DIMERCO EXPRESS (TAIWAN) CORPORATION AND ITS SUBSIDIARIES Consolidated Financial Statements. June 30, 2011 and 2010 (With Auditors' Review Thereon)

Transcription

1 DIMERCO EXPRESS (TAIWAN) CORPORATION AND ITS SUBSIDIARIES Consolidated Financial Statements June 30, 2011 and 2010 (With Auditors' Review Thereon)

2 Independent Auditors' Review Report The Board of Directors: Dimerco Express (Taiwan) Corporation: We have reviewed the accompanying consolidated balance sheets of Dimerco Express (Taiwan) Corporation and its subsidiaries (the Company) as of June 30, 2011 and 2010, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the six-month periods then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to issue a report on these consolidated financial statements based on our reviews. Except as discussed in the following paragraph, we conducted our reviews in accordance with Statement of Auditing Standards No. 36 Engagements to Review Financial Statements of the Republic of China. A review is limited primarily to applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. As disclosed in note 2(a) to the consolidated financial statements, we were unable to obtain reviewed financial statements of some of the subsidiaries of the Company, which represent total assets amounting to $1,690,957 thousand and $1,943,796 thousand, and constituting 46% and 48% of the related consolidated total assets, and total liabilities amounting to $628,848 thousand and $496,015 thousand, and constituting 33% and 24% of the related consolidated total liabilities, as of June 30, 2011 and 2010, respectively, and total revenues amounting to $3,715,456 thousand and $3,562,934 thousand, and constituting 50% and 43%, and total net income amounting to $37,750 thousand and $104,067 thousand, and constituting 26% and 65%, of the related consolidated totals, for the six-month periods ended June 30, 2011 and 2010, respectively. In addition, we were unable to obtain reviewed financial statements supporting the Company's investment in an affiliate stated at $5,458 thousand of June 30, 2010, or its equity in earnings of that affiliate of $1,171 thousand, which is included in net income for the six-month period then ended as described in note 20 to the consolidated financial statements; nor were we able to satisfy ourselves as to the carrying value of the investment in the affiliate or the equity in its earnings by other auditing procedures. Based on our reviews, except as discussed in the third paragraph, had the financial statements of the entities of the Company and investees under the equity method been reviewed by an auditor, which may have resulted in adjustments to the financial statements, we are not aware of any material modifications that should be made to the accompanying financial statements referred to above for them to be in conformity with the requirements of the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China.

3 As disclosed in note 3 to the consolidated financial statements, effective January 1, 2011, the Company has adopted the third revision of Republic of China Statement of Financial Accounting Standards No. 34 "Financial Instruments: Recognition and Measurement", which resulted in an increase of $27,727 thousand in net income after tax for the six-month period ended June 30, 2011, and an increase of $0.21 in basic earnings per share. KPMG August 15, 2011 Note to Reader 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 review such financial statements are those generally accepted and applied in the Republic of China. The auditor s report and the accompanying financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language auditors report and financial statements, the Chinese version shall prevail.

4 DIMERCO EXPRESS (TAIWAN) CORPORATION AND ITS SUBSIDIARIES Consolidated Balance Sheets June 30, 2011 and 2010 (expressed in thousands of New Taiwan dollars) Assets Amount % Amount % Current assets: Cash and cash in bank $ 981, , Financial assets at fair value through profit or loss-current (note 10,565-11,238-4) Notes receivable, net (note 5) 11,693-7,773 - Accounts receivable, net (notes 5 and 16) 1,835, ,181, Certificate of deposit-restricted (notes 8 and 17) 11,400-53,018 1 Other current assets (note 11) 117, ,640 3 Total current assets 2,968, ,294, Long-term investments (note 6): Long-term equity investments under equity method - - 5,458 - Financial assets measured at cost-non-current Total long-term investments, net 450-5,906 - Property and equipment (notes 7, 8 and 17): Cost: Land 81, ,469 3 Buildings 464, , Transportation equipment 71, ,912 2 Office equipment 143, ,728 4 Leasehold improvement 59, ,410 2 Miscellaneous equipment 71, , , , Less: accumulated depreciation (315,077) (9) (319,415) (8) Net property and equipment 578, , Intangible assets: Goodwill 20, ,413 - Deferred pension cost (note 10) 9,208-1,889 - Land-use right 54, ,401 2 Total intangible assets 84, ,703 2 Other assets: Refundable deposits 43, ,048 - Deferred charges 1,221-1,235 - Deferred income tax assets-non-current (note 11) 11,258-1,935 - Other assets (notes 5, 10 and 17) 16,096-14,769-71, ,987 - Total assets $ 3,703, ,087, See accompanying notes to financial statements. Liabilities and Stockholders' Equity Amount % Amount % Current liabilities: Short-term borrowings (notes 8 and 17) $ 89, ,647 2 Current portion of long-term debts (notes 9 and 17) 3,098-58,789 1 Notes payable 16,829-15,037 - Accounts payable (note 16) 1,274, ,534, Dividend payable 153, ,774 2 Other current liabilities (notes 11 and 12) 134, ,235 5 Total current liabilities 1,671, ,929, Long-term liabilities: Long-term debts (notes 9 and 17) 192, ,371 4 Other liabilities: Accrued pension liabilities (note 10) 42, ,383 - Deferred credits 936-1,206 - Other liabilities (note 11) 5,496-9,872 - Total other liabilities 49, ,461 - Total liabilities 1,912, ,103, Stockholders' equity (notes 10, 11, 12 and 13): Common stock, $10 par value; authorized 138,000 thousand shares in 2011 and 2010; issued 131,000 and 123,000 thousand shares in 2011 and 2010, respectively 1,310, ,230, Stock dividends to be distributed 40, , ,350, ,310, Capital surplus: Additional paid-in capital 16,071-16,071 - Treasury stock transactions 5,859-4,935 - Gains on sale of property and equipment ,958-21,034 - Retained earnings: Legal reserve 202, ,004 4 Special reserve 182, ,791 - Unappropriated earnings 164, , , , Other stockholders' equity Foreign currency translation adjustments (178,085) (5) 54,482 1 Net loss not recognized as pension cost (10,283) - (6,676) - Treasury stock (106,617) (2) (8,457) - (294,985) (7) 39, ,626, ,815, Minority interest 164, ,449 4 Total stockholders' equity 1,790, ,984, Commitments and contingent liabilities (notes 16, 17 and 18) Total liabilities and stockholders' equity $ 3,703, ,087,

