Powertech Technology Inc. and Subsidiaries

Transcription

1 Powertech Technology Inc. and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2012 and 2011 and Independent Auditors Report 1

2 REPRESENTATION LETTER The entities that are required to be included in the combined financial statements of Powertech Technology Inc. as of and for the year ended December 31, 2012, under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises, are the same as those included in the consolidated financial statements prepared in conformity with the revised R.O.C. Statement of Financial Accounting Standards No. 7 - Consolidated Financial Statements. In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Thus, Powertech Technology Inc. and subsidiaries did not prepare a separate set of combined financial statements. Very truly yours, POWERTECH TECHNOLOGY INC. By DU-KUNG TSAI Chairman March 15,

3 INDEPENDENT AUDITORS REPORT The Board of Directors and the Shareholders Powertech Technology Inc. We have audited the accompanying consolidated balance sheets of Powertech Technology Inc. (the Corporation ) and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, changes in shareholders equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Corporation s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Powertech Technology Inc. and subsidiaries as of December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China. The major customer of Corporation petitioned Tokyo District Court for Debtor-in-possession on February 27, The Corporation considered customer s position in this industry and obtained the related financial statements as of March 26, The Corporation recognized $1,891,623 thousand impairment loss for the year ended December 31, March 15, 2013 Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated 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 consolidated financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors report and consolidated financial statements shall prevail. 3

4 POWERTECH TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Par Value) ASSETS Amount % Amount % LIABILITIES AND SHAREHOLDERS EQUITY Amount % Amount % CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents (Notes 2 and 4) $ 20,032, $ 13,829, Short-term bank loans (Note 16) $ 1,048,040 1 $ 3,785,089 6 Financial assets at fair value through profit or loss - current Commercial paper (Note 17) ,735 - (Notes 2 and 5) 437, Accounts payable 3,132, ,492,328 4 Notes and accounts receivable, net (Notes 2, 3 and 7) 4,213, ,852, Accounts payable - related parties (Note 26) - - 1,474 - Accounts receivable from related parties, net of allowance for Income tax payable (Notes 2 and 23) 544, ,446 1 doubtful accounts (Notes 2, 3, 7 and 26) 3,566, ,581,248 4 Financial liabilities at fair value through profit or loss - Other receivables from related parties (Note 26) 19,258-5,776,597 8 current (Notes 2 and 5) 21,364-6,736 - Inventories (Notes 2 and 8) 2,497, ,801,041 3 Other payables to related parties (Note 26) 33,324-50,065 - Deferred income tax assets - current (Notes 2 and 23) 144, ,189 - Bonus to employees and remuneration to directors and supervisors Prepaid expenses and other current assets (Notes 2 and 20) 431, ,355 1 (Note 21) 531, ,873 1 Payables to equipment suppliers (Note 26) 1,785, ,089,026 3 Total current assets 31,343, ,676, Current portion of long-term debts (Notes 19 and 27) 3,676, ,710,133 5 Accrued expenses and other current liabilities (Note 18) 3,781, ,701,051 5 INVESTMENTS Investments accounted for by the equity method (Notes 2 and 9) 2,112, ,231 1 Total current liabilities 14,554, ,303, Available-for-sale financial assets - noncurrent (Notes 2 and 6) 228, ,290 1 Financial assets carried at cost-noncurrent (Notes 2 and 10) 8, LONG-TERM DEBT, NET OF CURRENT PORTION (Notes 19 and 27) 14,302, ,405, Bond investments with no active market - noncurrent (Notes 2 and 11) ,960 - OTHER LIABILITIES Total investments 2,349, ,297,481 2 Accrued pension costs (Notes 2 and 20) 44, Guarantee deposits 22, PROPERTIES (Notes 2, 12, 26, 27 and 29) Deferred credits-gains on intercompany transactions (Notes 2 and 26) 4, Cost Land 1,468, ,058 2 Total other liabilities 71, Buildings 11,000, ,056, Machinery and equipment 47,664, ,789, Total liabilities 28,928, ,709, Office equipment 1,051, ,021,992 2 Leasehold improvements 230, ,724 - SHAREHOLDERS' EQUITY (Notes 2 and 21) Other equipment 325, ,312 - Capital stock, NT$10.00 par value 61,740, ,168, Authorized - 1,000,000 thousand shares Accumulated depreciation (30,467,441) (42) (22,176,718) (32) Issued and outstanding : 779,147 thousand shares; 2011: Accumulated impairment (525,796) (1) (542,118) (1) 799,147 thousand shares 7,791, ,991, Construction in progress 2,109, ,038,903 1 Capital surplus Advance payments 2,831, ,342,092 3 Paid-in capital in excess of par value 4,398, ,511,556 7 Treasury stock ,155 - Net properties 35,688, ,830, Long-term investments 1, Total capital surplus 4,399, ,654,711 7 INTANGIBLE ASSETS, NET (Notes 2 and 13) 1,451, ,072 1 Retained earnings Legal reserve 4,267, ,793,251 6 OTHER ASSETS Unappropriated earnings 20,136, ,300, Refundable deposits and others 160, ,218 - Total retained earnings 24,403, ,094, Deferred charges, net (Notes 2 and 15) 88,296-96,054 - Other equity Long-term accounts receivable (Note 11) 267, Cumulative translation adjustments (29,426) - 10,092 - Deferred income tax assets - noncurrent (Notes 2 and 23) 105, ,160 1 Net loss not recognized as pension cost (689) Pledged time deposits (Notes 4 and 27) 72,000-96,000 - Unrealized valuation loss on financial instruments (132,625) Spare parts, net 121, ,655 1 Treasury stock (cost) - 1,410 thousand shares (Notes 2 and 22) (65,753) Total other equity (228,493) - 10,092 - Total other assets 814, ,017,087 2 Equity attributable to shareholders of the parent 36,366, ,750, Minority interest (Note 2) 6,352, Total shareholders' equity 42,718, ,750, TOTAL $ 71,647, $ 68,460, TOTAL $ 71,647, $ 68,460, The accompanying notes are an integral part of the consolidated financial statements. 4

