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				2004				2005
				NTD				NTD				USD
Assets
Current assets:
	Cash and cash equivalents (note 5)			$	9,980,189				9,822,568				299,469
	Accounts receivable related parties (note 17)				2,589,503				5,050,277				153,972
	Other receivables (note 7)				160,283				54,110				1,650
	Inventories, net (note 6)				2,127,530				3,485,585				106,268
	Current portion of lease receivables (note 7)				—				6,690				204
	Prepayments and other current assets				1,011,742				616,693				18,802
	Deferred income tax assets — current, net (note 13)				12,163				36,405				1,110
	Financial assets (note 16)				—				1,268,011				38,659
		Total current assets			15,881,410				20,340,339				620,134
Property, plant and equipment (notes 7, 8, 9, 11 and 17)
	Land				1,225,459				2,801,467				85,411
	Buildings and structures				2,374,783				2,424,571				73,920
	Machinery and equipment				26,546,487				59,669,447				1,819,190
	Vehicles				2,913				2,913				89
	Leased assets				—				135,996				4,146
	Miscellaneous equipment				5,087,028				6,465,676				197,124
					35,236,670				71,500,070				2,179,880
	Less: accumulated depreciation				(2,042,536	)			(10,130,631	)			(308,861	)
	Construction in progress				18,349,418				4,770,603				145,445
	Prepayment on land purchase				—				22,772				694
		Net property, plant and equipment			51,543,552				66,162,814				2,017,158
Other assets:
	Refundable deposits				46,661				28,544				870
	Deferred charges				118,283				134,846				4,111
	Lease receivables long-term (note 7)				—				338,788				10,329
	Deferred income tax assets — non-current, net (note 13)				562,198				352,758				10,755
		Total other assets			727,142				854,936				26,065
Total assets				$	68,152,104				87,358,089				2,663,357

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				2004				2005
				NTD				NTD				USD
Liabilities and Stockholders’ Equity
Current liabilities:
	Short-term loans (note 10)			$	2,481,500				2,323,300				70,832
	Accounts payable				8,640,125				4,010,066				122,258
	Accounts payable — related parties (note 17)				131,039				55,212				1,683
	Income tax payable				—				124,302				3,790
	Accrued expenses (notes 12 and 16)				450,856				855,816				26,092
	Other payables — related parties (note 17)				284,521				86,253				2,630
	Current portion of long-term loans (note 11)				—				6,431,636				196,086
	Current portion of lease payables (note 9)				—				3,390				103
	Other current liabilities				8,759				14,014				427
		Total current liabilities			11,996,800				13,903,989				423,901
Long-term liabilities:
	Long-term loans (note 11)				14,681,820				26,034,564				793,737
	Lease payables — long-term (note 9)				—				130,967				3,993
		Total long-term liabilities			14,681,820				26,165,531				797,730
Other liabilities:
	Accrued pension liabilities (note 12)				30,755				50,594				1,543
	Guarantee deposits				577				1,691				52
		Total other liabilities			31,332				52,285				1,595
		Total liabilities			26,709,952				40,121,805				1,223,226
Stockholders’ equity (note 14):
	Common stock				24,976,600				25,109,540				765,535
	Capital surplus				15,548,660				15,548,660				474,045
	Legal reserve				1,559				91,689				2,795
	Special reserve				—				542,605				16,543
	Retained earnings				915,333				5,943,790				181,213
		Total stockholders’ equity			41,442,152				47,236,284				1,440,131
Commitments and contingencies (note 19)
Total liabilities and stockholders’ equity				$	68,152,104				87,358,089				2,663,357

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				2004				2005
				NTD				NTD				USD
Operating revenues (note 17)
	Sales revenue			$	5,961,954				23,044,929				702,589
	Sales returns				(161	)			(3,133	)			(96	)
	Sales allowances				(963	)			(9,593	)			(292	)
		Net operating revenues			5,960,830				23,032,203				702,201
Cost of goods sold (notes 17 and 22)					(3,912,658	)			(16,350,746	)			(498,498	)
Gross profit					2,048,172				6,681,457				203,703
Operating expenses (notes 17 and 22):
	Administrative and general expenses				(1,395,577	)			(283,853	)			(8,654	)
	Research and development expenses				(322,185	)			(658,134	)			(20,065	)
		Total operating expenses			(1,717,762	)			(941,987	)			(28,719	)
		Operating income			330,410				5,739,470				174,984
Non-operating income:
	Interest income (note 7)				24,110				309,821				9,446
	Gain on disposal of investments				85,648				4,532				138
	Foreign exchange gain, net				551,248				676,797				20,634
	Others (note 16)				12,966				306,754				9,352
		Total non-operating income and gains			673,972				1,297,904				39,570
Non-operating expenses:
	Interest expenses (excluding capitalized interest of NT$151,686 and NT$395,501 for 2004 and 2005, respectively) (note 16)				(91,322	)			(760,618	)			(23,190	)
	Others (note 16)				(11,713	)			(9,637	)			(294	)
		Total non-operating expenses and losses			(103,035	)			(770,255	)			(23,484	)
Income before income tax					901,347				6,267,119				191,070
Income tax expense (note 13)					(46	)			(337,361	)			(10,285	)
Net income				$	901,301				5,929,758				180,785
Basic earnings per share (note 15)
	Before tax			$	0.51				2.50				0.08
	After tax			$	0.51				2.36				0.07

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														Retained earnings
																						Accumulated loss
																						during the
																						development				Accumulated
						Common stock				Capital surplus				Legal reserve				Special reserve				stage				earnings				Total
Balance as of January 1, 2004			NTD				8,591,700				3,333,350				—				—				15,591				—				11,940,641
Appropriation and distribution:
Appropriation for legal reserve							—				—				1,559				—				(1,559	)			—				—
Issuance of common stock							16,384,900				12,215,310				—				—				—				—				28,600,210
Cumulative net loss from January 1 to May 31, 2004							—				—				—				—				(237,597	)			—				(237,597	)
Accumulated loss							—				—				—				—				223,565				(223,565	)			—
Net income from June 1, 2004 to December 31, 2004							—				—				—				—				—				1,138,898				1,138,898
Balance as of December 31, 2004			NTD				24,976,600				15,548,660				1,559				—				—				915,333				41,442,152
Appropriation and distribution:
Appropriation for legal reserve							—				—				90,130				—				—				(90,130	)			—
Appropriation for special reserve							—				—				—				542,605				—				(542,605	)			—
Remuneration for directors and supervisors							—				—				—				—				—				(2,686	)			(2,686	)
Bonus for employees							8,057				—				—				—				—				(16,114	)			(8,057	)
Bonus for stockholders							124,883				—				—				—				—				(249,766	)			(124,883	)
Net income for the year ended December 31, 2005							—				—				—				—				—				5,929,758				5,929,758
Balance as of December 31, 2005			NTD				25,109,540				15,548,660				91,689				542,605				—				5,943,790				47,236,284
Balance as of December 31, 2004			USD				761,482				474,045				48				—				—				27,906				1,263,481
Appropriation and distribution:
Appropriation for legal reserve							—				—				2,747				—				—				(2,747	)			—
Appropriation for special reserve							—				—				—				16,543				—				(16,543	)			—
Remuneration for directors and supervisors							—				—				—				—				—				(82	)			(82	)
Bonus for employees							246				—				—				—				—				(491	)			(245	)
Bonus for stockholders							3,807				—				—				—				—				(7,615	)			(3,808	)
Net income for the year ended December 31, 2005							—				—				—				—				—				180,785				180,785
Balance as of December 31, 2005			USD				765,535				474,045				2,795				16,543				—				181,213				1,440,131