5 DIMERCO EXPRESS (TAIWAN) CORPORATION AND ITS SUBSIDIARIES Consolidated Income Statements For the six-month periods ended June 30, 2011 and 2010 (expressed in thousands of New Taiwan dollars) Amount % Amount % Revenue (note 16) $ 7,395, ,221, Costs of revenue 6,309, ,065, Gross profit 1,085, ,156, Operating expenses (notes 10, 12 and 13): Selling expenses 303, ,908 3 Administrative expenses 651, , , , Operating income 130, ,662 3 Non-operating income and gain: Interest income 1,886-2,041 - Investment income under equity method (note 6) - - 1,171 - Dividend income Gain on disposal of property and equipment Gain on foreign exchange, net 5, Gain on valuation of financial assets Other income (note 3) 43, ,602-50, ,854 - Non-operating expense and loss: Interest expense 3,163-2,020 - Loss on disposal of property and equipment Loss on foreign exchange, net - - 9,576 - Other losses 5,042-4,729-8,245-16,590 - Income before tax 173, ,926 3 Income tax expenses (notes 3 and 11) 25,957-48,454 1 Comprehensive net income $ 147, ,472 2 Attribution: Consolidated net income $ 136, ,551 2 Minority interest income 11,351-16,921 - $ 147, ,472 2 Before tax After tax Before tax After tax Earnings per share: Basic earnings per share (notes 3 and 14) $ Diluted earnings per share (note 14) $ See accompanying notes to financial statements.

6 DIMERCO EXPRESS (TAIWAN) CORPORATION AND ITS SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity For the six-month periods ended June 30, 2011 and 2010 (Expressed in thousands of New Taiwan dollars) Capital Stock dividends to be distributed Total Capital surplus Legal reserve Special reserve Unappropriated earnings Total Cumulative foreign currency translation adjustments Net loss not recognized as pension cost Treasury stock Total Total of parent company's stockholders' equity Minority interest Total Beginning balance January 1, 2010 $ 1,230,000-1,230,000 21, ,632 5, , ,751 38,086 (6,676) (8,457) 22,953 1,728, ,772 1,879,510 Comprehensive net income for the six-month period ended June 30, , , ,551 16, ,472 Appropriation of retained earnings (note 12): Legal reserve ,372 - (24,372) Cash dividends (72,664) (72,664) (72,664) - (72,664) Increase in capital from unappropriated earnings - 80,000 80, (80,000) (80,000) Foreign currency translation adjustments , ,396 16,396 1,348 17,744 Minority interest Balance as of June 30, 2010 $ 1,230,000 80,000 1,310,000 21, ,004 5, , ,638 54,482 (6,676) (8,457) 39,349 1,815, ,449 1,984,470 Beginning balance January 1, 2011 $ 1,310,000-1,310,000 21, ,004 5, , ,263 (171,892) (10,283) (48,927) (231,102) 1,706, ,679 1,860,874 Comprehensive net income for the six-month period ended June 30, , , ,115 11, ,466 Appropriation of retained earnings (note 12): Legal reserve ,417 - (30,417) Special reserve ,383 (176,383) Cash dividends (152,850) (152,850) (152,850) - (152,850) Increase in capital from unappropriated earnings - 40,000 40, (40,000) (40,000) Foreign currency translation adjustments (6,193) - - (6,193) (6,193) (1,932) (8,125) Purchase of treasury stock (note 12) (68,999) (68,999) (68,999) - (68,999) Transfer of treasury stock to employees (note 12) ,309 11,309 12,233-12,233 Balance as of June 30, 2011 $ 1,310,000 40,000 1,350,000 21, , , , ,528 (178,085) (10,283) (106,617) (294,985) 1,626, ,098 1,790,599 Supplemental disclosure: 1. Employee bonuses and remuneration to directors and supervisors amounting to $5,264 and $17,548, respectively, were deducted from the 2009 comprehensive net income. 2. Employee bonuses and remuneration to directors and supervisors amounting to $6,650 and $22,167, respectively, were deducted from the 2010 comprehensive net income. See accompanying notes to financial statements.