5 POWERTECH TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) Amount % Amount % GROSS SALES $ 41,729,383 $ 39,513,385 SALES RETURNS AND ALLOWANCES 118,274 62,047 NET SALES (Notes 2 and 26) 41,611, ,451, OPERATING COSTS (Notes 8, 25 and 26) 34,192, ,906, GROSS PROFIT 7,418, ,544, OPERATING EXPENSES (Notes 25 and 26) Marketing 253, ,483 1 General and administrative 823, ,528 1 Research and development 1,403, ,023,558 3 Total operating expenses 2,480, ,997,569 5 OPERATING INCOME 4,938, ,546, NONOPERATING INCOME AND GAINS Reversal of allowance for doubtful accounts (Notes 2 and 7) 179, Valuation gains on financial assets, net (Notes 2 and 5) 128, ,593 - Interest (Note 26) 93, ,641 1 Gain on disposal of properties and deferred charges (Note 2) 66,311-15,065 - Rental income (Notes 14 and 26) 52, ,856 - Investment income on equity-method investees, net (Notes 2 and 9) 19,879-71,203 - Foreign exchange gain, net (Note 2) 17, ,616 1 Gains on disposal of investments (Note 2) ,174 - Other (Note 26) 117,592-69,054 - Total nonoperating income and gains 675, ,202 2 NONOPERATING EXPENSES AND LOSSES Interest (Notes 2 and 12) 239, ,830 - Loss on disposal of properties and spare parts (Note 2) 156, ,154 1 Valuation loss on financial liabilities, net (Notes 2 and 5) 101, ,791 - Assets leased to others (Note 14) 37, ,756 - (Continued) 5

6 POWERTECH TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) Amount % Amount % Indemnity to customers (Note 26) 17,341-36,904 - Impairment loss (Notes 2, 6 and 11) - - 1,891,623 5 Other (Note 26) 10, ,989 - Total nonoperating expenses and losses 563, ,570,047 6 INCOME BEFORE INCOME TAX 5,050, ,871, INCOME TAX EXPENSES (Notes 2 and 23) 853, ,129,474 3 CONSOLIDATED NET INCOME $ 4,197, $ 4,741, ATTRIBUTABLE TO Shareholders of the parent $ 3,611,321 9 $ 4,741, Minority interest 585, $ 4,197, $ 4,741, Before Income Tax After Before Income Income Tax Tax After Income Tax CONSOLIDATED EARNINGS PER SHARE (New Taiwan dollars; Note 24) Basic $ 5.58 $ 4.58 $ 7.35 $ 5.93 Diluted $ 5.53 $ 4.54 $ 7.24 $ 5.85 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) 6

