Wintek Corporation. Financial Statements for the Years Ended December 31, 2009 and 2008 and Independent Auditors Report

Transcription

1 Wintek Corporation Financial Statements for the Years Ended December 31, 2009 and 2008 and Independent Auditors Report

2 INDEPENDENT AUDITORS REPORT The Board of Directors and the Stockholders Wintek Corporation We have audited the accompanying balance sheets of Wintek Corporation as of December 31, 2009 and 2008, and the related statements of income, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Corporation s management. Our responsibility is to express an opinion on these financial statements based on our audits. However, we did not audit the financial statements as of and for the years ended December 31, 2009 and 2008 of Wintek Electro-Optics Corporation and Wintek (Central Europe) GmbH, and as of and for the year ended December 31, 2009 of Wintek Technology (India) Private Limited, the investments in which were accounted for by the equity method. These three investees financial statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to the amounts included for these investees as well as the investees information disclosed in Note 27 to the financial statements, is based solely on the reports of the other auditors. The carrying values of these investments were NT$799,812 thousand and NT$304,667 thousand as of December 31, 2009 and 2008, respectively, or 2% and 1% of the Corporation s total assets as of those dates. On these investments, there were a loss at 1% (NT$27,597 thousand) and a gain at (1%) (NT$27,214 thousand) of net loss before income tax in 2009 and 2008, respectively. 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 and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Wintek Corporation as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the requirements of the Business Accounting Law and the Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China. As stated in Note 3 to the financial statements, on January 1, 2009, the Corporation adopted the newly revised Statement of Financial Accounting Standards No. 10, Accounting for Inventories

3 We have also audited the consolidated financial statements of Wintek Corporation and subsidiaries as of and for the years ended December 31, 2009 and 2008 and have expressed a modified unqualified opinion thereon in our report (not presented herewith) dated February 10, February 10, 2010 Notice to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors report and the accompanying 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 version auditors report and financial statements shall prevail

4 WINTEK CORPORATION BALANCE SHEETS DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Except Par Value) ASSETS Amount % Amount % LIABILITIES AND STOCKHOLDERS EQUITY Amount % Amount % CURRENT ASSETS CURRENT LIABILITIES Cash (Note 4) $ 2,703,823 6 $ 2,414,624 5 Short-term bank loans (Note 14) $ 4,976, $ 5,049, Financial assets at fair value through profit or loss - current Short-term bills payable (Note 15) 199, ,945 1 (Notes 2 and 5) 13, ,248 - Notes payable Available-for-sale financial assets - current (Notes 2 and 6) 206, Third parties Notes receivable (Note 2) Accounts payable Third parties 1,833-30,191 - Third parties 3,184, ,154,296 4 Accounts receivable (Note 2) Related parties (Note 24) 1,594, ,952 2 Third parties (Note 7) 4,243, ,933,205 8 Income tax payable (Notes 2 and 20) 27,688-32,416 - Related parties (Note 24) 707, ,146 1 Accrued expenses (Notes 2 and 24) 1,194, ,112,146 2 Other receivables (Note 24) 392, ,875 - Financial liabilities at fair value through profit or loss - Other financial assets - current (Note 2) 46,583-37,903 - current (Notes 2 and 5) 67,728-69,519 - Inventories, net (Notes 2, 3 and 8) 5,299, ,886, Payables for the acquisition of equipment (Note 24) 453, ,392 1 Deferred income tax assets - current (Notes 2 and 20) 264, ,381 - Current portion of long-term loans (Notes 16 and 25) 2,346, ,246,129 3 Restricted assets - current (Notes 4 and 25) 389, Other current liabilities (Notes 2 and 24) 218, ,837 - Other current assets (Notes 2, 24 and 25) 354, ,148 1 Total current liabilities 14,263, ,455, Total current assets 14,624, ,736, LONG-TERM LOANS, NET OF CURRENT PORTION (Notes 16 and INVESTMENTS (Note 2) 25) 11,187, ,311, Available-for-sale financial assets - noncurrent (Note 6) ,615 - Financial assets carried at cost - noncurrent (Note 9) 309, ,337 1 DEFERRED INTERCOMPANY PROFIT (Notes 2 and 24) 3,204-4,806 - Investments accounted for by the equity method (Note 10) 11,993, ,352, Total liabilities 25,454, ,771, Total investments 12,302, ,768, STOCKHOLDERS EQUITY (Notes 2, 18 and 19) PROPERTY, PLANT AND EQUIPMENT (Notes 2, 11, 24 and 25) Capital stock, NT$10.00 par value Cost Authorized - 1,500,000 thousand shares Land 2,365, ,365,861 5 Issued and outstanding - 1,132,041 thousand shares in 2009; Buildings 6,118, ,409, ,148,405 thousand shares in ,320, ,484, Machinery and equipment 20,381, ,452, Capital surplus Transportation equipment 31,940-32,324 - Additional paid-in capital from share issuance in excess of par 9,098, ,230, Furniture and fixtures 69,569-69,037 - Treasury stock transactions 172,402-7,192 - Leasehold improvements 2,380-2,738 - Long-term investments 3,068-3,068 - Miscellaneous equipment 3,077, ,990,644 6 Merger 48,478-49,133 - Total cost 32,047, ,322, Employee stock options 4,865-2,409 - Less: Accumulated depreciation (12,184,866) (25) (8,157,393) (16) Others Less: Accumulated impairment (38,273) - (38,273) - Retained earnings Construction in progress 79, ,142 1 Legal reserve 1,403, ,403,641 3 Prepayments for equipment 1,009, ,949,693 6 Unappropriated earnings (Accumulated deficit) (333,080) (1) 2,288,745 4 Cumulative translation adjustments 1,273, ,549,228 3 Net property, plant and equipment 20,912, ,584, Unrealized gain on financial instruments 135,908-23,111 - Treasury stock - 16,364 thousand shares - - (130,651) - OTHER ASSETS Refundable deposits 83,748-73,495 - Total stockholders equity 23,128, ,910, Deferred charges (Notes 2, 12 and 25) 107, ,407 - Deferred income tax assets - noncurrent (Notes 2 and 20) 475, ,298 1 Others (Notes 2, 13 and 17) 77,200-66,133 - Total other assets 743, ,333 1 TOTAL $ 48,582, $ 50,681, TOTAL $ 48,582, $ 50,681, The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 10, 2010) - 3 -