7 DIMERCO EXPRESS (TAIWAN) CORPORATION AND ITS SUBSIDIARIES Consolidated Statements of Cash Flows For the six-month periods ended June 30, 2011 and 2010 (Expressed in thousands of New Taiwan dollars) Cash flows from operating activities: Comprehensive net income $ 147, ,472 Adjustments to reconcile comprehensive net income to net cash provided by operating activities: Depreciation 23,915 27,758 Amortization 1,236 1,380 Reversal of allowance for doubtful accounts (36,593) (20,645) Cost of share-based payment by transferring of treasury stock to employees 5,058 - Investment income under equity method - (1,171) Net loss on disposal of property and equipment Deferred income tax expense 7,510 1,011 Net operating assets and liabilities: Net operating assets: Held-for-trading investments (191) - Notes receivable (1,787) (1,780) Accounts receivable (274,573) (367,439) Other current assets 25,116 (3,339) Net operating liabilities: Notes payable 6,266 1,216 Accounts payable 243, ,720 Other current liabilities (71,685) 60,663 Accrued pension liabilities Net cash provided by operating activities 76,048 30,115 Cash flows from investing activities: Acquisition of financial assets at fair value through profit or loss - (398) Acquisition of property and equipment (10,251) (134,728) Proceeds from disposal of property and equipment (Increase) decrease in refundable deposits (26,917) 10,850 Increase in deferred charges (1,031) (2,418) Increase in certificate of deposit (2,152) (3,805) (Increase) decrease in other assets (5,371) 8,812 Net cash used in investing activities (45,518) (121,539) Cash flows from financing activities: Increase (decrease) in short-term bank borrowings 32,152 (3,947) Increase in long-term debts - 59,299 Repayment of long-term debts (1,978) (1,183) (Decrease) increase in other liabilities (956) 6,764 Cash dividends paid (2,077) - Purchase of treasury stock (68,999) - Proceeds from transferring of treasury stock 7,175 - Decrease in minority interest - 1,756 Net cash provided by (used in) financing activities (34,683) 62,689 Effects of exchange rate fluctuation (8,885) 16,196 Net decrease in cash and cash in banks (13,038) (12,539) Cash and cash in banks at beginning of year 994, ,181 Cash and cash in banks at end of the six-month period $ 981, ,642 Supplementary disclosures of cash flow information: Cash payment of interest $ 2,452 1,779 Cash payment of income taxes $ 23,627 15,686 Investing and financing activities not affecting cash flows: Current portion of long-term debts $ 3,098 58,789 Stock dividends $ 40,000 80,000 Foreign currency translation adjustments $ (8,125) 18,152 Cash dividend payable $ 153,310 72,774 See accompanying notes to financial statements.

8 DIMERCO EXPRESS (TAIWAN) CORPORATION AND ITS SUBSIDIARIES June 30, 2011 and 2010 (expressed in thousands of New Taiwan dollars, unless otherwise specified) (1) Organization and Business Scope Dimerco Express (Taiwan) Corporation (DIMTW) was incorporated in August 1985 as a company limited by shares under the laws of the Republic of China (ROC). DIMTW is primarily engaged in the business of air freight forwarding and customs brokerage service, and related investing activities. Subsidiaries in which DIMTW directly or indirectly owns 50% or more of their voting stock are summarized below according to their primary business activities. Percentage of ownership by DIM/TPE, directly or indirectly, in Primary business Investor Dimerco International Logistic Corp. (DIL) Holding company DIMTW Dimerco Express Holding Co., Ltd. (Holding) Holding company Diversified Freight System Corporation (DFS) Global forwarding Dimerco Express (Singapore) Pte Ltd. (DIMSG) Foreign Settlement Co., Ltd. (FSC) Settlement center DIMGB DIMUS DIMSG DIMHKG Dimerco Air Forwarders (HK) Ltd. (DIMHKG) Global forwarding DIL Dimerco Express (Singapore) Pte Ltd. (DIMSG) Dimerco Express (U.K.) Ltd. (DIMGB) Dimerco Express (U.S.A.) Corp. (DIMUS) Global Marketing System Co., Ltd. (GMS) Dimerco International Logistics (Shanghai) Co., DIMHKG Ltd. (DILCN) Dimerco International Transportation (Shanghai) Co., Ltd. (DIMCN) Dimerco International Logistics (Shenzhen) Co., Ltd. (DILSZX) Dimerco Zhongjing Int'l Express Co., Ltd. (ZJD) Dimerco Vietfracht (JV) Co., Ltd. (DIMVN) Winfull All Ltd. (Winfull) Real estate investment Holding Dimerco Logistics Sdn Bhd. (DILMY) Global forwarding Dimerco Express (Thailand) Corp. Ltd (DIMTH) Dimerco Express Phils. Inc. (DIMPH)