7 POWERTECH TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) Equity Attributable to Shareholder of the Parent Other Equity (Notes 2, 21 and 22) Capital Stock Issued and Capital Surplus (Notes 2, 21 and 22) Unrealized Outstanding From Share Retained Earnings (Note 21) Cumulative Net Loss not Valuation Gain Total Shares Issuance in Long-term Unappropriated Translation Recognized as (Loss) on Shareholders' (Thousand) Amount Excess of Par Treasury Stock Investments Total Legal Reserve Special Reserve Earnings Total Adjustments Pension Cost Financial Assets Treasury Stock Total Total Minority Stock Equity BALANCE, JANUARY 1, ,497 $ 7,264,969 $ 4,511,556 $ 143,155 $ - $ 4,654,711 $ 3,028,523 $ 78,456 $ 18,878,054 $ 21,985,033 $ (42,876 ) $ - $ 218,936 $ - $ 176,060 $ 34,080,773 $ - $ 34,080,773 Appropriation of prior year's earnings Legal reserve ,728 - (764,728) Special reserve (78,456) 78, Cash dividends - 40% (2,905,988) (2,905,988) (2,905,988) - (2,905,988) Stock dividends - 10% 72, , (726,497) (726,497) Consolidated net income in ,741,543 4,741, ,741,543-4,741,543 Change in unrealized (loss) gain on available-for-sale financial assets (218,936 ) - (218,936 ) (218,936 ) - (218,936 ) Cumulative translation adjustments , ,968 52,968-52,968 BALANCE, DECEMBER 31, ,147 7,991,466 4,511, ,155-4,654,711 3,793,251-19,300,840 23,094,091 10, ,092 35,750,360-35,750,360 Acquisition of subsidiaries in Greatek Electronics Inc ,126,456 6,126,456 Appropriation of prior year's earnings Legal reserve ,154 - (474,154) Cash dividends % (1,598,293) (1,598,293) (1,598,293) - (1,598,293) Adjustment due to change in ownership interests in investee ,006 1, ,006-1,006 Change in unrealized (loss) gain on available-for-sale financial assets (131,988 ) - (131,988 ) (131,988 ) - (131,988 ) Net loss not recognized as pension cost (687 ) - - (687 ) (687 ) - (687 ) Cumulative translation adjustments (39,518 ) (39,518 ) (39,518 ) - (39,518 ) Net change in shareholders' equity from equity method investees (2 ) (637 ) - (639 ) (639 ) - (639 ) Acquisition of treasury stock (1,225,433 ) (1,225,433 ) (1,225,433 ) - (1,225,433 ) Retirement of treasury stock (20,000 ) (200,000 ) (112,908 ) (143,155 ) - (256,063 ) - - (703,617 ) (703,617 ) ,159,680 1,159, Consolidated net income in ,611,321 3,611, ,611, ,845 4,197,166 Cash dividends attributable to minority stock (371,968 ) (371,968 ) Increase in minority interest ,975 11,975 BALANCE, DECEMBER 31, ,147 $ 7,791,466 $ 4,398,648 $ - $ 1,006 $ 4,399,654 $ 4,267,405 $ - $ 20,136,097 $ 24,403,502 $ (29,426 ) $ (689 ) $ (132,625 ) $ (65,753 ) $ (228,493 ) $ 36,366,129 $ 6,352,308 $ 42,718,437 The accompanying notes are an integral part of the financial statements. 7

8 POWERTECH TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Net income attributable to shareholders of the parent $ 3,611,321 $ 4,741,543 Net income attributable to minority interest 585,845 - Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 10,017,571 8,337,935 Amortization 425, ,791 Premium amortization of held-to-maturity financial assets 1 - Investment income recognized under the equity-method (19,879) (71,203) Cash dividends from equity-method investees 14,700 - Deferred income taxes 356, ,200 Gain on disposal of investments - (112,174) Loss on disposal of properties, deferred charges and spare parts, net 90, ,089 Impairment loss - 1,891,623 Provision (reversal) of pension cost 1,125 (8,991) Foreign exchange loss of long-term accounts receivable 25,617 - Net changes in operating assets and liabilities: Financial instruments held for trading (55,135) 31,795 Notes and accounts receivable 4,436,867 (1,742,252) Accounts receivable from related parties (732,136) (1,025,715) Other receivables from related parties 403,909 (197,088) Inventories 276,642 (390,515) Prepaid expenses and other current assets 170,125 (212,804) Accounts payable (70,315) 267,780 Accounts payable - related parties (1,474) 1,474 Income tax payable (400,906) 97,024 Other payables to related parties (16,741) (118,468) Bonus to employees, directors and supervisors 147,581 (738,544) Accrued expenses and other current liabilities (436,575) 629,818 Net cash provided by operating activities 18,830,018 11,963,318 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of available-for-sale financial assets - (37,026) Proceeds from the disposal of available-for-sale financial assets 14, ,241 Proceeds from the disposal of financial assets carried at cost 3,849,944 - Acquisition of investments accounted for by the equity method (6,169,948) - Held-to-maturity financial assets 300,000 - Proceeds from the cash of subsidiary 2,593,597 - Acquisition of properties (6,284,044) (15,234,808) Proceeds from the disposal of properties 231, ,395 Increase in refundable deposits and other assets (24,464) (81,606) Increase in intangible assets (306,337) (307,220) Increase in deferred charges (51,820) (87,466) Decrease in pledged time deposits 93,000 10,000 (Continued) 8