5 WINTEK CORPORATION STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Except Loss Per Share) Amount % Amount % GROSS SALES $ 26,549, $ 31,899, SALES RETURNS 268, ,154 2 SALES ALLOWANCES 20,271-68,040 - NET SALES (Notes 2 and 24) 26,261, ,375, COST OF SALES (Notes 3, 8, 21 and 24) 27,174, ,147, GROSS PROFIT (LOSS) (913,621) (3) 227,653 1 REALIZED INTERCOMPANY PROFIT (Notes 2 and 24) 724-7,286 - REALIZED GROSS PROFIT (LOSS) (912,897) (3) 234,939 1 OPERATING EXPENSES (Notes 21 and 24) Selling 431, ,170 2 General and administrative 442, ,925 2 Research and development 641, ,862 2 Total operating expenses 1,516, ,890,957 6 OPERATING LOSS (2,428,941) (9) (1,656,018) (5) NONOPERATING INCOME AND GAINS Royalty income (Note 24) 46,690-44,321 - Government subsidy income (Note 2) 10, Interest income (Note 5) 9,008-57,591 - Gain on sale of investments, net (Note 2) 4, Dividend income (Note 2) 3,175-22,680 - Penalty income and insurance proceeds ,487 - Valuation gain on financial instruments, net (Notes 2 and 5) ,212 1 Others (Notes 2 and 24) 58, ,240 - Total nonoperating income and gains 133, ,061 1 (Continued) - 4 -

6 WINTEK CORPORATION STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Except Loss Per Share) Amount % Amount % NONOPERATING EXPENSES AND LOSSES Interest expense, net of amount capitalized (Notes 2, 5 and 11) $ 336,976 1 $ 472,782 1 Foreign exchange loss, net (Note 2) 44, ,986 2 Valuation loss on financial instruments, net (Notes 2 and 5) 33, Investment loss recognized under the equity method, net (Notes 2 and 10) 30, ,057 1 Impairment loss on assets (Notes 2, 9 and 13) 49, ,229 1 Others (Notes 2, 21 and 24) 75, ,755 - Total nonoperating expenses and losses 570, ,457,809 5 LOSS BEFORE INCOME TAX (2,866,277) (11) (2,643,766) (9) INCOME TAX BENEFIT (Notes 2 and 20) (244,452) (1) (237,812) (1) NET LOSS $ (2,621,825) (10) $ (2,405,954) (8) Before Income Tax After Before Income Income Tax Tax After Income Tax LOSS PER SHARE (Note 22) Basic $ (2.53) $ (2.32) $ (2.31) $ (2.10) Diluted $ (2.53) $ (2.32) $ (2.31) $ (2.10) The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 10, 2010) (Concluded) - 5 -