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				2004				2005
				NTD				NTD				USD
Cash flows from operating activities:
	Net income			$	901,301				5,929,758				180,785
	Depreciation				2,041,633				8,099,551				246,938
	Amortization of deferred charges				12,269				6,995				214
	Amortization of deferred charges — bank loan syndication fees				—				29,170				889
	Unrealized foreign currency exchange gain, net				(549,374	)			(280,665	)			(8,557	)
	Realized interest revenue from capital lease				—				(10,133	)			(309	)
	Realized interest expense from capital lease				—				1,513				46
	Gain on disposal of short-term investments				(85,648	)			(4,532	)			(138	)
	Amortization of deferred forward exchange premium				—				(287,851	)			(8,776	)
	Increase in accounts receivable — related parties				(2,634,669	)			(2,554,838	)			(77,891	)
	Decrease (increase) in other receivables				(40,841	)			106,119				3,235
	Increase in inventories				(2,095,342	)			(1,358,055	)			(41,404	)
	Decrease in lease receivables				—				10,291				314
	Decrease (increase) in prepayments and other current assets				(940,582	)			395,049				12,044
	(Decrease) increase in accounts payable				492,165				804,060				24,514
	Decrease in accounts payable — related parties				(160,139	)			(71,320	)			(2,174	)
	Increase in tax payables				—				124,357				3,791
	Increase in accrued expenses				350,970				407,478				12,423
	(Decrease) increase in other payables — related parties				254,113				(198,268	)			(6,045	)
	Decrease in lease payables				—				(3,152	)			(96	)
	Increase in other current liabilities				6,182				5,255				160
	Increase in accrued pension liability				15,038				19,839				605
	Decrease in deferred income tax assets, net				9				185,198				5,646
		Net cash provided by (used in) operating activities			(2,432,915	)			11,355,819				346,214
Cash flows from investing activities:
	Increase in short-term investments				4,822,138				4,532				138
	Purchases of property, plant and equipment				(37,915,757	)			(28,313,919	)			(863,229	)
	Increase in deferred charges				(123,218	)			(52,728	)			(1,608	)
	Decrease (increase) in refundable deposits				(13,574	)			18,117				552
		Net cash used in investing activities			(33,230,411	)			(28,343,998	)			(864,147	)
Cash flows from financing activities:
	(Decrease) increase in short-term loans				1,728,852				(158,200	)			(4,823	)
	Increase in long-term loans				15,270,954				17,285,096				526,985
	Increase in capital				28,600,210				—				—
	Decrease in advance receipts for stock				—				—				—
	Increase in guarantee deposits				448				1,114				34
	Cash dividends				—				(124,611	)			(3,799	)
	Bonus for employees				—				(8,057	)			(246	)
	Remuneration of directors and supervisors				—				(2,686	)			(82	)
		Net cash provided by financing activities			45,600,464				16,992,656				518,069
Effect of foreign currency exchange translation					(38,322	)			(162,098	)			(4,942	)
Increase (decrease) in cash and cash equivalents					9,898,816				(157,621	)			(4,806	)
Cash and cash equivalents at beginning of year					81,373				9,980,189				304,275
Cash and cash equivalents at end of year				$	9,980,189				9,822,568				299,469
Supplemental cash flow information:
	Income tax paid			$	2,351				27,860				849
	Interest paid (excluding capitalized interest)			$	122,644				972,201				29,640
Non-cash investing and financing activities:
	Classification of current portion of long-term loans from long-term loans			$	—				6,431,636				196,086
	Lease payables and leased assets resulting from lease agreement			$	—				135,996				4,146
	Lease receivables and leased assets transferred resulting from lease agreement			$	—				345,637				10,538

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(1)	Organization and Principal Activities

(2)	Summary of Significant Accounting Policies

	(a) Foreign currency transactions and translation
	The Company’s reporting currency is the New Taiwan Dollar. Foreign currency transactions during the year are translated at the exchange rates on the transaction dates. Foreign currency-denominated assets and liabilities are translated into New Taiwan Dollar at the exchange rate prevailing on the balance sheet date, and the resulting realized and unrealized gains or losses are recognized as non-operating income or expenses.
	(b) Convenience translation into U.S. dollars
	The financial statements are stated in New Taiwan Dollars. Translation of the 2005 New Taiwan Dollar amounts into U.S. dollar amounts is included solely for the convenience of the readers, using the Federal Reserve exchange rate on December 30, 2005, of NT$32.8 to US$1 uniformly for all the financial statements’ accounts. The convenience translations should not be construed as representations that the New Taiwan Dollar amounts have been, could have been, or could in the future be, converted into U.S. dollars at this rate or any other rate of exchange.
	(c) Cash equivalents
	Cash and cash equivalents consist of cash on hand, cash in banks, time deposits, negotiable time deposits and other cash equivalents. Other cash equivalents represent highly liquid debt instruments with a maturity period of less than three months, such as commercial paper, repurchased government bond and other highly liquid investments which do not have a significant level of market or credit risk from potential interest rate changes.
	(d) Short-term investments
	Short-term investments consist mainly of bond funds, which are stated at the lower of aggregate cost or market value. Aggregate cost is determined by the weighted-average method. Market value is the listed net value of the fund at the balance sheet date. Losses resulting from a decline in market value are recognized in the income statement of the current period.

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	(e) Inventories
	Inventories are stated at the lower of cost or market value. Cost is determined by using the monthly weighted-average method. Market value represents replacement cost or net realizable value.
	(f) Property, plant and equipment/ Depreciation
	Property, plant and equipment are stated at cost. The cost less accumulated depreciation is the net book value. Interest from borrowings obtained to finance the construction of property, plant and equipment is capitalized. Maintenance and repairs are expensed when incurred; major addition, improvement and replacement expenditures are capitalized.
	Depreciation of property, plant and equipment is provided over their estimated useful lives by using the straight-line method. Assets still in service after reaching the end of their estimated useful lives are depreciated based on the residual value over their re-estimated useful lives. The useful lives of the assets are as follows:

	(i)   Buildings and structures: 8-50 years.
	(ii)  Vehicles: 5 years.
	(iii) Machinery and equipment: 3-5 years.
	(iv) Leased assets: 23.7 years.
	(v)  Miscellaneous equipment: 5-15 years.

	Gains or losses on disposal of property, plant and equipment are recorded as non-operating income or expenses.
	(g) Leases
	A lease is deemed to be a capital lease if it conforms to any one of the following classification criteria:

	(i)	the lease transfers ownership of the leased assets to the lessee by the end of the lease term;
	(ii)	the lease contains a bargain purchase option;
	(iii)	the lease term is equal to 75% or more of the total estimated economic life of the leased assets; this criterion should not be applied to leases in which the leased asset has been used for more than 75% of its estimated economic life before the lease begins;
	(iv)	The present value of the rental plus the bargain purchase price or the guaranteed residual value is at least 90% of the fair market value of the leased assets at the inception date of the lease.

	For the lessor, a capital lease must also conform to any one of the four classification criteria specified above and both of the following two further criteria:

	(i)	collectibility of the lease payments is reasonably predictable; and
	(ii)	no important uncertainties surround the amount of unreimbursable costs yet to be incurred by the lessor under the lease.