9 POWERTECH TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) Decrease in spare parts 325, ,527 Proceeds from the disposal of deferred charges - 12,871 Net cash used in investing activities (5,428,566) (14,693,092) CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in short-term bank loans (2,737,049) 1,151,371 (Decrease) increase in commercial paper (199,735) 165 (Decrease) increase in long-term debts (1,136,353) 7,275,447 Cash dividends (1,598,293) (2,905,988) Increase in guarantee deposits 21, Acquisition of treasury stock (1,194,861) - Cash dividends attributable to minority stock (371,968) - Increase in minority interest 11,975 - Net cash (used in) provided by financing activities (7,204,364) 5,521,013 NET INCREASE IN CASH AND CASH EQUIVALENTS 6,197,088 2,791,239 EFFECT OF EXCHANGE RATE CHANGES 6,012 (11,878) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 13,829,738 11,050,377 CASH AND CASH EQUIVALENTS, END OF YEAR $ 20,032,838 $ 13,829,738 SUPPLEMENTAL CASH FLOW INFORMATION Income tax paid $ 898,892 $ 772,863 Interest paid (excluding amounts capitalized of $76,089 thousand in 2012 and $86,292 thousand in 2011) $ 320,346 $ 196,499 NON-CASH INVESTING AND FINANCING ACTIVITIES Transfer of lease payment receivable to properties $ - $ 607,873 Transfer of properties to intangible assets $ 6,601 $ 4,181 Transfer of properties to deferred charges $ 7,909 $ 1,129 Transfer of properties to spare parts $ 92,428 $ 94,766 Transfer of assets leased to others to properties $ - $ 382,555 Current portion of long-term debts $ 3,676,750 $ 3,710,133 Transfer of accounts receivable from related parties to other receivables from related parties (Note 26) $ - $ 5,353,430 Transfer of accounts receivable from related parties to investments accounted for by the equity method (Note 9) $ 1,503,486 $ - Transfer of accounts receivable from related parties to financial assets carried at cost - current (Note 26) $ 3,849,944 $ - (Continued) 9

10 POWERTECH TECHNOLOGY INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) Transfer of bond investments with no active market to long-term accounts receivable (Note 11) $ 292,960 $ - INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS Proceeds from the disposal of properties $ 233,543 $ 113,850 Decrease in lease payments receivable - 200,719 Increase in receivable from proceeds from the disposal of properties (1,848) - Decrease in other receivable from related parties - 9,826 Cash receivable for proceeds from the disposal of properties $ 231,695 $ 324,395 Proceeds from the disposal of available-for-sale financial assets $ - $ 206,494 Decrease (increase) in investments receivable 14,253 (14,253) Cash receivable for proceeds from the disposal of available-for-sale financial assets $ 14,253 $ 192,241 INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS Acquisition of properties $ 6,238,878 $ 12,272,608 Decrease in payable to equipment suppliers 45,166 2,962,200 Cash paid for acquisition of properties $ 6,284,044 $ 15,234,808 Increase in intangible assets $ 3,437 $ 610,120 Decrease (Increase) in payable to equipment suppliers 302,900 (302,900) Cash paid for acquisition of intangible assets 306,337 $ 307,220 FINANCING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS Acquisition of treasury stock $ 1,225,433 $ - Increase in other payable (30,572) - Cash paid for acquisition of treasury stock $ 1,194,861 $ - (Continued) 10

11 The Corporation obtain the control over Greatek Electronics Inc. in April 3, The fair value of assets and liabilities when the Corporation obtain the control over Greatek Electronics Inc. were as follows: Cash $ 2,593,597 Financial assets at fair value through profit or loss - current 367,405 Held-to-maturity financial assets - current 300,001 Notes and accounts receivable, net of allowance for doubtful accounts 2,050,808 Inventories 973,190 Deferred income tax assets - current 9,081 Prepaid expenses and other current assets 41,213 Financial assets carried at cost - noncurrent 8,683 Properties 6,371,822 Intangible assets 567,467 Refundable deposits 5,723 Deferred assets 5,924 Pledged time deposits 69,000 Notes and accounts payable (710,019) Income tax payable (90,359) Payables to equipment suppliers (44,563) Accrued expenses and other current liabilities (457,227) Other liabilities (34,286) Balance 12,027,460 Obtained percentage of stock 44.09% 5,302,907 Goodwill 906,781 Recognized gain on investments before obtaining control over the investee (39,740) Total proceeds from obtaining the investee $ 6,169,948 Proceeds from the cash of Greatek Electronics Inc. $ 2,593,597 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) 11