7 WINTEK CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Except Per Share Data) Retained Earnings (Note 18) Unrealized Unappropriated Cumulative Gain (Loss) Capital Stock (Note 18) Earnings Translation on Financial Total Issued and Capital Surplus (Accumulated Adjustments Instruments Treasury Stock Stockholder s Authorized Outstanding (Notes 2, 18 and 19) Legal Reserve Deficit) (Note 2) (Notes 2 and 18) (Notes 2 and 19) Equity BALANCE, JANUARY 1, 2008 $ 15,000,000 $ 11,483,221 $ 9,292,464 $ 1,344,461 $ 5,286,503 $ 896,307 $ 262,687 $ - $ 28,565,643 Appropriation of the 2007 earnings: Legal reserve ,180 (59,180) Cash dividends - NT$0.39 per share (442,730) (442,730) Employee bonuses - cash (79,894) (79,894) Remuneration to directors and supervisors (10,000) (10,000) Exercise of employee stock options ,249 Decrease in the Corporation's equity in the net assets of a subsidiary due to the subscription for an investee's newly issued shares at a percentage different from the Corporation's current equity in the investee - - (3,197) (3,197) Recognition of an equity-method investee's remuneration to employees due to the investee's newly granted employee stock options - - 2, ,409 Recognition of an equity-method investee's remuneration to employees due to the investee's issuance of shares for cash and reserving of shares for employee stock options Net loss in the year ended December 31, (2,405,954) (2,405,954) Translation adjustments on investments in shares of stock , ,921 Unrealized loss on available-for-sale financial instruments (239,576) - (239,576) Acquisition of treasury stock - 16,364 thousand shares (130,651) (130,651) BALANCE, DECEMBER 31, ,000,000 11,484,051 9,292,413 1,403,641 2,288,745 1,549,228 23,111 (130,651) 25,910,538 Recognition of an equity-method investee's remuneration to employees due to the investee's newly granted employee stock options - - 2, ,456 Net loss in the year ended December 31, (2,621,825) (2,621,825) Translation adjustments on investments in shares of stock (275,613) - - (275,613) Unrealized gain on available-for-sale financial instruments , ,797 Retirement of treasury stock - 16,364 thousand shares - (163,640) 32, ,651 - BALANCE, DECEMBER 31, 2009 $ 15,000,000 $ 11,320,411 $ 9,327,858 $ 1,403,641 $ (333,080) $ 1,273,615 $ 135,908 $ - $ 23,128,353 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 10, 2010) - 6 -

8 WINTEK CORPORATION STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (2,621,825) $ (2,405,954) Deferred income taxes (249,594) (242,937) Depreciation 4,176,505 3,728,113 Provision for loss on inventories 407, ,418 Amortization of deferred charges 91, ,741 Impairment loss on assets 49, ,229 Valuation loss (gain) on financial instruments, net 33,292 (191,212) Investment loss recognized under the equity method, net 30, ,057 Cash dividends received from equity-method investees 26,177 - Realized foreign exchange gain on merger with subsidiary (8,213) - Gain on sale of investments, net (4,132) (530) Loss (gain) on disposal of assets, net (1,760) 3,885 Realized deferred intercompany profit (1,602) (1,602) Realized gross profit (724) (7,286) Net changes in operating assets and liabilities Financial instruments held for trading 71, ,854 Notes receivable 28,357 (28,001) Accounts receivable (487,859) 1,005,974 Other receivables (208,926) 198,596 Other financial assets - current (8,680) 21,986 Inventories 178,810 (425,020) Other current assets 38, ,666 Notes payable (221) (1,171) Accounts payable 1,948,461 (2,770,883) Income tax payable (4,951) (67,961) Accrued expenses 78,765 (718,944) Other current liabilities (3,378) 88,598 Net cash provided by (used in) operating activities 3,558,184 (141,384) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (1,693,817) (5,390,523) Increase in restricted assets (383,880) - Proceeds from disposal of assets 158,572 17,524 Increases in deferred charges (12,717) (267,387) Proceeds from the return of capital on investment accounted for by the equity method 11,309 - Increase in other assets (11,067) (12,386) Increase in refundable deposits (9,563) (24,462) Proceeds from disposal of available-for-sale financial assets 7, ,530 Acquisition of financial assets carried at cost (5,716) - Proceeds from a merger with subsidiary 3,839 - Proceeds from disposal of investments accounted for by the equity method 2,642 - (Continued) - 7 -