	Under a capital lease, the Company, as the lessee, capitalizes the leased assets based on (a) the present value of all future installment rental payments (minus executory costs born by lessor) plus the bargain purchase price or lessee’s guaranteed residual value or (b) the fair market value of leased assets

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	at the lease inception date, whichever is lower. The depreciation period is restricted to the lease term, rather than the estimated useful life of the assets, unless the lease provides for transfer of title or includes a bargain purchase option.
	Under a capital lease, the Company, as the lessor, records all installments plus the bargain purchase price or guaranteed residual value as the lease receivables. The implicit interest rate is used to calculate the present value of lease receivables as the cost of leased assets transferred. The difference between the total amount of lease receivables and the cost of leased assets transferred is recognized as unrealized interest income and is then recognized as realized interest income using the interest method over the lease term.
	(h) Deferred charges

	(i)	Any charges and consulting fees related to the syndicated loans are deferred and amortized over the loan terms.

	(ii)	Power line compensation and the royalty paid to the Industrial Technology Research Institute are deferred and amortized over the estimated useful lives or the agreement terms.

	(i) Employee retirement plan
	The Company has established an employee noncontributory defined benefit retirement plan (the “Plan”) covering full-time employees in the Republic of China. In accordance with the Plan, employees are eligible for retirement or are required to retire after meeting certain age or service requirements. Payments of retirement benefits are based on years of service and the average salary for the last six months before the employee’s retirement. Each employee gets 2 months’ salary for each service year for the first 15 years, and 1 month’s salary for each service year thereafter. A lump-sum retirement benefit is paid through the retirement fund.
	Starting from July 1, 2005, the enforcement date of the newly enacted Labor Pension Act (the “New Act”), those employees who adopt the defined contribution plan are stipulated as follows:

	(i)	employees who originally adopted the Plan and opt to be subject to the pension mechanism under the New Act;

	(ii)	employees who commenced working after the enforcement date of the New Act.

	In accordance with the New Act, the rate of contribution by an employer to an individual labor pension fund account per month shall not be less than 6% of the worker’s monthly wages.
	The Company has adopted Republic of China Statement of Financial Accounting Standards (SFAS) No. 18, “Accounting for Pensions” for the noncontributory defined benefit retirement plan. SFAS No. 18 requires an actuarial calculation of the Company’s pension obligation as of each fiscal year-end. Based on the actuarial calculation, the Company recognizes a minimum pension liability and net periodic pension costs covering the service lives of the retirement plan participants.
	(j) Revenue recognition
	Revenue is generally recognized when products are delivered to customers and the significant risks and rewards of ownership are transferred. Repair income is recognized when the services are provided.

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	Revenue is generally recognized when it is realized or realizable and earned when all of the following criteria are met:

	(i) persuasive evidence of an arrangement exists,
	(ii) delivery has occurred or services have been rendered,
	(iii) the seller’s price to the buyer is fixed or determinable, and
	(iv) collectibility is reasonably assured.

	(k) Income tax
	Income taxes are accounted for using the asset and liability method. Deferred income tax is determined based on differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect during the years in which the differences are expected to reverse. The income tax effects of taxable temporary differences are recognized as deferred income tax liabilities. The income tax effects resulting from deductible temporary differences, net operating loss carryforwards, and income tax credits are recognized as deferred income tax assets. The realization of the deferred income tax assets is evaluated, and if it is considered more likely than not that the asset will not be realized, a valuation allowance is recognized accordingly.
	The classification of deferred income tax assets and liabilities as current or noncurrent is based on the classification of the related asset or liability. If the deferred income tax asset or liability is not directly related to a specific asset or liability, then the classification is based on the expected realization date of the asset or liability.
	A tax imputation system was adopted in accordance with the amended ROC Income Tax Law. Under this system, the Company may retain the earnings incurred after December 31, 1997, by paying 10% surtax on such undistributed earnings, calculated on tax basis, and the surtax is accounted for as income tax expense on the date when the stockholders’ resolve not to distribute the earnings.
	(l) Earnings (loss) per common share
	Earnings (loss) per share are computed by dividing the net income (loss) made available for distribution to common stockholders by the weighted-average number of shares outstanding which is retroactively adjusted to include stock dividends issued during the period.
	(m) Derivative financial instruments

	(i) Foreign exchange forward contracts
	Foreign exchange forward contracts which are entered into for the purpose of hedging the risks of exchange rate fluctuation on foreign currency receivables and payables are translated into New Taiwan Dollars using spot rates on the balance sheet date. The resulting translation difference is recorded as an exchange gain or loss in the accompanying statements of income. The difference between the forward rate and spot rate at the contract date is amortized over the contract period.
	(ii) Interest rate swap contracts
	Because there is no physical transfer of principal, only memo entries of notional principals are made for interest rate swaps. For trading swaps, the differences between the present and market values of interest receivables or payables arising thereon are reported as unrealized gains or losses on derivative instruments. For non-trading swaps, interest is accrued based on contract terms with interest revenue and expense recognized in the same period that the hedged items affect earnings.

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	(iii) Cross currency swaps (CCSs)
	Memo entries of notional principals are made on the contract date for cross-currency swaps. Forward accounts receivables are offset against payables on the balance sheet date, with the difference reflected either as an asset or a liability. For trading swaps, gains or losses on the differences between the present and market value of principal and interests in New Taiwan Dollars, are recognized as unrealized gains or losses. For non-trading swaps, interest is accrued based on contract terms and principal repayment period, with interest revenue and expense recognized in the same period that the hedged items affect earnings.

	(n) Asset impairment
	Effective January 1, 2005, the Company adopted Republic of China Statement of Financial Accounting Standards No. 35 (ROC SFAS 35) “Accounting for Asset Impairment”. According to SFAS No. 35, the Company assesses at each balance sheet date whether there is any indication that an asset (individual asset or cash-generating unit) may have been impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. The Company recognizes impairment loss for an asset whose carrying value is higher than the recoverable amount.
	The Company reverses an impairment loss recognized in prior periods for assets if there is any indication that the impairment loss recognized no longer exists or has decreased. The carrying value after the reversal should not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized in prior periods.
	(o) Basis for classifying assets and liabilities as current or non-current
	Current assets are cash and other assets that a business will convert to cash or use up in a relatively short period of time — one year or one operating cycle, whichever is longer. Current liabilities are debts due within one year or one operating cycle, whichever is longer.

(3)	Reasons for and Cumulative Effect of Accounting Principle Changes

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(4)	Revenues and expenses during development stage

			2004.1.1-2004.5.30				2002.12.17-2003.12.31
			NTD				NTD
Operating revenue			$	—				—
Cost of goods sold				—				—
Gross profit				—				—
Administrative expenses				(1,452,163	)			(566,506	)
Net loss				(1,452,163	)			(566,506	)
Non-operating income
	Interest income			1,171				4,417
	Gain on disposal of investment			15,825				20,737
	Exchange gain, net			231,209				5,259
	Other income			3,633				773
				251,838				31,186
Non-operating expenses
	Interest expenses			(40,420	)			(23,336	)
	Other expenses			(788	)			(30	)
				(41,208	)			(23,366	)
Loss before income tax				(1,241,533	)			(558,686	)
Income tax benefit				1,003,936				574,277
Net (loss) income			$	(237,597	)			15,591

		2004				2005
		NTD				NTD				USD
Cash on hand and petty cash		$	130				160				5
Cash in bank — checking account			4,159				5,346				163
Cash in bank — demand deposit account			7,616,966				5,143				157
Cash in bank — foreign currency account			600,106				546,761				16,670
Time deposit			1,758,828				9,265,158				282,474
Total		$	9,980,189				9,822,568				299,469

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(6)	Inventories

		2004				2005
		NTD				NTD				USD
Raw material		$	541,186				557,814				17,007
Supplies			379,428				468,803				14,293
Work in process			1,188,247				2,341,178				71,377
Finished goods			130				9,394				286
Inventory in transit			18,539				108,396				3,305
Total		$	2,127,530				3,485,585				106,268

	(a)	The insurance coverage for inventories amounted to NT$2,412,642 and NT$3,245,671 as of December 31, 2004 and 2005, respectively.

