Walsin Technology Corporation and Subsidiaries

Transcription

1 Walsin Technology Corporation and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2011 and 2010 and Independent Auditors Report

2 INDEPENDENT AUDITORS REPORT The Board of Directors and Stockholders Walsin Technology Corporation We have audited the accompanying consolidated balance sheets of Walsin Technology Corporation and subsidiaries (collectively, the Company ) as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in stockholders equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The accompanying consolidated financial statements included assets of some investees of Gallatown Developments Limited ( Gallatown ) that were 7.90% (NT$2,166,736 thousand) and 3.80% (NT$2,194,016 thousand) of the consolidated total assets as of December 31, 2011 and 2010, respectively, and net sales that were 15.96% (NT$4,007,390 thousand) and 12.38% (NT$4,978,113 thousand) of the consolidated net sales for the years ended December 31, 2011 and 2010, respectively. These amounts were based on the financial statements audited by other independent auditors. Accordingly, our opinion, insofar as it relates to these amounts is based solely on the reports of the other auditors. 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion

3 In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Walsin Technology Corporation and subsidiaries as of December 31, 2011 and 2010, and the 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, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China. March 21, 2012 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. Also, as stated in Note 2 to the consolidated financial statements, the additional footnote disclosures that are not required under generally accepted accounting principles were not translated into English

4 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) 2011 Amount ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 2 and 4) Financial assets at fair value through profit or loss - current (Notes 2 and 5) Held-to-maturity financial assets - current (Notes 2 and 6) Notes receivable (Notes 2 and 7) Notes receivable from related parties (Notes 2, 7 and 24) Accounts receivable (Notes 2 and 7) Accounts receivables from related parties (Notes 2, 7 and 24) Other receivables Other receivables from related parties (Note 24) Inventories (Notes 2 and 8) Deferred income tax assets - current (Notes 2 and 22) Other current assets (Note 2) Total current assets INVESTMENTS Long-term equity investments at equity method (Notes 2 and 9) Available-for-sale financial assets - noncurrent (Notes 2 and 10) Financial assets carried at cost - noncurrent (Notes 2 and 11) Total investments PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 12) Cost Land Buildings and improvements Machinery and equipment Transportation equipment Leasehold improvements Other equipment Less: Accumulated depreciation Less: Accumulated impairment Construction in progress and prepayments for equipment Property, plant and equipment, net INTANGIBLE ASSETS (Note 2) Computer software Goodwill Land use rights Other intangible assets Total intangible assets OTHER ASSETS (Notes 2 and 13) Idle assets Guarantee deposits paid Deferred charges Deferred income tax assets - noncurrent Other assets - others $ 2010 Amount % 3,879,024 79,184 23, , ,923,639 9,947 85, ,240 3,827, , , ,144,498 $ % 9,627,139 38, ,633 2,029 11,014,045 20, ,573 9,904 5,651, , , ,828, ,641, , , ,239,426 1,032, , ,489, ,444, CURRENT LIABILITIES Short-term loans (Note 14) Notes payable Accounts payable Income tax payable (Notes 2 and 22) Financial liabilities at fair value through profit or loss - current (Notes 2 and 5) Hedging derivative liabilities - current (Notes 2 and 27) Payables on equipment (Note 24) Other payables (Note 24) Current portion of long-term debt (Note 16) Other current liabilities Total current liabilities LONG-TERM LIABILITIES Financial liabilities at fair value through profit or loss - noncurrent (Notes 2, 5 and 15) Bonds payable (Notes 2 and 15) Long-term debt (Note 16) Long-term payable Total long-term liabilities RESERVE FOR LAND VALUE INCREMENT TAX (Notes 12 and 13) 453,203 6,961,119 17,393,001 55, ,278 2,424,223 27,498,235 (18,118,520) (197,349) 608, (66) (1 ) 2 638,039 9,627,551 29,218, , ,338 4,965,056 44,763,559 (24,747,550) (153,232) 1,999, (43) 3 9,790, ,861, ,439 10, , ,943 7, , , ,569 74,570 75, , , ,864 84, , , , , ,050,122 2 OTHER LIABILITIES Accrued pension cost (Notes 2 and 17) Guarantee deposits received Other liabilities - others Total other liabilities Total liabilities PARENT COMPANY STOCKHOLDERS EQUITY Capital stock Common stock (Note 18) Advance receipts for common stock (Note 18) Capital surplus Additional paid-in capital from share issuance in excess of par Treasury stock transactions Gain on disposal of property, plant and equipment Long-term equity investments at equity method Capital surplus from business combination Retained earnings (Note 19) Legal reserve (Accumulated deficit) unappropriated earnings Cumulative translation adjustments (Note 2) Unrealized valuation gain or loss on financial instruments (Notes 2 and 10) Unrealized revaluation increment Treasury stock (Notes 2 and 20) Total parent company stockholders equity Total other assets MINORITY INTEREST Total stockholders' equity TOTAL $ 27,443, $ 57,688, Amount LIABILITIES AND STOCKHOLDERS EQUITY 100 TOTAL The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 21, 2012) -3- $ 2010 Amount % 1,592, ,639 1,018,496 15, ,211 1,404, , , ,350,895 $ % 3,843, ,848 5,173, ,723 4,920 2,172 1,095,456 2,447,752 1,500, , ,046, ,297,035 5, , ,158 14,347, ,302, ,271, ,075-46, ,003 81, , ,568 7, , , ,044, ,805, ,900, ,639,888 6, ,701,589 9, ,284 78,055 1,487, ,698,500 13, ,284 82,002 1,487, ,257 (542,961) 1,095,554 (347,838) 3,021 - (2 ) 4 (1 ) - 952, ,214 69,672 3,021 (68,855) 2-14,724, ,363, ,674, ,519, ,399, ,882, $ 27,443, $ 57,688,

