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Annual Report 2001Annual Report 2001
TSE: 5347
Printed on February 28, 2002
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1
VIS SpokesmanName: Robert Hsieh
Title: Vice President, Finance/Administration
Tel: 886-3-5770355
e-mail: [email protected]
Acting SpokesmanName: Jay Tsai
Title: Manager, Public and Investor Relations Section
Tel: 886-3-5770355
e-mail: [email protected]
Stock Title TransferCompany: China Trust Commercial Bank Transfer Agency Department
Address: 5 Fl., No. 83, Sec. 1, Chung-Ching S. Rd., Taipei, Taiwan, R.O.C.
Tel: 886-2-23613033
Web site: www.chinatrust.com.tw
AuditorsAuditors: S.C. Huang, Edward Way
Company: T N SOONG & CO
Address: 12Fl., No. 156, Sec. 3, Ming-Shan E. RD., Taipei, Taiwan, R.O.C.
Tel: 886-2-25459988
Web site: www.andersen.com.tw
Vanguard International Semiconductor CorporationAddress: 123, Park Ave-3rd, Science-Based Industrial Park, Hsin-Chu, Taiwan, R.O.C.
Tel: 886-3-5770355 Fax: 886-3-5630666
Web site: www.vis.com.tw
Contents
Letter to the Shareholders . . . . . . .3
A Brief Introduction to VIS . . . . . . .4
1. Company Profile . . . . . . . . . . . . . . . . . . . . .4
2. Organization . . . . . . . . . . . . . . . . . . . . . . .5
3. Capital and Share . . . . . . . . . . . . . . . . . . . .8
4. Status of Corporate Bond Issuance . . . . . .10
5. Status of Preferred Stock Issuance . . . . . .10
6. Status of Depositary Shares Issuance . . . .10
7. Status of Employee Stock Option Plan . . .11
8. Merge and Acquisition . . . . . . . . . . . . . . .11
2. Financial Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
3. Supervisors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . .33
4. Financial Statements & Independent Auditors’ Report .33
5. Consolidated Financial Statements . . . . . . . . . . . . . . .53
6. Analysis of Operating Results . . . . . . . . . . . . . . . . . . .53
7. Financial Forecast and Result from 2000 to 2001 . . . .53
Specific Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
1. Affiliates Information . . . . . . . . . . . . . . . . . . . . . . . . .56
2. Internal Control System Execution Status . . . . . . . . . . .60
3. Dissenting Comment . . . . . . . . . . . . . . . . . . . . . . . . . .61
4. Private Placement Securities . . . . . . . . . . . . . . . . . . . .61
5. Balance of VIS Common Shares Acquired, Disposed of
and Held by Subsidiaries . . . . . . . . . . . . . . . . . . . . . . .61
6. Other Necessary Supplement . . . . . . . . . . . . . . . . . . . .61
Operational Highlights . . . . . . . . . . .12
1. Nature of Business . . . . . . . . . . . . . . . . . . . .12
2. Marketing and Sales . . . . . . . . . . . . . . . . . .12
3. Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . .13
4. Environmental Protection Measures . . . . . . .19
5. Employee Relations . . . . . . . . . . . . . . . . . . .20
6. Important Contracts . . . . . . . . . . . . . . . . . .20
7. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . .23
8. Acquisition or Disposition of Real Estate . . .24
Business and Financial Plans . . . . . . .26
1. Corporate Bond Financing Plan . . . . . . . . . .26
2. Status of Implementation and Benefits . . . . .27
Financial Statements . . . . . . . . . . . . .28
1. Brief Balance Sheet & Brief Statements
of Income . . . . . . . . . . . . . . . . . . . . . . . . . .29
VIS Philosophy1. Upholding Ethical Business Practices
2. Focusing On Core Business
3. Internationalized Operation with View on Global Market
4. Focusing on Long-term Business Strategies, Striving to be a Perpetual Enterprise
5. Treating Customers as Partner
6. Building Quality into all Aspects of Our Business
7. Constant Innovation and Entrepreneurial Vitality
8. Creating a Dynamic and Enjoyable Working Environment
9. Establishing a Open Management Style
10. Being a Good Corporate Citizen by Contributing and Caring for
both Shareholders and Employees
3
Letter to ShareholdersDear Shareholders:
The year 2001 saw a declining global economy, slowing semiconductor industry, and
continued record lows in DRAM prices. Vanguard International Semiconductor Corporation
(VIS) weathered a difficult year under such adverse conditions. Total 8-inch wafer output
for the year was 346,000 pieces, down 67,000 pieces or 16% from the same period in the
previous year. Total revenues for 2001 amounted to NT$ 9.1 billion, with an after-tax loss
of NT$ 8.69 billion and a loss of NT$ 3.9 per share.
ACCELERATING CONVERSION AND SEIZING OPPORTUNITIES
Vanguard has responded to the difficult economic climate by minimizing its losses throughcost-cutting and lowering capital expenditures. Nonetheless, VIS has continued toaccelerate its conversion to a specialized foundry company, not only actively exploring newfoundry processes technology for multiple generations of logic and memory boards, butalso carrying out organizational reengineering, the development of specialty wafertechnologies, and other strategies. These actions further strengthen VIS’s competitiveposition in the Specialty IC Foundry field, allowing us to seize opportunities to create newbusiness fronts.
TECHNOLOGICAL ADVANCEMENT
To augment its competitive advantages, VIS has achieved a number of importanttechnological advances in the past year. Apart from successfully enabling logic foundryproduction at the 0.25 um level, VIS has developed 0.5 um/0.35 um CMOS Image Sensortechnology as well as the LCD Driver IC High Voltage technology. In addition, VIS hassuccessfully put into mass production 0.18 um 256Mb DDR DRAM, as well as worked withits clients to develop high end process technology for 0.18 um flash memory and lowpower 1T-SRAM.
Looking ahead, VIS will continue to develop advanced, distinctive and specialized ICfoundry technologies, offering its clients the optimal level of customized service throughever more complete chip production technologies.
FUTURE PROSPECTS
VIS will continue its conversion to a specialized foundry company, helping its clients raise
their global competitiveness through an increasingly wide array of technologies and
services. VIS will continue to enhance its profitability, creating win-win partnerships with
its clients, and providing VIS shareholders and its dedicated employees with substantial
levels of return.
In closing, on behalf of VIS, we would like to express our deepest gratitude to all of our
clients, shareholders, and employees for your continuing support.
Chairman
President
Letter to Shareholders
Year 2002 Business Volume Forecast
27%
73%
Wafer
Package
4
1. Company Profile
1-1 Date of founding: 12/05/1994
1-2 History
Vanguard International Semiconductor Corporation (VIS) was founded in December 1994. The company was formed upon the
privatization of the Sub-Micron Project, a four-year research effort sponsored by Taiwan’s Industrial Technology Research Institute
(ITRI). Initial capitalization for VIS was NT$18 billion (approximately US$600 million), and the current registered capital is NT$33
billion. In March 1998, VIS became a listed company on the Taiwan Over-the-counter (OTC) Stock Exchange. Major investors in VIS
include the Developmental Fund of Taiwan’s Executive Yuan, Taiwan Semiconductor Manufacturing Company (TSMC), USI Far East
Corp. and Walsin Lihwa Corp.
The main VIS facilities are located in the Hsinchu Science-Based Industrial Park, Taiwan, where the company specializes in DRAM
manufacturing and logic IC foundry services. Current capacity is estimated at 37,000 wafers per month.
Vanguard believes strongly that business
should be conducted in a responsible and
ethical manner. These principles are at the
core of our corporate philosophy and form
the guidelines by which we make strategic
as well as day-to-day operational
decisions.
A Brief Introduction to VISA Brief Introduction to VIS
5
Shareholders’ Meeting
Board of DirectorsChairman of the Board
President
Supervisors
Legal & Knowledge Mgt. Center
Internal Auditing
Industrial Engineering
Industrial Safety & Env. Protection
Finance & Adm. Operations Marketing & SalesQuality Reliability
Assurance
Quality Assurance
Reliability Assur.
Quality System Mgt.
Mkt. & CorporateDevelopment
Technical Marketing
Sales
Customer Engineering& Design Service
Wafer Production
Product Technology
ManufacturingSystem
Product Assur. & Assembly Testing Service
Human Resources
Material Mgt.
Accounting
Information System
Finance
Public & InvestorRelations
Technology Development
As of December 31, 2001
Since our founding in 1994, VIS has laid a firm foundation in DRAM technology and production. In 1997, VIS received the Bronze
Medal at the Sixth National Invention Awards for its continuing innovation and patents received. VIS went on to win the Silver Medals
at the Eighth and Ninth National Invention Awards in 1999 and 2000, respectively. In 1999, VIS formed a strategic alliance with
Mitsubishi Electronic and acquired Mitsubishi’s advanced 0.18um production technology. In the same year, VIS acquired TSMC’s logic
foundry technology and was producing 22,000 wafers per month by the end of the year 2000. Moreover, VIS has entered the area of
memory foundry with a focus on advanced memory products and foundry services such as DRAM, Flash, SRAM, as well as other ASIC
products. At present, VIS is continuing to focus on developing and acquiring state-of-the-art memory and logic foundry technology,
such as high voltage technology of 40V and the above, 0.18um Flash and 0.25um/0.18um logic process technology. Our aim is to
rival world-class companies in the areas of memory and logic foundry in order to provide customers with reliable technology and
readily available production capacity.
Looking torwards the future, VIS is dedicated to the manufacture of HV and CIS (CMOS image sensor) products, producing logic
components, Flash, 1T-SRAM, low power SRAM and other products to meet market demand. In addition, VIS is committed to
building stronger alliances with our customers and consolidating our position as a specialized wafer foundry company through our
dedication to developing leading-edge memory process technology with customers.
HUMAN RESOURCES
As of December 2001, VIS had 1795 employees with an average age of 29.5 years. More than half of VIS employees hold college
degrees or higher. The chairman of VIS, Dr. Morris Chang, is also the chairman of Taiwan Semiconductor Manufacturing Company.
2. Organization
2-1 Organizational Chart
2-3 Directors and Supervisors
As of December 31, 2001
Title Name Date Term Shareholding Current Shareholding Spouse & Minor Education & Experience Current Position with Other CompanyElected (Year) When Elected (Notes 1) Shareholding
Amount % Amount % Amount %
Chairman Morris Chang 2000.05 3 3,240,448 0.15 3,240,448 0.15 0 0 Ph.D. Electrical Engineering, - - -Stanford University, USA Chairman, TSMC Chairman, WYSE Technology Inc.
Development 2000.05 3 639,713,750 29.08 639,713,750 29.08Fund,Executive Yuan
Director Representative 3 Nil Nil MBA, - - -of Legal Entity: The University of Texas at El Paso, Liou, Bor-Hong Director, Business Department,
Development Fund, Executive Yuan
Director Representative 3 Nil Nil Ph. D. Industry Management, - - -of Legal Entity: National Taiwan Institute of TechnologLiou, Ming-Jong Director, First Dept. Commission of
Corporations, Ministry of Economic Affairs
Director Representative 3 Nil Nil Ph. D. Electrical Engineering, - - -of Legal Entity: Princeton University, USAShih, Chin-Tay President, Industrial Technology
Research Institute
Supervisor Representative 3 Nil Nil MA, Economic, - - -of Legal Entity: National Chengchi University, Yeh, Huey-Ching Executive Secretary,
Ministry of Economic Affairs, Deputy Director, Fair Trade Committee
USI Corporation 2000.05 3 155,978,533 7.09 150,178,533 6.83
Director Representative 3 Nil Nil BA - - -of Legal Entity: . Chairman, USI Corp.Wu, Quintin Y.G
6
2-2 Executive Officers
As of December 31, 2001
Title Name Dated Shareholding Spouse & Education & Experience Current Position Managers are spouse or within 2
Effective Minor with Other Company degrees of consanguinity to each other
Amount %Shareholding
Title Name Relation
President S. J. Paul Chien 89/04/18 2,478,229 0.11% Nil - - -
Vice President, Jerry Chang 89/11/07 0 0 Nil - - -
Operation
Vice President, Robert Hsieh 84/02/01 1,711,353 0.08% Nil - - -
Finance &
Administration
Chairman of TSMC Corp.Director of TSMC Europe, TSMC Japan,TSMC Int’l Investment Ltd., TSMCDevelopment Inc., TSMC Technology Inc,WaferTech, LLC, Goldman Sachs Group,Inc., VIS Associates Inc. and VIS Investment Holding Inc.
Director of WYSE Technology Inc., Hui JuInvestment Corp., and Browave Corp.Supervisor of AeroVision Avionics, Corp.and Wei Hwa Avionics Industry Corp.
Nil
Director of TSMC Corp.
Nil
Chairman of USI Corporation, AsiaPolymer Corporation, China GeneralPlastics Corporation, Taita ChemicalCorporation, Swanson PlasticsCorporation, Chong Loong Trading Co.,Ltd, USI Investment Co., Ltd, AcmeElectronics Corporation, Taiwan UnitedVenture Capital Corporation, TaiwanUnited Venture Management Corp.,Genesis Venture Capital Corporation, YuTao Investment Ltd., Taiwan UnionInternational Investment Corp., UnionPolymer International Investment Corp.,National Datacomm Corporation, andFine Appliance Corporation.
Title Name Relation
M.S. Chemical Engineering,
Massachusetts Institute of Technology, USA
Senior Director, TSMC-USA
Ph.D. Chemical Engineering,
Massachusetts Institute of Technology, USA
Vice President, Operation, PSC
MBA, National Taiwan University
Vice President, Country Banking Head,
Bank of America NTSA
Director of Powerchip Semiconductor Corp., VIS
Associates Inc., VIS Investment Holding, Inc., VIS
Micro, Inc., Taiwan Semiconductor Manufacturing
Company, Ltd.
Director of MEGIC Corp.
Director of Walsin Advanced Electronics, Ltd., VIS
Associates Inc., VIS Investment Holding, Inc., VIS
Micro, Inc.
Supervisor of MEGIC Corp., Powerchip Semiconductor
Corp.
Managers are spouse orwithin 2 degrees of
consanguinity to each other
7
2-4 Information Regarding the Juristic Person Shareholders as Directors and Supervisors of VISAs of December 31, 2001
Name of Juristic Person Shareholders Shareholders who owned more than ten percent outstanding shares or top ten shareholders of the Juristic Person Shareholders
USI Corporation Shing Lee Enterprise Limited
Taiwan Semiconductor Koninkijke Philips Electronics N.V. Chi Cherng Investment Co., Ltd. Development Fund, Executive Yuan
Manufacturing Company, Ltd.
Walsin Lihwa Co. Ltd. Yu-Hwei Chiao Postal Remittances and Savings Banks Taiwan Finance Stability Fund
Cathay Life Insurance Co. Ltd. Bureau of Labor Insurance Ta Cherng Investment Co. Ltd.
Chin Cherng Investment Co. Ltd. Winbond Electronic Corporation Yu-Chi Chiao
Yu-Heng Chiao
Maw Chong Investment Corp., Ltd. Kao Sheng Investment Corp. Ltd. Der Chong Investment Corp. Ltd. Fu Yu Investment Corp. Ltd.
Emerald Investment Corp. Ltd Chia Der Investment Corp. Ltd.
TSMC 2000.05 3 556,133,496 25.28 556,133,496 25.28
Director Representative 3 Nil Nil Ph. D. Electrical Engineering, - - -of Legal Entity: National Cheng-Kung University Tseng, F.C. President, VIS
President, TSMCExecutive Vice President, TSMC
Director Rick Tsai 3 Nil Nil Ph. D. Material Science, - - -Cornell University, USAExecutive Vice President, TSMC
Director S. J. Paul Chien 3 Nil Nil M.S. Chemical Engineering, MIT, USA - - -Senior Director, TSMC-USAPresident, VIS
Director Robert Hiseh 3 Nil Nil MBA, National Taiwan University - - -Vice President, Country Banking Head,Bank of America NTSA, TaipeiVice President, VIS
Supervisor Harvey Cheng 3 Nil Nil MBA, Wharton School, - - -University of Pennsylvania, USAChairman , China Securities Investment Trust Corp.Senior Vice President & Chief Financial Officer, TSMC
Walsin Llihwa 2000.05 3 58,827,741 2.67 53,827,741 2.45Corp.