(7)	Lease Receivables

		2005
		Current								Non-current
		NTD				USD				NTD				USD
Gross lease receivables		$	26,756				816				691,540				21,084
Less: Unrealized interest revenue			(20,066	)			(612	)			(352,752	)			(10,755	)
Net lease receivables		$	6,690				204				338,788				10,329

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		Capital lease								Operating lease
Duration		NTD				USD				NTD				USD
2006.1.1-2006.12.31		$	24,698				753				3,719				113
2007.1.1-2007.12.31			24,698				753				3,719				113
2008.1.1-2008.12.31			24,698				753				3,719				113
2009.1.1-2009.12.31			24,698				753				3,719				113
2010.1.1-2034.12.31			617,447				18,825				92,964				2,834
		$	716,239				21,837				107,840				3,286

(8)	Property, Plant and Equipment/ Depreciation

		2004				2005
		NTD				NTD				USD
Buildings and structures		$	24,756				99,863				3,045
Machinery and equipment			1,845,574				9,219,024				281,067
Vehicles			239				725				22
Leased assets			—				2,873				88
Miscellaneous equipment			171,967				808,146				24,639
Total		$	2,042,536				10,130,631				308,861

	(a)	All construction in progress is insured, and the insurance coverage thereon amounted to NT$60,354,152 and NT$35,778,787 as of December 31, 2004 and 2005, respectively.
	(b)	As of December 31, 2004 and 2005, the insurance coverage on the buildings and equipment against fire loss amounted to NT$33,186,671 and NT$67,533,079, respectively.
	(c)	In March 2005, the Company purchased two parcels of land numbered 350 and 351 located in Hwa-Ya, Kueishan, Taoyuan County, for NT$28,465 from the Land Readjustment Committee in Kueishan, Taoyuan County. As of December 31, 2005, the Company had paid NT$22,772, which was recorded as a prepayment on land purchase.
	(d)	As of December 31, 2005, the insurance coverage for losses on business interruption amounted to NT$13,658,519.
	(e)	The property, plant and equipment pledged to secure bank loans as of December 31, 2004 and 2005, were described in note 11.

	(a)	The Company signed a long-term lease agreement with NTC to lease a portion of the building and land located on the land numbered 348, 348-2 and 348-4, Hwa-Ya Section, Kueishan Valley, Taoyuan County. The lease took effect on July 1, 2005, and remains effective until February 28, 2029 (including the period when the agreement can be automatically extended), a total of 284 months. The lease agreement for the building is treated as a capital lease because (a) the present value of the periodic rental payments made since the inception date is at least 90% of the

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		market value of the leased assets and (b) the lease term is equal to 75% of or more of the total estimated economic life of the leased assets. The land is treated as an operating lease. The monthly rents for the leased building and land were NT$775 and NT$357, respectively.

	(b)	The total amount of lease payables for the capital lease of the building was NT$135,996; the implicit interest rate was 4.46%. The fair value of the leased assets was NT$135,996. The details were as follows:

		2005.12.31
		NTD				USD
Lease payables		$	134,357				4,096
Less: Current portion of lease payables			(3,390	)			(103	)
		$	130,967				3,993

	(c)	For the year ended December 31, 2005, the lease expense for the operating lease for land was NT$2,141, which was fully paid.
	(d)	Future lease payments (excluding interest component) classified as capital lease or operating lease as of December 31, 2005, were as follows:

Duration		Capital lease								Operating lease
		NTD				USD				NTD				USD
2006.1.1-2006.12.31		$	3,390				103				4,282				131
2007.1.1-2007.12.31			3,544				108				4,282				131
2008.1.1-2008.12.31			3,706				113				4,282				131
2009.1.1-2009.12.31			3,874				118				4,282				131
2010.1.1-2029.02.28			119,843				3,654				82,068				2,502
		$	134,357				4,096				99,196				3,026

(10)	Short-term Loans

		2004		2005
		NTD		NTD		USD
Unsecured borrowings		$2,481,500		2,323,300		70,832

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(11)	Long-term Loans

														2004
Bank		Repayment period				Nature				Interest rate				NTD
Taiwan Cooperative Bank (the managing bank)		February 2, 2006- February 2, 2009					Machinery loan				1.1725%-2.5793%			$	8,298,420
I.C.B.C. (the managing bank)		November 15, 2006- November 15, 2009					Machinery loan				3.1607%-3.4567%				6,383,400
														$	14,681,820

														2005
Bank		Repayment period				Nature				Interest rate				NTD				USD
Taiwan Cooperative Bank (the managing bank)		February 2, 2006- February 2, 2009					Machinery loan				4.6214%-4.7688%			$	8,541,000				260,396
I.C.B.C. (the managing bank)		November 15, 2006- November 15, 2009					Machinery loan				5.3488%				22,075,200				673,025
I.C.B.C. (the managing bank)		November 15, 2006- November 15, 2009					Machinery loan				2.4260%				1,850,000				56,402
															32,466,200				989,823
Less: Current portion of long-term loans															(6,431,636	)			(196,086	)
														$	26,034,564				793,737

	(a)	Credit line: US$260,000.
	(b)	Interest rate: USD 3-month or 6-month London Inter-bank Offered Rate (“LIBOR”) plus margin.
	(c)	Duration: 5 years.
	(d)	Repayment: The principal is payable in 7 semi-annual installments starting from 24 months after the first drawing date.
	(e)	The long-term loan is secured by machinery. As of December 31, 2004 and 2005, the net book value of the pledged assets amounted to NT$11,654,503 and NT$9,625,951, respectively.

	(f)	This long-term borrowing was guaranteed by Nan Ya Plastics Corporation.

	(g)	The Company has issued a promissory note for the syndicated loan.

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	(a)	Credit line: US$672,000 and NT$5,700,000.
	(b)	Interest rate for Tranche A: USD 3-month or 6-month London Inter-bank Offered Rate (“LIBOR”) plus margin.
	(c)	Interest rate for Tranche B: The 180-day commercial paper rate in the primary market which appears on Moneyline Telerate, plus margin.
	(d)	Duration: 5 years.
	(e)	Repayment: The principal is payable in 7 semi-annual installments starting from 24 months after the first drawing date.
	(f)	This long-term debt is secured by buildings and machinery. As of December 31, 2005, the net book value of the pledged assets amounted to NT$17,949,184.
	(g)	This long-term borrowing was guaranteed by Nan Ya Plastics Corporation.
	(h)	The Company has issued a promissory note for this syndicated loan.

(12)	Accrued Pension Liability

			2004				2005
			NTD				NTD				USD
Balance of the retirement fund			$	12,637				29,193				890
The net pension costs
	Defined benefit retirement plan			30,094				35,317				1,077
	Defined contribution plan			—				23,482				716
Accrued pension expenses				—				12,265				374
Accrued pension liabilities				30,755				50,594				1,543

	(a)	The Company adopted Republic of China Statement of Financial Accounting Standards No. 18, “Accounting for Pensions” for those employees covered by the non-contributory defined benefit retirement plan. The Company recognizes a minimum pension liability based on the actuarial report, which uses the balance sheet date as the measurement date.