9 2 Percentage of ownership by DIM/TPE, directly or indirectly, in Primary business Investor Worldwide Forwarding Network Pty Ltd. Global forwarding Holding (WFNAU) Dimerco Express (Korea) Corp. (DIMKR) Dimerco Express (Canada) Corp. (DIMCA) Diversified International Service Logistics System Corporation (DSLSFO) Dimerco Express (Malaysia) Sdn. Bhd. (DIMMY) Dimerco Express Netherlands B.V. (DIMNL) Diversified Freight System Ltd. (DFSHKG) Diversified Transportation (HK & China) Co., Ltd. (DTLHKG) Diversified International Transportation DFSHKG (Shanghai) Co., Ltd. (DFSSHA) Diversified Transportation (China) Co., Ltd. (DTLSHA) DTLHKG In 2010, DFSSHA issued capital of RMB2,733 thousand. All of the capital increment was purchased by DFSHKG. In 2010, Holding purchased all newly issued incremental capital of DIMNL amounting to EUR160 thousand. In 2010, capital in the amount of HKD6,230 thousand was returned by Winfull. Accordingly, DIMHKG and Holding received HKD820 thousand and HKD1,148 thousand, respectively, in return, based on the ownership percentage. In 2010, DIMHKG issued capital of USD1,832 thousand. All of the capital increment was purchased by DIL. In 2010, DFSHKG issued capital of USD250 thousand. Holding purchased all of the incremental capital. In December 2010, DIMHKG paid USD2,000 to acquire the outstanding shares of DIMVN from the minority investors. As of June 30, 2011, DIMHKG owned 51% DIMVN. In 2010, DTLSHA increased its capital by RMB547 thousand, and all of the increase in capital was purchased by DTLHKG. As of June 30, 2011 and 2010, the numbers of employees of DIMTW and its subsidiaries (the Company) were 1,807 and 1,857, respectively.

10 3 (2) Summary of Significant Accounting Policies The consolidated financial statements of the Company have been prepared in the local currency and in Chinese. These financial statements have been translated into English. The translated information is consistent with the Chinese language financial statements from which it is derived. The Company prepared the accompanying consolidated financial statements in conformity with the Regulations Governing Financial Reporting for Issuers of Stock Certificates and accounting principles generally accepted in the Republic of China. The preparation of the consolidated financial statements, unless otherwise specified, is based on historical cost. A summary of significant accounting policies used in preparing such financial statements is as below. (a) (b) (c) Basis of consolidated financial statements In accordance with Republic of China Statement of Financial Accounting Standards (ROC SFAS) No. 7 "Consolidated Financial Statements", the consolidated financial statements shall include the accounts of all subsidiaries in which DIMTW is able to exercise control over their operations and financial policies. Hence, the reporting entities for both years shall include all subsidiaries listed in note 1. However, DIMVN was not included until December, All significant inter-company transactions are eliminated upon consolidation. We were unable to obtain reviewed financial statements of some of the subsidiaries of the Company, which represent total assets amounting to $1,690,957 and $1,943,796, and constituting 46% and 48% of the related consolidated total assets, and total liabilities amounting to $628,848 and $496,015, and constituting 33% and 24% of the related consolidated total liabilities, as of June 30, 2011 and 2010, respectively, and total revenues amounting to $3,715,456 and $3,562,934, and constituting 50% and 43%, and total net income amounting to $37,750 and $104,067, and constituting 26% and 65% of the related consolidated totals, for the six-month periods ended June 30, 2011 and 2010, respectively. Accounting estimates The Company made accounting estimates, valuations and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and contingencies. These estimates were disclosed and evaluated by the Company. However, the actual results could differ from these estimates. Foreign currency transactions and translation of foreign currency financial statements The entities of the Company record transactions in their respective local currencies. Foreign currency transactions are recorded at exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in foreign currencies are revalued at the exchange rate prevailing on the balance sheet date. The realized and unrealized exchange gain or loss on settlements of foreign currency-denominated assets and liabilities and adjustments to such assets and liabilities are recorded as non-operating income or expense. In preparation of the consolidated financial statements, all foreign subsidiaries and affiliates under the equity method translate their foreign currency financial statements into DIMTW's reporting currency (New Taiwan dollars). If the local currency is not the functional currency of the subsidiary or the affiliate, the translation requires a remeasurement of the financial statements into the functional currency prior to the translation into DIMTW's reporting currency. Any remeasuring differences are accounted for as exchange gains or losses in the accompanying consolidated statements of income.

11 4 Translation adjustments resulting from the translation of foreign currency financial statements into DIMTW's reporting currency are accounted for as a translation adjustment, a separate component of stockholders' equity. Foreign currency financial statements are translated into New Taiwan dollars according to the following principles: i) Assets and liabilities are translated at the current exchange rate prevailing at the balance sheet date. (d) (e) (f) ii) iii) iv) Stockholders' equity is translated at the historical rate with the exception of the beginning retained earnings in New Taiwan dollars, which are brought forward. Dividends are translated at the exchange rate prevailing at the declaration date. Income statement accounts are translated at the average exchange rate of the year involved. Classification of current and non-current assets and liabilities Cash or cash equivalents that are not restricted, assets held for trading purposes, and assets held short term and expected to be converted into cash within one year after the balance sheet date are classified as current assets; all other assets are classified as non-current assets. Liabilities to be settled in full within one year after the balance sheet date are classified as current liabilities; all other liabilities are classified as non-current liabilities. Asset impairment The Company assesses at each balance sheet date whether there is any indication that an asset other than goodwill (individual asset or cash generating unit) may have been impaired. If any such indication exists, the Company estimates the recoverable amount of the asset and recognizes impairment loss for an asset whose carrying value is higher than the recoverable amount. An impairment loss recognized in prior periods is reversed for assets other than goodwill if there is any indication that the impairment loss recognized no longer exists or has decreased. The carrying value after the reversal should not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized in prior periods. The Company performs an impairment test on the cash-generating unit to which goodwill is allocated on an annual basis and recognizes an impairment loss on the excess of carrying value over the recoverable amount. Recognized impairment loss on goodwill cannot be reversed. Financial assets at fair value through profit or loss The Company lists financial assets as financial assets at fair value through profit or loss. The Company recognizes financial asset transactions using trade-date accounting. The financial assets at fair value through profit or loss are initially measured at fair value plus transaction or acquisition costs. Financial assets at fair value through profit or loss are acquired principally for the purpose of selling or repurchasing them in the near term. The financial assets held by the Company are overseas openend funds.

