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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2004.

OR

For the transition period from              to              .

Commission file number 000-31173

ChipPAC, Inc.

(Exact Name of Registrant as Specified in Its Charter)

47400 Kato Road, Fremont, California 94538

(Address of Principal Executive Offices, Zip Code)

Registrant’s Telephone Number, Including Area Code (510) 979-8000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b.2 of the Act).    Yes  x    No  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

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ChipPAC, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

The accompanying notes are an integral part of these financial statements.

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ChipPAC, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

The accompanying notes are an integral part of these financial statements.

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ChipPAC, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

The accompanying notes are an integral part of these financial statements.

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ChipPAC, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Quarter Ended June 30, 2004

(Unaudited)

Note 1: Interim Statements

In the opinion of management of ChipPAC, Inc. (“ChipPAC” or the “Company”), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial information included therein. This financial data should be read in conjunction with the audited consolidated financial statements and related notes thereto for the year ended December 31, 2003 included in ChipPAC’s 2003 Annual Report on Form 10-K. The accompanying unaudited condensed consolidated financial statements include the accounts of ChipPAC, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for any other period or the fiscal year that ends on December 31, 2004. The interim period ended on June 27, 2004, the Sunday nearest June 30th.

Pending Merger

On February 10, 2004, the Company signed a definitive agreement for the merger of a wholly-owned subsidiary of ST Assembly Test Ltd, or STATS, with ChipPAC in a stock-for-stock transaction. If the merger is consummated, the Company will become a wholly owned subsidiary of STATS. Under the terms of the agreement, ChipPAC stockholders will receive 0.87 STATS American Depositary Shares, or ADSs, for each share of ChipPAC Class A common stock. Following the consummation of the merger, STATS and ChipPAC stockholders will own approximately 54% and 46% of the combined company, respectively, on a fully-converted basis. The new company is proposed to be named STATS ChipPAC Ltd. and will be headquartered in Singapore.

Consummation of the merger is subject to certain conditions, including approval by ChipPAC and STATS stockholders and other customary conditions. On March 19, 2004, the Company received early termination of the waiting period under the Hart-Scott-Rodino Act. On July 6, 2004, the Company received a favorable private letter ruling from the U.S. Internal Revenue Service notifying that the exchange of ChipPAC Class A common stock for STATS American Depositary Shares in the pending merger involving the two companies will not result in the recognition of a gain under Section 367 of the U.S. Internal Revenue Code, as amended. The early termination of the waiting period under the Hart-Scott-Rodino Act and the receipt of the private letter ruling satisfy some of the closing conditions of the merger. A vote of the majority of the Company’s outstanding Class A common stock will be required to approve the merger. A special stockholders meeting will be held on August 4, 2004. The Company’s board of directors has voted to approve the transaction and recommend that our stockholders vote to approve the merger. The transaction is expected to close August 4, 2004 (Pacific time)(which is August 5, 2004 (Singapore time)). There can be no assurance that the conditions of the merger will be satisfied or that the merger will close in the expected time frame or at all. Additional information, including a discussion of the background and the Company’s reasons for the merger, is included in the proxy statement/prospectus mailed to stockholders on or about July 7, 2004. The information in this report does not consider the impact of this proposed merger on the Company and its stockholders.

The Company expects it’s share of the total estimated costs of the merger to be approximately $25.4 million and all related expenses are expensed as incurred. As of June 30, 2004, $4.7 million of costs related to the merger had been incurred and $1.4 million were expensed during the quarter. The remaining balance of the estimated cost of merger is mainly related to advisory fees to be paid after consummation of the merger. If our proposed merger with STATS is terminated under certain circumstances, we may be required to pay STATS a termination fee of $40 million.