Director Representative 3 Nil Nil MBA, Golden Gate University, USA - - -of Legal Entity: Chairman, Walsin Technology Corp.Yu-Heng Chiao Chairman, Walsin Advanced Electronics,Ltd.
Vice Chairman, Walsin Lihwa Corp.
Maw Chong 2000.05 3 43,092,356 1.96 38,392,356 1.75Investment Company Ltd.
Supervisor Representative 3 Nil Nil Ph. D. Vanderbilt University, USA - - -of Legal Entity: President, USI Corp.Sidney H. Chow
Note1: Per the actual reported number of share on 12/31/2002
Director of TSMC Corp., TSMC North ofAmerica, TSMC Japan K. K., TSMC Partners,Ltd., Kung Cherng Ivnestment Co., Ltd, andChi Cherng Investment Co., Ltd.
Director of TSMC North of America, TSMCEurope B.V., TSMC Japan K. K., TSMC Partners,Ltd., Cheng Hui Investment Ltd., Sin RuiInvestment Ltd., and WaferTech, LLC.
Supervisor of TSMCDirector of Powerchip Semiconductor Corp.,VIS Associates Inc., VIS Investment Holding,Inc., and VIS Micro, Inc.
Director of Walsin Advanced Electronics Ltd.,VIS Associates Investment Inc., VIS InvestmentHolding, Inc., and VIS Micro, Inc.Supervisor of Powerchip Semiconductor Corp.and Magic Corp.
Director of TSMC Partners, Ltd., Chi HsinInvestment Co., Ltd., Systems on Silicon,Manufacturing Company Pte.Ltd. and FubonFinancial Holding Co., Ltd.Supervisor of TSMC Japan K.K.
Director of Walsin Lihwa Corp., WinbondCorp., Integral Chemical Corp., WalsinTechnology Corp., Hannstar Display Corp.,Walsin Advanced Electronics Ltd., ConcordVenture Capital Co. Ltd., Walsin Energy Corp.,Eastern Industrial Materials Limited, OperettaLimited, Walsin Lihwa Holdings Limited,Renowned International Limited, Great GloryEnterprises Inc., Harvest Win InvestmentLimited, Concord Industries Limited, WalsinIndustrial (Holdings) Limited, Kanforminternational Limited, Concord TelecomLimited, Concord Telecom Limited, WalsinLihwa Singapore Pte Limited, KonhomDevelopment Limited, Walsin InternationalManagement Limited, Konson InternationalLimited, Walsin Lihwa (HK) Limited, WalsinInternational Investments Limited, KonyeeInvestments Limited, Konwah InvestmentsLimited, and Success Holdings Limited.
Director of USI Investment Corp., UnionPolymer International Investment Corp.,Taiwan Union International Investment Corp.,Taiwan United Venture Capital Corp., ChongLoong Trading Co., Ltd., Swanlake Traders Ltd.,Swanson Plastics Corp., ACME ElectronicsCorp., Genesis Venture Capital Corp., FineAppliance Corporation, USI (H. K.) Ltd., ChinaGeneral Plastics Corp., Asia Ploymer Corp.,Taita Chemical Corp., and USI Corporation.
8
3.Capital and Share
3-1 History of CapitalizationUnit: Share, NT$
Authorized Capital Issued Capital Note
Shares Amount Shares Amount Sources of Capital Non-Money Capital OthersExpansion
12/1994 10 1,800,000,000 18,000,000,000 1,400,200,750 14,002,007,500 Original Investment * None
11/1995 10 1,800,000,000 18,000,000,000 1,800,000,000 18,000,000,000 Cash offering None None
12/1996 10 2,200,000,000 22,000,000,000 1,920,605,914 19,206,059,140 Capitalization of Profit None None
08/1998 25 2,700,000,000 27,000,000,000 2,020,605,914 20,206,059,140 Cash offering None None
10/1999 20 2,700,000,000 27,000,000,000 2,200,000,000 22,000,000,000 Cash offering None None
* Non-Money Capital Expansion total are NT$5,755,000,000, including property capitalized as equity investment NT$3,930,491,000 and technical know-how capitalized as equity investment
NT$1,824,509,000.
Type of Stock Authorized Capital Note
Issued Shares Un-Issued Shares Tatol
Common Stock 2,200,000,000 800,000,000* 3,000,000,000 Listed stock on OTC
*500,000,000 are reserved shares for Bond Conversion, 300,000,000 are reserved shares for stock option.
priceMonth/
Year
2-5 Information of Directors & Supervisors
With morethan five yearsexperience inbusiness,finance, lawor other areasrequired forthe operationof thisCompany
Not anemployee ofthe Companynor a director,supervisor oremployee ofany affiliatedcompany
Not an individualshareholderdirectly orindirectly owningmore than 1% ofthe Company’soutstandingshares nor one ofthe Company’stop 10 individualshareholders
Not a spouse to,nor having arelationshipwithin twodegrees of linealconsanguinitywith any personspecified incolumns 2 and 3
Not a director,supervisor, employeeor shareholder of acompany directly orindirectly owningmore than 5% of theCompany’soutstanding sharesor of one of theCompany’s top 5institutionalshareholders
Not a director,supervisor,manager orshareholder holdingmore than 5% ofthe outstandingshares of certaincompanies orinstitutions whichhave financial orbusinessrelationships withthe Company
Not the spouse of, norhim/herself the owner,partner, director, supervisoror manager of any soleproprietorship, partnership,company or institution, orthe specialist or spouse ofthe specialist which providedfinancial, commercial, orlegal consultation and/orservices to the Company orits affiliated companieswithin the last year
Note
Chairman V V V VMorris Chang
DirectorS.J. Paul Chien V V V V
DirectorRobert Hiseh V V V V V
DirectorF.C. Tseng V V V V
DirectorRick Tsai V V V V
SupervisorHarvey Chang V V V V
DirectorChin-Tay Shih V V V V
DirectorYu-Heng Chiao V V V V V V V
DirectorQuintin Y.G. Wu V V V V V V
DirectorMing-Jong Liou V V V V V V V
DirectorBor-Hong Liou V V V V V V
SupervisorHuey-Ching Yeh V V V V V V V
SupervisorSidney H. Chow V V V V V V
"V"indicates meeting conditions specified above
9
3-2 Market Price, Net Worth, Earnings and Dividends Per Share
Item 2001 2000
Highest market price 25.7 62
Market price per share Lowest market price 5.2 12.95
Average market price 13.49 38.97
Net worth per shareBefore distribution 6.087 10.023
After distribution 10.023
Earnings per shareWeighted average shares 2,200,000,000 2,200,000,000
Earnings per share (3.95) 1.17
Cash dividends
Dividends per ShareStock dividends Dividends from retained earnings
Dividends from capital surplus
Dividends in arrears
Price/Earning ratio (Note 1)
Return on investment Price/Dividend ratio (Note 2)
Cash dividend yield rate (Note 3)
Note 1. Price/Earning ratio=Average market price/Earnings per share
Note 2. Price/Dividend ratio=Average market price/Cash dividends per share
Note 3. Cash dividend yield rate = Cash dividends per share/Average market price
3-3 Dividend Policy
When allocating the net profits for each fiscal year, the Corporation shall first offset its losses in previous years and set aside a legal
capital reserve at 10% of the profits left over, until the accumulated legal capital reserve has equaled the total capital of the
Corporation; then set aside special capital reserve in accordance with relevant laws or regulations or as requested by the competent
authorities; and then set aside 1% of the balance as bonus to directors and supervisors and not less than 1% as bonus to employees
of the Corporation. Any balance left over shall allocated according to the following principles per resolution of the shareholders’
meeting:
(1) Except distribution of reserve in accordance with item (2) below, the Corporation shall not pay dividends or bonuses when the
legal capital reserve reaches over 50% of the capital or the sum set aside as capital reserve in profitable years have exceeded 20%
of such profits, the Corporation may, for the purpose of stabilization of market prices of the Corporation’s shares, distribute the
amount in excess as dividends and bonuses. Profits may be distributed in total after taking into consideration financial, business
and operational factors. Profits of the Corporation may be distributed by way of cash dividend and/or stock dividend.
Distribution of profits shall be made preferably by way of stock dividend. Distribution of profits may also be made by way of
cash dividend; provided however, the ratio for cash dividend shall not exceed 50% of total distribution.
(2) In case there is no profit for distribution in a certain year, or the profit of a certain year is far less than the profit actually
distributed by the Corporation in the previous year, or considering the financial, business or operational factors of the
Corporation, the Corporation may allocate a portion or all of its reserves for distribution in accordance with relevant laws or
regulations or the orders of the competent authorities.
3-4 Impact to Business Performance and EPS Resulted from 2002 Stock Dividend Distribution: Nil
10
Bond Domestic First secured bond Domestic Second secured bond
Issue Date Nov. 6 ,1996 Nov. 15 ,2001
Par Value NT$10,000,000 NT$1,000,000
Issue Price NT$10,000,000 NT$1,000,000
Total Amount NT$3,000,000,000 NT$1,100,000,000
Interest Rate 6.59% per annum Weighted average 3.538% per annum
Maturity Seven years(due on Nov.6, 2003) Five years(due on Nov.15, 2006)
Guarantors Guaranteed by China Trust Commercial Bank and Guaranteed by Grand Commercial Bank Hsinchu
15 others banks Branch , Bank SinoPac Hsinchu Branch,
Chiao Tung Bank Science Industrial Park Branch,
Taipei Bank Hsinchu Branch
Trustee Trustee Dept. of The International Commercial Bank of China Trustee Dept. of The International Commercial
Bank of China
Underwriter Nil Nil
Attorney David Yu Simon Hsiao
CPAs S.C.Huang S.C.Huang
Method of Repayment On the 4th, 5th, 6th, and 7th anniversary of the issue date, On the 4th, 5th anniversary of the issue date,
the bondholdersredeem 1/4 of the total value issued, i.e., the bondholders redeem 1/2 of the
NT$2.5million on the 4th anniversary, total value issued
NT$2.5 million on the 5th anniversary,
NT$2.5 million on the sixth anniversary,
and NT$2.5 million on the seventh anniversary.
Outstanding Balance NT$1,500,000,000 NT$1,100,000,000
Redemption Clause Nil Nil
Restrictive Covenants Current Ratio and Debt Ratio Current Ratio and Debt Ratio
Subordinate Nil Nil
Conversion Rights
5. Status of Preferred Stock Issuance: Nil
6. Status of Depositary Shares Issuance : Nil
4. Status of Corporate Bond Issuance :
11
7. Status of Employee Stock Option Plan (ESOP)
7-1 Status of Employee Stock Option Plan (ESOP)As of February 28, 2002
ESOP granted 1st ESOP 2nd ESOP 3rd ESOP
Approval date 2/20/2001 2/20/2001 2/20/2001
Issue(Grant) date 5/25/2001 8/24/2001 2/6/2002
Total no. of shares issued 70,790,000(shares) 82,905,000(shares) 6,305,000(shares)
Percentage of shares issued to total common stock shares 3.2% 3.8% 0.3%
Option termination 10 years 10 years 10 years
Source of option shares Issue new stock Issue new stock Issue new stock
Vesting Schedule and rate (%) 2nd year: 50% 2nd year: 50% 2nd year: 50%
3rd year : 75% 3rd year : 75% 3rd year : 75%
4th year: 100% 4th year: 100% 4th year: 100%
No. of shares acquired by employees through the exercise of options - - -
Total value of shares acquired by employees through the exercise of options (NT$) - - -
No. of unexercised shares 70,790,000(shares) 82,905,000(shares) 6,305,000(shares)
Price per share of unexercised options 15.1 10.0 14.55
Percentage of unexercised options to total common stock shares 3.2% 3.8% 0.3%
Effect to shareholders The number of shares issued to total common stock shares is fairly low.
Therefore, the ESOP has little effect on shareholders.
7-2 No. of shares granted to and holding status of Executive Managers and Top 10 EmployeesAs of February 28, 2002
Title Name Number of Exercised Unexercised
shares Price per No. of Price per share Total value No. of unexercised
granted share of unexercised of unexercised of unexercised shares to
exercised option options shares common
options (weighted stock shares
averages)*
President S.J. Paul Chien 2,610,000 - - - - - 2,610,000 11.47 29,936,700 0.12%
Vice President Jerry Chang 2,610,000 - - - - - 2,610,000 11.47 29,936,700 0.12%
Vice President Robert Hsieh 1,000,000 - - - - - 1,000,000 12.55 12,550,000 0.05%
Top 10 employees holding shares 10,270,000 - - - - - 10,270,000 12.04 123,650,800 0.47%
* Price per share of unexercised options is calculated by the weighted averages method according to the different date issued.
8. Merge and Acquisition in 2001: Nil
No. of shares
acquired by
employees through
the exercise of
options to
common stock
shares
No. of shares
acquired by
employees through
the exercise of
options to common
stock shares
No. of shares
acquired by
employees
through the
exercise of
options
Total value of
shares acquired
by employees
through the
exercise of
options (NT$)
12
1. Nature of business
1-1 Core Business
Vanguard International Corporation’s central operation includes wafer foundry services, wafer manufacturing, testing and sales of
Integrated Circuits, Large and Very Large Integrated Circuits, as well as related components and system products. We also handle
import and export activities related to VIS business. VIS is focusing on memory and specialty logic IC foundry, designing and
implementing tailor-made processes for our customers.
1-2 Research & Development
When VIS was established in 1994, we transferred 0.55um 4Mb DRAM technology from Sub-Micron program. VIS continued
improving this technology and successfully entered mass production soon after. At the same time, VIS developed its 16Mb DRAM
product, and within half a year had enhance the technology to 0.5um. This achievement led to a profitable year for VIS in 1995.
Process technology advanced further to 0.4um in May 1997. During this time, the first synchronic graphic 8Mb SGRAM (256kX32)
and 16Mb EDO DRAM were developed and mass-produced. From 1997 to the present, we have developed successive generations of
manufacturing techniques, from 0.37um to 0.21um. In a similar manner we have successfully developed and mass-produced 16Mb
EDO DRAM, 16Mb SDRAM, and 64Mb SDRAM. In 1999, VIS signed a technology transfer contract with Mitsubishi, transferring
advanced 0.18um DRAM technology and successfully entered mass production in the same year. In 2000, VIS announced its
conversion to a foundry company and transferred 0.5um/0.35um/0.25um logic foundry technology from TSMC. Moreover, VIS has
Recognizing the need to address the global market,
Vanguard is constantly seeking to expand our international
operations. Key to our success in this endeavor has been
our policy of treating customers as partners.
By implementing precision sales strategies that focus on
maintaining the highest level of customer satisfaction, we
have been able to build lasting and mutually profitable
strategic partnerships with our customers.
Operational HighlightsOperational Highlights
entered the area of memory foundry with a focus on advanced memory products and foundry services such as DRAM, Flash, SRAM,
as well as other ASIC products. Currently, VIS is committed to developing advanced 0.18 um and beyond advanced technology with
the aim of providing customers with reliable technology and readily available production capacity.
To match rapid growth in the foundry industry and to take advantage of excellent cost structures for semiconductor manufacturing in
Taiwan, VIS will concentrate their efforts on the development and transfer of 0.18um 128Mb/256Mb DDR, 0.25um/0.18um Flash and
0.25um/0.18um and beyond logic foundry processes, and 0.5um/0.35um/0.25um High Voltage process. VIS’s goal is to rival world
class companies in the field of memory and foundry mass production technology and increase the value added to our products and
wafer foundry services in order to enhance our profit making capability.
Product Plan and Schedule
Item Expected completion quarter
0.18um 256Mb DDR Q1,2001
0.18um 128Mb Graphic DDR Q2,2001
0.5/0.35um High Voltage process Q2,2002
0.25um Flash Q3,2002
0.18um Flash Q4,2002
0.25um High Voltage process Q4,2002
0.18um Logic Process Q4,2002
0.16um DRAM Q4,2002
VIS R&D Expense
Year R&D expenditure (NT$K) % of sales revenue
2000 640,407 3.3%
2001 631,329 6.9%
2. Market Outlook
2-1 Market Analysis
(1) Sales by Region Unit: NT$K
Region 1999 2000 2001
Sales Amount % Sales Amount % Sales Amount %
Europe 2,074,031 16% 2,363,828 12% 286,644 3%
America 4,874,973 37% 3,151,771 16% 1,237,812 13%
Taiwan 4,537,526 34% 1,969,857 10% 7,795,760 83%
Asia 1,851,289 14% 12,213,113 62% 55,707 1%
Others - - - - - -
Notes: Sales per region were calculated by shipment area.