12 5 Financial assets at fair value through profit or loss should be remeasured at fair value. Fair value is the amount for which an asset could be exchanged between knowledgeable, willing in an arm's-length transaction. Most of the financial assets have a quoted price available from financial institutions. Fair value of open-end funds is determined by the closing price on the balance sheet date. The realized and unrealized profit and loss on financial assets at fair value through profit or loss should be accounted for as current year's profit and loss. (g) (h) (i) Allowance for doubtful accounts The Company considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Collateral and proceeds from insurance should also be considered when determining the estimated future cash flows. Losses are recognized in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognized. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. However, the reversing amount cannot exceed the amortized balance of the assets assuming no impairment was recognized in prior periods. The Company's allowance for bad debt accrued before 2010 was based on consideration of the aging report of receivables, the creditworthiness of customers, and the collectibility of receivables. Long-term investments Long-term equity investments are accounted for by the equity method when the Company owns 20% or more of an investee's voting stock or the Company is able to exercise significant influence over the investee's operating and financial policies. Unrealized gains or losses from inter-company transactions are deferred. Unrealized gains or losses resulting from depreciable or amortizable assets are deferred and amortized over the estimated useful lives of the assets concerned. Unrealized gains or losses from other assets are recognized when realized. Property and equipment, and related depreciation Property and equipment are stated at cost. Significant additions, improvements, and replacements related to property and equipment are capitalized, while maintenance and repairs are expensed. Interest expense related to the purchase and construction of property and equipment is capitalized and included in the cost of the related asset. Except for land, depreciation is provided on a straight-line basis over the estimated useful lives of the respective assets. Gains and losses on disposal of property and equipment are recorded in the nonoperating section in the accompanying statements of income.

13 6 The Company annually re-evaluates the remaining useful life, the depreciation method, and the salvage value of property and equipment. Any changes to the remaining useful life, the depreciation method, and the salvage value are treated as changes in accounting estimates. Depreciation is provided on a straight-line basis over the following estimated useful lives of property and equipment other than land: Buildings Transportation equipment Office equipment Leasehold improvement Miscellaneous equipment 4~55 years 4~5 years 2~15 years 2~5 years 5 years (j) (k) Goodwill Goodwill, resulting from the excess of investment cost over the net value of investees and from mergers, is amortized on a straight-line basis over twenty years. In accordance with the revised accounting standard "Long-term Investments under Equity Method", for goodwill amortized over a certain period due to unidentifiable reasons, the remaining unamortized amount shall no longer be amortized effective from January 1, Employee pension and severance benefits DIMTW and DFS have established an employee defined benefit retirement plan providing for lumpsum retirement benefits to employees who meet retirement requirements. The pension payment is calculated based on the number of years of service. In accordance with the requirements of the ROC Labor Standards Law, DIMTW and DFS have made monthly deposits, equal to 3% of the employees' total salaries, with Bank of Taiwan. Payment of retirement benefits to employees is charged to the pension fund. Starting from July 1, 2005, to comply with the newly enacted Labor Pension Act (the "New Act"), for employees who were covered by the original plan and opted to be subject to the defined contribution pension mechanism under the New Act, the rate of the employer's monthly contribution to an individual labor pension fund account per month shall not be lower than 6% of the worker's monthly wages. DIMTW and DFS provide monthly contributions to the Bureau of Labor Insurance equal to 6% of the worker's monthly wages. DIMTW and DFS have adopted the provisions of ROC SFAS No. 18 "Accounting for Pensions" for their defined benefit pension plan. The end of each fiscal year is used as the measurement date for the actuarial assessment. The amount of the accumulated benefit obligation exceeding pension plan assets is recognized as a minimum pension liability on the balance sheet date. Furthermore, DIMTW and DFS recognize net periodic pension cost, including service cost, interest cost, expected return on plan assets, and unrecognized net transition obligation amortized over twelve years using the straight-line method.