9 WINTEK CORPORATION STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars) Acquisition of investments accounted for by the equity method $ - $ (246,160) Acquisition of available-for-sale financial assets - current - (110,000) Proceeds of the return of capital on financial assets carried at cost Net cash used in investing activities (1,933,377) (5,922,264) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of long-term loans (1,273,269) (1,196,130) Proceeds from long-term loans 250,000 3,999,000 Decrease in payable for the acquisition of equipment (138,825) (274,973) Net increase (decrease) in short-term bills payable (99,079) 99,635 Net increase (decrease) in short-term bank loans (73,622) 2,173,204 Increase (decrease) in guarantee deposits received (813) 1,208 Cash dividends - (442,730) Acquisition of treasury stock - (130,651) Remuneration to directors and supervisors and employee bonuses - (89,894) Exercise of employee stock options - 1,249 Net cash provided by (used in) financing activities (1,335,608) 4,139,918 NET INCREASE (DECREASE) IN CASH 289,199 (1,923,730) CASH, BEGINNING OF YEAR 2,414,624 4,338,354 CASH, END OF YEAR $ 2,703,823 $ 2,414,624 SUPPLEMENTARY CASH FLOW INFORMATION Interest paid, net of amount capitalized $ 354,717 $ 458,192 Income tax paid $ 15,336 $ 73,087 NONCASH INVESTING AND FINANCING ACTIVITIES Current portion of long-term loans $ 2,346,952 $ 1,246,129 Available-for-sale financial assets - reclassified from noncurrent to current $ 96,615 $ - Property, plant and equipment reclassified to idle assets $ 33,822 $ 134,056 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 10, 2010) (Concluded) - 8 -

10 WINTEK CORPORATION NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Except Per Share Data and Unless Stated Otherwise) 1. ORGANIZATION AND OPERATIONS Wintek Corporation (the Corporation ) was incorporated on April 26, It manufactures and sells liquid crystal displays (LCDs), liquid crystal modules (LCMs) and touch panels. The Corporation s shares have been listed on the Taiwan Stock Exchange ( TSE ) since December 19, The Corporation had 3,440 and 3,792 employees as of December 31, 2009 and 2008, respectively. 2. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the Republic of China ( ROC ). Under these guidelines, law and principles, certain estimates and assumptions have been used for the allowance for doubtful accounts, allowance for loss on inventory, depreciation of property, plant and equipment, impairment loss on assets, amortization of deferred charges and pension, etc. Actual results may differ from these estimates. For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the ROC. 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 version financial statements shall prevail. Significant accounting policies are summarized as follows: Current and Noncurrent Assets and Liabilities Current assets include cash, cash equivalents and those assets held primarily for trading and those to be converted to cash, sold or consumed within one year from the balance sheet date. All other assets such as property, plant and equipment 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. Financial Assets/Liabilities at Fair Value through Profit or Loss Financial instruments at fair value through profit or loss ( FVTPL ) are initially measured at fair value plus transaction costs. At each balance sheet date, financial assets or financial liabilities at FVTPL are remeasured at fair value, with changes in fair value recognized directly in gain 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 the 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 as gain or loss