As part of our global sales and marketing strategies, Vanguard maintains footholds in markets around the world and Vanguard’s
products are marketed worldwide. As the base of operations for our North and South American business, California is host to
Vanguard offices and warehouses. In Europe, Vanguard’s sales representatives in the UK are responsible for our Northern European
operations. Vanguard has also established a foothold in Germany to handle Central European operations. Product sales in Japan are
handled by authorized agencies. Vanguard’s growing presence worldwide is a testament to the success of our global marketing and
sales strategies.
13
(2) Market Share
Year 2001 Vanguard Foundry market share Unit: US$M
2001 Foundry Revenues Market Share (%)
Global Foundry Revenue 9,100 100.0 %
Vanguard Foundry Revenue 98 1.1 %
Source: IC Insights 2002,VIS
(3) Projected Market Demand, Supply and Growth
JP Morgan estimated that capital expenditures dropped 33% from 2000 to 2001, resulting in a conservative expectation of output
growth. This limited growth in capacity, however, will allow the industry to more quickly eliminate low utilization rates once demand
rebounds. On the demand side, inventory is being gradually consumed and new applications are stimulating semiconductor demand.
For example, the continuing growth of the wire communication segment due to increased demand for internet broadband
applications, as well as the demand for new and changing cellular phones for GPRS high transmission services will both serve to
stimulate demand. The launch of Microsoft’s Windows XP, the price drop of Intel’s P4 and the launch of 845 chipsets, among other
factors, should also serve to increase PC market demand, contributing to the positive influence on the sluggish semiconductors
market.
Analysts have had somewhat different estimates of worldwide semiconductor market growth over the next few years. However, their
general views on the upturn of the worldwide market are consistent. Since the fourth quarter of 2001, there have been signs of
upward movement. 2002’s global semiconductor production rate is forecasted to increase by 3% to 6%, and will keep growing at this
pace till 2005. Such a trend is driven by the global economy’s gradual recovery and the decrease of inventory levels. According to
WSTS’s (World Semiconductor Trade Statistics) October 2001 forecast, the semiconductor industry is recovering from the recession
and there will be double-digit growth rates from 2003 to 2004.
Worldwide Semiconductor Revenue and Growth
In the face of a massive global economic slowdown in 2001, global wafer foundry output decreased by one-third. However, foundry
business in the second half of 2001 picked up in anticipation of new product launches and inventory replenishment throughout the
supply chain. Consequently, the sales revenue of Taiwan’s two foundry giants, TSMC and UMC, rebounded in Q301 and Q401, giving
signs of a recovery in the wafer foundry industry.
The most important factor in the recovery of the foundry industry is strong demand for end-user applications. Given the gradual
stabilization of macro-economic factors in the latter half of 2002, the demand for PC peripheral and telecom applications is likely to
grow in the first quarter of next year. According to IC Insights’ latest report, global wafer foundry output is expected to rise
continuously (except for a small downturn in 2005) until 2006. Indeed, analysts are uniformly optimistic about the future of the wafer
foundry industry.
14
$250
$200
$150
$100
$50
$0
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
1993 1994 1995 1996 1997 1998 1999 2000 2001f 2002f 2003f 2004f
$77 $102 $144 $132 $137 $126 $149 $204 $139 $142 $169 $194
32% 42% -9% 4% -8% 19% 37% -32% 3% 19% 15%
Source: WSTS, October 2001
WSTS, 10/01
Y-Y G/R, 10/01
Unit
:
US$B
Year 2001 Vanguard DRAM market share Unit: US$M
2001 DRAM Revenues Market Share (%)
Global DRAM Revenue 11,199 100.0 %
Vanguard DRAM Revenue 176 1.6 %
Source: WSTS 01/31/2002, VIS
1998~2006 IC Foundry Sales Forecast
(4) Year 2002 Business Volume Forecast
VIS plans to manufacture 323,000 pieces of 8-inch wafer in 2002. 238,000 pieces of wafer are to be sold in the form of wafers and
the rest are to be packed and sold through our sales channels around the world.
(5) Opportunities and Threats
Under the influence of a global economic depression and a continuing slump in DRAM prices, our performance in 2001 was not as
outstanding as in 1994 or 1995. In 2000, Vanguard began its transformation into an IC foundry company, acquiring 0.50um,
0.35um and 0.25um logic foundry technologies from TSMC and entering the area of memory foundry with a focus on advanced
memory products such as DRAM, Flash, SRAM as well as other ASIC products and foundry services. At present, Vanguard has
developed 12V/18V/40V high-voltage technologies, as well as 0.5um/0.35um/0.25um CMOS image sensor technologies. With respect
to memory foundry services, Vanguard launched the production of 0.18um 1TSRAM and 0.18um Flash.
Strengths
(a) Vanguard focuses on the display, communication and consumer markets, all of which analysts have identified as markets with
strong growth expectations. The expansion of these markets will drive the rapid growth of the foundry industry.
(b) Vanguard is proud of the high quality of our products and our advanced manufacturing technology. Under a systematic
certification program, Vanguard has received ISO-9001 and ISO-14001 certification from Lloyd’s in 1996 and 1997, respectively.
Vanguard also received QS-9000 quality system certification in March 2002. This conformity to international standards improves
our international image and thereby helps us to increase our worldwide market share.
(c) Vanguard maintains a close relationship with TSMC, and we have successfully transferred 0.5um/0.35um/0.25um logic foundry
services from TSMC. In conjunction with TSMC, we provide unsurpassed foundry services to our customers.
Threats
(a) The global DRAM market is still suffering from a light depression. Although DRAM prices have lifted slightly, the fundamental
demand for end-user products is still weak.
Our strategy:
Vanguard is reacting to the weak DRAM market by progressively decreasing our investment in DRAM business and by lowering
the percentage of sales made up of packaged devices.
(b) The semiconductor industry is capital- and technology-intensive. Therefore, the cost of improving equipment and technology to
stay ahead of competitors is extremely high.
Our strategy:
Vanguard is committed to the strategy of constant technology and production capability improvements while minimizing
costs to secure maximum profits.
Vanguard has accelerated our development in the areas of logic foundry and Flash memory foundry in order to create new
business opportunities in Specialty IC foundry.
Vanguard has an excellent R&D team that is devoted to developing the most advanced technology, enhancing the yield rate
and lowering production costs.
Pure-Play Foundry Sales IDM Foundry Sales35.0
30.0
25.0
20.0
15.0
10.0
2.0
0.0
1998 1999 2000 2001 2002(e) 2003(e) 2004(e) 2005(e) 2006(e) year
30.5
27.128.2
16.6
10.99.1
13.8
8.2
5.4
Source: IC Insights, 2002
15
Unit
:
US$B
16
2-2 Major Applications and Manufacture Flow of Products
(1) Major Applications
VIS provides its customers with top quality memory integrated circuits that can be applied in related fields, including: personal
computers, servers, workstations, personal communications, consumer electronics (e.g. Home Video Games, Set-Top Box, High
Resolution TV) and other computer related peripheral products (e.g. CD-ROM, VGA Card, Laser Printers, etc.).
(2) Introduction to DRAM Manufacture Flow
17
1. Start material (silicon wafers)
Silicon wafers are sliced from purified silicon crystal ingot. Wafer numbering is done in the same time.
2. Well formation and field oxidation
2-a. Wafers are sent to photo area for well patterns exposure on wafers at steppers.
2-b. Ion implanters implants phosphorus ions into wafers forming N-type wells.
2-c. Wafers are placed into furnaces for well diffusion and forming pad oxide to release possible stress.
2-d. Wafers are placed into LPCVD furnaces to form silicon nitride.
2-e. Wafers are sent to photo area to for field patterns exposure on wafers. The patterns are then etched by etching. The photo
resist is later removed.
2-f. Wafers are placed into furnaces to form field oxide and silicon nitride is later removed.
3. Gate formation
3-a. Wafers are placed into furnace to form "sacrificial oxide" which combines wafers surface particles and are later removed.
3-b. Wafers are placed into furnace to form "gate oxide" which is the most important step in IC manufacture.
3-c. Poly silicon is form by CVD and phosphorus is doped to reduce the gate resistance.
3-d. Wafers are sent to photo area to form gate patterns.
3-e. Gate patterns are etched by dry etching and are the most important etching steps.
4. Source and drain formation
4-a. Wafers are sent to photo area for P+ source and drain exposure.
4-b. Wafers are sent to implanters for boron ion implantation.
4-c. Wafers are sent to photo area again for N+ source and drain exposure.
4-d. Wafers are sent to implanters for arson ion implantation.
5. Capacitor formation
5-a. Wafers are placed into furnace and poly silicon is formed by LPCVD.
5-b. Wafers are further oxidized, silicon nitride deposited, and oxidized to form capacitor dielectric.
5-c. Wafers are deposited with poly silicon and sent to photo area for capacitor patterns exposure. The wafers are turned to
etching area for capacitor etching.
6. Contact formation
6-a. Wafers are sent to CVD area for BPSG deposition. The BPSG is later densified in high temperature furnace to form a dielectric.
6-b. Wafers are later sent to photo area for contact pattern exposure and sent to etching area for contact etching.
7. Double metal formation
7-a. Wafers are sent to metal sputter area. First Ti-TiN, then Al-Si-Cu to form the first metal.
7-b. Wafers are sent to photo area for metal pattern exposure, and then etched at etching area for metal pattern.
7-c. Three silicon dioxide with different density are formed by CVD as a dielectric to isolate the two (top and bottom) metals.
7-d. Wafers are sent to photo area to form vias (for both metals) pattern and etched by etching.
7-e. Wafers are sent to metal sputter area. First TiN, then Al-Si-Cu to form the second metal.
7-f. Wafers are sent to photo area for metal pattern exposure. Metal patterns are later etched by etching.
8. Passivation formation
8-a. Wafers are sent to CVD for silicon nitride passivation deposition to protect wafers from being scratched and contaminated.
8-b. Wafers are sent to photo area for testing metal plate exposure. The metal connection plates are formed by etching.
8-c. Wafers are placed into furnace for annealing. The wafers are later sampling tested and finally back lapped completing wafer
manufacture process.
9. Wafers are sent for wafer acceptance test and to testing area for function testing of every die and separating fail dice.
18
2-3 Major Materials Supply Status
Major Product Major Material Major Suppliers Supply Status
Wafer TAISIL ELECTRONIC MATERIALS CORP. SHIN-ETSU HANDOTAI TAIWAN CO., LTD. Normal
MITSUBISHI MATERIALS SILICON CORP. SUMITOMO METAL INDUSTRIES, LTD.
DRAM / Chemical MERCK-KANTO ADVANCED CHEMICALS LTD. TAI-YOUNG HIGH TECH CORP. LIMITED Normal
Logic FoundryPhoto Resist SUMITOMO MITSUBISHI SILICON CORP. CLARIANT (TAIWAN) CO., LTD. Normal
Specialty Gas BOC LIENHWA INDUSTRIAL GASES CO., LTD. LIQUID AIR FAR EAST LTD. Normal
2-4 Major Customers on Purchase (Sales) over the Last Two Years
(1) Major Customers on Sales
2000 2001
TSMC TSMC
PNY TWINMOS
DAIWA-TWN ETRON
ETRON
(2) Major Customers on Purchase
2000 2001
TAISIL ELECTRONIC MATERIALS CORP. TAISIL ELECTRONIC MATERIALS CORP.
SHIN-ETSU HANDOTAI TAIWAN CO., LTD. SUMITOMO CORP.
SUMITOMO CORP. SHIN-ETSU HANDOTAI TAIWAN CO., LTD.
WAH LEE INDUSTRIAL CORP. WAH LEE INDUSTRIAL CORP.
LIQUID AIR FAR EAST LTD.
2-5 Production Over the Last two Years Unit: NT$K
Product 2000 2001
Capacity Quantity Value Capacity Quantity Value
Package (K Dies) 42,190 6,539,368 35,457 3,330,157
Wafer (piece) 235,501 4,889,786 199,136 5,817,490
Total 414,303 11,429,154 345,749 9,147,647
Note: Package=64Mb SDRAM Equivalent
2-6 Sales Over the Last Two Years Unit: NT$K
Product 2000 2001
Domestic Sales International Sales Domestic Sales International Sales
Quantity Amount Quantity Amount Quantity Amount Quantity Amount
Package (K Dies) 27,262 5,330,557 16,443 6,060,348 22,182 1,304,517 12,258 1,534,612
Wafer (piece) 234,490 7,954,857 0 0 293,900 6,270,758 521 605
Total 13,285,414 6,060,348 7,575,275 1,535,217
Note: Package=64Mb SDRAM Equivalent
19
3. PersonnelAs of February 28, 2002
Year 2000 2001 2002/2/28
Direct 906 837 810
Personnel Indirect 889 958 927
Total 1,795 1,795 1,737
Average Age 28.9 29.5 29.7
Average Year of Service 2.9 3.4 3.6
PH.D 9 9 9
Master 244 255 247
Education College 850 811 779
High School 683 709 692
Less than High School 9 11 11
4. Environmental Protection Measures
VIS has been completely free of environmental incidents for the year 2001.
VIS passed routine surveillance assessments of company operations by a Lloyds-approved third party and maintains the certification of
our ISO-14001 approved Environmental Management System (EMS).
In 2001, VIS personnel have participated in the execution of our EMS, contributing to the task of environmental protection. The
following are samples of our major achievements:
(1) Energy and Resources Savings
By changing the working temperature of the stripper ACT-690, we have been able to reduce the usage of this chemical by 30%.
(2) Waste Materials Recycling and Reuse
The recycling rate of clean plastic bags has been increased to 100%.
By using recycled boxes for wafer packaging, the use of cardboard for packaging has been decreased 50%.
(3) Pollutant Treatment Efficiency Increases
The utilization rate of VOC for wasted gas treatment has been improved to higher than 99%.
The concentration of HF in wastewater has completely passed the effluent standard of the Science-Based Park Administration.
More than 50% of the suspended halon fire extinguisher system has been changed to an automatic CO2 fire extinguisher system.
(4) Environment Information Management
VIS has established a homepage for environmental protection related activity announcements.
In the year 2001, over NT$30 million has been invested in the installation of pollution prevention systems such as:
Increased coverage of gas monitoring.
Centralized waste gas and water treatment systems.
Local scrubbers for process equipment.
VIS will continue to upgrade our ISO-approved Environmental Management System and develop programs for environmental
monitoring. The results of these monitoring programs will be used to more effectively respond to any environmental issues that may
arise, with the aim of maintaining a clean and healthy environment on our site and in our community. VIS is devoted to
environmental protection, and views it as an essential expression of our social responsibility.
20
5. Employee Relations
VIS is devoted to promoting labor/management relations built on trust and an open management style, while establishing a working
environment that is full of challenges and fun.
The company has set up several channels in order to create an environment of open communication. These include regular monthly
departmental meetings, an employee suggestion box and the internal publication "Vanguard World". The company also set up the
"Employee Relations Section", which focuses on employee relation matters, provides the employees with counseling services and holds
conferences and lectures to reinforce communication and understanding within the company. For the physical and mental wellbeing
of its staff, VIS is dedicated to improving the work environment by encouraging leisure activities, establishing recreational facilities
and providing health and insurance benefits.
There have not been any issues related to employee relations in the last 2 years.
6. Important Contract
(1) Agreement to Guarantee Corporate Bonds
Contracting Parties:
Sixteen banks participated in the issuance, including China Trust Commercial Bank, Far East International Bank, Asia Trust and
Investment Corporation and others.
Content of Agreement:
For the purpose of obtaining medium and long term operating capital and adjusting our financial structure, this company issued
7-year Corporate Bonds guaranteed by the banks for a total amount of NT$3,000,000,000.