14 7 (l) Based on the actuarial calculation, the Company recognizes a minimum pension liability and net periodic pension costs covering the service lives of participants. A deferred pension cost is recognized and classified under intangible assets when the amount of additional liability does not exceed the sum of unrecognized prior service cost and unrecognized transitional net benefit obligation. An excess is charged to the net loss not yet recognized as net periodic pension cost account, and is classified as a reduction of equity. The unrecognized net transition obligation and unrecognized pension gain or loss are amortized on a straight-line basis. DIMTW's foreign subsidiaries which adopt defined contribution pension plans deposit the pension fund according to local laws and regulations and recognize it as period expense. According to ROC SFAS No. 23 "Interim Financial Reporting", the disclosure required in ROC SFAS No. 18 regarding pensions may be skipped in the preparation of interim reports. Revenue recognition Transportation income is recognized when goods are consigned for transportation and transportation fees can be reasonably determined. (m) Income tax (n) Since each of the consolidated companies is an independent taxable entity, the taxable income and operating losses of each entity cannot be offset against those of the others. The Company's income tax is estimated based on the net income per financial reporting. Deferred income tax is determined based on differences between the financial statements and tax basis of assets and liabilities, using enacted tax rates in effect during the years in which the differences are expected to be reversed. The income tax effects due to taxable temporary differences are recognized as deferred income tax liabilities. The income tax effects due to deductible temporary differences, utilization of loss carryforwards, and income tax credits are recognized as deferred income tax assets. The realization of the deferred income tax assets is evaluated, and a valuation allowance is recognized accordingly. Deferred tax assets and liabilities are classified as current or non-current in accordance with the classification of related assets and liabilities. If the deferred tax items are not related to an asset or liability, they are classified according to the period of realization. DIMTW and DFS charge the 10% surtax on undistributed earnings, which are computed according to the ROC Income Tax Act, to current income tax expense in the year of earnings distribution, following a resolution at the shareholders' meeting. If the amount of basic income tax is greater than the income tax payable pursuant to the "Income Basic Tax Act", then DIMTW and DFS will recognize the difference as current income tax expenses. Employee bonuses and directors' and supervisors' remuneration The Company adopted ROC SFAS No. 39 "Share-based Payment" and Interpretation (96) 052 issued by the Accounting Research and Development Foundation. Accordingly, the Company estimates the amount of employee bonuses and directors' and supervisors' remuneration and recognizes it as expenses in the preparation of interim and yearly financial statements. Estimation is made in conformity with the articles of incorporation of the Company, and expenses are recorded as costs or operating expenses by their nature. Differences between the amount approved in the shareholders' meeting and the estimation recognized in the financial statements, if any, are accounted for as changes in accounting estimates and recognized as profit or loss in the year of distribution.

15 8 (o) (p) Treasury stock DIMTW has adopted the provisions of ROC SFAS No. 30 "Accounting for Treasury Stock". Under the cost method, the treasury stock account is debited for the cost of DIMTW's shares purchased. When the disposal price of treasury stock is greater than the cost, the difference is credited to capital surplus-treasury stock; otherwise, the excess of the cost over the price is debited to capital surplus generated from similar treasury stock transactions. If the capital surplus-treasury stock account is insufficient to cover the excess of the cost over the price, retained earnings should be debited for the remaining amount. The book value of each share of treasury stock is equal to its weighted-average cost and is calculated by each group according to the reason for purchase. When treasury stock is retired, capital surplus and common stock are debited according to the ratio of retiring treasury stock to total issued stock. When the book value of the retiring treasury stock is higher than the sum of its par value and capital surplus, the difference is debited to capital surplus generated from similar treasury stock transactions. If the capital surplus-treasury stock account is insufficient to cover the difference, retained earnings should be debited for the remaining amount. When the book value of the retiring treasury stock is lower than the sum of its par value and capital surplus, the difference is credited to capital surplus generated from similar treasury stock transactions. The Company adopted ROC SFAS No. 39 "Share-based Payment" and Interpretations (96) 266 and (98) 111 issued by the Accounting Research and Development Foundation for transferring treasury stock to employees. As the Company granted its treasury stock to its employees on the grant date, which is the date at which the Company and employees agree to a share-based payment arrangement, the Company should recognize compensation cost based on an option pricing model regardless of whether the Company transfers the treasury stock at a lower price than the purchase cost. If the Company sets out a vesting period, the compensation cost should be amortized over the vesting period. The grant date should be the date when the transfer price and amount of shares are both determined. Earnings per common share Earnings per share are calculated by dividing net income by the weighted-average number of shares outstanding. Commencing from 2008, an increase in common stock and stockholders' equity through share-based payment transactions as approved by the shareholders' meeting is added to the shares outstanding at the date of the shareholders' meeting. An increase in common stock which is from appropriation of retained earnings or capital surplus or from distribution of employee bonuses that were approved by the shareholders prior to 2008 is added to the shares outstanding retroactively. The shares outstanding are also adjusted retroactively if the recording date of the appropriation or share-based payment transaction is in a subsequent period. The employee bonuses of the Company are potential stock. If those employee stock options do not have a dilutive effect, only the basic earnings per share are disclosed; otherwise, diluted earnings per share are disclosed in addition to the basic earnings per share. When calculating the diluted earnings per share, the weighted-average number of shares includes the equivalent shares arising from employee stock options, and the incremental shares are assumed to be outstanding at the beginning of the year.

