limited 2006/2/1 ONZE 1852 Building 6F 2-14-6 Shintomi, Chuo-Ku, Tokyo 104-0041.Japan
JPY 80,000,000
Sales, import and export of semiconductor and related electronic products
ProQ Technologies Incorporated 2007/5/10 Chongqing China USD 80,000,000
Development, manufacturing and marketing of semiconductor and related technology services
ProImage Technologies Inc. 2007/6/15 P.O. Box 30691, Grand Cayman KYI1-1203, Cayman Islands
USD 500,000 Holding corporation
ProImage Technologies Limited U.S.A. 2007/4/17 3910 North First Street San Jose, CA 95134-1501
USD 500,000 Research and design of semiconductor
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c. Information on the Same Shareholder with Presumed Relationship of Control and Subordination： None
d. Industry Involved by Affiliates’ Business and Operations
To research, design, develop, test, fabricate and sell Large Scale Integration (LSI) Circuit and related IC products as well as import and export trading related to our business activities
e. Shareholding of Directors, Supervisors and General Manager of Each Affiliate
Unit: Shares Number of Shares Held Name Title Name or The Representative
Shares % of Stake
Mosel Vitelic Corporation Chairman M.L. Chen
500 50%
United Memories, Inc. Chairman Hsing Tuan
1,112,150 100%
ProMOS Technologies Pte. Ltd. Chairman M.L. Chen
20,000,000 100%
Flourishing Moment Limited Chairman M.L. Chen
1,000,000 100%
ProMOS Technologies Japan Limited Chairman Rokuro Yoshizawa - 100%
ProQ Technologies Incorporated Chairman M.L. Chen - 100%
ProImage Technologies Inc. Chairman M.L. Chen
16,200,000 100%
ProImage Technologies Limited U.S.A. Chairman Len Mei
5,000,000 100%
f. Overview of Affiliates’ Operations
Unit: Thousand of NTD
Name Paid-in Capital
Total Assets
Total Liabilities
Total Shareholders'
Equity Revenue Operating
Profit Net Income after Tax EPS
Mosel Vitelic Corporation 1,247,259 24,224 92,759 -68,535 521,507 20,058 -362,584 -
United Memories, Inc. 38,029 140,944 8,739 132,205 231,459 6,356 6,356 -
ProMOS Technologies Pte. Ltd. 667,400 530,340 64,237 466,103 - - 716,925
52,747 -
Flourishing Moment Limited 33,370 32,430 - 32,430 - 0 0 -
ProMOS Technologies Japan Limited 23,271 201,545 206,676 -5,131 347,763 -20,530 -20,900 -
ProQ Technologies Incorporated 2,635,050 2,805,555 206,267 2,599,288 - -62,147 -95,826 -
ProImage Technologies Inc. 16,405 10,056 324 9,731 - -6,618 -6,568 -
ProImage Technologies Limited U.S.A. 16,405 10,371 640 9,731 - -6,618 -6,568 -
Note 1: Calculated based on historical foreign exchange rate
Note 2: The numbers on Balance Sheet translated by the foreign exchange rate as of the end of 2007,
e.g. USD 32.43、YEN 0.2897、SGD 22.54、CNY4.440.
The number on Income Statement translated by yearly average of the foreign exchange rate for 2007，
e.g. USD 32.85、YEN 0.2792、SGD 21.81、CNY4.318.
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B. Affiliates consolidated statements of operations and other related financial statements as of
December 31, 2007 :
a. Please refer to P111 ~ P 180 of this report
b, Declaration of Affiliation Report
Declaration of the Consolidated Financial Statements of Affiliates
We hereby state that the Company required to be included in the consolidated financial
statements of affiliates for the year ended on December 31, 2007 under the “Criteria Governing
Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial
Statements of Affiliated Enterprises” is the same as the Company required to be included in the
consolidated financial statements of parent and subsidiary companies for the same period as
provided in Financial Accounting Criteria Gazette No. 7. Meanwhile, relevant information that should
be disclosed in the consolidated financial statements of affiliates has all been disclosed in the
preceding consolidated financial statements of parent and subsidiary companies. Therefore, we shall
not be required to prepare separate consolidated financial statements of affiliates for the year ended
on December 31, 2007.
ProMOS Technologies Inc.
Chairman:
President:
C. Affiliation Report : None
(2) Information on a private placement of securities during the most recent fiscal year or during the current fiscal year up to the date of printing of the annual report: None.
(3) Holding or disposal of shares in the company by the company's subsidiaries during the most recent fiscal year or during the current fiscal year up to the date of printing of the
annual report : None.
(4) Other matters that require additional description : None.
(5) Significant Impacts on Shareholders’ Equity or Securities’ Price Pursuant to Subparagraph 2 of Paragraph 2 of Article 36 of R.O.C. Securities and Exchange Act :
None.
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Annual Repot 2007ProMOS Technologies