Period of Agreement:
Effective from 09/20/96
Restrictions:
This Company shall have all machinery and equipment located in Fab 1A mortgaged to the leading bank.
(2) Syndicated Loan Agreement
Contracting Parties:
Twenty-two banks are participating in the syndicated loans program, including the International Commercial Bank of China, the
Farms Bank of China, Hua Nan Commercial Bank and others.
Content of Agreement:
For the construction of Wafer Fab 1B and the purchase of imported machinery and equipment, the banks will jointly provide our
company with loans up to the total amount of NT$7,800,000,000
Period of Agreement:
Effective from 08/16/96
Restrictions:
This Company shall have the FAB 1B building and the imported machinery/equipment under this loan project mortgaged to the
leading bank.
(3) Syndicated Loan Agreement
Contracting Parties:
Twenty-one banks are participating in the syndicated loans program, including the International Commercial Bank of China and
others.
21
Content of Agreement:
For the re-construction of Wafer Fab 1B and the purchase of imported machinery and equipment, the banks will jointly provide
our company with loans up to the total amount of NT$4,000,000,000
Period of Agreement:
Effective from 05/15/98
Restrictions:
This Company shall have the imported machinery/equipment under this loan project mortgaged to the leading bank
(4) Agreement to Guarantee Commercial Promissory Note
Contracting Parties:
Seven banks participated in the issuance, including Tai Jung Commercial Bank and others.
Content of Agreement:
Participating Banks will provide guarantee for our commercial promissory note of NT$1,750,000,000.
Period of Agreement:
Effective from 02/08/2002
Restrictions:
This Company shall have certain machinery/equipment mortgaged to the leading bank
(5) Agreement to Guarantee Corporate Bond
Contracting Parties:
Wan Tung Commercial Bank, Hsin Chu Branch.
Content of Agreement:
Wan Tung Commerical Bank will provide a guarantee for our corporate bonds of NT$ 1,100,000,000 of up to NT$300,000,000.
Period of Agreement:
Effective from 10/05/2001
Restrictions:
This Company shall have certain machinery/equipment mortgaged to the bank
(6) Agreement to Guarantee Corporate Bond
Contracting Parties:
Chiao Tung Bank, Hsin Chu Science Park Branch.
Content of Agreement:
Chiao Tung Bank will provide a guarantee for our corporate bonds of NT$ 1,100,000,000 of up to NT$300,000,000.
Period of Agreement:
Effective from 10/05/2001
Restrictions:
This Company shall have certain machinery/equipment mortgaged to the bank
(7) Agreement to Guarantee Corporate Bond
Contracting Parties:
Hwa Hsin Commercial Bank, Hsin Chu Branch.
Content of Agreement:
Hwa Hsin Commercial Bank will provide a guarantee for our corporate bonds of NT$ 1,100,000,000 of up to NT$300,000,000.
Period of Agreement:
Effective from 10/05/2001
Restrictions:
This Company shall have certain machinery/equipment mortgaged to the bank
(8) Agreement to Guarantee Corporate Bond
Contracting Parties:
Taipei City Bank, Hsin Chu Branch.
Content of Agreement:
Taipei City Bank will provide a guarantee for our corporate bonds of NT$ 1,100,000,000 of up to NT$200,000,000.
Period of Agreement:
Effective from 10/15/2001
Restrictions:
This Company shall have certain machinery/equipment mortgaged to the bank
(9) Credit Grant Agreement
Contracting Parties:
Tai Jung Commercial Bank.
Content of Agreement:
Tai Jung Commercial Bank will provide a guarantee for our commercial promissory note of NT$300,000,000.
Period of Agreement:
Effective from 07/13/2001 to 05/31/2004
Restrictions:
This Company shall have certain machinery/equipment mortgaged to the bank
(10) Sub-micron Technology License Agreement
Contracting Party:
Industrial Technology Research Institute (ITRI)
Content of the Agreement:
VIS may manufacture and sell certain products by using ITRI’s sub-micron technologies.
Period of Agreement:
Effective from 11/11/94 to 12/31/04
Restrictions:
This company may not grant to any third party the right to use ITRI’s sub-micron technology.
(11) Patent Cross-License Agreement
Contracting Party:
Texas Instruments Incorporated (TI)
Content of the Agreement:
Both parties granted each other the right to use the other party’s patented technologies to manufacture and sell semiconductor.
Period of Agreement:
Effective from 06/12/97
Restrictions:
Both parties release each other from all claims arising from infringement or alleged infringement of any party’s patent by the
other party prior to the effective date of this Agreement.
(12) Patent Cross-License Agreement
Contracting Party:
Harris Corporation (Harris)
22
Content of the Agreement:
Both parties granted each other the right to use the other party’s patented technologies to manufacture and sell integrated
circuit.
Period of Agreement:
Effective from 10/06/97
Restrictions:
Both parties release each other from all claims arising from infringement or alleged infringement of any party’s patent by the
other party prior to the effective date of this Agreement.
(13) Patent Cross-License Agreement
Contracting Party:
EMI Group North America, Inc. (EMI)
Content of the Agreement:
Both parties granted each other the right to use the other party’s patented technologies to manufacture and sell integrated
circuit.
Period of Agreement:
Effective from 12/30/97
Restrictions:
Both parties release each other from all claims arising from infringement or alleged infringement of any party’s patent by the
other party prior to the effective date of this Agreement.
(14) Patent Cross-License Agreement
Contracting Party:
NEC Corporation (NEC)
Content of the Agreement:
Both parties granted each other the right to use the other party’s patented technologies to manufacture and sell
semiconductors.
Period of Agreement:
Effective from 02/26/99
Restrictions:
Both parties release each other from all claims arising from infringement or alleged infringement of any party’s patent by the
other party prior to the effective date of this Agreement.
(15) Technology Transfer Agreement
Contracting Party:
Mitsubishi Electric Corporation
Content of the Agreement:
Mitsubishi transfers its 0.2um and 0.18um DRAM technologies and granted VIS the right to manufacture its 64M SDRAM and
128M SDRAM products.
Period of Agreement:
Effective from 08/25/99
Restrictions:
Both parties release each other from all claims arising from infringement or alleged infringement of any party’s patent by the
other party prior to the effective date of this Agreement.
7. Litigation: Nil
23
24
8. Acquisition or Disposition of Real Estate
8-1 Acquisition of Real Estate
Unit: NT$K As of February 28, 2002
Name of Real Estate Acquisition Price Vendor Relationship Status
Date with Co.
Stepper
Invesco GP R.O.C. Bond Fund
N.T.T.C. Bond Fund
Fubon Ju-I Fund
President Home Run Bond Fund
Invesco GP R.O.C. Bond Fund
Invesco GP R.O.C. Bond Fund
Fubon Ju-I Fund
Fubon Ju-I Fund
President Home Run Bond Fund
President Home Run Bond Fund
The First Global Investment
Trust Duo-Li-2 Bond Fund
The First Global Investment
Trust Duo-Li-2 Bond Fund
The First Global Investment
Trust Duo-Li-2 Bond Fund
President James Bond Fund
President James Bond Fund
04/2001
04/2001
04/2001
04/2001
05/2001
07/2001
07/2001
07/2001
07/2001
07/2001
07/2001
07/2001
10/2001
10/2001
10/2001
11/2001
371,578
200,000
300,000
200,000
300,000
300,000
50,000
200,000
50,000
300,000
50,000
200,000
100,000
350,000
100,000
400,000
ASML
Invesco Taiwan Ltd.
N.T.T.C. Ltd.
Fubon Securities Investment Trust Co. Ltd.
President Investment Trust Corp.
Invesco Taiwan Ltd.
Invesco Taiwan Ltd.
Fubon Securities Investment Trust Co. Ltd.
Fubon Securities Investment Trust Co. Ltd.
President Investment Trust Corp.
President Investment Trust Corp.
The First Global Investment Trust Co. Ltd.
The First Global Investment Trust Co. Ltd.
The First Global Investment Trust Co. Ltd.
President Investment Trust Corp.
President Investment Trust Corp.
Supplier
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Normal
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25
8-2 Disposition of Real Estate
Unit: NT$K As of February 28, 2002
Name of Real Estate Acquisition Disposition Book Price Income Buyer Relationship
Date Date Value (Loss) of with Co.
Disposition
Invesco GP R.O.C. Bond Fund
N.T.T.C. Bond Fund
Fubon Ju-I Fund
President Home Run Bond Fund
Fubon Ju-I Fund
Fubon Ju-I Fund
President Home Run Bond Fund
President Home Run Bond Fund
The First Global Investment Trust
Duo-Li-2 Bond Fund
Invesco GP R.O.C. Bond Fund
Invesco GP R.O.C. Bond Fund
President James Bond Fund
The First Global Investment Trust
Duo-Li-2 Bond Fund
President James Bond Fund
04/2000
04/2001
04/2001
05/2001
07/2001
07/2001
07/2001
07/2001
07/2001
07/2001
07/2001
10/2001
10/2001
11/2001
06/2001
06/2001
06/2001
06/2001
08/2001
08/2001
10/2001
10/2001
10/2001
01/2002
01/2002
10/2001
10/2001
01/2002
0
0
0
0
0
0
0
0
0
0
0
0
0
0
201,482
302,386
201,796
301,722
200,878
50,115
303,909
50,528
202,427
305,630
50,828
100,263
100,271
402,869
1,482
2,386
1,796
1,722
878
115
3,909
528
2,427
5,630
828
263
271
2,869
Invesco Taiwan Ltd.
N.T.T.C. Ltd.
Fubon Securities Investment Trust Co. Ltd
President Investment Trust Corp.
Fubon Securities Investment Trust Co. Ltd.
Fubon Securities Investment Trust Co. Ltd.
President Investment Trust Corp.
President Investment Trust Corp.
The First Global Investment Trust Co. Ltd.
Invesco Taiwan Ltd.
Invesco Taiwan Ltd.
President Investment Trust Corp.
The First Global Investment Trust Co. Ltd.
President Investment Trust Corp.
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
26
1. Corporate Bond Financing Plan
Bond Amount Period
Domestic Second Secured Bond NT$ 1.1 billion 2001/11/15~2006/11/15
Interest Rate Purpose Uploaded to the OTC Bond System
3.5~3.6% Operational needs 2001/11/16
Vanguard believes in long-term
business strategies which focus
on stable and sustained growth
while maintaining our
entrepreneurial vitality. To this
end we are constantly
innovating to meet the demands
of the dynamic and rapidly
changing hi-tech industry.
Business and Financing PlansBusiness and Financing Plans
27
2. Status of Implementation and Benefits
This project was completed in December of 2001 and uploaded to the OTC Internet forum on the 8th of January 2002. The forecasted
benefits are analyzed as follows:
Unit: NT$K
Year 2001 2002 2001 DiscrepancyItem (Forecast) (Forecast) (Actual) between real and
forecast in 2001
Total Debt 14,777,535 12,249,000 15,072,105 294,570
Financial Net Sales 9,969,748 12,474,000 9,110,492 (859,256)Information
EPS (2.51) 0.08 (3.95) (1.44)
Net Worth to Total Assets (%) 52.85 57.7 47.05 (5.8)
Capital Structure Net Worth to F/A 1.11 1.42 0.93 (0.18)Analysis
Long Term Fund to F/A 1.62 1.93 1.45 (0.17)
Liquidity Analysis Current Ratio (%) 132 154.6 102.16 (29.84)
Quick Ratio (%) 87 117.2 76.39 (10.61)
Notes: These forecasts are based on the data as of November 30th 2001.
The semiconductor industry was heavily impacted by the worldwide economic downturn, inventory adjustments and the September
11th events of 2001. These factors combined to produce the largest production shrinkage in the industry’s history, and also resulted in
VIS’s actual perfomance falling short of our forecasts. However, given the gradual economic recovery currently underway and the
surge in prices, our financial performance in 2002 is expected to improve.
28
Financial StatementsFinancial Statements
Vanguard is committed to creating a dynamic and enjoyable work environment that
will attract talented people. We believe in the importance of being a good
corporate citizen by contributing to our community while acting in the best
interests of our shareholders and employees.
29
1. Brief Balance SheetUnit:NT$K
Item Financial analysis from 1997 to 2001
2001 2000 1999 1998 1997
Current assets 6,771,922 13,000,146 9,829,869 6,600,000 7,341,573
Long-term investment 4,524,538 4,110,516 4,461,382 1,225,228 733,851
Fixed assets 14,323,956 19,030,401 19,072,057 22,860,743 22,658,108
Other assets 2,844,448 3,555,598 3,675,246 3,244,851 2,528,911
Current liabilities Before distribution 6,628,965 7,164,583 5,423,773 3,406,659 4,229,009
After distribution 6,628,965 7,164,583 5,423,773 3,406,659 4,229,009
Long-term liabilities 7,392,000 9,278,000 11,946,000 12,624,000 8,684,000
Other liabilities 1,051,140 1,203,297 215,519 163,572 103,505
Capital stock 22,000,000 22,000,000 22,000,000 20,206,059 19,206,059
Capital Surplus 21,765 21,765 3,309,311 1,501,287 -
Retained earnings Before distribution (8,683,930) 8,493 (5,852,798) (3,989,529) 983,855
After distribution (8,683,930) 8,493 (5,852,798) (3,989,529) 983,855
Total Assets 28,464,864 39,696,661 37,038,554 33,930,822 33,262,443
Total Liabilities Before distribution 15,072,105 17,645,880 17,585,292 16,194,231 13,016,514
After distribution 15,072,105 17,645,880 17,585,292 16,194,231 13,016,514
Total Equity Before distribution 13,392,759 22,050,781 19,453,262 17,736,591 20,245,929
After distribution 13,392,759 22,050,781 19,453,262 17,736,591 20,245,929
*Subject to change after shareholders’ meeting resolution
2. Brief Statements of IncomeUnit:NT$K
Item Financial analysis from 1997 to 2001
2001 2000 1999 1998 1997
Net sales 9,110,492 19,345,762 13,026,814 9,861,124 9,692,155
Gross profit (3,459,603) 4,518,477 523,542 (2,390,544) 1,216,141
Income (loss) from operation (4,714,841) 3,046,215 (2,177,391) (4,803,099) (657,657)
Interest revenue 203,655 192,292 207,726 133,449 170,883
Interest expense 729,881 936,400 1,006,757 733,928 233,573
Profit (loss) before tax (9,292,764) 2,370,720 (2,549,186) (5,572,097) (670,971)
Net profit (loss) (8,692,423) 2,573,745 (1,849,186) (4,972,097) (70,633)
Earnings (loss) per share (3.95) 1.17 (0.90) (2.53) (0.04)
30
3. Financial Analysis
Item Financial analysis from 1997 to 2001
2001 2000 1999 1998 1997
Capital Structure Analysis
Debt Ratio (%) 52.95 44.45 47.48 47.73 39.13
Long Term Fund to F/A (%) 145.10 164.62 164.63 132.81 127.68
Liquidity Analysis
Current Ratio (%) 102.16 181.45 181.24 193.74 173.60
Quick Ratio (%) 76.39 129.42 124.36 113.17 112.06
Interest Guarantee (Times) - 3.27 - - -
Operating Performance Analysis
Avg. Collection Turn over (Times) 4.15 7.67 7.34 5.72 9.82
Avg. Collection Days 8 8 48 50 64 37
Avg. Inv. Turn over (Times) 6.47 6.16 6.20 5.83 5.04
Avg. stock Turn over Days 5 6 59 59 63 72
Fixed Assets Turn over (Times) 0.64 1.02 0.68 0.43 0.43
Total Assets Turn over (Times) 0.32 0.49 0.35 0.29 0.29
Return on Investment Analysis
Return on Total Assets (%) (23.36) 8.71 (2.37) (12.61) 0.54
Return on Total Equity (%) (49.05) 12.40 (9.94) (26.18) (0.35)
Operating Income to Capital Stock (%) (21.43) 13.85 (9.90) (23.77) (3.42)
Profit(loss) before tax to Capital Stock (%) (42.24) 10.78 (11.59) (27.58) (3.49)
Profit(loss) after tax to Net Sales (%) - 13.30 - - -
Earnings per share (NTD)* (3.95) 1.17 (0.90) (2.53) (0.04)
Cash Flow
Cash Flow Ratio (%) 22.65 111.42 68.56 - 37.92
Cash Flow Adequacy Ratio (%) 56.43 45.94 29.20 20.19 25.70
Cash Flow Reinvestment Ratio (%) 3.04 14.53 7.62 - 4.53
Leverage Analysis
Operating leverage - 3.69 - - -
Financial leverage - 1.44 - - -
*Based on retroactive weighted average shares.