16 9 (q) Operating segments information Effective January 1, 2011, the Company adopted ROC SFAS No. 41 "Operating Segments". An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity). The segment's operating results are reviewed regularly by the entity's chief operating decision maker to make decisions pertaining to the allocation of the resources to the segment and to assess its performance for which discrete financial information is available. (3) Reason for and Effect of Accounting Changes Effective January 1, 2011, the Company adopted the third revision of ROC SFAS No. 34 Financial Instruments: Recognition and Measurement to recognize, revaluate, and accrue impairment loss for receivables at fair value. The effect of adoption of the newly released accounting principle was an increase of $27,727 in after-tax income and an increase of $0.21 (dollar) in EPS. Effective from January 1, 2011, the Company adopted ROC SFAS No. 41 "Operating Segments." In accordance with ROC SFAS No. 41, an entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates. The Company determines and presents operating segments based on the information that internally is provided to the chief operating decision maker. The Standard supersedes ROC SFAS No. 20 "Segment Reporting." Such changes in accounting principle did not have any effect for the six-month period ended June 30, The comparative information for the initial year of application has been restated. (4) Financial Assets at Fair Value through Profit or Loss As of June 30, 2011 and 2010, the details were as follows: Beneficiary certificates-fund $ 10,565 11,238 (5) Notes Receivable, Accounts Receivable, and Overdue Receivable As of June 30, 2011 and 2010, the details of notes receivable, accounts receivable, and overdue receivable were as follows: Notes receivable $ 11,693 7,773 Accounts receivable 1,964,484 2,373,849 Overdue receivable (recorded under current assets) 2,752 1,332 1,978,929 2,382,954 Less: allowance for doubtful account 131, ,170 $ 1,847,346 2,189,784 The Company has not provided the receivables as collateral or factored them for cash.

17 10 The movement of allowance for accounts receivables and overdue receivables was as follows: Beginning balance January 1 $ 168, ,815 Reversal of allowance for doubtful account (36,593) (20,645) Balance as of June 30 $ 131, ,170 (6) Long-term Equity Investments (a) Long-term equity investment under equity method Percentage of ownership Percentage Acquisition Ending of Acquisition cost balance ownership cost Ending balance Long-term investment in stock: Dimerco Vietfracht (JV) Co., Ltd. - $ ,588 5,458 On December 17, 2010, DIMHKG increased its investment in DIMVN to 51% of total shares of DIMVN. DIMVN has been included in the reporting entities of the consolidated financial statements since then. We were unable to obtain reviewed financial statements supporting the Company's investment in an affiliate stated at $5,458 as of June 30, 2010, or its equity in earnings of that affiliate of $1,171, which is included in net income for the six-month period then ended. (b) Financial assets carried at cost-non-current Percentage of ownership Percentage Acquisition Ending of Acquisition cost balance ownership cost Ending balance Cost method: Global Sky Express Taiwan Ltd. 1 $ Evergreen Air Cargo Service Corporation Burwill Holdings Ltd Stamford Land (7) Property and Equipment $ DIMHKG, a consolidated entity of the Company, purchased an office at a cost of USD3,670 thousand using its incremental capital in March DIMHKG was registered as the owner of the office, which was recorded as a building.

18 11 (8) Short-term Borrowings As of June 30, 2011 and 2010, the details of short-term borrowings were as follows: Secured loan $ 22,376 28,663 Credit loan 67,000 32,984 $ 89,376 61,647 For the six-month periods ended June 30, 2011 and 2010, the annual interest rates for short-term borrowings ranged from 1.47% to 3.25% and from 1.56% to 4.34%, respectively. All the short-term borrowings are due within one year. The above short-term borrowings are collateralized by the Company's certificates of deposit, land, and buildings. The details of pledged assets are provided in note 17. As of June 30, 2011 and 2010, the total amount of unused credit facilities (other than the facilities for forwarding guarantee) approximated $163,975 and $80,802, respectively. (9) Long-term Debts As of June 30, 2011 and 2010, the details of long-term debts were as follows: Lender Type Period Payment term Interest rate % E. Sun Bank Credit loan Original period was ~ ; the new contract was signed in 2010 and the period was ~ A new contract was signed in 2011, and the new period is ~ The loan is revolving, and matures within 90 days each time. Principal is paid on the maturity date, and interest is paid monthly. 1.84~1.99 and 1.61 for the six-month periods ended June 30, 2011 and 2010, respectively $ 146, ,250 Bank of East Asia Loan secured by buildings ~ Payable monthly for 180 months 2.25 for the six-month periods ended June 30, 2011 and ,341 58,466 Bank of the Philippine Islands Loan secured by automobile ~ Payable monthly for 36 months 6.12 for the six-month periods ended June 30, 2011 and Australia National Bank Loan secured by automobile ~ Payable monthly for 48 months for the six-month periods ended June 30, 2011 and

19 12 Lender Type Period Payment term Interest rate % Chase Auto Finance Loan secured by automobile ~ Payable monthly for 60 months 6.95 for the six-month periods ended June 30, 2011 and 2010 $ , ,160 Less: current portion of long-term debts 3,098 58,789 $ 192, ,371 The repayment schedule for long-term debts was as follows: Period Amount July 1, 2011~June 30, 2012 $ 3,098 July 1, 2012~June 30, ,493 $ 195,591 (10) Pension Pension information as of June 30, 2011 and 2010, is as follows: Pension plan assets $ 13,805 14,886 Current pension expense: Defined benefit plan 1,800 1,172 Defined contribution plan 45,816 31,306 Accrued pension liabilities 42,658 16,383 Prepaid pension (recorded under other current assets) 1,300 - As of June 30, 2011 and 2010, the Company had made adjustments to recognize minimum pension liability. Accordingly, the additional accrued pension cost in excess of the unrecognized net transition obligation was $10,283 and $6,676, respectively, classified as net loss not recognized as net pension cost under stockholders' equity, and the remaining balance of $9,208 and $1,889, respectively, was classified as deferred pension costs under intangible assets. (11) Income Tax Each legal entity included in the consolidated financial statements must file its own income tax return. No consolidated filing is allowed.