5 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share) Amount % Amount % NET SALES $ 25,102, $ 40,207, COSTS OF SALES 23,409, ,303, GROSS PROFIT 1,693, ,903, OPERATING EXPENSES Selling 1,159, ,469,553 4 General and administrative 908, ,468,986 3 Research and development 511, ,083 2 Total operating expenses 2,579, ,634,622 9 OPERATING (LOSS) INCOME (886,283) (4) 2,269,068 6 NONOPERATING INCOME AND GAINS Interest income 137, ,866 - Investment income recognized under equity method (Notes 2 and 9) 182, ,744 1 Investment income (Notes 2 and 23) 20,931-27,574 - Gain on disposal of assets 86, Gain on sale of investments, net 16,709-65,115 - Foreign exchange gain, net 59, Reversal of allowance for doubtful accounts ,765 - Reversal of impairment loss ,167 - Valuation gain on financial assets ,318 - Valuation gain on financial liabilities 11,858-23,186 - Others 125, ,726 1 Total nonoperating income and gains 641, ,461 2 NONOPERATING EXPENSES AND LOSSES Interest expense 195, ,211 1 Loss on disposal of assets 10,833-35,029 - Foreign exchange loss, net ,751 - Impairment loss 19, Valuation loss on financial assets 22, Others 346, ,824 1 Total nonoperating expenses and losses 594, ,815 2 (Continued) - 4 -

6 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share) Amount % Amount % (LOSS) INCOME BEFORE INCOME TAX $ (838,664) (3) $ 2,289,714 6 INCOME TAX EXPENSE (Notes 2 and 22) (112,114) (1) (555,390) (2) TOTAL CONSOLIDATED NET (LOSS) INCOME $ (950,778) (4) $ 1,734,324 4 ATTRIBUTED TO Parent company stockholders $ (1,057,342) (4) $ 952,566 2 Minority interests 106, ,758 2 $ (950,778) (4) $ 1,734,324 4 Before Income Tax After Before Income Income Tax Tax After Income Tax BASIC (LOSS) EARNINGS PER SHARE (NEW TAIWAN DOLLARS, Notes 2 and 18) Basic (loss) earnings per share before distribution to minority interest $ (1.22) $ (1.38) $ 3.35 $ 2.53 Basic (loss) earnings per share attributed to the parent company's stockholders $ (1.54) $ 1.39 DILUTED EARNINGS PER SHARE (NEW TAIWAN DOLLARS, Notes 2 and 18) Diluted earnings per share before distribution to minority interest $ 3.34 $ 2.53 Diluted earnings per share attributed to the parent company's stockholders $ 1.39 (Continued) - 5 -