11 A derivative that does not meet the criteria for hedge accounting is classified as a financial asset or 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. All regular way purchases or sales of financial assets are recognized and derecognized on a settlement date basis. 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 of the financial assets. When the assets are subsequently measured at fair value, the changes in fair value are recognized as an adjustment to stockholders equity. The accumulated gains or losses will be recognized when the financial asset is de-recognized from the balance sheet. A regular way purchase or sale of financial assets is recognized and de-recognized using settlement date accounting. The recognition, derecognition and the fair value bases of available-for-sale financial assets are similar to those of financial assets at FVTPL. Fair values of financial assets and financial liabilities at the balance sheet date are determined as follows: Publicly traded stocks - at closing prices. Cash dividends are recognized as investment income upon resolution of stockholders of an investee but are accounted for as a reduction to original cost of investment if such dividends are declared on the earnings of the investee attributable to the period prior to the purchase of the investment. Stock dividends are recognized only as an increase in the number of shares of stock held on the ex-dividend date. Costs of investments sold are determined by the weighted-average method. 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. Revenue Recognition, Receivables and Allowance for Doubtful Accounts Revenue is recognized when titles to products and risks of ownership are transferred to customers, primarily upon shipment. The Corporation does not recognize sales on transactions involving the delivery of materials to subcontractors since there is no transfer to subcontractors of the rights to these materials. Sales are measured at fair value, taking into account related sales discounts and volume rebates agreed to by the Corporation and customers. Since the receivables from sales are collectible within one year and such transactions are frequent, the fair value of receivables is equivalent to the amount of cash to be received. Allowance for doubtful accounts is provided on the basis of a review of the collectibility and aging of receivables as well as an analysis of prevailing economic circumstances. Inventories Inventories consist of raw materials, supplies, work-in-process and finished goods. Before January 1, 2009, inventories were stated at the lower of cost or market value (replacement cost or net realizable value). Any write-down was made on a total-inventory basis. Market value meant replacement cost for raw materials and supplies and net realizable value for finished goods and work in process. As stated in Note 3, effective January 1, 2009, 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

12 Financial Assets Carried at Cost Unquoted equity instrument with fair values that cannot be reliably measured, such as non-publicly traded stocks and stocks traded in the Emerging Stock Market, are initially recognized and then carried at original cost. The accounting treatment for cash dividends and stock dividends arising from financial assets carried at cost is the same as that for cash and stock dividends arising from 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. Investments Accounted for by the Equity Method Investments in shares of stock in companies in which the Corporation owns at least 20% of the outstanding common stock or exercises significant influence over their financial and operating policy decisions are accounted for by the equity method. Prior to January 1, 2006, the difference between the acquisition cost and the Corporation s proportionate share in the investee s equity was amortized by the straight-line method over 5 to 10 years. Effective January 1, 2006, pursuant to the revised Statement of Financial Accounting Standard ( SFAS ) No. 5, Long-term Investments Accounted for by Equity Method, the acquisition cost is allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, and the excess of the acquisition cost over the fair value of the identifiable net assets acquired is recognized as goodwill. Goodwill is not being amortized. The excess of the fair value of the net identifiable assets acquired over the acquisition cost is used to reduce the fair value of each of the noncurrent assets acquired in proportion to the respective fair values of the noncurrent assets, with any excess recognized as an extraordinary gain. Effective January 1, 2006, the accounting treatment for the unamortized investment premium arising on acquisitions before January 1, 2006 is the same as that for goodwill and the premium is no longer being amortized. For any investment discount arising on acquisitions before January 1, 2006, the unamortized amount continues to be amortized over the remaining year. If the Corporation s subscription for new shares issued by an investee is at a ratio that is not equal to its current equity in the investee, the Corporation will recognize (a) an increase in the carrying amount of the investment, with a corresponding amount credited to capital surplus, or (b) a decrease, with a corresponding amount debited to capital surplus or to retained earnings if the capital surplus has zero balance. Unrealized Intercompany Profit All profits on product or other sales to subsidiaries are wholly deferred or in the case of other equity-method investees that are not majority owned, are deferred only to the extent of the Corporation s equity interest, with the deferred profit reported as deferred intercompany profits. The profits on sales between equity-method investees are deferred to the extent of the Corporation s equivalent equity interests in those equity-method investees. In addition, the Corporation recognizes its proportionate share in net income from product and other sales of its subsidiaries and other equity-method investees in the year they are realized through the subsequent sale of the related items to unrelated third parties. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment. Major additions, replacements and betterment are capitalized while maintenance and repairs are expensed currently. Interest expenses incurred during the construction and in the acquisition of property, plant and equipment are also capitalized