Additional Information About the Proposed Merger and Where to Find It

STATS and ChipPAC have filed with the SEC a proxy statement/prospectus and other relevant materials in connection with the proposed merger (the “Merger”) involving STATS and ChipPAC pursuant to the terms of an Agreement and Plan of Merger and Reorganization among STATS and ChipPAC Merger, Inc., a wholly owned subsidiary of STATS, and ChipPAC. A shareholders’ circular issued by STATS has been mailed to the shareholders of STATS and the proxy statement/prospectus has been mailed to the stockholders of ChipPAC. Investors and security holders of STATS and ChipPAC are urged to read the STATS shareholders’ circular and the ChipPAC proxy statement/prospectus and the other relevant materials because they contain important information about STATS, ChipPAC and the proposed Merger. The proxy statement/prospectus and other relevant materials, and any other documents filed by STATS or ChipPAC with the SEC, may be obtained free of charge at the SEC’s web site at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by STATS by contacting STATS Investor Relations in the United States at telephone (408) 586-0608 or email daviesd@statsus.com, or in Singapore at telephone (65) 6824-7705 or email angelaine@stats.st.com.sg. Investors and security holders may obtain free copies of the documents filed with the SEC by ChipPAC by contacting ChipPAC Investor Relations, ChipPAC Incorporated, 47400 Kato Road, Fremont, CA 94538, telephone (510) 979-8220 or email ir@chippac.com or David Pasquale at telephone (646)

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536-7006 or email dpasquale@theruthgroup.com. Investors and security holders of STATS and ChipPAC are urged to read the STATS shareholders’ circular, the proxy statement/prospectus and the other relevant materials before making any voting or investment decision with respect to the proposed Merger.

STATS, ChipPAC and certain of each of their executive officers and directors may be deemed to be participants in the solicitation of proxies of ChipPAC’s stockholders in connection with the proposed Merger. Investors and security holders may obtain more detailed information regarding the names, affiliations and interests of such persons in the solicitation by reading the proxy statement/prospectus statement.

Stock-Based Compensation

The Company’s employee stock option plan and employee stock purchase plan are accounted for in accordance with Accounting Principles Board No. 25, “Accounting for Stock Issued to Employees” and related interpretations and comply with the disclosure provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation, Transition and Disclosure”. Accordingly, no compensation expense has been recognized for the Company’s stock option and purchase plan activity as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. If compensation expense had been determined based on the grant date fair value for awards, in accordance with the provisions of SFAS No. 123, the Company’s net loss and loss per share would have been adjusted to the pro forma amounts indicated below:

The following assumptions were used to determine the pro forma impact of accounting for stock options issued during the three months ended June 30, 2004 and 2003: (1) risk-free interest rates of 3.1% and 2.5%, respectively, (2) dividend yield of 0.0%, (3) expected life of four years, and (4) volatility of 71.0% and 58.4%, respectively.

Other Comprehensive Income

The Company accounts for derivative financial instruments in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No.133”), as amended by Statement of Financial Accounting Standards No. 138, “Accounting for Certain Instruments and Certain Hedging Activities” and as further amended by Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. The Company records derivative financial instruments in the consolidated financial statements at fair value. Changes in the fair values of derivative financial instruments are either recognized in earnings or in stockholders’ equity as a component of other comprehensive income depending on whether the derivative financial instrument qualifies for hedge accounting as defined by SFAS No.133. Changes in fair value of derivatives qualifying for hedge accounting are recorded in stockholders’ equity as a component of other comprehensive income, and are reclassified to the income statement in the same period when hedged transactions are recognized in earnings. Changes in fair values of derivatives not qualifying for hedge accounting are reported in earnings as they occur.

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In February 2004, the Company entered into a series of foreign currency forward contracts with Korea Exchange Bank. The total forward contracts of $55.0 million have been structured such that two contracts of $5.0 million in total will be settled each month from February to December 2004. The purpose of the forward contracts is to hedge the first $5.0 million of monthly operating expenses denominated in South Korean Won in order to limit the exposure to fluctuations in the foreign currency exchange rate against the U.S. Dollar. All forward contracts qualify for hedge accounting as defined by SFAS No.133. During the three months ended June 30, 2004, the Company recorded a realized gain of $0.2 million in the income statement. At June 30, 2004, the Company recorded unrealized gains of $0.55 million in other comprehensive income.