7 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share) Pro forma information assuming the Company s shares held by its subsidiaries were accounted for as an investment instead of treasury stock is as follows: CONSOLIDATED NET (LOSS) INCOME ATTRIBUTED TO STOCKHOLDERS OF THE PARENT COMPANY $ (1,060,576) $ 952,566 Before Income Tax After Before Income Income Tax Tax After Income Tax BASIC (LOSS) EARNINGS PER SHARE (NEW TAIWAN DOLLARS) Basic (loss) earnings per share before distribution to minority interest $ (1.23) $ (1.39) $ 3.32 $ 2.52 Basic (loss) earnings per share attributed to the parent company s stockholders $ (1.54) $ 1.38 DILUTED EARNINGS PER SHARE (NEW TAIWAN DOLLARS) Diluted earnings per share before distribution to minority interest $ 3.32 $ 2.51 Diluted earnings per share attributed to the parent company s stockholders $ 1.38 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 21, 2012) (Concluded) - 6 -

8 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) Capital Surplus Retained Earnings Unrealized Capital Stock Gain on Long-term Unappropriated Valuation Gain Issued and Advance From Share Disposal of Equity Capital Surplus Earnings Cumulative or Loss on Unrealized Outstanding Receipts for Issuance in Treasury Stock Property, Plant Investments at from Business (Accumulated Translation Financial Revaluation Minority Common Stock Common Stock Excess of Par Transactions and Equipment Equity Method Combination Legal Reserve Special Reserve Deficit) Adjustments Instruments Increment Treasury Stock Interest Total BALANCE, JANUARY 1, 2010 $ 6,638,023 $ - $ 5,696,878 $ 1,993 $ 270,307 $ 71,380 $ 1,487,077 $ 214,278 $ 208,097 $ (448,398 ) $ 1,014,362 $ 71,244 $ 3,021 $ (108,853 ) $ 11,966,717 $ 27,086,126 Transfer of special reserve to accumulated deficit (Note 19) (208,097 ) 208, Offset of accumulated deficit (Note 19) (26,023 ) - - (214,278 ) - 240, Employee stock warrants converted into common stock (Note 18) 1,865 6,639 1, ,126 Treasury stock transferred to employees (Note 20) , ,551-50,753 Changes in the Company's common shares held by subsidiaries (Note 20) Unrealized valuation gain or loss on available-for-sale financial assets , ,799 Unrealized valuation gain or loss on investee's available-for-sale financial assets (39,406 ) (39,406 ) Unrealized valuation gain or loss on derivative financial liability for cash flow hedging , ,035 Change in equity in investee's net assets , ,622 Cumulative translation adjustments on long-term equity investments (779,148 ) (779,148 ) Minority interest (1,229,030 ) (1,229,030 ) Consolidated net income for , ,758 1,734,324 BALANCE, DECEMBER 31, ,639,888 6,639 5,698,500 13, ,284 82,002 1,487, , ,214 69,672 3,021 (68,855 ) 11,519,445 26,882,648 Appropriations and distributions (Note 19) Legal reserve ,257 - (95,257 ) Stock dividends 257, (257,196 ) Cash dividends (85,732 ) (85,732 ) Employee stock warrants converted into common stock (Note 18) 3,550 (6,639 ) 3, Changes in the Company's common shares held by subsidiaries (Note 20) ,805-58,805 Unrealized valuation gain or loss on available-for-sale financial assets (283,801 ) (283,801 ) Unrealized valuation gain or loss on investee's available-for-sale financial assets (133,709 ) (133,709 ) Change in equity in investee's net assets (3,947 ) (3,947 ) Cumulative translation adjustments on long-term equity investments , ,340 Cash dividend received by subsidiaries Sale of the Company's stock held by subsidiaries (Note 20) (3,317 ) ,050-6,733 Minority interest (9,951,402 ) (9,951,402 ) Consolidated net (loss) income for (1,057,342 ) ,564 (950,778 ) BALANCE, DECEMBER 31, 2011 $ 6,900,634 $ - $ 5,701,589 $ 9,961 $ 244,284 $ 78,055 $ 1,487,077 $ 95,257 $ - $ (542,961 ) $ 1,095,554 $ (347,838 ) $ 3,021 $ - $ 1,674,607 $ 16,399,240 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 21, 2012) - 7 -