12 POWERTECH TECHNOLOGY INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATIONS Powertech Technology Inc. (the Corporation ) was incorporated on May 15, 1997 and began its operations on September 3, The Corporation s shares were listed on the Taiwan Stock Exchange on November 8, 2004 after they were traded on the Republic of China (R.O.C.), GreTai Securities Market (GTSM; over-the-counter securities exchange) starting on April 3, The Corporation also issued Global Depositary Shares (GDS), which are listed on the Luxembourg Stock Exchange and traded on the Euro MTF Market. The GDS was accepted for quotation on the International Order Book of the London Stock Exchange Limited. The Corporation mainly researches and develops, designs, assembles, tests and manufactures various integrated circuits. The Corporation also provides semiconductor testing and assembly services on a turnkey basis, in which the Corporation buys fabricated wafers and sells, tested and assembled semiconductors. The Corporation has three subsidiaries: Powertech Holding (B.V.I.) Inc. ( PTI Holding ), Macrotech Technology Inc. ( MTI ), and a 44% subsidiary, Greatek Electronics Inc. ( GEI ). On September 30, 2009, the Corporation got approval from the Investment Commission under the Ministry of Economic Affairs to acquire 100% ownership of Spansion (Singapore) Pte. Ltd. (which later became PTI Technology (Singapore) Pte. Ltd.) from Spansion LLC. As a result, Spansion (China) Limited (which later became Powertech Technology Suzhou Ltd.) became a subsidiary of the Corporation. The board of director of Corporation applied the tender offer to acquire the outstanding common shares of Greatek Electronics Inc. at the price of $25.28 per share in December, The maximum number of shares is 282,304 thousand and the minimum number of shares is 166,061 thousand. The actual volume of tendered shares is 244,064 thousand, 44.09% of total outstanding shares of Greatek Electronics Inc. Thus, the investments were accounted for by the equity method. Greatek Electronics Inc. mainly operates in semiconductor assembly and testing service. Greatek Electronics Inc. reelected the directors and supervisors by the interim shareholders meeting on April 3, The Corporation obtained majority directors seats. Thus, Greatek Electronics Inc. became a subsidiary of the Corporation. PTI Holding has one direct wholly owned subsidiary: Singapore ). PTI Technology (Singapore) Pte. Ltd. ( PTI PTI Singapore has one direct wholly owned subsidiary: PTI Technology (Suzhou) Ltd. ( PTI Suzhou ). PTI Holding and PTI Singapore engage in investments. MTI mainly assembles and tests IC module. PTI Suzhou mainly researches and develops, designs, assembles, tests and manufactures various integrated circuits and provides semiconductor testing and assembly services on a turnkey basis. On April 25, 2012, the board of Powertech Technology USA Inc. directors resolved to liquidate PTI USA effective July 1, The previous years earnings of US$1,122 thousands were distributed during the year ended December 31, As of March 15, 2013, the liquidation was completed

13 The following diagram shows the relationship and ownership percentages between the Corporation and its consolidated subsidiaries (collectively, the Group ) as of December 31, 2012: The Corporation GEI 44% 100% PTI Holding MTI 100% 100% PTI Singapore 100% PTI Suzhou As of December 31, 2012 and 2011, the Group had 8,895 and 6,276 employees, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the R.O.C. For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail. The Group s significant accounting policies are summarized as follows: Consolidation The accompanying consolidated financial statements include the accounts of all the direct and indirect subsidiaries of Powertech Technology Inc., and the accounts of investees in which Powertech Technology Inc. s ownership percentage is less than 50% but over which Powertech Technology Inc. has a controlling interest. All significant intercompany balances and transactions have been eliminated upon consolidation. The consolidated entities as of December 31, 2012 and 2011 were as follows: % of Ownership % of Ownership as of as of December 31, December 31, Name of Investor Name of Investee Remark Powertech Technology Inc. PTI Holding MTI (Continued)

14 % of Ownership % of Ownership as of as of December 31, December 31, Name of Investor Name of Investee Remark GEI 44 - GEI reelected the directors and supervisors by the interim shareholders meeting on April 3, The Corporation obtained majority directors seats. PTI Holding PTI Singapore PTI USA The liquidation was completed in December, PTI Singapore PTI Suzhou (Concluded) Powertech Technology Inc. and its consolidated entities are hereinbefore referred to collectively as the Group. The shares of minority interest shareholders in the accompanying consolidated financial statements are recorded under minority interest. Foreign Currencies Non-derivative foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange differences arising from settlement of foreign-currency assets and liabilities are recognized in profit or loss. At the balance sheet date, foreign-currency monetary assets and liabilities are revalued using prevailing exchange rates and the exchange differences are recognized in profit or loss. At the balance sheet date, foreign-currency nonmonetary assets (such as equity instruments) that are carried at cost continue to be stated at exchange rates at trade dates. The financial statements of foreign operations are translated into New Taiwan dollars at the following exchange rates: a. Assets and liabilities - at exchange rates prevailing on the balance sheet date; b. Shareholders equity - at historical exchange rates; c. Dividends - at the exchange rate prevailing on the dividend declaration date; and d. Income and expenses - at average exchange rates for the year. Exchange differences arising from the translation of the financial statements of foreign operations are recognized as a separate component of shareholders equity. Such exchange differences are recognized in profit or loss in the year in which the foreign operations are disposed of. The exchange rates used for foreign-currency transaction recording, settlement or translation are mainly based on the closing exchange rates quoted by a major bank