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	(b)	The following table sets forth the details of the reconciliation of funded status to accrued pension liability on December 31, 2004 and 2005:

			2004				2005
			NTD				NTD				USD
Benefit obligation:
	Vested benefit obligation		$	(1,589	)			(4,227	)			(129	)
	Non-vested benefit obligation			(33,262	)			(54,372	)			(1,658	)
	Accumulated benefit obligation			(34,851	)			(58,599	)			(1,787	)
	Projected compensation increase			(38,746	)			(65,607	)			(2,000	)
	Projected benefit obligation			(73,597	)			(124,206	)			(3,787	)
Fair value of plan assets				15,132				31,115				949
Funded status				(58,465	)			(93,091	)			(2,838	)
Unamortized pension gain or losses				27,710				42,497				1,295
Accrued pension liability			$	(30,755	)			(50,594	)			(1,543	)

	(c)	As of December 31, 2004 and 2005, the actuarial present value of the vested benefits for the Company’s employees in accordance with the retirement benefit plan was approximately NT$1,835 and NT$4,609, respectively. Major assumptions used to determine the pension plan funded status as of December 31, 2004 and 2005, were as follows:

		2004				2005
Discount rate			3.00%				3.00%
Rate of increase in compensation			3.00%				3.00%
Expected long-term rate of return on plan assets			3.00%				3.00%

(13)	Income Tax

	(a)	The Company’s earnings are subject to income tax at a statutory rate of 25%. For the years ended December 31, 2004 and 2005, the components of income tax expense were as follows:

		2004				2005
		NTD				NTD				USD
Income tax expense — current		$	46				152,162				4,639
Income tax expense — deferred			—				185,199				5,646
Income tax expense		$	46				337,361				10,285

	(b)	The differences between expected income tax expense calculated at a statutory income tax rate of 25% and the actual income tax as reported in the accompanying financial statements for the years ended December 31, 2004 and 2005, were summarized as follows:

		2004				2005
		NTD				NTD				USD
Income tax calculated based on financial pretax income		$	225,327				1,566,770				47,767
Tax effect of tax-free income from income tax holiday			—				(1,269,719	)			(38,711	)
Increase in income tax credit for purchasing machinery and equipment			(3,480,741	)			(3,353,698	)			(102,248	)

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		2004				2005
		NTD				NTD				USD
Differences between estimated and actual income tax expense filing			(85	)			263,056				8,020
Tax-exempt securities			(21,412	)			(985	)			(30	)
Increase in valuation allowance for deferred income tax assets			3,276,911				3,123,694				95,235
10% surtax on undistributed earnings			—				7,862				240
Income tax expense imposed separately			46				381				12
Income tax expense		$	46				337,361				10,285

		2004				2005
		NTD				NTD				USD
Current:
Deferred income tax assets			23,744				66,267				2,020
Deferred income tax liabilities			(11,581	)			(29,862	)			(910	)
Current deferred income tax assets, net		$	12,163				36,405				1,110
Non-current:
Deferred income tax assets		$	4,182,020				7,194,031				219,331
Valuation allowance for deferred income tax assets			(3,472,538	)			(6,596,233	)			(201,105	)
Deferred income tax assets, net			709,482				597,798				18,226
Deferred income tax liabilities			(147,284	)			(245,040	)			(7,471	)
Non-current deferred income tax assets, net		$	562,198				352,758				10,755
Total deferred income tax assets, gross		$	4,205,764				7,260,298				221,351
Total deferred income tax liabilities, gross		$	158,865				274,902				8,381
Total valuation allowance for deferred income tax assets		$	3,472,538				6,596,233				201,105

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	(d)	As of December 31, 2004 and 2005, the components of deferred income tax assets or liabilities were as follows:

			2004								2005
			NTD								NTD								USD
							Effects on								Effects on								Effects on
			Amount				income tax				Amount				income tax				Amount				income tax
Deferred income tax assets:
	Investment tax credit		$	4,105,880				4,105,880				7,023,377				7,023,377				214,127				214,127
	Difference in depreciation expense for tax purposes and financial accounting purposes			13,075				3,269				8,030				2,008				245				61
	Pension expense in excess of tax limit			32,056				8,014				50,594				12,648				1,543				386
	Loss carryforwards			189,657				47,414				—				—				—				—
	Unrealized foreign exchange loss			86,083				21,521				818,944				204,736				24,968				6,242
	Unrealized operating expense			78,665				19,666				70,114				17,529				2,138				535
Deferred income tax assets, gross								4,205,764								7,260,298								221,351
Deferred income tax liabilities:
	Unrealized foreign exchange gain		$	635,458				158,864				1,099,609				274,902				33,525				8,381

	(e)	Under the ROC Statute for Upgrading Industries, the Company’s unused investment tax credits as of December 31, 2005, were as follows:

		Remaining deductible
Year		Amount				Amount				Expiry Year
		NTD				USD
Investment tax credit for purchasing machinery and equipment:
2003		$	427,988				13,048				2007
2004			3,241,691				98,832				2008
2005			3,353,698				102,247				2009
		$	7,023,377				214,127

	(f)	The Company’s income tax returns have not been examined or assessed yet by the ROC tax authority.
	(g)	Imputation credit account (ICA) and creditable ratio

	(h)	As of December 31, 2004 and 2005, the balance of the Company’s ICA amounted to NT$196 and NT$27,822, respectively. The Company’s creditable ratio related to 2005 was 0.06%. There were no undistributed earnings belonging to the years before 1997.

	(i)	The stockholders approved a resolution during their meetings on June 29, 2005, and October 18, 2004, to allow the Company to avail itself of the Income Tax Holiday for investment projects under

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		Article 9 of the Statute for Upgrading Industries. The Company has availed itself of the five-year Income Tax Holiday commencing from January 1, 2005 and June 1, 2005, respectively, for the taxable income that is derived only from the sale of products produced from its Fab 1-Phases 1 and 2 investment project. This income tax holiday reduced the Company’s effective income tax rate to as low as 5% in 2005. As of December 31, 2005, the exemption from profit-seeking enterprise income tax (“Income Tax Holiday”) under Article 9 of the Statute for Upgrading Industries for the aforesaid investment projects had the following duration.

		Duration of Income Tax Holiday
Inotera Fab-1 — Phase 1		January 2005-December 2009
Inotera Fab-1 — Phase 2		June 2005-May 2009

		2004		2005
		NTD		NTD		USD
Paid-in capital in excess of par value		$15,548,660		15,548,660		474,045

	(i)	0.1%-1% as bonuses for directors and supervisors

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	(ii)	1%-8% as employee bonuses
	(iii)	The remainder as dividends and bonuses for stockholders, distributed in the form of cash dividends and/or stock dividends.

