IMOS » Topics » Item 11. Quantitative and Qualitative Disclosure about Market Risk

This excerpt taken from the IMOS 6-K filed Sep 26, 2006.

Quantitative and Qualitative Disclosure about Market Risk

Our exposure to financial market risks relates primarily to changes in interest rates and foreign exchange rates. To mitigate these risks, we utilize derivative financial instruments, the application of which is primarily for hedging, and not for speculative, purposes.

Interest Rate Risks

As of June 30, 2006, we had aggregate debt outstanding of NT$12,949 million (US$401 million), which was incurred primarily for capital expenditures and general operating expenses. Of our outstanding debt, 71.4% bears interest at variable rates. The interest rate for the majority of our variable rate debt varies based on a fixed percentage spread over the prime rate established by our lenders. Our variable rate debt had an annual weighted average interest rate of 3.7% as of June 30, 2006. Accordingly, we have cash flow and earnings exposure due to market interest rate changes for our variable rate debt. An increase in interest rates of 1% would increase our annual interest charge by NT$92 million (US$3 million) based on our outstanding indebtedness as of June 30, 2006.

ChipMOS Taiwan had entered into five interest rate swap agreements in 2004 and 2005. On October 4, 2005, ChipMOS Taiwan terminated the swap with a notional amount of NT$300 million, which was entered into on October 13, 2004, and entered into two interest rate swap agreements each with a notional amount of NT$100 million, which were terminated on November 8, 2005 and December 5, 2005, respectively. On November 2, 2005, ChipMOS Taiwan entered into an interest rate swap agreement with a notional amount of NT$200 million, which was terminated on November 4, 2005. On November 4, 2005, the swap with a notional amount of NT$500 million, which was entered into on July 28, 2004, was also terminated. For these swaps, the difference in interest rates is calculated quarterly and credited or charged in the current period. In 2004 and 2005, we recognized as NT$151 thousand of non-operating income and NT$11 million (US$340 thousand) of non-operating expense, respectively, as a result of the swaps. We and ChipMOS Taiwan did not enter into interest rate swap agreements in 2003 or the six months ended June 30, 2006. As of June 30, 2006, ChipMOS Taiwan had no interest rate swap agreements outstanding.

Foreign Currency Risks

Our foreign currency exposure gives rise to market risks associated with exchange rate movements in respect of the NT dollar, the Japanese yen and the US dollar. As of June 30, 2006, 24% of our accounts receivable are denominated in US dollars and Japanese yen, and 36% of our accounts payable and payables for properties are denominated in Japanese yen and US dollars. To minimize foreign currency exchange risk, from time to time we utilize forward exchange contracts and foreign currency options to hedge our exchange rate risk on foreign currency assets or liabilities positions. These hedging transactions

 

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help to reduce, but do not eliminate, the impact of foreign currency exchange rate movements. An average depreciation of the NT dollar against all other relevant foreign currencies of 5% would increase our annual exchange losses by NT$90 million (US$3 million) based on our outstanding assets and liabilities denominated in foreign currencies as of June 30, 2006. As of December 31, 2003, 2004 and 2005 and June 30, 2006, we had no outstanding forward exchange or foreign currency option contracts. Our net gains on forward exchange contracts were NT$0, NT$5 million, NT$2 million (US$62 thousand) and NT$2 million (US$62 thousand) in 2003, 2004, 2005 and the six months ended June 30, 2006, respectively.

See Note 25 of our audited consolidated financial statements included in our annual report on Form 20-F for the fiscal year ended December 31, 2005, which was filed with the SEC on May 10, 2006 for additional information on these derivative transactions.

 

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This excerpt taken from the IMOS 20-F filed May 10, 2006.

Item 11. Quantitative and Qualitative Disclosure about Market Risk

Market Risks

Our exposure to financial market risks relates primarily to changes in interest rates and foreign exchange rates. To mitigate these risks, we utilize derivative financial instruments, the application of which is primarily for hedging, and not for speculative, purposes.

Interest Rate Risks

As of December 31, 2005, we had aggregate debt outstanding of NT$10,121 million (US$309 million), which was incurred for capital expenditure and general operating expenses. Of our outstanding debt, 62.2% bears interest at variable rates. The interest rate for the majority of our variable rate debt varies based on a fixed percentage spread over the prime rate established by our lenders. Our variable rate debt had an annual weighted average interest rate of 3.7% as of December 31, 2005. Accordingly, we have cash flow and earnings exposure due to market interest rate changes for our variable rate debt. An increase in interest rates of 1% would increase our annual interest charge by NT$63 million (US$2 million) based on our outstanding indebtedness as of December 31, 2005.