9 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Total consolidated (loss) income $ (950,778) $ 1,734,324 Adjustments to reconcile net (loss) income to net cash provided by operating activities Depreciation and amortization 3,121,497 4,208,303 Compensation cost of treasury stock transferred to employees - 11,084 Valuation loss (gain) on financial assets 22,366 (12,318) Valuation gain on financial liabilities (11,858) (23,186) Amortization of bond discount 8,876 5,917 Impairment loss (reversal of impairment loss) on assets 19,488 (63,167) Net (gain) loss on disposal of assets (75,656) 35,029 Gain on disposal of available-for-sale financial assets - noncurrent (16,611) (62,331) Investment income recognized under equity method (182,434) (236,744) Cash dividends from equity-accounted investees 4,268 98,439 Impairment loss of available-for-sale financial assets - noncurrent 18,140 - Impairment loss of goodwill 6,995 - Net changes in operating assets and liabilities Financial assets at fair value through profit or loss - current (80,532) 21,231 Held-to-maturity financial assets - current (23,993) - Notes receivable 87,526 29,197 Notes receivable from related parties 2,028 (598) Accounts receivable (1,315,889) 353,482 Accounts receivable from related parties (20,547) (8,518) Other receivables (13,114) 43,586 Other receivables from related parties (219,462) (7,535) Inventories (208,395) (498,944) Other current assets (504,706) 29,860 Deferred tax assets - noncurrent (48,596) 202,077 Other assets 279,727 (37,038) Notes payable (102,630) (112,702) Accounts payable 1,280, ,774 Accounts payable to related parties - (1,287) Income tax payable (75,559) 42,957 Other payables (77,043) 55,704 Other current liabilities 12,847 (26,592) Accrued pension cost 16,483 16,570 Other liabilities 49,471 (13,943) Long-term payable 5,741 - Net cash provided by operating activities 1,007,676 5,916,631 (Continued) - 8 -

10 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM INVESTING ACTIVITIES Increase in available-for-sale financial asset - noncurrent $ (19,264) $ (558,470) Proceeds from disposal of available-for-sale financial asset - noncurrent 32, ,383 Increase in long-term equity investments at equity method - (4,750,066) Decrease in restricted assets - 64,223 Proceeds from disposal of property, plant and equipment 350,430 57,710 Cash paid for acquisition of property, plant and equipment (2,770,571) (4,379,097) Increase in guarantee deposits paid (13,296) (6,512) Increase in intangible assets and deferred charges (8,570) (52,505) Net cash used in investing activities (2,428,465) (9,313,334) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in short-term loans 1,551,738 (271,759) Decrease in short-term bills payable - (34,997) Increase in long-term debt 1,859,355 6,555,800 Issuance of convertible bonds - 995,000 Increase in guarantee deposits received 23,027 75,045 Proceeds from transfer of treasury stock to employees - 39,669 Proceeds from disposal of treasury stock 15,679 - Proceeds from employee stock warrant converted into common stock - 10,126 Decrease in minority interest (99,481) (503,964) Cash dividends paid (85,649) - Net cash provided by financing activities 3,264,669 6,864,920 EFFECT OF LOSS OF CONTROL OVER SUBSIDIARY (7,779,167) - EFFECT OF EXCHANGE RATE CHANGES ON CASH 187,172 (425,069) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,748,115) 3,043,148 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,627,139 6,583,991 CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,879,024 $ 9,627,139 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Property, plant and equipment transfer to intangible assets $ 7,895 $ 34,830 Property, plant and equipment transfer to deferred charges $ 25,891 $ 29,157 Property, plant and equipment transfer to idle assets $ 41,714 $ - Idle asset transfer to property, plant and equipment $ 5,510 $ 15,019 Transfer of current portion of long-term debt to current liabilities $ 419,683 $ 1,500,000 Changes of equity in the investee's net assets $ (3,947) $ 10,622 (Continued) - 9 -