In June 2004, the Company entered into a series of foreign currency forward contracts with Southern Bank Bhd. The total forward contracts of $39.5 million have been structured such that two contracts of either $5.5 million or $6.0 million in total will be settled each month from June to December 2004. The purpose of the forward contracts is to hedge the first $5.5 million to $6.0 million of monthly operating expenses denominated in Malaysian Ringgit in order to limit the exposure to fluctuations in the foreign currency exchange rate against the U.S. Dollar. All forward contracts qualify for hedge accounting as defined by SFAS No.133. During the three months ended June 30, 2004, the Company recorded a realized gain of $0.01 million in the income statement. At June 30, 2004, the Company recorded unrealized gains of $0.19 million in other comprehensive income.

The components of accumulated other comprehensive income on June 30, 2004 and December 31, 2003 were comprised of the following (in thousands):

Comprehensive income for the three months ended June 30, 2004 and 2003 were as follows (in thousands):

Note 2: Selected Balance Sheet Accounts

The components of inventories were as follows (in thousands):

Property, plant and equipment were comprised of the following (in thousands):

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Other assets were comprised of the following (in thousands):

Intangible assets were comprised of the following (in thousands):

Amortization expense for intangible assets is summarized as follows (in thousands):

Intangible assets are being amortized over estimated useful lives of three to seventeen years. Estimated future amortization expense is summarized as follows (in thousands):

Accrued expenses and other liabilities were comprised of the following (in thousands):

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Note 3: Line of Credit and Other Bank Borrowings

Lines of Credit

The Company has a borrowing capacity of $50.0 million for working capital and general corporate purposes under the revolving credit line portion of its senior credit facility. The revolving credit line under the senior credit facility matures on July 31, 2005. During the three month period ended June 30, 2004, the Company borrowed and repaid against the revolving line of credit $11.0 million at an interest rate of 5.75% per annum. As of June 30, 2004, there was no outstanding balance on the revolving line of credit and the entire $50.0 million was available to the Company.

During the three months ended June 30, 2004, the Company cancelled a line of credit with Korean Exchange Bank for $4.0 million and increased the existing line of credit with Cho Hung Bank from $8.0 million to $20.0 million. During the three months ended June 30, 2004, $8.7 million was borrowed against this credit facility and as of June 30, 2004, $8.7 million remains outstanding. Interest on this credit line is at Libor plus 0.3% annum. The Libor rates on the borrowings range from 1.8% to 2.6% and the interest rates for the borrowings range from 2.1% to 2.9%.

The Company has two separate overdraft lines of credit with Korean Exchange Bank and Cho Hung Bank, with credit limits of 1.0 billion South Korean Won (approximately $0.87 million U.S. Dollars at June 30, 2004) and 2.0 billion South Korean Won (approximately $1.74 million U.S. Dollars at June 30, 2004), respectively. During the three month period ended June 30, 2004, no borrowings were made against either of these lines of credit. Both agreements are subject to an annual review by Korean Exchange Bank and Cho Hung Bank for the continued use of the credit line facility.

The Company also has a line of credit with Southern Bank Bhd in Malaysia. This credit line has a limit of $0.5 million per borrowing at the interest rate of 6.9% per annum . It is available for general corporate purposes. During the three months ended June 30, 2004, the Company did not use this line of credit and there was no outstanding balance on this loan.

During the three months ended June 30, 2004, the Company’s South Korean subsidiary entered into a capital lease agreement with a third party which allows the acquisition of lease equipment with a pre-approved credit line of approximately $20 million. Each scheduled equipment purchase under the master lease is for a period of 36 months. The first scheduled equipment purchased under the capital lease agreement had a capitalized cost of $7.6 million. The commencement date of this equipment schedule was June 4, 2004 and rent is due in advance in the amount of $0.2 million per month.

Total Borrowings

As of June 30, 2004, the Company’s total debt outstanding consisted of $373.7 million of borrowings, which was comprised of $165.0 million of 12.75% senior subordinated notes, $50.0 million of 8.0% convertible subordinated notes, $150.0 million of 2.5% convertible subordinated notes and $8.7 million on the foreign line of credit with rates ranging from 2.1% to 2.9%.