As of December 31, 2005, ChipMOS Taiwan had no interest rate swap agreements outstanding. ChipMOS Taiwan had entered into five interest rate swap agreements during the year of 2004 and 2005. On October 4, 2005, ChipMOS Taiwan terminated the swap with a notional amount of NT$300 million, which was entered into on October 13, 2004, and entered into two interest rate swap agreements each with a notional amount of NT$100 million, which were terminated on November 8, 2005 and December 5, 2005, respectively. On November 2, 2005, ChipMOS Taiwan entered into an interest rate swap agreement with a notional amount of NT$200 million, which was terminated on November 4, 2005. On November 4, 2005, the swap with a notional amount of NT$500 million, which was entered into on July 28, 2004, was also terminated. For these swaps, the difference in interest rates is calculated quarterly and credited or charged in the current period. In 2004 and 2005, we recognized as NT$151 thousand of non-operating income and NT$11 million (US$335 thousand) of non-operating expense, respectively, as a result of the swaps. We and ChipMOS Taiwan did not enter into interest rate swap agreements in 2003.

Foreign Currency Risks

Our foreign currency exposure gives rise to market risks associated with exchange rate movements against the NT dollar, the Japanese yen and the US dollar. As of December 31, 2005, 21% of our accounts receivable are denominated in US dollars and Japanese yen, and 27% of our accounts payable and payables for properties are denominated in Japanese yen and US dollars. To minimize foreign currency exchange risk, from time to time we utilize forward exchange contracts and foreign currency options to hedge our exchange rate risk on foreign currency assets or liabilities positions. These hedging transactions help to reduce, but do not eliminate, the impact of foreign currency exchange rate movements. An average depreciation of the NT dollar against all other relevant foreign currencies of 5% would increase our annual exchange losses by NT$65 million (US$2 million) based on our outstanding assets and liabilities denominated in foreign currencies as of December 31, 2005. As of December 31, 2003, 2004 and 2005, we had no outstanding forward exchange or foreign currency option contracts. Our net gains on forward exchange contracts were NT$0, NT$5 million and NT$2 million (US$61 thousand) for the years ended December 31, 2003, 2004 and 2005, respectively.

See Note 25 of our audited consolidated financial statements for additional information on these derivative transactions.

This excerpt taken from the IMOS 20-F filed Jun 29, 2005.

Item 11. Quantitative and Qualitative Disclosure about Market Risk

 

Market Risks

 

Our exposure to financial market risks relates primarily to changes in interest rates and foreign exchange rates. To mitigate these risks, we utilize derivative financial instruments, the application of which is primarily for hedging, and not for speculative, purposes.

 

Interest Rate Risks

 

As of December 31, 2004, we had aggregate debt outstanding of NT$11,436 million (US$360 million), which was incurred for capital expenditure and general operating expenses. Of our outstanding debt, 55% bears interest at variable rates. The interest rate for the majority of our variable rate debt varies based on a fixed percentage spread over the prime rate established by our lenders. Our variable rate debt had an annual weighted average interest rate of 3.8% as of December 31, 2004. Accordingly, we have cash flow and earnings exposure due to market interest rate changes for our variable rate debt. An increase in interest rates of 1% would increase our annual interest charge by NT$63 million based on our outstanding indebtedness as of December 31, 2004.

 

ChipMOS Taiwan has entered into interest rate swap agreements to manage its interest rate risk. As of December 31, 2004, ChipMOS Taiwan had two interest rate swap agreements outstanding, with a notional amount of NT$500 thousand and NT$300 thousand respectively. The first interest rate swap was entered into on July 28, 2004 and will terminate on July 30, 2007, and the second swap was entered into on October 13, 2004 and will terminate on October 15, 2007. For both swaps, the difference in interest rates is calculated quarterly and credited or charged in the current period. In 2004, we recognized as NT$151 thousand of non-operating income as a result of the swaps. We and ChipMOS Taiwan did not enter into interest rate swap agreements in 2002 or 2003.

 

Foreign Currency Risks

 

Our foreign currency exposure gives rise to market risks associated with exchange rate movements against the NT dollar, the Japanese yen and the US dollar. As of December 31, 2004, 20% of our accounts receivable are denominated in US dollars and Japanese yen, and 53% of our accounts payable and payables for properties are denominated in Japanese yen and US dollars. To minimize foreign currency exchange risk, from time to time we utilize forward exchange contracts and foreign currency options to hedge our exchange rate risk on foreign currency assets or liabilities positions. These hedging transactions help to reduce, but do not eliminate, the impact of foreign currency exchange rate movements. An average appreciation of the NT dollar against all other relevant foreign currencies of 5% would increase our annual exchange losses by NT$50 million based on our outstanding assets and liabilities denominated in foreign currencies as of December 31, 2004. As of December 31, 2002, 2003 and 2004, we had no outstanding forward exchange or foreign currency option contracts. Our net gains on forward exchange contracts were NT$0, NT$0 and NT$5 million (US$158 thousand) for the years ended December 31, 2002, 2003 and 2004, respectively.

 

See Note 25 of our audited consolidated financial statements for additional information on these derivative transactions.

 

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