15 Accounting Estimates Under above guidelines and principles, certain estimates and assumptions have been used for the allowance for doubtful accounts, allowance for loss on inventories, depreciation of properties and assets leased to others, amortization of intangible assets and deferred charges, income tax, pension cost, indemnity loss, impairment loss, bonuses to employees, directors and supervisors, etc. Actual results may differ from these estimates. Current and Noncurrent Assets and Liabilities Current assets are cash and cash equivalents and other assets held for trading or to be consumed within 12 months from the balance sheet date. All other assets such as property, plant and equipment, intangible assets, assets leased to others and deferred charges are classified as noncurrent. Current liabilities are obligations incurred for trading purposes or to be settled within 12 months from the balance sheet date. All other liabilities are classified as noncurrent. Cash Equivalents Cash equivalents are short-term and highly liquid assets. They are readily convertible into cash and mature in near future. The change in interest rate has insignificant risk of change in their value. Financial Instruments at Fair Value through Profit or Loss Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss (FVTPL) include financial assets or financial liabilities held for trading and those designated as at FVTPL on initial recognition. The Group recognizes a financial asset or a financial liability on its balance sheet when the Group becomes a party to the contractual provisions of the financial instrument. A financial asset is derecognized when the Group has lost control of its contractual rights over the financial asset. A financial liability is derecognized when the obligation specified in the relevant contract is discharged, cancelled or expired. These financial instruments are initially recognized at fair value plus costs that are directly attributable to instrument acquisition; these transaction costs are expensed as these are incurred. When fair values are remeasured at the balance sheet date, the changes in fair value are recognized as earnings. A derivative that does not meet the criteria for hedge accounting is classified as a financial asset or a financial liability held for trading. If the fair value of the derivative is positive, the derivative is recognized as a financial asset; otherwise, the derivative is recognized as a financial liability. The fair value of derivatives with no active market is estimated using valuation techniques. Held-to-maturity Financial Assets Held-to-maturity financial assets are carried at amortized cost using the effective interest method. Held-to-maturity financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. Profit or loss is recognized when the financial assets are derecognized, impaired, or amortized. All regular way purchases or sales of financial assets are accounted for using a trade date basis. An impairment loss is recognized when there is objective evidence that the investment is impaired. The impairment loss is reversed if an increase in the investment s recoverable amount is due to an event which occurred after the impairment loss was recognized; however, the adjusted carrying amount of the investment may not exceed the carrying amount that would have been determined had no impairment loss been recognized for the investment in prior years. Available-for-sale Financial Assets

16 Available-for-sale financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are remeasured at fair value, with changes in fair value recognized in equity until the financial assets are disposed of, at which time, the cumulative gain or loss previously recognized in equity is included in profit or loss for the year. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. The fair values of listed stock are their closing prices as of the balance sheet date. Cash dividends are recognized on the ex-dividend date, except for dividends distributed from the pre-acquisition profit, which are treated as a reduction of investment cost. Stock dividends are not recognized as investment income but are recorded as an increase in the number of shares. The total number of shares subsequent to the increase is used for recalculation of cost per share. An impairment loss is recognized when there is objective evidence that the financial asset is impaired. Any subsequent decrease in impairment loss for an equity instrument classified as available-for-sale is recognized directly in equity. Financial Assets Carried at Cost Investments in equity instruments with no quoted prices in an active market and with fair values that cannot be reliably measured, such as stocks traded in the Emerging Stock Market, are measured at their original cost. The accounting treatment for dividends on financial assets carried at cost is the same with that for dividends on available-for-sale financial assets. An impairment loss is recognized when there is objective evidence that the asset is impaired. A reversal of this impairment loss is disallowed. Bond Investments with No Active Market Bond investments with fixed or determinable receivables that are not quoted in an active market are carried at amortized cost using the effective interest method. These bond investments are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition of the financial asset. Profit or loss is recognized at the time of derecognition, impairment or amortization. A regular way purchase or sale of financial assets is recognized and derecognized using trade date accounting. If there is objective evidence that an impairment loss has been incurred on the balance sheet date, the impairment loss should be recognized. If the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the impairment loss should be reversed. This reversal should not result in the carrying amount of the financial asset exceeding the amortized cost that would have been determined had the impairment loss not been recognized. Impairment of Accounts Receivable Accounts receivable are assessed for impairment at the end of each reporting period and considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the accounts receivable, the estimated future cash flows of the asset have been affected. Objective evidence of impairment could include: Significant financial difficulty of the debtor; or It becoming probable that the debtor will enter bankruptcy or financial re-organization.; or A default or delinquency in interest or principal payments; or Extension of the maturity date; or