20 13 DIMTW and DFS were subject to ROC income tax at a maximum rate of 17%, and applied the Income Basic Tax Act to the calculation of their basic income tax. The income tax of the foreign subsidiaries was calculated according to their respective tax rates. In 2011 and 2010, the applicable tax rates for the foreign subsidiaries ranged from 0% to 36%. The components of income tax expense for the six-month periods ended June 30, 2011 and 2010, were as follows: Current income tax expense $ 18,447 47,443 Deferred income tax expense 7,510 1,011 Income tax expense $ 25,957 48,454 The differences between the expected income tax based on the consolidated pre-tax income at the statutory income tax rate and the actual income tax expense reported in the consolidated statements of income were as follows: Expected income tax expense $ 41,987 83,854 Cash dividend (3) (7) Effect of change in tax rate - 1,260 Over estimate of prior year's tax expense (4,973) (14,218) Investment income under equity method (23,469) (27,048) Adjustments due to tax assessment 113 (1,619) Expenses deferred due to tax assessment of previous years 347 1,428 10% surtax on undistributed earnings - 6,668 Overestimation of prior year's deferred income tax assets 4, Allowance (reversal of allowance) for deferred income tax 1,751 (86) assets Others 5,547 (2,119) $ 25,957 48,454 The components of deferred income tax expense (benefit) were as follows: Allowance for doubtful accounts $ 6,140 (729) Accrued pension liabilities (2,127) 782 Loss carryforwards (3,254) 2,217 Adjustments due to tax assessment (1) - Deferred expense adjustment due to tax assessment 116 (756) Unrealized foreign exchange gain 5,067 (2,805) Allowance for deferred income tax assets 1,751 (86) Others (182) 2,388 Deferred income tax expense $ 7,510 1,011

21 14 The deferred income tax assets (liabilities) as of June 30, 2011 and 2010, were as follows: Current: Deferred income tax assets $ 25,810 24,978 Allowance for deferred income tax assets - (6,123) Deferred income tax assets, net 25,810 18,855 Deferred income tax liabilities (5,789) - Net deferred income tax assets-current $ 20,021 18,855 Non-current: Deferred income tax assets $ 21,710 3,435 Allowance for deferred income tax assets (10,452) - Deferred income tax assets, net 11,258 3,435 Deferred income tax liabilities (544) (1,500) Net deferred income tax assets-non-current $ 10,714 1,935 Total deferred income tax assets $ 47,520 28,413 Total deferred income tax liabilities $ 6,333 1,500 Allowance for deferred income tax assets $ 10,452 6,123 As of June 30, 2011, the deferred income tax assets-current of $20,021 were recorded as $25,810 under other current assets and $5,789 under other current liabilities. As of June 30, 2011, the deferred income tax assets-non-current of $10,714 were recorded as $11,258 under deferred income tax assets-noncurrent and $544 under other liabilities. As of June 30, 2011 and 2010, the components of deferred income tax assets (liabilities) were as follows: Deferred income tax assets: Allowance for doubtful accounts $ 24,130 18,071 Accrued pension liabilities 13,249 3,435 Loss carryforwards 8,449 5,373 Adjustment of deferred expense due to tax assessment Others 1, $ 48,443 28,413 Deferred income tax liabilities: $ Unrealized foreign exchange gain 6,712 - Depreciation 215 1,500 Others $ 7,256 1,500

22 15 In accordance with the newly amended ROC Income Tax Act, operating losses of DIMTW and DFS assessed by the local tax authorities can be carried forward for ten consecutive years to reduce taxable income. Furthermore, each consolidated entity can carry forward losses in accordance with its local tax laws. As of June 30, 2011, the available operating loss carryforwards of the consolidated entities and the year of expiration were as follows: (a) Taiwan Year Amount Year of expiration 2010 $ 10, , $ 19,283 (b) USA Year Amount Year of expiration 2007 $ 13, (c) China Year Amount Year of expiration 2009 $ The ROC income tax authorities have examined DIMTW's and DFS's income tax returns for all years through As of June 30, 2011 and 2010, the related imputation tax information of the Company was as follows: Imputation credit account balance $ 11,288 5,753 The imputation tax credit ratio for year 2010 earnings to be distributed in 2011 is estimated at 2.64%. The actual imputation tax credit ratio of earnings distributed in 2010 was 1.92%. As of June 30, 2011 and 2010, the components of unappropriated earnings were as follows: 1997 and before $ 1,766 1, and after 163, ,077 Total $ 164, ,843