11 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) Unrealized valuation gain or loss on available-for-sale financial assets $ (283,801) $ 8,799 Unrealized valuation gain or loss on investee's available-for-sale financial assets $ (133,709) $ (39,406) Unrealized valuation gain or loss on derivative financial liability for cash flow hedging $ - $ 29,035 Translation adjustments on long-term equity investments $ 860,340 $ (779,148) Changes in the Company's common shares held by subsidiaries $ 58,805 $ 447 Dividends to subsidiaries transferred to capital surplus $ 83 $ - Adjustments to stockholders' equity due to sale of the Company's stock held by subsidiaries $ 6,733 $ - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest (excluding capitalized interest) $ 264,656 $ 264,901 Income tax $ 138,735 $ 361,526 CASH PAID DURING THE YEAR FOR ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment acquired $ 2,715,136 $ 4,982,659 Add: Payable for purchases of property, plant and equipment, beginning of year 1,095, ,894 Deduct: Payable for purchases of property, plant and equipment, end of year (1,040,021) (1,095,456) Cash paid during the year for acquisition of property, plant and equipment $ 2,770,571 $ 4,379,097 The fair values of assets and liabilities of the subsidiary over which control was lost were summarized as follows: Current assets $ 19,074,228 Investments 4,678,750 Property, plant and equipment 11,773,294 Intangible assets 166,975 Other assets 152,437 Goodwill 125,609 Current liabilities (12,675,068) Long-term liabilities (11,412,123) Other liabilities (169,901) Minority interest (9,932,301) Net assets of the subsidiary 1,781,900 Cash balance of subsidiary (7,779,167) Long-term investment in the subsidiary before loss of control (1,781,900) Net cash in subsidiary over which control was lost $ (7,779,167) The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 21, 2012) (Concluded)

12 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATIONS Walsin Technology Corporation ( WTC ) was incorporated in the Republic of China (ROC) on July 29, 1970 to design, develop and manufacture semiconductors and LED (light-emitting diode) chips. In 1992, WTC purchased the machinery, equipment and inventory of the electronic department of Walsin Lihwa Corporation to establish its Yang-Mei Plant on July 1 and changed its major operations to the manufacture of electronic ceramics, including multilayer ceramic capacitors ( MLCC ) and ceramic resistors. In 1995, WTC established a branch in Kaohsiung to research, develop, produce and sell products such as chip resistors, RF (radio frequency) devices and high-frequency inductors and, in 2006, WTC established a branch in Taichung to produce disc capacitors and new products. WTC closed its operations in the Taichung branch in August WTC s common stock began to be traded in Taiwan s over-the-counter (OTC) market on November 21, Later, WTC s stock ceased to be OTC traded and became listed on the Taiwan Stock Exchange on September 17, The major stockholder, Walsin Lihwa Corporation, held 18.11% ownership interest in WTC as of December 31, WTC s head office is located at 566-1, Kao-shi Road, Yang-Mei, Taoyuan. Gallatown Developments Limited ( Gallatown ) was incorporated in the Cayman Islands as an investment holding company. Pan Overseas (B.V.I.) Investment ( POE-BVI ) was incorporated in the British Virgin Islands as an investing holding company. Prosperity Dielectrics Co., Ltd. ( PDC ), a listed company on the over-the-counter Stock Market of the Taiwan GreTai Securities Market, is engaged in manufacturing and selling of electric capacitors, resistors and semiconductor chip. Hannstar Board Corp. ( Hannstar ), a listed company on the Taiwan Stock Exchange, is engaged in manufacturing and selling printed circuit board. WTC lost its control over Hannstar after it lost the majority in the board of directors of Hannstar in its provisional stockholders convention. Hannstar was no longer included as a consolidated entity in the consolidated financial statement since June 10, As of December 31, 2011 and 2010, WTC and its subsidiaries had 8,611 and 22,755 employees, respectively. 2. SIGNIFICANT ACCOUNTING POLICIES 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 Republic of China ( ROC ). For readers convenience, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the ROC. If inconsistencies arise between the English version and the Chinese version or if differences arise in the interpretations between the two versions, the Chinese version of the financial statements shall prevail. However, the Corporation s financial statements do not include the English translation of additional disclosures that are not required under generally accepted accounting principles but are required by the Securities and Futures Bureau for their oversight purposes