	(i)	Legal reserve (10% of net income): NT$90,130
	(ii)	Voluntary reserve: NT$542,605
	(iii)	Remuneration of directors and supervisors: NT$2,686
	(iv)	Employees’ bonus — cash: NT$8,057
	(v)	Employees’ bonus — stock: NT$8,057
	(vi)	Stockholders’ dividend — stock (0.05 NT dollar per share): NT$124,883
	(vii)	Stockholders’ dividend — cash (0.05 NT dollar per share): NT$124,883

2004

Amount

Earnings per share

Income before

Income after

Total shares

Before

After

income tax

income tax

outstanding

income tax

income tax

Basic earnings per share — retroactively adjusted

$

901,347

901,301

1,767,217

0.51

0.51

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2005

Amount

Earnings per share

Income before

Income after

Total shares

Before

After

income tax

income tax

outstanding

income tax

income tax

NTD

Basic earnings per share — retroactively adjusted

$

6,267,119

5,929,758

2,510,954

2.50

2.36

		USD
Basic earnings per share — retroactively adjusted		$	191,070				180,785				2,510,954				0.08				0.07

	(i)	In July 2004, the Company entered into two Euro forward exchange contracts to hedge the risk of Euro payments with Chinatrust Commercial Bank and Taishin International Bank, respectively. The foreign exchange loss thereon amounted to NT$1,387, which was recorded under other losses on the income statement. These contracts had the same notional amount of EUR4,000 thousand and were settled in advance on August 9, 2004.
	(ii)	The Company entered into four interest rate swap agreements with Taipei Fubon Bank and three other banks to hedge the risk from fluctuations of interest rates for foreign long-term loans which were obtained by the Company in 2004. As of December 31, 2005 and 2004, the notional amounts of the outstanding interest rate swap agreements amounted to US$130,000 and US$130,000, respectively. Interest expenses incurred from these interest hedging activities amounted to NT$12,822 and NT$36,580, respectively. The net interest receivable and a payable as of December 31, 2005 and 2004, amounted to interest receivable of NT$1,348 and interest payable of NT$20,554, respectively.
	(iii)	The Company entered into seventeen forward foreign exchange contracts with Standard Chartered Bank and three other banks to hedge the risk of foreign currency exchange rate fluctuations for foreign long-term loans. The deferred exchange gain for the year ended December 31, 2005, amounted to NT$1,313,265, of which NT$287,851 was amortized as non-operating income. The remaining unamortized balance was NT$1,025,414 as of December 31, 2005. As of December 31, 2005, the balance of forward foreign exchange contracts amounted to US$650,000, the details of which were as follows:

		2005
		NTD				USD
Forward contract receivables		$	21,352,500				650,991
Payables for forward purchases			(19,059,075	)			(581,069	)
Deferred exchange gains			(1,025,414	)			(31,263	)
Forward contract receivable, net		$	1,268,011				38,659

	(iv)	The Company entered into five foreign currency swap agreements with Citibank to hedge the foreign currency exchange risk for Euro payments. There was no unsettled balance as of December 31, 2005. For the year ended December 31, 2005, the exchange loss incurred amounted to NT$3,004 and recorded as other losses.

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	(v)	The Company’s hedging strategy is to cover the biggest part of the risk. Because the foreign forward exchange rate is fixed, the cash flow risk is low. Credit risk is the risk that a counter-party will default on its obligation. The banks with which the Company entered into derivative transactions are all well-known financial institutions. Therefore, the Company does not expect the banks to default. As a result, the Company estimates credit risk to be reasonably low.

		2004								2005
		NTD								NTD								USD
		Book				Fair				Book				Fair				Book				Fair
Financial Instruments		value				value				value				value				value				value
Forward foreign exchange contracts		$	—				—				1,268				912				39				28
Interest rate swap agreements			—				(37	)			—				39				—				1
			—				(37	)			1,268				951				39				29

	(i)	The book value is believed to be not materially different from their fair value because the maturity dates of short-term financial instruments are within one year from the balance sheet date. Therefore, their book value is adopted as a reasonable basis for determining their fair value. This principle is applied in estimating the fair value of short-term financial instruments including cash and cash equivalents, account receivables, account payables, accrued expenses and short-term loans.
	(ii)	Refundable deposits and guarantee deposits are collected or refunded in cash based on their amount. Therefore, their book value is equivalent to their fair value.
	(iii)	The discounted present value of anticipated cash flows is adopted as the fair value of long-term debt and corporate bonds payable. The discounting rates used in calculating the present value are similar to those of the Company’s existing long-term loans.
	(iv)	The fair values of derivative financial instruments are the estimated amounts expected to be received or to be paid by the Company assuming that it terminates the contracts on the balance sheet date. The majority of the Company’s derivative financial instruments have quotations available from financial institutions which are used in the calculation of the fair value.

	(v)	The fair value of letters of credit or endorsements/guarantees is based on the contract price.

	(c)	As of December 31, 2004 and 2005, the fair values of non-derivative financial instruments were estimated to be equal to their book values as of the same date.

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(17)	Related-party Transactions

Name		Relationship with the Company
Nan Ya Plastics Corp. (NPC)		The president of Nan Ya Plastics Corp. is the chairman of the Company.
Nanya Technology Corp. (NTC)		Major shareholder
Infineon Technologies AG (IFX)		Major shareholder
Infineon Technologies Suzhou Co., Ltd. (IFSZ)		Subsidiary of IFX
Infineon Technologies, Richmond (IFR)		Subsidiary of IFX

	(i) Sales revenue, and accounts receivable
	Significant sales to related parties for the years ended December 31, 2004 and 2005, were as follows:

		2004								2005
		NTD				% of net				NTD				USD				% of net
		Amount				sales				Amount				Amount				sales
NTC		$	2,985,699				50.09				11,502,292				350,680				49.94
IFX			2,975,131				49.91				9,180,137				279,882				39.86
IFSZ			—				—				2,347,571				71,572				10.19
IFR			—				—				2,203				67				0.01
		$	5,960,830				100.00				23,032,203				702,201				100.00

	The balances of accounts receivable resulting from the above transactions as of December 31, 2004 and 2005, consisted of the following:

		2004								2005
		NTD								NTD				USD
		Amount				%				Amount				Amount				%
NTC		$	1,354,917				52.32				2,362,640				72,032				46.78
IFX			1,234,586				47.68				1,898,230				57,873				37.59
IFSZ			—				—				789,407				24,067				15.63
		$	2,589,503				100.00				5,050,277				153,972				100.00

	The normal credit term with related parties above is 60 days from delivery date.
	(ii) Purchases and accounts payable
	Significant purchases from related parties for the years ended December 31, 2004 and 2005, were as follows:

		2004								2005
		NTD				% of net				NTD				USD				% of net
		Amount				purchases				Amount				Amount				purchases
NPC		$	165,793				3.63				49,827				1,519				0.51
IFX			562,897				12.31				464,481				14,161				4.71
NTC			—				—				—				—				—
		$	728,690				15.94				514,308				15,680				5.22

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	The balances of accounts payable resulting from the above transactions as of December 31, 2004 and 2005, were as follows:

		2004								2005
						% of total												% of total
						accounts												accounts
		NTD				and notes				NTD				USD				and notes
		Amount				payable				Amount				Amount				payable
NPC		$	88,654				0.98				32,420				988				0.80
IFX			42,385				0.47				22,792				695				0.56
NTC			—				—				—				—				—
		$	131,039				1.45				55,212				1,683				1.36

	The Company pays NPC on the 15th of the month following the month of purchase, and pays IFX within 30 days of the invoice date. Purchasing prices and payment terms of purchases from related parties are not materially different from those of non-related general suppliers.
	(iii) Due to related parties
	The details of financial borrowing from related parties for the year ended December 31, 2004, were as follows:

		2004
		Maximum daily				Balance on
		balance				December 31
Related party		NTD				NTD				Interest rate				Interest expense
NTC		$	315,500				—				2.281-2.849	%			68