1. Capital Structure Analysis
(1) Debts ratio=Total Liabilities/Total Asset
(2) Long-term fund to fixed assets=(Shareholders’ Equity+Long-term Liabilities)/Net Properties
2. Liquidity Analysis
(1) Current ratio=Current Assets/Current Liabilities
(2) Quick ratio=(Current Assets-Inventories-Prepaid Expense)/Current Liabilities
(3) Times interest earned=Earnings before Interest and Taxes/Interest Expense
3. Operating Performance Analysis
(1) Average collection turnover=Net Sales/Average Trade Receivables
(2) Average collection days=365/Receivables Turnover rate
(3) Average inventory turnover=Cost of Sales/Average Inventory
(4) Average payment turnover=Cost of Sales/Average Trade Payables
(5) Average inventory turnover days=365/Inventory Turnover rate
(6) Fixed assets turnover=Net Sales/Net Properties
(7) Total assets turnover=Net Sales/Total Assets
4. Profitability Analysis
(1) Return on total assets=[Net Income+Interest Expensex(1-Effective tax rate)]/Average Total Assets
(2) Return ratio on stockholders’ equity=Net Income/Average Stockholders’ Equity
(3) Profit after tax to net sales=Net Income/Net Sales
(4) Earnings per share =(Net Income-Preferred Stock Dividend)/Weighted Average Number of Shares Outstanding
5. Cash Flow
(1) Cash flow ratio=Net Cash Provided by Operating Activities/Current Liabilities
(2) Cash flow adequacy ratio=Five-year Sum of Cash from Operations/Five-year Sum of Capital, Expenditures, Inventory Additions, and Cash Dividends
(3) Cash flow reinvestment ratio=(Net Cash Provided by Operating Activities-Cash Dividends)/(Gross Plant+Long-term Investment+Other Assets+Working Capital)
6. Leverage
(1) Operating leverage=(Net Sales-Variable Cost)/Income from Operations
(2) Financial leverage=Income from Operations/(Income from Operations-Interest Expenses)
Auditors’ Opinion from 1997 to 2001
31
Year CPA Audit Opinion
1997 S.C. Huang, Edward Way An Unqualified Opinion
1998 S.C. Huang, Edward Way An Unqualified Opinion
1999 S.C. Huang, Edward Way An Unqualified Opinion
2000 S.C. Huang, Edward Way An Unqualified Opinion
2001 S.C. Huang, Edward Way An Unqualified Opinion
12F, No. 156, Sec. 3, Min-Sheng E. Rd., Taipei, Taiwan, R.O.C.
Tel: 886-2-2545-9988
4. Supervisors’ Report
2001 ANNUAL REPORT OF THE COMPANY, PREPARED BY THE BOARD OF THE DIRECTORES, HAS BEEN ASSIGNED BY THE
UNDERSIGNED, ACCORDING TO THE ARTICLE 219 OF COMPANY LAW, TO T.N. SOONG & CO. FOR AUDITING . THE AUDITORS’
REPORT HAS BEEN FINISHED AND SUBMITTED BY THE SAID AUDITOR AND CHECKED BY THE UNDERSIGNED.
Vanguard International Semiconductor Corporation
YEH, HUEY-CHING
CHOW, SIDNEY H.
CHANG, HARVEY
February 1st, 2002
32
5. Financial Statements & Independent Auditors’ Report
English Translation of a Report Originally Issued in Chinese
Independent Auditors’ Report
The Board of Directors and Shareholders
Vanguard International Semiconductor Corporation
We have audited the accompanying balance sheets of Vanguard International Semiconductor Corporation as of December 31, 2001
and 2000, and the related statements of income, changes in shareholders’ equity and cash flows for the years then ended. These
financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with Regulations for Auditing of Financial Statements by Certified Public Accountants, and
auditing standards generally accepted in the Republic of China. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Vanguard
International Semiconductor Corporation as of December 31, 2001 and 2000, and the results of its operations and its cash flows for
the years then ended in conformity with the Guidelines for Securities Issuers’ Financial Reporting and accounting principles generally
accepted in the Republic of China.
January 12, 2002
Notice to Readers
The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in
accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other
jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in
the Republic of China.
33
34
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATIONBALANCE SHEETSDecember 31, 2001 and 2000
2001 2000
ASSETS Amount Amount
CURRENT ASSETS
Cash and cash equivalents (Notes 2 and 3) $ 2,966,364 10 $ 5,877,789 15
Pledged time deposit (Note 16) 10,000 - 10,000 -
Short-term investments (Notes 2 and 4) 1,100,000 4 - -
Receivable from related parties (Note 15) 574,456 2 1,863,991 5
Notes and accounts receivable 528,453 2 1,784,806 4
Allowance for doubtful receivables (Note 2) (27,503) - (83,552) -
Allowance for sales returns, discounts and others (Note 2) (78,041) - (170,578) -
Inventories - net (Notes 2 and 5) 1,127,512 4 2,755,472 7
Prepaid expenses and other current assets (Note 15) 220,406 1 462,771 1
Deferred income tax assets (Notes 2 and 14) 350,275 1 499,447 1
Total Current Assets 6,771,922 24 13,000,146 33
LONG-TERM STOCK INVESTMENTS (Notes 2 and 6) 4,524,538 16 4,110,516 10
PROPERTIES (Notes 2, 7, 15 and 16)
Cost
Buildings 7,879,494 28 7,698,061 19
Machinery and equipment 33,461,207 117 32,181,095 81
Other equipment 273,480 1 715,570 2
Total cost 41,614,181 146 40,594,726 102
Accumulated depreciation (27,633,005) (97) (22,392,575) (56)
Prepayments and construction in progress 342,780 1 828,250 2
Net Properties 14,323,956 50 19,030,401 48
OTHER ASSETS
Deferred charges - net (Notes 2 and 8) 94,125 - 1,542,923 4
Deferred income tax assets (Notes 2 and 14) 2,747,065 10 1,997,552 5
Refundable deposits 3,258 - 2,759 -
Non-operating properties (Note 2) - - 12,364 -
Total Other Assets 2,844,448 10 3,555,598 9
TOTAL ASSETS $ 28,464,864 100 $ 39,696,661 100
35
(In Thousand New Taiwan Dollars, Except Par Value)
2001 2000
LIABILITIES AND SHAREHOLDERS’ EQUITY Amount Amount
CURRENT LIABILITIES
Short-term bank loans (Note 9) $ 580,183 2 $ 797,137 2
Commercial papers issued (Note 10) 1,270,000 4 - -
Payable to related parties (Note 15) 375,626 1 453,669 1
Accounts payable 346,675 1 1,020,916 3
Payable to contractors and equipment suppliers 132,272 1 557,592 1
Current portion of long-term debts (Notes 11 and 16) 3,286,000 12 3,318,000 8
Accrued expenses and other current liabilities (Note 19) 638,209 2 1,017,269 3
Total Current Liabilities 6,628,965 23 7,164,583 18
LONG-TERM DEBTS (Notes 11 and 16)
Bonds 1,850,000 7 1,500,000 4
Bank loans 5,242,000 18 7,778,000 19
Commercial papers issued 300,000 1 - -
Total Long-term Debts 7,392,000 26 9,278,000 23
ACCRUED PENSION COST (Notes 2 and 13) 299,750 1 262,831 1
GUARANTEE DEPOSITS (Note 18) 751,390 3 940,466 2
Total Liabilities 15,072,105 53 17,645,880 44
SHAREHOLDERS’ EQUITY (Notes 2 and 12)
Capital stock, $10 par value;
Authorized - 3,000,000 th ousand shares in 2001 and 2,700,000
thousand shares in 2000,
Issued - 2,200,000 thousand shares 22,000,000 77 22,000,000 56
Capital surplus 21,765 - 21,765 -
Retained earnings:
Legal reserve 849 - - -
Unappropriated (deficit) earnings (8,684,779) (30) 8,493 -
Cumulative translation adjustments 54,924 - 20,523 -
Total Shareholders’ Equity 13,392,759 47 22,050,781 56
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 28,464,864 100 $ 39,696,661 100
The accompanying notes are an integral part of the financial statements.
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATIONSTATEMENTS OF INCOMEFor the Years Ended December 31, 2001 and 2000
(In Thousand New Taiwan Dollars, Except Earnings (Loss) Per Share)
2001 2000
Amount Amount
GROSS SALES (Notes 2 and 15) $ 9,475,384 $ 19,698,570
SALES RETURNS AND ALLOWANCES (Note 2) (364,892) (352,808)
NET SALES 9,110,492 100 19,345,762 100
COST OF SALES (Note 15) 12,570,095 138 14,827,285 77
GROSS (LOSS) PROFIT (3,459,603) (38) 4,518,477 23
OPERATING EXPENSES (Note 15)
General and administrative 535,291 6 607,974 3
Marketing 88,618 1 223,881 1
Research and development (Note 2) 631,329 7 640,407 3
Total Operating Expenses 1,255,238 14 1,472,262 7
INCOME (LOSS) FROM OPERATIONS (4,714,841) (52) 3,046,215 16
NON-OPERATING INCOME
Interest 203,655 3 192,292 1
Dividends 84,244 1 - -
Gain on sales of short-term investments 16,916 - 47,089 -
Gain on sales of long-term stock investments 5,184 - 106,825 1
Gain on disposal of properties (Note 2) - - 26,505 -
Insurance proceeds - - 357,722 2
Foreign exchange gain - net (Note 2) - - 16,256 -
Other (Note 15) 16,920 - 48,929 -
Total Non-operating Income 326,919 4 795,618 4
NON-OPERATING EXPENSES
Loss on inventory valuation loss and obsolescence (Note 2) 2,871,739 32 107,137 1
Loss on disposal of properties, deferred charges and
non-operating properties (Note 2) 956,706 10 16,573 -
Interest (Note 7) 729,881 8 936,400 5
Investment loss recognized by equity method (Notes 2 and 6) 193,262 2 325,227 2
Impairment loss on deferred charges 144,125 2 - -
Foreign exchange loss - net (Note 2) 9,129 - - -
Other - - 85,776 -
Total Non-Operating Expenses 4,904,842 54 1,471,113 8
INCOME (LOSS) BEFORE INCOME TAX (9,292,764) (102) 2,370,720 12
INCOME TAX BENEFIT (Notes 2 and 14) 600,341 7 203,025 1
NET (LOSS) INCOME ($ 8,692,423) (95) $ 2,573,745 13
EARNINGS (LOSS) PER SHARE
Based on weighted-average number of shares
outstanding - 2,200,000 thousand shares ($ 3.95) $ 1.17
The accompanying notes are an integral part of the financial statements.36
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATIONSTATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYFor the Years Ended December 31, 2001 and 2000
(In Thousand New Taiwan Dollars)
CAPITAL STOCK ISSUED CAPITAL SURPLUS (NOTE 2) RETAINED EARNINGS (Note 12) TOTAL
Shares Gain on Disposal Unappropriated SHAREHOLDERS’
(Thousand)Amount Paid-in Capital
of PropertiesTotal Legal Reserve
Earnings (Deficit)Total EQUITY
BALANCE, JANUARY 1, 2000 2,200,000 $ 22,000,000 $ 3,293,941 $ 15,370 $ 3,309,311 $ 239,967 ($ 6,092,765) ($ 5,852,798) ($ 3,251) $ 19,453,262
Offsetting deficit
Capital surplus - - (3,293,941) (15,370) (3,309,311) - 3,309,311 3,309,311 - -
Legal reserve - - - - - (239,967) 239,967 - - -
Net income in 2000 - - - - - - 2,573,745 2,573,745 - 2,573,745
Gain on disposal of properties - - - 21,765 21,765 - (21,765) (21,765) - -
Translation adjustments - - - - - - - - 23,774 23,774
BALANCE, DECEMBER 31, 2000 2,200,000 22,000,000 - 21,765 21,765 - 8,493 8,493 20,523 22,050,781
Legal reserve - - - - - 849 (849) - - -
Net loss in 2001 - - - - - - (8,692,423) (8,692,423) - (8,692,423)
Translation adjustments - - - - - - - - 34,401 34,401
BALANCE, DECEMBER 31, 2001 2,200,000 $ 22,000,000 $ - $ 21,765 $ 21,765 $ 849 ($ 8,684,779) ($ 8,683,930) $ 54,924 $ 13,392,759
The accompanying notes are an integral part of the financial statements.
37
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATIONSTATEMENTS OF CASH FLOWSFor the Years Ended December 31, 2001 and 2000
(In Thousand New Taiwan Dollars)
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ($ 8,692,423) $ 2,573,745
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization 6,476,525 6,323,624
Investment loss recognized by equity method 193,262 325,227
Gain on sales of long-term stock investments (5,184) (106,825)
Deferred income tax assets (600,341) (203,025)
Loss (gain) on disposal of properties - net 50,776 (9,518)
Loss (gain) on disposal of deferred charges 904,722 (218)
Loss on disposal of non-operating properties 1,208 -
Accrued pension cost 36,919 47,362
Provisions for:
Doubtful receivables (56,049) 45,643
Sales returns, discounts and others (92,537) (26,553)
(Forward)
CUMULATIVETRANSLATIONADJUSTMENTS
(Note 2)
Changes in operating assets and liabilities:
Receivable from related parties $ 1,289,535 ($ 1,673,058)
Notes and accounts receivable 1,256,353 (94,101)
Inventories 1,627,960 (693,953)
Prepaid expenses and other current assets 242,365 542,684
Forward exchange contract receivable - 7,735
Payable to related parties (78,043) 326,048
Accounts payable (674,241) 380,233
Accrued expenses and other current liabilities (369,900) 205,310
Forward exchange contract payable (9,160) 12,421
Net Cash Provided by Operating Activities 1,501,747 7,982,781
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of:
Short-term investments (1,100,000) -
Long-term stock investments (607,249) (50,402)
Properties (1,676,235) (5,918,217)
Proceeds from disposal of:
Long-term stock investments 39,550 206,640
Properties 679 58,065
Non-operating properties 11,000 -
Deferred charges - 394
Increase in deferred charges (26,388) (656,985)
(Increase) decrease in refundable deposits (499) 7,661
Net Cash Used in Investing Activities (3,359,142) (6,352,844)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (payments on):
Short-term bank loans (216,954) 516,874
Commercial papers issued 1,270,000 -
Long-term debts (1,918,000) (2,308,000)
(Decrease) increase in guarantee deposits (189,076) 940,416
Net Cash Used in Financing Activities (1,054,030) (850,710)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,911,425) 779,227
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,877,789 5,098,562
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,966,364 $ 5,877,789
SUPPLEMENTAL INFORMATION
Interest paid (excluding capitalized amounts of $30,619 and $73,739
in 2001 and 2000, respectively) $ 762,082 $ 972,432
Noncash investing and financing activities
Current portion of long-term debts $ 3,286,000 $ 3,318,000
Cash paid for acquisitions of properties
Total acquisitions $ 1,250,915 $5,858,141
Payable to contractors and equipment suppliers 425,320 60,076
$ 1,676,235 $ 5,918,217
The accompanying notes are an integral part of the financial statements.
38
39
NOTES TO FINANCIAL STATEMENTS(In Thousand New Taiwan Dollars, Unless Specified Otherwise)
1. GENERALThe Corporation was established on December 5, 1994, as a venture among the Ministry of Economic Affairs (MOEA) (29%), Taiwan
Semiconductor Manufacturing Company Ltd. (25%), USI Corporation (7%) and several other private investors. The MOEA’s capital contribution
consisted of the assets of and technology developed from the Submicron Experiment Project.
The Corporation’s shares are traded on the Republic of China (ROC) Over-the-Counter Securities Exchange since March 25, 1998.
The Corporation is engaged mainly in the research, design, development, manufacture, packaging, testing and sale of memory integrated circuits,
large scale integrated ICs (LSI), very large scale integrated ICs (VLSI) and related parts.