13 Significant accounting policies are summarized as follows: Principles of Consolidation All significant intercompany balances and transactions have been eliminated upon consolidation. WTC and its subsidiaries adopted Statement of Financial Accounting Standards No. 7 - Consolidated Financial Statements and included all controlled investees in the consolidated financial statements as of and for the years ended December 31, 2011 and The consolidated entities (collectively, the Company ) were as follows: Name of Investor Name of Subsidiary Ownership Interest Principal Activity WTC PDC 42.90% Manufacturing and selling of electric capacitors, resistors and semiconductor chip, etc. WTC Hannstar 19.97% Manufacturing and selling printed circuit board WTC POE-BVI % Investment holding WTC Gallatown 91.44% Investment holding Gallatown Walsin Technology Corporation (HK) Limited ( WTC (HK) ) % Selling of passive electronic components Gallatown Walsin Technology Hong Kong Holding % Investment holding Ltd. ( WTHC-HK ) Gallatown Walsin Technology Corporation % Selling passive electronic components (Malaysia) Sdn. Bhd. ( WTCM ) Gallatown Walsin Electronics (S) Pte. Ltd. ( WES ) % Selling passive electronic components Gallatown Walsin Technology Corporation U.S.A % Marketing service ( WTCA ) Gallatown Walsin Passive Component (HK) Limited % Selling passive electronic components ( WPC ) Gallatown Eden International Corporation (HK) % Selling passive electronic components Limited ( Eden (HK) ) Gallatown Kamaya Electric Co., Ltd. (Kamaya) 99.42% Manufacturing and selling high level electric chip and resistors WTHC-HK Dongguan Walsin Technology Electronics Co., Ltd. ( DG ) % Manufacturing and selling passive electronic components WTHC-HK Suzhou Walsin Technology Electronics Co., Ltd. ( SZ ) % Manufacturing and selling passive electronic components WTHC-HK Walsin Electronics (Shenzhen) Co., Ltd % Selling passive electronic components ( Shen Zhen ) WTHC-HK Pan Overseas Electronic Co., Limited % Manufacturing and selling passive WTHC-HK (Guang Zhou) ( POE-GZ ) Dongguan Huafai Trading Co., Ltd. ( Huafai ) electronic components % Trading of electronic parts, warehousing and commission agency WTHC-HK Hua Ying Technology (Chongqing) Co., Ltd. ( Hua Ying ) % Manufacturing and selling of electric capacitors, and resistors POE-BVI Gallatown 3.75% Investment holding POE-BVI Fine Bright Technology Limited ( FB ) % Investment holding FB Gallatown 4.81% Investment holding Kamaya Kamaya Electric(M) Sdn. Bhd. ( KM ) % Manufacturing and selling high level electric chip and resistors Kamaya Kamaya Electric (HK) Limited % Selling passive electronic components Kamaya Kamaya, Inc. ( KI ) % Selling passive electronic components Kamaya Nitsuko Electronics Corporation ( NTK ) 70.00% Manufacturing and selling of film capacitors, noise filters. PDC PDC Prime Holdings Limited ( PDC % Investment holding Holdings ) PDC Hannstar Board Corp. 0.01% Manufacturing and selling printed circuit board PDC Frontier International Ltd % Investment and trade business PDC Holdings PDC Success Investments Ltd % Investment holding PDC Holdings Frontier Electronic Co., Ltd % International trade (Continued)

14 Name of Investor Name of Subsidiary Ownership Interest Principal Activity PDC Success Investments Ltd. PDC (Suzhou) Co., Ltd % Manufacturing and selling of electronic parts and ceramic components Frontier International Ltd. Dongguan Frontier Electronic Co., Ltd % Manufacturing and selling transformer, coils and rectifier diode Frontier International Ltd. Frontier Electronic (Kun Shan) Co., Ltd % Manufacturing magnetic component and semiconductor Frontier International Ltd. Hunan Frontier Electronic Co., Ltd % Manufacturing and selling transformer, coils and magnetic component Frontier Electronic Co., Ltd. Frontier Electronic (Chongqing) Co., Ltd % Manufacturing and selling of electronic part, etc. Hannstar Board Corp. Hannstar Board (BVI) Holdings Corp % Investment holding Hannstar Board (BVI) Hannstar Board International Holdings % Investment holding Holdings Corp. Corp. Hannstar Board International Hannstar Board (SAMOA) Holdings % Investment holding Holdings Ltd. Corp. Hannstar Board International Holdings Ltd. Walsin Board Corp % Manufacturing and selling printed circuit board Hannstar Board International Hannstar Board % Investment holding Holdings Ltd. Holdings (Hong Kong) Ltd. Hannstar Board International Hannstar Board International (Singapore) % Investment holding Holdings Ltd. Private Ltd. Hannstar Board Holdings Hannstar Board Tech (Jiang Yin) Corp % Manufacturing and selling printed (Hong Kong) Ltd. Hannstar Board Holdings (Hong Kong) Ltd. Hannstar Precision Tech (Jiang Yin) Corp. circuit board % Manufacturing and selling printed circuit board (Concluded) A subsidiary is excluded from the consolidated financial statements when the Company loss substantial control over it, but the subsidiary s income and expenses during the period the Company has control over it are consolidated. a. The information of subsidiaries not included in the consolidated financial statements: None. b. The difference of the fiscal year between parent company and subsidiaries: None. c. Special risks of business operation of subsidiaries overseas: None. Foreign Currencies The consolidated 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. Stockholders 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 stockholders equity. Such exchange differences are recognized in profit or loss in the year in which the foreign operations are disposed of. 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