17 Significant financial difficulty of the final issuer or debtor; or The disappearance of an active market for that financial asset because of the issuer s financial difficulties or other reasons. Accounts receivable that are assessed not to be impaired individually are further assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of accounts receivable could include the Company s past experience of collecting payments, an increase in the number of delayed payments, as well as observable changes in national or local economic conditions that correlate with defaults on receivables. The amount of the impairment loss recognized is the difference between the asset carrying amount and the present value of estimated future cash flows, after taking into account the related collateral and guarantees, discounted at the receivable s original effective interest rate. The carrying amount of the accounts receivable is reduced through the use of an allowance account. When accounts receivable are considered uncollectible, they are written off against the allowance account. Recoveries of amounts previously written off are credited to the allowance account. Changes in the carrying amount of the allowance account are recognized as bad debt in profit or loss. Inventories Inventories consist of raw materials, supplies, work-in-process and finished goods. Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made item by item, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date. Investments Accounted for by the Equity Method Investments in which the Group holds 20 percent or more of the investees voting shares or exercises significant influence over the investees operating and financial policy decisions are accounted for by the equity method. The acquisition cost is allocated to the assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition, and the acquisition cost in excess of the fair value of the identifiable net assets acquired is recognized as goodwill. Goodwill is not being amortized. The fair value of the net identifiable assets acquired in excess of the acquisition cost is used to reduce the fair value of each of the noncurrent assets acquired (except for financial assets other than investments accounted for by the equity method, noncurrent assets held for sale, deferred income tax assets, prepaid pension or other postretirement benefit) in proportion to the respective fair values of the noncurrent assets, with any excess recognized as an extraordinary gain. Profits from upstream transactions with an equity-method investee are eliminated in proportion to the Group s percentage of ownership in the investee; however, if the Group has control over the investee, all the profits are eliminated. Profits from downstream transactions with an equity-method investee are eliminated in proportion to the Group s percentage of ownership in the investee. All of the above eliminated profits are realized upon the sale of the related products to third parties. When the Group subscribes for its investee s newly issued shares at a percentage different from its percentage of ownership in the investee, the Group records the change in its equity in the investee s net assets as an adjustment to investments, with a corresponding amount credited or charged to capital surplus. When the adjustment should be debited to capital surplus, but the capital surplus arising from long-term investments is insufficient, the shortage is debited to retained earnings

18 On the balance sheet date, the Group evaluates investments for any impairment. An impairment loss is recognized and charged to current income if the investment carrying amount as of the balance sheet date exceeds the expected recoverable amount. For long-term equity investments on which the Group has significant influence but over which it has no control, the carrying amount (including goodwill) of each investment is compared with its own recoverable amount for the purpose of impairment testing. Properties and Assets Leased to Others Properties and assets leased to others are stated at cost less accumulated depreciation and accumulated impairment losses. Borrowing costs directly attributable to the acquisition or construction of properties and assets leased to others are capitalized as part of the cost of those assets. Major additions and improvements to properties and assets leased to others are capitalized, while costs of repairs and maintenance are expensed currently. An impairment loss should be recognized for any carrying amount in excess of the expected recoverable amount, and this loss should be charged to current income. An impairment loss recognized in prior years can be reversed only if there is a change in the estimates used to determine recoverable amount since the last impairment loss was recognized. However, the loss reversal is only to the extent that the increased carrying amount of an asset would not exceed the asset carrying amount (net of depreciation) had no impairment loss been recognized in prior years. Depreciation is calculated using the straight-line method over service years initially estimated as follows: buildings - 3 to 50 years; machinery and equipment - 2 to 10 years; office equipment - 2 to 6 years; leasehold improvements - 7 years; other equipment - 2 to 15 years; assets leased to others - 3 to 50 years. The carrying values of properties that have reached their original estimated service lives but are still in use are depreciated over their reestimated service lives. Upon sale or other disposal of properties, the related cost and accumulated depreciation are removed from the accounts, with any gain or loss credited or charged to nonoperating income or expenses in the year of sale or disposal. Capitalized and Expensed Expenditures Expenditures that will benefit periods in the future are capitalized; others are recognized as expenses or losses. Intangible Assets Intangible assets acquired are initially recorded at cost and are amortized on a straight-line basis over their estimated useful lives as follows: Usufruct of land - 50 years; computer software - 2 to 5 years; royalty - 3 years; technique service - 3 years; technique transfer - 2 years; core technique - 5 years; and client relationship - 9 year. Goodwill arising or acquisition based on a newly released SFAS No. 37, that is not amortized and instead is tested for impairment annually. Expenditure for research activities is recognized as an expense when incurred. An internally generated intangible asset arising from development activities is capitalized and then amortized on a straight-line basis over estimated useful years if the recognition criteria for intangible asset have been met; otherwise, the development expenditure is recognized as an expense when incurred. An impairment loss should be recognized for any carrying amount in excess of the expected recoverable amount, and this loss should be charged to current income. An impairment loss recognized in prior years can be reversed only if there is a change in the estimates used to determine recoverable amount since the last impairment loss was recognized. However, the loss reversal is only to the extent that the increased carrying amount of an asset would not exceed the asset carrying amount (net of amortization) had no impairment loss been recognized in prior years