2. SIGNIFICANT ACCOUNTING POLICIESBasis of presentation
The financial statements have been prepared in conformity with accounting principles generally accepted in the Republic of China. The
significant accounting principles adopted by the Corporation are as follows:
Cash and cash equivalents
Government bonds acquired under agreements that provide for their repurchase within less than three months from date of purchase are
classified as cash equivalents.
Short-term investments
These are open-ended funds and are stated at the lower of aggregate costs or market value. Costs of such investments sold are determined
by the weighted average method.
Allowance for doubtful receivables
Allowance for doubtful receivables are provided based on a review of the collectibility of individual receivables.
Sales and allowance for sales returns, discounts and others
Sales are recognized when titles of products and risks of ownership are transferred to customers upon shipment. Allowances and related
provisions for sales returns, discounts and others are provided based on the Corporation’s historical experience; such provisions are deducted
from sales and related costs are deducted from cost of sales.
Inventories
Inventories are stated at the lower of standard cost (adjusted to approximate weighted average cost) or market value. Market value
represents net realizable value for finished goods and work in process, and replacement value for raw materials, supplies and spare parts.
Long-term stock investments
Investment in shares of stock of VIS Associates, Inc. is accounted for under the equity method since the Corporation exercises significant
influence on its operating and financial decisions. Under the equity method, the investment is initially carried at cost and adjusted
subsequently for the Corporation’s proportionate share in the net earnings or losses of VIS Associates, Inc. Such proportionate share in the
earnings or losses is recognized as investment income or loss while any cash dividend received is reflected as reduction in the carrying value
of the investments. Stock dividends received are recognized only as an increase in the number of stocks held on the ex-dividend date.
Other long-term stock investments are accounted for at cost. An allowance for decline in value is recognized as follows:
a. Listed stocks or stocks traded over the counter. If the decline in value is considered temporary, a credit is made to an allowance for
decline in value with a corresponding debit to shareholders’ equity account. The allowance is then debited for the recovery of the market
value to the extent of the existing balance. However, if the decline in value is considered irrecoverable, the allowance for decline in value
is reversed and the debit to shareholders’ equity account is credited to income.
b. Other than listed stocks or stocks traded over the counter. The decline in value is charged to current income if the decline is irrecoverable.
Costs of such investments sold are determined by the weighted-average method.
Properties and non-operating properties
Major additions, renewals, betterments and interest expenses incurred during the construction period are capitalized while maintenance and
repairs are expensed currently.
Depreciation is provided on the straight-line method over 5 to 20 years for buildings and over 2 to 5 years for machinery and equipment,
and other equipment.
Upon sale or disposal of properties, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is
credited or charged to income. Any such gain, less applicable income tax, is reclassified to capital surplus at the end of the year (before the
relevant regulation was amended).
Deferred charges
Deferred charges are amortized on the straight-line method over the following periods: Technology - 10 years; patent - 2 to 10 years;
software design costs - 3 to 5 years; and bonds issue costs - 7 years. When the value of deferred charges is considered impaired, a reduction
of such impairment loss is charged to current net income.
Pension costs
Net periodic pension costs are recorded on the basis of actuarial calculations. Unrecognized net transition asset is amortized over 26 years.
Research and development
Research and development costs consist of expenditures incurred during the course of planned search and investigation aimed at the
discovery of new knowledge which will be useful in developing new products or processes, or significantly enhancing existing products or
production processes, and the implementation of such through design, testing of product alternatives or construction of prototypes. The
Corporation expenses all research and development costs as they are incurred.
Income tax
Provision for income tax represents income tax paid and payable for the current year plus the changes in the deferred income tax assets and
liabilities during the years. Deferred income taxes are recognized for the tax effects of temporary differences, unused tax credits and
operating loss carryforwards. Valuation allowance is provided for deferred tax assets that are not certain to be realized. A deferred tax asset
or liability is, according to the classification of its related asset or liability, classified as current or noncurrent. However, if a deferred tax asset
or liability cannot be related to an asset or liability in the financial statements, then it is classified as current or noncurrent based on the
expected reversal date of temporary difference.
Adjustments to prior years’ tax are added to or deducted from the income tax expense in the year those adjustments are determined.
Income taxes (10%) on undistributed earnings generated in 1998 and onward are recorded as expense in the year when the shareholders
have resolved that the earnings shall be retained.
Derivative financial instruments
Foreign currency forward exchange contracts (forward contracts), entered into for purposes other than trading, are recorded in New Taiwan
dollars as assets or liabilities using the spot rates at the inception dates of the contracts. The difference in the New Taiwan dollar amounts
translated using the spot rates and the amounts translated using the contracted forward rates are recognized as premiums or discounts at
the inception dates of the forward contracts. Such premiums or discounts are amortized over the terms of the forward contracts using the
straight-line method and the amortizations are recognized in income. At balance sheet dates, the receivables or payables arising from
forward contracts are restated using the prevailing spot rates and the resulting differences are recognized in income. Also, the receivables and
payables related to the forward contracts are netted out and the resulting net amount is presented as either an asset or a liability.
The foreign currency amount of forward contracts, entered into for the purposes of hedging foreign currency firm commitments, are
recorded as receivable or payable at spot rate on the contract date. The difference between the foreign currency amount computed using the
spot rate and the foreign currency amount computed using the forward rate at the inception dates of the contracts are amortized over the
term of the forward contract using the straight-line method. At the balance sheet dates, the foreign currency amount of the forward
contract are remeasured using prevailing rate. The difference arising from the re-measurement is deferred and included as adjustment to the
transaction price when the commitments are realized. The receivables and/or payables related to the forward contract are netted out and the
resulting net amount is presented as either an asset or liability. The foreign exchange difference arising from the settlement of the forward
contract is presented as the adjustment to the transaction price when the commitment are realized.
The Corporation also enters into currency swap contracts to manage exposures to changes in foreign exchange rate on existing assets and
liabilities. These transactions are accounted for on an accrual basis, in which cash settlement receivable or payable is recorded as an
adjustment to interest income or expenses.
Foreign-currency transactions
Foreign-currency transactions, except derivative financial instruments, are recorded in New Taiwan dollars at the rates of exchange in effect
when the transactions occur. Gains or losses caused by the application of different foreign exchange rates when cash in foreign currency is
converted into New Taiwan dollars, or when foreign-currency receivables and payables are settled, are credited or charged to income in the
year of conversion or settlement. At year-end, the balances of foreign-currency assets and liabilities are restated at prevailing exchange rates
and the resulting differences are recorded as follows:
40
a. Long-term stock investments accounted for by equity method - as cumulative translation adjustment under shareholder’s equity.
b. Other assets and liabilities - credited or charged to current income.
Reclassifications
Certain accounts in 2000 have been reclassified to conform to 2001 classifications.
3. CASH AND CASH EQUIVALENTS2001 2000
Bank deposits $ 2,846,364 $ 4,964,529
Government bonds acquired under repurchase agreements 120,000 913,260
$ 2,966,364 $ 5,877,789
4. SHORT-TERM INVESTMENTS2001 2000
Open-ended funds $ 1,100,000 $ -
Market value $ 1,110,188 $ -
The market value is stated at net asset value as of December 31, 2001.
5. INVENTORIES2001 2000
Finished goods $ 878,275 $ 411,728
Work in process 2,870,678 2,012,677
Raw materials 65,839 161,692
Supplies and spare parts 298,726 317,164
4,113,518 2,903,261
Allowance for losses (2,986,006) (147,789)
$ 1,127,512 $ 2,755,472
6. LONG-TERM STOCK INVESTMENTS2001 2000
Carrying Value % of OwnerShip Carrying Value % of OwnerShip
Equity method - VIS Associates Inc. $ 902,999 100 $ 464,077 100
Cost method:
Stocks traded over the counter (with market value
of $3,545,133 in 2001 and $3,593,955 in 2000):
Powerchip Semiconductor Corporation 2,651,216 9 2,651,216 9
Etron Technology Inc. 275,766 3 310,132 3
Unlisted stocks
Walsin Advanced Electronics Ltd. 414,481 10 414,481 10
Megic Corporation 177,000 9 177,000 9
Form Factor Inc. 64,360 1 64,360 1
United Industrial Gases Co., Ltd. 38,716 2 29,250 2
$ 4,524,538 $ 4,110,516
Net investment loss recognized by equity method for the year ended December 31, 2001 and 2000 were $193,262 and $325,227, respectively.
The carrying value of the investment in VIS Associates Inc. as of December 31, 2001 and 2000 and the related investment losses for the years then
ended were based on its audited financial statements for those same periods. The total assets or revenues of this investee are less than 10% of
those of the Corporation and, therefore, the Corporation is not required to, and did not prepare consolidated financial statements.
41
7. PROPERTIESAccumulated depreciation consists of the following:
2001 2000
Buildings $ 3,519,556 $ 2,850,022
Machinery and equipment 23,874,865 18,933,327
Other equipment 238,584 609,226
$ 27,633,005 $ 22,392,575
Interest expense, excluding capitalized amounts of $30,619 in 2001 and $73,739 in 2000, for the years ended December 31, 2001 and 2000 were
$760,500 and $1,010,139, respectively. The interest rates used for purposes of calculating the capitalized amount were 4.26%-6.755% in 2001
and 6.59%-6.9% in 2000.
8. DEFERRED CHARGES - NET2001 2000
Software design costs $ 88,617 $ 129,904
Bonds issue costs 5,508 7,914
Technology - 729,803
Patent - 675,302
$ 94,125 $ 1,542,923
9. SHORT-TERM BANK LOANS
2001 2000
Loans for imports of materials: 2001 - US$16,006 thousand, repayable by
June 2002, interest at 2.38%-2.9%; 2000 - US$24,098 thousand,
repayable by June 2001, interest at 7.13%-7.48% $ 560,183 $ 797,137
Working capital loans: Due in January 2002, interest at 2.85% 20,000 -
$ 580,183 $ 797,137
Unused credit lines for short-term bank loans as of December 31, 2001 are about $7,158,000.
10.COMMERCIAL PAPERS ISSUED
These commercial papers, guaranteed by financial institutions, bear interest rate of 3.35% to 4.55% and have maturity date by June 2002.
11.LONG-TERM DEBTS2001 2000
Bonds
Repayable in annual installments from November 6, 2000 to November 6, 2003, interest at 6.59%, guaranteed by financial institution $ 1,500,000 $ 2,250,000
Repayable in annual installments from November 15, 2005 to November 15, 2006, interest at 3.5%-3.6%, guaranteed by financial institution 1,100,000 -
2,600,000 2,250,000
Current portion (750,000) (750,000)
$ 1,850,000 $ 1,500,000
Bank loans
Repayable in semi-annual installments through June 2004, interest at 4%-6.35% in 2001 and 6.35% in 2000 $ 3,900,000 $ 5,460,000
Repayable in semi-annual installments through October 2005, interest at 3.95%-6.42% in 2001 and 6.42% in 2000 2,920,000 3,640,000
(Forward)
42
Repayable in quarterly installments through July 2007, interest at 6.475%-6.765% in 2001 and 6.755%-6.765% in 2000 $ 330,000 $ 330,000
Repayable in semi-annual installments through February 2005, interest at 6.225%-6.765% in 2001 and 6.505%-6.765% in 2000 256,000 328,000
Repayable in semi-annual installments through July 2004, interest
at 6.35%-6.64% in 2001 and 6.63%-6.765% in 2000 220,000 292,000
Repayable in semi-annual installments through February 2003,
interest at 6.475%-6.765% in 2001 and 6.755%-6.765% in 2000 112,000 184,000
Repayable in semi-annual installments through May 2002,
interest at 6.475%-6.765% in 2001 and 6.755%-6.765% in 2000 40,000 112,000
Commercial papers issued
Due in May 2004, guaranteed by financial institutions, interest at 2.41% 300,000 -
8,078,000 10,346,000
Current portion (2,536,000) (2,568,000)
$ 5,542,000 $ 7,778,000
The bonds and loan agreements require, among other things, the maintenance of specific financial ratios. Among those specific ratios, the
Corporation has failed to meet liability ratio (liability/net worth) and net worth requirement as of December 31, 2001. Therefore, the Corporation
needs to improve its financial position by issuing capital stock for cash or other agreed financing plan by syndicates of banks within six months.
The Board of Directors’ meeting on February 1, 2002 will resolve a cash issuance of capital stock to improve the Corporation’s financial position.
Unused credit lines for long-term debts as of December 31, 2001 are about $70,000.
12.SHAREHOLDERS’ EQUITYCapital surplus except for that arising from the application of the equity method of accounting, pursuant to ROC Company Law, can only be used
to offset a deficit or transferred to capital (as a stock dividend). Such transfer from capital surplus to capital can only be made once a year at a
specific percentage.
The Corporation’s Articles of Incorporation provide that the following shall be appropriated from the annual net income after deducting any
deficit and 10% legal reserve:
a. Special reserve;
b. 1% as bonus to directors and supervisors;
c. At least 1% of the remainder as bonus to employees.
d. The appropriation of the remaining balance after the above shall be decided at the shareholders’ meeting;
These appropriations and the disposition of the remaining net income shall be resolved by the shareholders in the following year and given effect
to in the financial statements of that year.
Pursuant to existing regulations promulgated by the Securities and Futures Commission, a special reserve equivalent to the debit balance of any
account shown in the shareholder equity section of the balance sheets, other than the deficit, shall be made from unappropriated retained
earnings. The special reserve shall be adjusted accordingly based on the debit balance of such accounts as at year-end.
Under the Company Law, the aforementioned appropriation for legal reserve shall be made until the reserve equals the aggregate par value of the
Corporation’s outstanding capital stock. Such reserve may be used to offset a deficit; also, when the reserve has reached 50% of the aggregate
par value of the Corporation’s outstanding capital stock, up to 50% thereof can be distributed as stock dividend.
Under the Integrated Income Tax System which became effective on January 1, 1998, resident shareholders (including corporate shareholders) are
allowed a tax credit for the income tax paid by the Corporation on earnings generated in 1998 and onwards. An Imputation Credit Account (ICA)
is maintained by the Corporation for such income tax and the tax credit allocated to each shareholder. The maximum credit available for
allocation to each shareholder cannot exceed the balance shown in the ICA on the date of distribution of dividends.
43
In 2001, the Corporation and the Securities and Futures Commission ("SFC") has adopted and approved, respectively, a 2001 Employee Stock
Option Plan ("the Plan"). The Plan reserved 16,000 thousand units of option, each representing 10 shares of common stock, with total of 160,000
thousand shares for issuance. These options under the Plan generally vest at certain percentage from two years after the date of grant, and can be
exercised within eight years from two years after the date of grant. As of December 31, 2001, 15,370 thousand units of option have been
granted under the Plan.
13.PENSION PLANThe Corporation has a pension plan for all regular employees, which provides benefits based on length of service and average monthly salary for
the final six months of employment.
The Corporation makes monthly contributions, equal to 2% of salaries and wages, to a pension fund which is administered by a pension fund
monitoring committee and deposited in the committee’s name in the Central Trust of China which acts as trustee. The Corporation also accrues
pension cost at a percentage (currently 6%) of salaries and wages.