15 At the balance sheet date, foreign-currency nonmonetary assets (such as equity instruments) and liabilities that are measured at fair value are revalued using prevailing exchange rates, with the exchange differences treated as follows: a. Recognized in stockholders equity if the changes in fair value are recognized in stockholders equity; b. Recognized in profit and loss if the changes in fair value are recognized in profit or loss. Foreign-currency nonmonetary assets and liabilities that are carried at cost continue to be stated at exchange rates at trade dates. If the functional currency of an equity-method investee is a foreign currency, translation adjustments will result from the translation of the investee s financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported as a separate component of stockholders equity. 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 and impairment of property, plant and equipment, income tax, pension cost, bonuses to employees, directors and supervisors, etc. Actual results may differ from these estimates. Current/Noncurrent Assets and Liabilities Current assets include cash and cash equivalents, and those assets held primarily for trading purposes or to be realized, sold or consumed within one year from the balance sheet date. All other assets such as property, plant and equipment and intangible assets are classified as noncurrent. Current liabilities are obligations incurred for trading purposes or to be settled within one year from the balance sheet date. All other liabilities are classified as noncurrent. Cash Equivalents Cash equivalents consist of commercial paper, bank acceptances and repurchase agreements collateralized by bonds, which are highly liquid financial instruments with maturities of three months or less when acquired and with carrying amounts that approximate their fair values. Financial Assets and Liabilities 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 Company recognizes a financial asset or a financial liability on its balance sheet when the Company becomes a party to the contractual provisions of the financial instrument. A financial asset is derecognized when the Company 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. Financial instruments at FVTPL are initially measured at fair value. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss. At each balance sheet date subsequent to initial recognition, financial assets or financial liabilities at FVTPL are remeasured at fair value, with changes in fair value recognized directly in profit or loss in the year in which they arise. Cash dividends received subsequently (including those received in the year of investment) are recognized as income for the year. On derecognition of a financial asset or a financial liability, the difference between its carrying amount and the sum of the consideration received and receivable or consideration paid and payable is recognized in profit or loss. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis

16 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. Fair values of financial assets and financial liabilities at the balance sheet date are determined as follows: Publicly traded stocks - at closing prices; open-end mutual funds - at net asset values. Held-to-maturity Financial Assets Held-to-maturity financial assets are carried at amortized cost using the effective interest method (straight-line method is used if there will be no significant difference). 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 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. Impairment of Accounts Receivable An allowance for doubtful accounts is provided on the basis of a review of the collectibility of accounts receivable. The Company assesses the probability of collections of accounts receivable by examining the aging analysis of the outstanding receivables and assessing the value of the collateral provided by customers. As discussed in Note 3 to the consolidated financial statements, on January 1, 2011, the Company adopted the third-time revised Statement of Financial Accounting Standards (SFAS) No. 34, Financial Instruments: Recognition and Measurement. One of the main revisions is that impairment of receivables originated by the Company should be covered by SFAS No. 34. 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. Inventories Inventories consist of raw materials, supplies, finished goods, work-in-process and semi-finished goods and 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. Estimated losses on scrap and slow-moving items are recognized as an allowance for inventory obsolescence on the balance sheet. Investments Accounted for by Equity Method Investments in which the Company holds 20% 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

17 The investment cost is allocated to the assets and liabilities of the investee on the basis of their fair values (proportionate to the percentage of ownership) at the date of investment, and the investment cost in excess of the fair value of the identifiable net assets of the investee is recognized as goodwill. Goodwill is not amortized, but should be tested for impairment every year and for specific events or changes in circumstances which indicated that such carrying value may not be recoverable. The fair value of the net identifiable assets of the investee in excess of the investment cost is used to reduce the fair value of each of the noncurrent assets of the investee (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. The Company s investments previously classified as available-for-sale financial assets are reclassified into investments accounted for by the equity method when the Company is able to exercise significant influence over the investee. The carrying amount of the investment at the beginning of the year is deemed cost for the purpose of applying the equity method. When the Company subscribes for its investee s newly issued shares at a percentage different from its percentage of ownership in the investee, the Company 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. An investment is evaluated for impairment on the balance sheet date and loss is recognized if there is objective evidence showing that the investment is impaired. The impairment losses on those investments in which the Company has significant influence but with no control are evaluated at their respective carrying amounts. Available-for-sale Financial Assets 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 recognition, derecognition and the fair value bases of available-for-sale financial assets are the same with those of financial assets at fair value through profit or loss. 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 on 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 non-publicly traded stocks and 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