19 Deferred Charges Deferred charges are amortized on the straight-line method over the following periods: electricity installation charges - 5 to 6 years; and others - 2 years. An impairment loss should be recognized for any carrying amount in excess of the expected recoverable amount, and this loss should be charged to current income. An impairment loss recognized in prior years can be reversed only if there is a change in the estimates used to determine recoverable amount since the last impairment loss was recognized. However, the loss reversal is only to the extent that the increased carrying amount of an asset would not exceed the asset carrying amount (net of amortization) had no impairment loss been recognized in prior years. Pension Costs Under a defined benefit plan is determined by actuarial valuations. Contributions made under a defined contribution plan are recognized as pension cost during the period in which employees render services. PTI Suzhou has a defined contribution pension plan. Based on this plan, required monthly contributions to employees individual pension accounts are charged to current cost. Income Tax The Group uses the inter-period income tax allocation method. The tax effects of temporary differences, unused loss carryforward and unused tax credits are recognized as deferred income tax assets, and those of taxable temporary differences are recognized as deferred income tax liabilities. Valuation allowances are provided for deferred income tax assets that are not certain to be realized. A deferred tax asset or liability is classified as current or noncurrent according to the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent on the basis of the expected length of the realization or settlement period. If the Group can control the timing of the reversal of a temporary difference arising from the difference between the book value and the tax basis of a long-term equity investment in a foreign subsidiary or joint venture and if the temporary difference is not expected to reverse in the foreseeable future and will, in effect, exist indefinitely, then a deferred tax liability or asset is not recognized. Tax credits for the purchases of machinery, equipment and technology, research and development expenditures and personnel training are recognized by the flow-through method. Adjustments of prior years tax liabilities are added to or deducted from the current year s tax provision. Income taxes (10%) on undistributed earnings generated since January 1, 1998 are recorded as expenses in the year when the shareholders resolve to retain the earnings. Stock-based Compensation Employee stock options granted on or after January 1, 2008 are accounted for under SFAS No. 39, Accounting for Share-based Payment. Under the statement, the value of the stock options granted, which is equal to the best available estimate of the number of stock options expected to vest multiplied by the grant-date fair value, is expensed on a straight-line basis over the vesting period, with a corresponding adjustment to capital surplus - employee stock options. The estimate is revised if subsequent information indicates that the number of stock options expected to vest differs from previous estimates

20 Employee stock options granted between January 1, 2004 and December 31, 2007 were accounted for under the interpretations issued by the Accounting Research and Development Foundation ( ARDF ). The Company adopted the intrinsic value method, under which compensation cost was recognized on a straight-line basis over the vesting period. Treasury Stock Treasury stock is stated at cost and shown as a deduction in shareholders equity. When the Group retires treasury stock, the treasury stock account is reduced and the common stock as well as the capital surplus - additional paid-in capital are reversed on a pro rata basis. When the book value of the treasury stock exceeds the sum of the par value and additional paid-in capital, the difference is charged to capital surplus - treasury stock transactions and to retained earnings for any remaining amount. Revenue Recognition and Sales Discounts The Group recognizes net sales when the earnings process is completed, as follows: (a) the amount of revenue can be measured reliably; (b) the economic benefits associated with the transaction will flow to the Group; (c) the transaction costs incurred or to be incurred can be measured reliably; and (d) the costs incurred for transaction and the costs to complete the transaction can be measured reliably. Sales discounts are treated as the reduction of sales when the transactions occur. The Group does not recognize sales on transactions involving the delivery of materials to subcontractors since the ownership over the materials is not transferred. Sales are determined at fair value, taking into account related sales discounts agreed to by the Group and its customers. Since the receivables from sales are collectible within one year and sales transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash received. Reclassifications Certain accounts in the consolidated financial statements as of and for the year ended December 31, 2011 have been reclassified to be consistent with those in the consolidated financial statements as of and for the year ended December 31, ACCOUNTING CHANGE SFAS No. 34, Financial Instruments: Recognition and Measurement On January 1, 2011, the Group adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 34, Financial Instruments: Recognition and Measurement. The main revisions includes (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Group are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost a debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change has no effect on the consolidated financial statement for the year ended December 31,