	No financial borrowing was obtained from related parties for the year ended December 31, 2005.
	As of December 31 2004, the Company had interest payable of NT$9 to NTC which was accounted as other payables — related parties.
	(iv) Acquisition of property, plant and equipment
	In May 2005, the Company purchased from NTC six parcels of land numbered 347 and five other numbers which are located in Hwa-Ya, Kueishan, Taoyuan County for NT$1,575,000. As of December 31, 2005, the Company had fully paid the purchase price.
	In June 2005, the Company purchased electronic equipment from NTC for NT$73,827. As of December 31, 2005, the Company had fully paid the purchase price.
	(v) Training expense
	NTC and IFX both transferred a number of their employees to the Company to enable the Company to maintain a sufficient number of high-quality and loyal staff. Consequently, the Company is required to reimburse NTC and IFX for the loss of their experienced employees an amount equal to

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	6 months’ salary of those employees. The Company accrued and booked this expenditure as training expenses for the years ended December 31, 2004 and 2005 under administrative expenses, as follows:

		2004
		Training expense
Related party		payable				Training expense
IFX		$	—				3,718
NTC			—				6,960
Total		$	—				10,678

		2005
		Training expense
Related party		payable				Training expense
NTC-NTD		$	—				5,180
NTC-USD		$	—				158

	(vi) Lease contracts
	Commencing from July 1, 2005, the Company had signed lease contracts with NTC, as described in notes 7 and 9.
	(vii) Other significant transactions
	IFX provides some construction, technical and inspection services, etc., to the Company. As of December 31, 2004 and 2005, the unpaid liability from this transaction amounted to NT$245,892 and NT$61,757, respectively, which was accounted for as other payables — related parties.
	NTC supplies some of the Company’s utilities, steam, purification for waste water, etc. As of December 31, 2004 and 2005, the unpaid liability from this transaction amounted to NT$38,629 and NT$20,059, respectively, which was accounted for as other payables — related parties.
	NPC rents out dormitory space to the Company. As of December 31, 2005, the unpaid liability from this transaction amounted to NT$4,437, which was accounted for as other payables — related parties.
	(viii) Contracts with related parties
	The Company signed a “Product Purchase and Capacity Reservation Agreement” with NTC and IFX. Under this agreement, these entities are each entitled to a contracted percentage of the Company’s production capacity. The Company is committed to sell its production to these entities at a transfer price calculated in accordance with the formula stated in the agreement. This agreement took effect on July 15, 2003, and will continue in effect until the termination by either party with cause or when Joint Venture Agreement and/or the License and Technical Cooperation Agreement between NTC and IFX are terminated.
	The Company signed a “Know-How Transfer Agreement” with NTC and IFX. Under this agreement, these entities allowed the Company to utilize their know-how in the semiconductor manufacturing process. This contract took effect on July 15, 2003, and it will continue in effect until either of the following conditions has been fulfilled: 1) both corporations decide to terminate their Joint Venture Agreement or 2) three years after the completion of know-how transfer.
	The Company signed a service contract with NTC. Under this contract, NTC provides transaction support in the following areas: human resources, finance, engineering and construction, raw material and inventory, etc. The service fee is charged based on the actual type of service rendered. The contract took effect on July 15, 2003, and will continue in effect until terminated mutually by both parties.

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(18)	Pledged Properties

(19)	Commitments and Contingencies

(20)	Significant Disaster Loss: None.

(21)	Subsequent Events

	(a)	The Board of Directors of the Company resolved to adopt a “Deferred Stock Purchase Plan” (the Plan). Under this Plan, the employees of the Company are allowed to purchase the Company’s shares which are being held by Hwa-Keng Investment Corp., a corporate stockholder of the Company, following the approval thereof by the board of directors and stockholders of Hwa-Keng Investment Corp. Also, the Plan requires that its actual implementation shall be made within 4 weeks after the approval of the Company’s stock listing by the SFB. The purchase price is the higher of NT$15 per share or the net book value per share of the Company at the time of the Plan’s execution plus 10% premium thereof. There were 71,124 thousand Company shares which were made available for purchase by the employees. On January 6, 2006, the Company received the approval from the SFB, and implemented the Plan on the same day. As of February 9, 2006, Hwa-Keng Investment Corp. sold 64,032,908 Company shares at NT$20.07 per share to the employees of the Company, following the Company’s implementation of the Plan.

(b)	i.	On January 12, 2006, the Company was granted approval of its application to list its shares on the Taiwan Stock Exchange (TSE). The Company’s shares were initially listed on the TSE on March 17, 2006.

	ii.	On February 6, 2006 and in accordance with the resolution approved by the Shareholders on September 27, 2005, the Board of Directors approved the Initial Public Offering of the Company shares through the issuance of 200 million Company shares for cash at proposed price of NT$33 per share on the TSE. The offering occurred on March 17, 2006.
	iii.	On March 9, 2006 and in accordance with the resolution approved by the Shareholders on September 27, 2005, the Board of Directors approved the offering of Global Depositary Shares (GDS) through the issuance of 335 million to 400 million Company shares for cash. The offering is still pending.

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(22)	Others

	(a)	The Company’s personnel, depreciation, and amortization expenses were as follows:

					2004
			Cost of goods				Operating
			sold				expenses				Total
			NTD
Personnel expenses
	Salaries		$	470,957				447,971				918,928
	Labor and health insurance			28,996				22,486				51,482
	Pension expenses			14,535				15,559				30,094
	Other personnel expenses			14,076				11,108				25,184
Depreciation expenses				2,008,139				33,495				2,041,634
Amortization expenses				12,269				—				12,269

					2005
			Cost of goods				Operating
			sold				expenses				Total
			NTD
Personnel expenses
	Salaries		$	1,048,968				192,903				1,241,871
	Labor and health insurance			63,796				8,084				71,880
	Pension expenses			48,974				9,825				58,799
	Other personnel expenses			29,724				3,628				33,352
Depreciation expenses				8,049,956				49,595				8,099,551
Amortization expenses				36,165				—				36,165

					2005
			Cost of goods				Operating
			sold				expenses				Total
					USD
Personnel expenses
	Salaries		$	31,981				5,881				37,862
	Labor and health insurance			1,945				246				2,191
	Pension expenses			1,493				300				1,793
	Other personnel expenses			906				111				1,017
Depreciation expenses				245,425				1,512				246,937
Amortization expenses				1,103				—				1,103

(23)	Segment Information

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		2004								2005
						% of												% of
		NTD				net				NTD				USD				net
Destination area		Amount				sales				Amount				Amount				sales
Europe		$	2,975,131				49.91				9,180,137				279,882				39.86
Asia			—				—				2,347,571				71,572				10.19
North America			—				—				2,203				67				0.01
		$	2,975,131				49.91				11,529,911				351,521				50.06

		2004								2005
						% of												% of
		NTD				net				NTD				USD				net
		Amount				sales				Amount				Amount				sales
NTC		$	2,985,699				50.09				11,502,292				350,680				49.94
IFX			2,975,131				49.91				9,180,137				279,882				39.86
IFSZ			—				—				2,347,571				71,572				10.19
		$	5,960,830				100.00				23,030,000				702,134				99.99

(24)	Summary of Significant Difference Between Accounting Principles Followed by the Company and Generally Accepted Accounting Principles in the United States of America

	a. Derivative Financial Instrument Transactions

	Under ROC GAAP, there are no specific rules related to accounting for derivative financial instruments, nor criteria for hedge accounting. Therefore, companies have flexibility in choosing when to recognize derivative financial instruments and when to follow hedge accounting versus fair value accounting for such instruments.
	U.S. GAAP contains detailed rules as to when hedge accounting is appropriate. As a consequence, certain derivative contracts such as foreign currency forward contracts and interest rate swaps included in the Company’s balance sheet would be recorded at the derivatives contract’s market rate as of the reporting date, resulting in a decrease in other receivables as reported under the ROC GAAP balance sheet.