Note 4: Earnings Per Share

Statement of Financial Accounting Standards No. 128 requires a reconciliation of the numerators and denominators of the basic and diluted per share computations. Basic earnings per share (“EPS”) are computed by dividing net income (loss) available to stockholders (numerator) by the weighted average number of shares of common stock outstanding (denominator) during the period. Diluted EPS is computed using the weighted average number of shares of common stock and all potentially dilutive shares of common stock outstanding during the period. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased with the proceeds from the exercise of stock options and the if-converted method is used for determining the number of shares assumed issued from the conversion of the convertible subordinated notes.

As of June 30, 2004, the calculation of diluted EPS includes weighted average dilutive options of 3.1 million shares. For the three & six months ended June 30, 2004 the Company’s $150.0 million convertible subordinated notes which are convertible into approximately 18.6 million shares of Class A common stock at $8.06 per share were not added to the denominator as it was anti-dilutive using the if-converted method and the Company’s $50.0 million convertible subordinated notes which are convertible into approximately 5.0 million shares of Class A common stock at $9.96 per share also were not added to the denominator as it was anti-dilutive using the if-converted method. For the same periods ended in 2003, both of these notes were not included in diluted EPS as their effect would also have been anti-dilutive due to the net loss. In addition, stock options to purchase 3.8 million shares were excluded from the diluted EPS because they were anti-dilutive.

The if-converted method is performed on each convertible subordinated note independently to determine the dilutive or anti dilutive effect of the convertible note. The if-converted method adds back to the net income or loss the associated debt issuance amortization, net of tax effect and interest expense, net of tax effect, and divides the resulting adjusted net income or loss by the weighted average number of shares of common stock including the potentially dilutive shares of common stock assumed by conversion of the convertible note.

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The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the periods presented below.

Note 5: Contingent Liabilities

During the quarter ended June 30, 2002, an assessment of approximately 16.0 billion South Korean Won (approximately $13.9 million U.S. Dollars at June 30, 2004) was made by the South Korean National Tax Service, or NTS, relating to withholding tax not collected on the interest income on the loan between the Company’s subsidiaries in South Korea and Hungary for the period from 1999 to September 2001. The prevailing tax treaty does not require withholding on the transactions in question. The Company has appealed the assessment through the NTS’s Mutual Agreement Procedure (“MAP”) and believes that the assessment will be overturned. On July 18, 2002, the Icheon tax office of the NTS approved a suspension of the proposed assessment until resolution of the disputed assessment. The NTS required a corporate guarantee amounting to the tax assessment in exchange for the suspension. The Company complied with the guarantee request on July 10, 2002. A further assessment of 2.7 billion South Korean Won (approximately $2.3 million U.S. Dollars at June 30, 2004) was made on January 9, 2004, for the interest from October 2001 to May 2002. The Company has applied for the MAP and obtained an approval for a suspension of the proposed assessment by providing a corporate guarantee amounting to the additional taxes. The Company does not believe that the outcome of the resolution of this matter will have a material adverse effect on its financial position, results of operations or cash flows. As of June 30, 2004, no accrual has been made.

Note 6: Supplemental Financial Statements of Guarantor/Non-Guarantor Entities

In connection with the recapitalization in August 1999, ChipPAC International Company Limited (“CP Int’l”) issued senior subordinated debt securities which are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis, by the parent company, ChipPAC, Inc. (“CPI”) and by ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Korea Company Limited (“CPK”), ChipPAC Malaysia Sdn. Bhd. (“CPM”), ChipPAC Luxembourg S.a.R.L., and ChipPAC Liquidity Management Hungary Limited Liability Company (the “Guarantor Subsidiaries”). All Guarantor Subsidiaries are wholly owned direct or indirect subsidiaries of CPI. ChipPAC Shanghai Limited (“CPS”) did not provide guarantees (the “Non-Guarantor Subsidiary”). The following is the consolidated financial information for CP Int’l, CPI, CPM, CPK, CPS, ChipPAC (Barbados) Ltd., ChipPAC Limited, ChipPAC Luxembourg S.a.R.L., and ChipPAC Liquidity Management Hungary Limited Liability Company, segregated between the Guarantor and Non-Guarantor Subsidiaries.

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ChipPAC, Inc.

SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEETS

June 30, 2004

(In thousands)

(Unaudited)