Certain pension information are summarized as follows:
2001 2000
a. Components of pension cost
Service cost $ 51,575 $ 57,901
Interest cost 13,224 13,477
Projected return on plan assets (6,470) (5,722)
Amortization of unrecognized net transition assets and net gain (4,839) (2,706)
$ 53,490 $ 62,950
b. Reconciliation of the funded status of the plan and accrued pension cost
Benefit obligation
Vested benefit obligation $ - $ -
Nonvested benefit obligation 98,243 66,809
Accumulated benefit obligation 98,243 66,809
Additional benefits based on future salaries 161,414 153,587
Projected benefit obligation 259,657 220,396
Fair value of plan assets (120,486) (99,528)
Funded status 139,171 120,868
Unrecognized prior service cost - -
Unrecognized net transition assets 7,170 7,511
Unrecognized net gain 153,409 134,452
Additional liability - -
Accrued pension cost $ 299,750 $ 262,831
Vested benefit $ - $ -
c. Actuarial assumptions
Discount rates used in determining present values 5% 6%
Future salary increase rate 5% 6%
Expected rate of return plan on assets 5% 6%
d. Contributions to the pension fund $ 16,571 $ 15,588
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14.INCOME TAX BENEFIT
a. A reconciliation of income tax currently payable before tax credits is shown below:
2001 2000
Income tax expense on income before income tax at statutory rate $ - $ 474,144
The tax effects of adjustments:
Tax-exempt income - (132,733)
Temporary differences - 126,530
Permanent differences - (43,995)
Income tax currently payable $ - $ 423,946
b. Income tax benefit as of December 31, 2001 and 2000 consist of:
2001 2000
Income tax currently payable $ - $ 423,946
Additional 10% on the unappropriated earnings 39,959 -
Tax credits (39,959) (423,946)
Net change in deferred income tax assets (liabilities) for the period
- Investment tax credits (586,271) (799,079)
- Operating loss carryforwards 1,525,241 43,800
- Temporary differences 1,235,742 153,967
Valuation allowance (1,574,371) 804,337
$ 600,341 $ 203,025
c. Deferred income tax assets and liabilities as of December 31, 2001 and 2000 consist of:
2001 2000
Current
Investment tax credits $ 632,032 $ 717,156
Operating loss carryforwards 257,591 67,478
889,623 784,634
Valuation allowance (539,348) (285,187)
$ 350,275 $499,447
Noncurrent
Investment tax credits $ 993,738 $ 1,494,885
Operating loss carryforwards 3,156,253 1,821,125
Loss on inventories valuation loss and obsolescence 746,502 -
Depreciation and amortization 212,125 (56,033)
Investment loss recognized by equity method 122,517 -
Other 98,565 -
5,329,700 3,259,977
Valuation allowance (2,582,635) (1,262,425)
$ 2,747,065 $ 1,997,552
d. The balance of ICA (see Note 12) as of December 31, 2001 and 2000 were $6,158 and $610, respectively.
There was no tax creditable ratio for 2001 because of deficit. The tax creditable ratio for 2000 was 15.32%. The tax credits allocable to
shareholders were based on the balance of Imputation Credit Account (ICA) on the dividend distribution date.
e. The unappropriated retaining as of December 31, 2001 and 2000 did not contain the unappropriated earnings generated on and before 1997.
f. The effective tax rates for deferred income tax as of December 31, 2001 and 2000 were 25% and 20%, respectively.
45
15.RELATED PARTY TRANSACTIONSThe Corporation has engaged in business transactions with the following related parties:
a. VIS America: An investee of VIS Associates Inc.
b. VIS Micro: An investee of VIS Associates Inc.
c. Taiwan Semiconductor Manufacturing Company Ltd. (TSMC): A major shareholder.
d. Industrial Technology Research Institute (ITRI): Its director is the Corporation’s chairman.
e. Walsin Lihwa Corporation (WLC): A shareholder and director.
f. Powerchip Semiconductor Corp. (PSC): An investee.
g. Walsin Advanced Electronics Ltd. (WAE): An investee.
The transactions with the aforementioned parties, except those disclosed in other notes, are summarized as follows:
2001 2000
Amount % Amount %
For the year
Sales
TSMC $ 3,610,896 38 $ 6,613,450 34
WAE 67,664 1 - -
PSC - - 162 -
$ 3,678,560 39 $ 6,613,612 34
Purchase
TSMC $ 1,171,747 29 $ 203,820 15
PSC 69,770 2 379,805 29
$ 1,241,517 31 $ 583,625 44
Manufacturing expenses
WAE $ 123,949 1 $ 403,245 3
ITRI 13,016 - 23,920 -
TSMC 1,401 - 13,807 -
PSC 550 - 1,323 -
WLC - - 1,893 -
$ 138,916 1 $ 444,188 3
(Forward)
46
g. Unused operating loss carryforwards and investment tax credits arising from investments in machinery and equipment, and research and
development expenditures as of December 31, 2001 will expire as follows:
Year of Expiry Operating Loss Carryforwards Investment Tax Credits
2002 $ 1,030,365 $ 632,032
2003 5,694,914 531,647
2004 2,380,345 376,193
2005 - 85,898
2006 4,549,750 -
$ 13,655,374 $ 1,625,770
h. The income attributable to the following projects is exempt from income tax:
Tax-Exemption Period
First expansion of manufacturing plant January 1, 2000 to December 31, 2003
i. Income tax returns through 1998 have been examined and cleared by the tax authorities.
General and administrative expenses
ITRI $ 147 - $ 299 -
TSMC - - 61 -
$ 147 - $ 360 -
Marketing expenses
VIS Micro $ 20,427 23 $ 26,604 12
ITRI 124 - 95 -
$ 20,551 23 $ 26,699 12
Research and development expenses
PSC $ - - $ 9,082 1
VIS America - - 5,706 1
TSMC - - 780 -
ITRI - - 28 -
$ - - $ 15,596 2
Non-operating income
TSMC $ 29,225 9 $ 18,063 2
PSC 1,090 - 255 -
WAE 100 - - -
$ 30,415 9 $ 18,318 2
Purchase of machinery and equipment
TSMC $ 265,672 17 $ 85,279 1
VIS America - - 3,340 -
$ 265,672 17 $ 88,619 1
Purchase of other equipment
WLC 2,292 11 $ 1,303 3
At end of year
Receivable
TSMC $ 574,402 100 $ 1,863,991 100
PSC 54 - - -
$574,456 100 $ 1,863,991 100
Prepayment - VIS America $ - - $ 1,232 -
Payable
TSMC $ 322,122 86 $ 292,679 65
ITRI 33,034 9 21,452 5
WAE 17,889 5 118,754 26
VIS Micro 2,532 - 2,365 -
PSC 49 - 18,419 4
$ 375,626 100 $ 453,669 100
VIS America conducts research and development and VIS Micro provides marketing services for the Corporation. The Corporation pays actual expenses
incurred related to such undertakings plus a 5% mark-up. The Corporation had terminated its research agreement with VIS America in January 2000.
Except for the purchase of facilities from TSMC which the Corporation follows the terms set forth in the related contracts, all transactions with other
related parties are based on normal prices and collection or payment terms.
47
16.PLEDGED OR MORTGAGED ASSETSThe following assets have been pledged or mortgaged as collateral mainly for customs duties payable and long-term debts:
2001 2000
Pledged time deposit $ 10,000 $ 10,000
Properties - net 7,520,540 9,218,542
$ 7,530,540 $ 9,228,542
17.LONG-TERM OPERATING LEASESThe Corporation leases the sites of its manufacturing plant and parking lot from the Hsinchu Science-Based Industrial Park Administration under
agreements which will expire on April 2010 and June 2015, but renewable upon expiration. Annual rentals aggregate to $23,812.
The Corporation also leases machinery and equipment from Comdisco Trade Inc. under operating lease agreements through November and
December 2002 and December 2003, respectively. Annual rentals aggregate to $271,655 (US$7,762 thousand).
Future minimum annual rentals under aforementioned leases are as follows:
Year Amount
2002 $ 295,467
2003 36,612
2004 23,812
2005 23,812
2006 23,812
2007-2015 147,924
$ 551,439
18.COMMITMENTS AS OF DECEMBER 31, 2001a. The Corporation shall pay royalties under various patent/license agreements as follows:
1) ITRI - at a specific percentage of sales of certain products for five years from November 11, 1994.
2) LUCENT Technologies, Inc. - a) at a specific amount in three installments within three years and a percentage of net sales of certain
products for three years from January 1998; b) at a specific amount and a specific percentage of net sales of certain products within two
years from January 1998.
3) Texas Instruments Incorporated- at a specific percentage of net sales of certain products for ten years from January 1997.
4) HITACHI Corporation - at a specific amount in semi-annual installments within five years from May 1997.
5) NEC Corporation - at a specific amount in six installments from February 1999 to 2003.
6) MITSUBISHI Corporation - at a specific amount and a specific percentage of net sales of certain products within five years from August
1999.
b. The Corporation agrees under a Manufacturing Agreement with TSMC that is valid for a period of five years, to allocate a portion of its
manufacturing capacity to manufacture for TSMC certain devices on logic or other technologies required by it’s customers. TSMC has paid
$1,200,000 to the Corporation as guarantee deposits on July 7, 2000.
c. Unused letters of credit aggregate about US$177 thousand and JPY54,619 thousand.
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19.ADDITIONAL DISCLOSURES
The following are the additional disclosure requirement for VIS and its affiliates pursuant to SFC requirements:
a. Financing provided: Please see Table 1 attached.
b. Marketable securities held: Please see Table 2 attached.
c. Marketable securities acquired and disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: Please see Table 3
attached.
d. Total purchase from or sale to related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 4
attached.
e. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Please see Table 5 attached.
f. Names, locations, and related information of investees on which the Corporation exercises significant influence: Please see Table 6 attached.
g. Financial instrument transactions
The information related to derivative transactions entered into by the Corporation is disclosed below:
1) Outstanding derivative contracts as of December 31, 2001
Items Contract Amount (Thousand) Credit Risk Fair Value
Forward contracts (sell) US$ 1,000 $ - ($ 549)
Currency swap US$ 5,000 $ - ($ 2,712)
The total fair values of the outstanding contracts were negative $3,261 (shown as other current liabilities). The net exchange gains for
2001 were $14,276.
The outstanding forward contracts described above hedged accounts receivable amounting to US$6,441 thousands.
2) Transaction risk
a) Credit risk: The banks with which the Corporation has entered into the above contracts are reputable and, therefore, management
believes that the Corporation is not exposed to significant credit risks arising from probable default by such counter parties.
b) Market risk and hedge strategy: The Corporation is exposed to market risks arising from changes in exchange rates of its foreign
currency denominated transactions. It enters into forward foreign exchange contracts principally to hedge fluctuations in those
transactions, thereby limiting its risks that would otherwise result from changes in exchange rates.
c) Liquidity and cash requirement: The cash flow requirement necessary to settle the outstanding forward contract is the only net
difference between the spot rate and contracted forward rate. Management believes that the foregoing requirement is not material.
3) Fair value of financial instruments
December 31, 2001 December 31, 2000
Carrying Value Fair Value Carrying Value Fair Value
Non-derivative financial instruments
Assets
Cash and cash equivalents $ 2,966,364 $ 2,966,364 $ 5,877,789 $ 5,877,789
Pledged time deposit 10,000 10,000 10,000 10,000
Short-term investments 1,100,000 1,110,188 - -
Receivable from related parties 574,456 574,456 1,863,991 1,863,991
Notes and accounts receivable 528,453 528,453 1,784,806 1,784,806
Long-term stock investments 4,524,538 5,114,939 4,110,516 4,929,512
Refundable deposits 3,258 3,258 2,759 2,759
Liabilities
Short-term bank loans 580,183 580,183 797,137 797,137
Commercial papers issued 1,270,000 1,270,000 - -
(Forward)
49
Payable to related parties $ 375,626 $ 375,626 $ 453,669 $ 453,669
Accounts payable 346,675 346,675 1,020,916 1,020,916
Payable to contractors and equipment suppliers 132,272 132,272 557,592 557,592
Long-term debts (including current portion) 10,678,000 10,568,161 12,596,000 12,366,419
Guarantee deposits 751,390 751,390 940,466 940,466
Derivative financial instruments
Forward exchange contracts (sell) 548 (549) 12,421 (5,274)
Currency swap 2,713 (2,712) - -
Fair values of financial instruments were determined as follows:
a) Short-term financial instruments - carrying values.
b) Long-term stock investments - fair value for listed stocks and net equity value or book value for unlisted stocks.
c) Refundable deposits and Guarantee deposits - carrying values.
d) Long-term debts are based on forecasted cash flows discounted at present value, using discount rates which are interest rates of
similar long-term debts. Long-term bonds payable are discounted at present values. Fair values of other long-term debts are their
carrying values as they use floating interest rates.
e) Derivative financial instruments - based on outright forward rates in each contract.
The fair values shown above did not include the fair values of non-financial instruments and only for certain financial instruments.
Accordingly, the sum of the foregoing fair values do not represents the fair value of the Corporation.
20.SEGMENT FINANCIAL INFORMATIONa. Export sales
2001 2000
Area
U.S.A. $ 1,237,811 $2,950,767
Europe 287,408 2,014,301
Asia 54,975 1,236,063
$ 1,580,194 $6,201,131
b. Sales to customers representing at least 10% of total sales:
2001 2000
Amount % of Total Amount % of Total
Customer
TSMC $ 3,610,896 38 $ 6,613,450 34
TwinMos Technology 1,069,672 11 - -
50
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION TABLE 1
FINANCING PROVIDED
For the Year Ended December 31, 2001 (Amounts in Thousand New Taiwan Dollars)
No. Financing Counter-Party Financial Financing Maximum Ending Interest Financing Reasons Allowance Collateral Transaction Financing
Name Statement Limit for Each Balance Balance Rate for Bad Debt Amount Company’s
Account Borrowing for the Item Value Financing
Company Period Amount
Limits
0 VIS VIS Holding Prepaid Note 1 $ 1,232 $ - - Prepaid research and $ - - $ - $ - Note 2
expenses development expenses
Note 1: Not exceeding 10% of the issued capital of VIS for each transaction entity, and also limiting to 30% of the issued capital of each transaction entity.
Note 2: Not exceeding 20% of the issued capital of VIS.
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION TABLE 2
MARKETABLE SECURITIES HELDDecember 31, 2001 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Held Company Marketable Securities Name and Type Relationship with Financial Statement Account December 31, 2001 Note
Name the CompanyShares Carrying Value % of Market Value
(Thousand) (US$ in Ownership or Net Asset
Thousand) Value (US$ in
Thousand)
VIS Bond fund
President James - Short-term investments 28,409 $ 400,000 - $ 401,960
The GP - Short-term investments 25,923 350,000 - 355,763
The First Global Investment Trust Duo Li-2 - Short-term investments 26,278 350,000 - 352,465
Stock
VIS Associates Inc. Subsidiary Long-term stock investments 41,070 902,999 100 902,999
Powerchip Semiconductor Corp. Investee Long-term stock investments 202,185 2,651,216 9 3,263,269
Etron Technology Inc. Investee Long-term stock investments 5,617 275,766 3 281,864
Walsin Advanced Electronics Ltd. Investee Long-term stock investments 34,551 414,481 10 358,994
MEGIC Corporation Investee Long-term stock investments 16,500 177,000 9 188,581
Form Factor, Inc. Investee Long-term stock investments 267 64,360 1 64,360
United Industrial Gases Co., Ltd. Investee Long-term stock investments 3,357 38,716 2 54,872
VIS Associates Inc. Stock
VIS Investment Holding, Inc. Subsidiary of VIS Long-term stock investments 68 US$ 891 100 US$ 891
Associates Inc.
Equity
Silicon Valley Equity Fund - Long-term stock investments - US$ 7,894 35 US$ 7,894
Silicon Valley Equity Fund II - Long-term stock investments - US$ 5,705 14 US$ 5,705
ABN AMRO Bank Equity Certificates - Short-term investments 23,168 US$ 10,047 - US$ 11,339
Fund
Grand Palace Trust - Long-term stock investments - US$ 2,800 100 US$ 2,800
VIS Investment StockHolding, Inc.
VIS Micro, Inc. Investee Long-term stock investments 200 US$ 258 100 US$ 258
51
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION TABLE 3
MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALFor the Year Ended December 31, 2001 (Amounts in Thousand New Taiwan Dollars, Unless Otherwise Specified)
Company Marketable Securities Financial Statement Counter- Nature of Beginning Balance Acquisition Disposal Ending BalanceName Type and Name Account Party Relationship
Shares Amount Shares Amount Shares Amount Carrying Gain (Loss) Shares Amount
(Thousand) (Thousand) (US$ in (Thousand) Value on Disposal (Thousand) (US$ in
Thousand) Thousand)
VIS Bond fund
President James Short-term investments - - - - 35,548 $ 500,000 7,139 $ 100,263 $ 100,000 $ 263 28,409 $400,000
The GP Short-term investments - - - - 40,874 550,000 14,951 201,482 200,000 1,482 25,923 350,000
The First Global Short-term investments - - - - 49,017 650,000 22,739 302,698 300,000 2,698 26,278 350,000
Investment Trust Duo Li-2
National Investment Short-term investments - - - - 2,048 300,000 2,048 302,386 300,000 2,386 - -
FUBON JU-I Short-term investments - - - - 31,397 450,000 31,397 452,789 450,000 2,789 - -
Capital Save Income Short-term investments - - - - 15,295 200,000 15,295 201,139 200,000 1,139 - -
President Home Run Short-term investments - - - - 51,811 650,000 51,811 656,159 650,000 6,159 - -
Stock
VIS Associates Inc. Long-term stock investments Subsidiary - 23,570 464,077 17,500 597,783 - - - - 41,070 902,999
VIS ABN AMRO Bank Equity Short-term investments - - - - 23,168 US$10,047 - - - - 23,168 US$10,047
Associates Certificates
Inc.