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	b. Bonuses to Employees, Directors and Supervisors

	Under the ROC regulations and the Company’s Articles of Incorporation, a portion of distributable earnings should be set aside as bonuses to employees, directors and supervisors. Bonuses to directors and supervisors are always paid in cash. However, bonuses to employees may be granted in cash or shares or both. All of these appropriations, including share bonuses which are valued at par value of NT$10, are charged against retained earnings, after such appropriations are formally approved by the shareholders in the following year.
	Under U.S. GAAP, bonuses and remuneration are generally expensed as services are rendered. Also under U.S. GAAP, bonuses which are paid in the form of Company shares are recorded within equity at fair market value, with a corresponding charge to earnings for the difference between the fair value of the shares at the date of grant and the price paid by the employee, if any.

	c. Surtax

	Companies in the ROC are subject to a 10% surtax on undistributed tax basis profits earned after December 31, 1997. If the undistributed tax earnings are distributed in the following year, the 10% surtax is not due. Under ROC GAAP, income tax expense is recorded in the statement of operations in the following year if the earnings are not distributed to the shareholders.
	Under U.S. GAAP, a 10% surtax leviable on the undistributed tax earnings is recorded in the statement of income in the year when the profits were earned. The income tax expense, including the tax effects of temporary differences, in such year is measured by using the rate that includes this 10% surtax.

	d. Capital contribution

	Under ROC GAAP, the expatriate employees payroll cost paid by a foreign joint venture partner/shareholder is not recorded nor treated as the shareholder’s capital contribution in the Company.
	Under U.S. GAAP, the expatriate employees payroll cost paid by a foreign joint venture partner would be recorded as expense and treated as capital contribution in the Company.

	e. Lease

	Under ROC GAAP, the estimated fair value of a partial leased building used in evaluating the lease classification described under note 2 (g) to the financial statements can be based on the proportionate fair value of the entire building.
	Under U.S. GAAP, the fair value of a partial lease building used in determining the lease classification must be based on the specific fair value of the leased asset. In the event that the fair value of the partial leased building can not be determined, the lease of a partial building should be treated as an operating lease. As a result, the leased asset described in note 7 to the financial statements, which was treated as a capital lease under ROC, would be treated as an operating lease under U.S. GAAP.

	f. Related party

	Under ROC GAAP, the transaction with the Formosa Group as described in note 22(b) is not treated as a related party transaction.
	Under U.S. GAAP, the transaction would be considered a related party transaction.

	g. Earnings per share

	Under ROC GAAP, earnings per share in calculated based on the weighted average number of outstanding shares. The number of outstanding shares is retroactively adjusted for stock dividends and new common stock issued through unappropriated earnings and capital surplus.

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	Under U.S. GAAP, when a simple capital structure exists, basic earnings per share is calculated using the weighted average number of common shares outstanding. The number of outstanding shares is not retroactively adjusted for stock dividends.

			2004				2005
			NTD				NTD				USD
Net income			$	901,301			$	5,929,758				180,785
Net income based on ROC GAAP
Adjustments:
	a. Foreign currency forward contracts-mark-to-market			—				(355,857	)			(10,849	)
	a. Interest rate swaps-mark-to-market			(53,763	)			75,943				2,315
	b. Bonuses to employees			(24,976	)			(298,866	)			(9,112	)
	b. Remuneration to directors and supervisors			(2,686	)			(3,736	)			(114	)
	c. 10% surtax on undistributed tax earnings			—				(565,812	)			(17,250	)
	c. Tax expense			50,725				588,522				17,943
	d. Expatriate employees payroll cost paid by IFX			(156,076	)			(168,697	)			(5,143	)
	e. Operating lease			—				(4,742	)			(145	)
Net decrease in net income				(186,776	)			(733,245	)			(22,355	)
Net income based on U.S. GAAP			$	714,525			$	5,196,513				158,430
Earnings per share			$	0.41			$	2.08				0.06
Shareholders’ equity
Shareholders’ equity based on ROC GAAP			$	41,442,152			$	47,236,284				1,440,131
Adjustments:
	a. Foreign currency forward contracts — mark-to-market			—				(355,857	)			(10,849	)
	a. Interest rate swaps — mark-to-market			(37,306	)			38,637				1,178
	b. Bonuses to employees			(24,976	)			(298,866	)			(9,112	)
	b. Remuneration to directors and supervisors			(2,686	)			(3,736	)			(114	)
	c. 10% surtax on undistributed tax earnings			—				(565,812	)			(17,250	)
	c. Tax expense			50,725				639,247				19,489
	d. Expatriate employees payroll cost paid by IFX			(156,076	)			(324,773	)			(9,902	)
	d. Contributed capital (net of tax) arising from employees payroll paid by IFX			105,351				219,221				6,684
	e. Operating lease			—				(4,742	)			(145	)
Net decrease in shareholders’ equity				(64,968	)			(656,681	)			(20,021	)
Shareholders’ equity based on U.S. GAAP			$	41,377,184			$	46,579,603				1,420,110
Changes in shareholders’ equity based on U.S. GAAP
Balance, beginning of year			$	11,957,098			$	41,377,184				1,261,500
Issuance of common stock				28,600,210				—				—
Bonus to stockholders				—				(124,883	)			(3,807	)
Bonus share issued at a premium to the employees				—				16,919				516
Contributed capital (net of tax) arising from employees payroll paid by IFX				105,351				113,870				3,471
Net income for the twelve months				714,525				5,196,513				158,430
Balance, end of year			$	41,377,184			$	46,579,603				1,420,110

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			2004				2005
			NTD				NTD				USD
Current Assets
As reported			$	15,881,410			$	20,340,339				620,132
U.S. GAAP adjustments
	Financial assets-Interest rate swaps			—				38,637				1,178
	Financial assets-Foreign currency forward contracts			—				(355,857	)			(10,849	)
	Current portion of lease receivables			—				(6,690	)			(204	)
	Deferred tax assets — current, net			—				11,277				344
	Other current assets			—				2,057				63
As adjusted			$	15,881,410			$	20,029,763				610,664
Property, plant and equipment
As reported			$	51,543,552			$	66,162,814				2,017,158
U.S. GAAP adjustments
	Building and structure			—				281,538				8,583
	Other equipment			—				75,555				2,304
	Accumulated depreciation			—				(18,414	)			(561	)
As adjusted			$	51,543,552			$	66,501,493				2,027,484
Other Assets
As reported			$	727,142			$	854,936				26,065
U.S. GAAP adjustments
	Deferred tax assets — non-current, net			—				239,512				7,302
	Lease Receivables — long term			—				(338,788	)			(10,329	)
As adjusted			$	727,142			$	755,660				23,038
Current Liabilities
As reported			$	11,996,800			$	13,903,989				423,902
U.S. GAAP adjustments
	Employees bonus			24,976				298,866				9,112
	Remuneration to directors and supervisors			2,686				3,736				114
	10% surtax on undistributed earnings			—				282,906				8,625
As adjusted			$	12,024,462			$	14,489,497				441,753
Other Liabilities
As reported			$	31,332			$	52,285				1,594
U.S. GAAP adjustments
	Other financial liabilities-IRS			37,306				—				—
As adjusted			$	68,638			$	52,285				1,594

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