18 Property, Plant and Equipment and Idle Assets Property, plant and equipment are stated at cost less accumulated depreciation. Expenditures that would increase the value or extend the useful lives of property, plant and equipment are capitalized. Interest incurred during asset construction period is capitalized until the asset is substantially completed and ready for its intended use. Depreciation is provided on a straight-line basis over estimated service lives as follows: Buildings and improvements Machinery and equipment Transportation equipment Other equipment Leasehold improvements 2 to 50 years 2 to 12 years 2 to 6 years 2 to 10 years 3 to 5 years or the contract term Property, plant and equipment (including idle assets) that are not used in operations are classified as other assets at the lower of net realizable values or book values, and any excess of book value over net realizable value is reported as nonoperating loss. An additional service life and a new residual value will be determined for any depreciable asset which is still in use after the end of its prescribed useful life, and the original residual value is depreciated on the straight-line method. Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is credited or charged to nonoperating income or loss. Intangible Assets Intangible assets are stated at cost and amortized on a straight-line basis over their maturity periods. Landrights is amortized on a straight-line basis over useful lives. License fee is amortized on a straight-line basis over the contract term or over the economic useful lives of the assets. Computer software is amortized on a straight-line basis over 3 years or over the economic useful lives of the assets. Deferred Charges Deferred charges are stated at cost and amortized on a straight-line basis over their maturity periods. Impairment of Assets If the recoverable amount of an asset (mainly property, plant and equipment, intangible assets, deferred charges and investments accounted for by the equity method) is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is charged to earnings unless the asset is carried at a revalued amount, in which case the impairment loss is first treated as a deduction to the unrealized revaluation increment and any remaining loss is charged to earnings

19 If an impairment loss subsequently reverses, the carrying amount of the asset is increased accordingly, but the increased carrying amount may not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized in earnings, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is first recognized as gains to the extent that an impairment loss on the same revalued asset was previously charged to earnings. Any excess amount is treated as an increase in the unrealized revaluation increment. For the purpose of impairment testing, goodwill is allocated to each of the relevant cash-generating units ( CGUs ) that are expected to benefit from the synergies of the acquisition. A CGU to which goodwill has been allocated is tested for impairment annually or whenever there is an indication that the CGU may be impaired. If the recoverable amount of the CGU becomes less than its carrying amount, the impairment is allocated to first reduce the carrying amount of the goodwill allocated to the CGU and then to the other assets of the CGU pro rata on the basis of the carrying amount of each asset in the CGU. A reversal of an impairment loss on goodwill is disallowed. Pension Cost WTC, PDC and Hannstar (lost control on June 10, 2011) each have defined benefit pension plans covering all employees. Pension cost under a defined benefit plan is determined by actuarial valuations. Contributions made under a defined contribution plan are recognized as pension cost during the year in which employees render services. Curtailment or settlement gains or losses on the defined benefit plan are recognized as part of the net pension cost for the year. NTK and Kamaya also have defined benefit plans and defined contribution plans based on their local laws. Under local laws, the subsidiaries in PRC, WES and KM have defined contribution plans and recognize net pension costs based on monthly contributions. Income Tax The Company adopted Statement of Financial Accounting Standards No. 22, Accounting for Income Taxes, which requires the asset and liability approach to financial accounting and tax reporting. Deferred income tax assets and liabilities are computed quarterly on the basis of the differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowance is provided for deferred tax assets that are not certain to be realized. Income tax expense or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. If the Company 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 purchases of machinery, equipment and technology, research and development expenditures are recognized as reduction of current income tax expense. Adjustments of prior years tax liabilities are added to or deducted from the current year s tax provision. According to the Income Tax Law, an additional tax at 10% of unappropriated earnings of WTC, PDC and Hannstar (lost control on June 10, 2011) is provided for as income tax in the year the stockholders approve to retain the earnings