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION TABLE 4
TOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALFor the Year Ended December 31, 2001 (Amounts in Thousand New Taiwan Dollars)
Company Related Nature of Relationship Transaction Details Abnormal Transaction Notes/Accounts Payable or Receivable NoteName Party
Purchase/Sale Amount % to Payment Unit Payment Ending % of
Total Terms Price Terms Balance Total
VIS TSMC Major shareholder Sales $3,610,896 38 Net 45 days None None $ 574,402 52 -
TSMC Major shareholder Purchase 1,171,747 29 Net 45 days None None 322,122 45 -
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION TABLE 5
RECEIVABLE FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITALDecember 31, 2001 (Amounts in Thousand New Taiwan Dollars)
Company Related Party Nature of Relationship Ending Balance Turnover Rate Overdue Amounts Received in Subsequent Period Allowance for Bad DebtsName
Amount Action Taken
VIS TSMC Major shareholder $574,402 3.98 $- - $- $11,488
VANGUARD INTERNATIONAL SEMICONDUCTOR CORPORATION TABLE 6
NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE CORPORATION EXERCISES SIGNIFICANT INFLUENCEDecember 31, 2001 (Amounts in Thousand New Taiwan Dollars)
Investor Investee Company Location Main Businesses Original Investment Amount Balance as of December 31, 2001 Net Income Investment Note
Company and ProductsDec. 31, 2001 Dec. 31, 2000 Shares % of Carrying
(Loss) of the Gain (Loss)
(Thousand) Ownership ValueInvestee
VIS VIS Associates Inc. British Virgin Islands Investment $ 1,338,143 $ 740,360 41,070 100 $902,999 ($193,262) ($193,262) Subsidiar
52
6. Consolidated Financial Statements: Nil
7. Review and Analysis of Financial Status and Operating Results
(1) Analysis of Operating ResultsUnit : NT$K
Item 2001 2000 In/Decrease %
Gross Sales $ 9,475,384 $ 19,698,570 (10,223,186) (52)
Less : Sales Returns & Allow. 364,892 352,808 12,084 3
Net Sales 9,110,492 19,345,762 (10,235,270) (53)
Cost of Sales 12,570,095 14,827,285 (2,257,190) (15)
Gross Profit (3,459,603) 4,518,477 (7,978,080) (177)
Operating Expenses 1,255,238 1,472,262 (217,024) (15)
Income(loss) from Operations (4,714,841) 3,046,215 (7,761,056) 255
Non-operating Income 326,919 795,618 (468,699) (59)
Non-operating Expenses 4,904,842 1,471,113 3,433,729 233
Income(loss) before Tax (9,292,764) 2,370,720 (11,663,484) 492
Tax 600,341 203,025 397,316 196
Income(loss) after Tax ($ 8,692,423) $ 2,573,745 (11,266,168) 438
(2) Liquidity Analysis
Item 2001 2000 Change%
Current Ratio(%) 102.16 181.45 -43.70
Quick Ratio(%) 76.39 129.43 -40.98
8. Financial Forecast from 2000 to 2001Unit: NT$K
2000 Financial Forecast Financial Statement 2001 Financial Forecast Financial Statement
(Audited by CPA) (Audited by CPA)
Original First Revised Second Revised Amount Complete% Original First Revised Second Revised Amount Complete%
Net Sales 20,283,940 20,705,667 19,905,757 19,345,762 97.19 14,018,427 9,969,748 8,947,843 9,110,492 101.82
Cost of Sales 15,103,660 14,954,543 15,356,989 14,827,285 96.55 14,788,921 13,579,434 12,379,662 12,570,095 101.54
Gross Profit 5,180,280 5,751,124 4,548,768 4,518,477 99.33 -770,494 -3,609,686 -3,431,819 -3,459,603 100.81
Operating 1,715,685 1,573,898 1,509,196 1,472,262 97.55 1,390,283 1,237,723 1,263,158 1,255,238 99.37
Expenses
Loss from 3,464,595 4,177,226 3,039,572 3,046,215 100.22 -2,160,777 -4,847,409 -4,694,977 -4,714,841 100.42
Operations
Non-Operating 377,572 664,894 777,636 795,618 102.31 383,104 351,218 372,086 326,919 87.86
Incomes
Non-Operating 1,190,573 1,162,522 1,392,245 1,471,113 105.66 901,546 1,629,338 5,092,688 4,904,842 96.31
Expenses
Income before 2,651,594 3,679,598 2,424,963 2,370,720 97.76 -2,679,219 -6,125,529 -9,415,579 -9,292,764 98.70
Income Tax
Net Income 2,651,594 3,839,931 2,585,296 2,573,745 99.55 -2,679,219 -5,525,529 -8,815,580 -8,692,423 98.60
53
English Translation of a Report Originally Issued in Chinese
Representation Letter
The Affiliates’ Relationship Report for the year ended December 31, 2001 was in conformity with the requirements of Securities and
Futures Committee (SFC) in the Republic of China (ROC), the Regulations Governing the Preparation of Affiliates’ Combined
Operating Report, Combined Financial Statement and Relationship Report. The aforementioned disclosures are free of any major
discrepancy from the financial statements as of December 31, 2001.
Very truly yours,
Vanguard International Semiconductor Corporation
By
MORRIS CHANG
Chairman
54
English Translation of a Report Originally Issued in Chinese
Independent Auditors’ Report
The Board of Directors and the Shareholders
Vanguard International Semiconductor Corporation
We have reviewed the affiliates’ relationship report of Vanguard International Semiconductor Corporation as of and for the year
ended December 31, 2001. Our reviews were made in accordance with the Guidelines for the Review of Affiliates’ Relationship
Report issued by the Securities and Future Commission of the Republic of China. A review carried out in accordance with the
foregoing guideline is substantially less in scope than an audit performed in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the affiliates’ relationship report taken as a whole. Accordingly, we
do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the company’s affiliates’ relationship
report referred to above in order for them to be in conformity with "Regulations Governing the Preparation of Affiliates’ Combined
Operating Report, Combined Financial Statement and Relationship Report" issued by the Securities and Futures Commission of the
Republic of China.
TN Soong & Co.
55
1. Affiliates Information
1. Affiliated Companies Chart
Vanguard International Semiconductor Co.
100%
VIS Associates Inc..
100%
VIS Investment Holding, Inc.
100%
VIS Micro, Inc.
2. Business Scope of the Affiliated Companies
Company Business activity
VIS Associates Inc. IC business investment
VIS Investment Holding, Inc. IC business investment
VIS Micro, Inc. Conduct service and marketing activities
56
Specific NotesSpecific Notes
Table 1
Affiliates Information
Unit: US$K
Company Date of Incorporation Place of Registration Paid-In Capital Business Activities
VIS Associates Inc. Sep. 24, 1996 Trident Chambers, PO Box 146, Road Town US$41,070 IC business investment
Tortola, British Virgin Islands
VIS Investment Nov. 15, 1996 2585 Junction Avenue US$6,750 IC business investment
Holding, Inc. San Jose, CA95134
VIS Micro, Inc. Nov. 21, 1996 2585 Junction Avenue US$200 Conduct service and marketing
San Jose, CA95134activities
NOTE: Foreign exchange rate on the reporting date is shown below:
US$1 = NTD$34.999
Table 2
VIS Shareholders Representing Both Holding Companies and Subordinates
Unit: NT$K, Except Shareholding
Reasoning Name Shareholding Date of Place of Paid-In Business
Shares Holding %Incorporation Registration Capital Activities
-None-
The presumed interested parties representing both holding companies and subordinates include the company’s Director, the shareholders conducting
business on behavior of the company, and the shareholder.
Table 3
Rosters of Directors, Supervisors, and Presidents of VIS’s Affiliated Companies
Unit: Thousand Shares
Company Title Name Shareholding
Shares Holding
VIS Associates Inc. Director Morris Chang, Paul Chien, Robert Hsieh 41,070 100%
VIS Investment Holding, Inc. Director Morris Chang, Paul Chien, Robert Hsieh 68 100%
VIS Micro, Inc. Director Paul Chien, Robert Hsieh, Stephen Pletcher 200 100%
Table 4
Operational Highlights for VIS’s Affiliated Companies
Unit: NT$K, except EPS($)
Company Paid-In Assets Liabilites Net Net Income from Net Income EPS Capital Worth Sales Operation (net of tax) (net of tax)
VIS Associates Inc. $ 1,437,409 $ 976,524 $ 73,526 $ 902,999 $ 21,227 ($ 203,511) ($ 200,497) ($ 4.88)
VIS Investment Holding, Inc. 236,243 34,497 3,325 31,172 21,227 269 657 9.73
VIS Micro, Inc. 7,000 12,652 3,625 9,028 21,227 1,011 730 3.65
57
Related Party Chart
Taiwan Semiconductor Manufacturing Company, Ltd.
25%
Vanguard International Semiconductor Co.
Table 5
Relationship Between the Subsidiary and the Controlling Company
Unit: Thousand Shares; %
Name of controlling company Nature of control Holding and pledge of shares by the Representatives of the controlling companycontrolling company as directors, supervisor or manager
Shares Holding Shares pledged Position Name
Taiwan Semiconductor The same chairman 556,133 25% 0 Director F.C. TsengManufacturing Company, Ltd.
Director Rick Tsai
Director Paul Chien
Director Robert Hsieh
Supervisor Harvey Chang
Table 6
Transaction of Purchase or Sales with Related Party
Unit: NT$K ; %
Transactions with controlling company Transaction terms with Common Reason for Accounts and notes Delinquent accounts receivable Remarkcontrolling company transaction terms difference receivable (payable)
Purchase Amount % of total Gross profit Unit Collection Unit Collection Ending % of total accounts Amount Management Bad debt (Sales) purchase margin for Price terms Price terms Balance and notes receivable allowance
(sales) goods sold (payable)
(Sales) $ 3,610,896 -38% - - 45days - 30-60days - $ 574,402 52% - - $ 11,488 -
Purchase 1,171,747 29% - - 45days - 30-60days - (322,122) -45% - - - -
58
Table 7
Prpoerty TransactionsUnit:NT$K
Transaction Name of Property Transaction Transaction Payment Payment Gain/Loss Nature of Former transaction detail Decision Price Purpose of Other
Type date Amount Term Satatus relationshipOwner Relationship Transfer Date Amount
Maker Reference acquisition or terms
(acquisition disposal and
or disposal) use status
Acquisition 3013208017-0188-001 06/22/2001 $95,040 T/T Normal $- The same APPLIED Supplier 12/11/2000 $99,138 General Contract For operation None
DCVD CENTURA SYSTEM chairman Manager
Acquisition 3013208088-0050-007 02/01/2001 467 T/T Normal - The same TOKYO Supplier 03/01/1995 28,776 Manager Contract For operation None
TOK SOG COATER chairman
Acquisition 3013208090-0084 04/12/2001 75,125 T/T Normal - The same HISSAN Supplier 12/07/1995 86,478 General Contract For operation None
CHEMICAL WET STATION chairman Manager
Acquisition RT1-N100904-0001-000 06/28/2001 95,040 T/T Normal - The same APPLIED Supplier 12/13/2000 99,138 General Contract For operation None
DCVD CENTURA SYSTEM chairman Manager
Acquisition 3030502016-0002- 07/02/2001 2,292 T/T Normal - Corporation’s < Self_Manufacture > Manager Contract For operation None
019,020 director and
POWER SYSTEM supervisor
MATERIAL:POWER CABLE
Table 8
Financing AccommodationUnit: NT$K; %
Transaction type Max. Year-end Interest Accrued Financing Reason for Collateral acquired How trading Baddebt (lending or balance balance range interest term financing (provided) decision allowanceborrowing) for the year was made
Name Amount
None
Table 9
Assets LeasingUnit:NT$K
Transaction Object Leasing Nature of Rent Collection Compared Total rent Collection Other termstype Period Leasing Reference (payment) with marketl for the period (payment)
(let or lease) Name Location terms leve status
Let VIS OFFICE VIS 1B Jan,2001~ Business Normal T/T Reasonable 13,583 Normal None4F/7F/8F Dec,2001 leasing
Let VIS OFFICE Industry Jan,2001~ Business Normal T/T Reasonable 308 Normal NoneE.RD.IV Mar,2001 leasing
Table 10
Endorsement / GuaranteeUnit: NT$K ; %
Max. Year-end balance Reason for Collateral Conditions or date Amount recognized in Violation of balance
Amount % of net valueofprovision
Name Q’ty Valuefor relief of guarantee financial statement or relevant operational
provided in financialendorsement/ responsibility or recovery amount of loss incurred rules
statementsguarantee of collateral
None
Relationship ReportOther major effective transactions in financing or business.
The Corporation made a manufacturing agreement with TSMC on February 14, 2000.
59
2. Statement of Internal ControlAs of 02/01/2002
VIS has conducted a self-assessment of internal controls for the period of January 1, 2001 to December 31, 2001, based on VIS’s
internal control system. The results are as follows:
1. VIS acknowledges that the Board of Directors and the management are responsible to establishing, to performing, and to
maintaining a sound internal control system and that it has already been established. The purposes of the internal control system
are to provide a reasonable assurance of achieving company’s goals of the efficiency and effectiveness of operations (including
the profit, performance, and safeguarding of assets..etc.), the reliability of financial reports, and the compliance with applicable
laws and regulations.
2. The Internal control system has an inherent constraint. No matter how impeccable the system is, it can only provide a reasonable
assurance of achieving the three goals above-mentioned. Due to the changes in the environment and changing circumstances.
The effectiveness of the internal control system may very accordingly. However, VIS’s internal control system has self-monitoring
functions with which once a shortcoming is found, action will be taken to cure.
3. VIS evaluates the effectiveness in the design and performance of its internal control system in accordance with the items for
evaluating the effectiveness of internal control system as indicated in the points Governing the Establishment of Internal Control
System by Public Companies¡]the "Points"¡^announced by the Securities and Futures Commission of the Ministry of Finance.
Based on management control process. The items of the assessing the internal control system specified in the points divide
internal control into five components: (1) Control Environment; (2) Risk Assessments; (3) Control Activities; (4) Information and
Communication; (5) Monitoring. Each component comprises certain factors. For the said factors please refer to the point.
4. VIS has evaluated the effectiveness in the design and performance of its internal control system in accordance with the aforesaid
factors.
5. Based upon the results of evaluation above-mentioned, VIS is of the opinion that the design and performance of its internal
control. Including the efficiency and effectiveness of operations reliability of financial reports, and compliance with applicable
laws and regulations during the period of January 1, 2001 to December 31, 2001 is effective and provide a reasonable assurance
of achieving the above-mentioned goals.
6. This Statement of Internal Control will be a prominent feature of VIS’s annual report and prospectus and will be released to the
public. Should any statement herein involve forgery, concealment or any other illegality, Article 20, 32, 171 and 174 of the
Security Transaction law shall apply.
7. This Statement of Internal Control has been approved by VIS’s Board of Directors at the meeting of Feb. 01, 2002. All agree with
this statement of internal control.
Vanguard International Semiconductor Corporation
Morris Chang
Chairman of the Board
S.J. Paul Chien
President
60
3. Major contents of record or written statements made by any director orsupervisor which specified his/her dissent to important resolutions passedby the Board of Directors during 2001 or the period from January 1, 2002to February 28, 2002: Nil
4. Private Placement Securities: Nil
5. Balance of VIS Common Shares acquired, disposed ofand held by subsidiaries: Nil
6. Other Necessary Supplement: Nil
61