13 Depreciation expense is computed using the straight-line method over service lives (plus one year to represent estimate salvage value) estimated as follows: buildings, 10 to 30 years; machinery and equipment, 3 to 10 years; transportation equipment, 3 to 5 years; furniture and fixtures, 3 to 5 years; leasehold improvements, 2 to 4 years; and miscellaneous equipment, 3 to 10 years. Property, plant and equipment still used in operations after they have reached their original estimated service lives are further depreciated over their newly estimated service lives. Upon retirement or disposal of property, plant and equipment, the related cost, accumulated depreciation and accumulated impairment are removed from the accounts. Any resulting gain or loss is recorded as nonoperating gains or losses in the current year. Idle Assets Idle fixed assets are classified as other assets and stated at the lower of net fair value or carrying value. The related cost, accumulated depreciation and accumulated impairment are written off, and any excess of cost over net realizable value is recognized as losses. The remaining value is depreciated using the straight-line method. Deferred Charges Deferred charges, which pertain to technical assistance royalty, molding, the enterprise resource planning ( ERP ) system, supplies and manufacturing information system, are amortized using the straight-line method over 2 to 20 years. Intangible Assets Expenditures for research activities are charged to expense when incurred, and those for development activities that meet the criteria for capitalization are recognized under intangible assets and amortized using the straight-line method. Those expenditures that do not meet the criteria for capitalization are charged to expense when incurred. Impairment of Assets If a property, plant and equipment, deferred charges, idle asset and investments accounted for by the equity method is determined to be impaired, the carrying value of the asset in excess of its recoverable amount is recognized as loss. For investments over which the Corporation has significant influence but no control, impairment is evaluated at individual carrying value; for investments over which the Corporation has control, impairment is evaluated based on cash generating unit of consolidated financial statement. If the recoverable amount increases, the impairment loss reversal is recognized as a gain. However, the increased carrying value of an asset due to impairment loss reversal should not exceed the carrying value that would have been determined (net of depreciation) had no impairment loss been recognized for the asset in prior years. 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 year, 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

14 Employee stock options granted between January 1, 2004 and December 31, 2007 must be accounted for in accordance with the pronouncements issued by the Accounting Research and Development Foundation ( ARDF ). The Corporation adopted the intrinsic value method for these options, and any compensation cost determined using this method is charged to expense over the employee vesting period. Pension Costs Under the defined benefit pension plan, pension costs are recognized on the basis of actuarial calculations. Under the defined contribution pension plan, pension costs are recorded on the basis of the Corporation s required monthly contributions to employees individual pension accounts. If the defined benefit plan is curtailed or settled, the curtailment or settlement gain or loss is recognized as part of the net pension cost for the year. Government Subsidy Government subsidies that are realized should be recognized as income for the period and should be presented as government subsidy income or other income. Government subsidies that are not yet realized should be presented as deferred income. Deferred income should be recognized as government subsidy income or other income only when the Corporation has met the related conditions and fulfill its obligations. Treasury Stock Treasury stock is stated at cost and shown as deduction in stockholders equity. Income Tax The Corporation applies the intra-period allocations for its income tax. Deferred tax assets are recognized for the tax effects of temporary differences, operating loss carryforwards and unused investment tax credits. A valuation allowance is provided for deferred tax assets that are not certain to be realized. Deferred income taxes are classified as current or noncurrent on the basis of the classification of the related asset and liability for financial reporting. A deferred tax asset or a liability that is not related to an asset or liability for financial reporting is classified according to the expected realization date of the temporary difference. The tax effects of temporary differences arising from investments in shares of stocks of foreign subsidiaries are not recognized as deferred assets or liabilities since the Corporation can control the realization date of the temporary differences and these differences are unlikely to be realized. The tax credits for purchases of eligible equipment and technology, research and development expenditures and personnel training expenditures are recognized in the current period. Adjustments of prior years tax liabilities are added to or deducted from the current year s income tax provison. Income tax (10%) on undistributed earnings is recorded as expense in the year the stockholders resolve to retain these earnings. Foreign-currency and Foreign Financial Statement Transactions 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 gain or loss. At the balance sheet date, foreign-currency monetary assets and liabilities are retranslated using prevailing exchange rates and the exchange differences are recognized in gain 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 retranslated 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 gain and loss if the changes in fair value is recognized in gain 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 Corporation. Such adjustments are accumulated and reported as a separate component of stockholders equity. Reclassifications Certain accounts in the financial statements as of and for the year ended December 31, 2008 have been reclassified to conform to the presentation of the financial statements as of and for the year ended December 31, EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES Accounting for Bonuses to Employees, Directors and Supervisors In March 2007, the ARDF issued an interpretation that requires companies to recognize bonuses paid to employees, directors and supervisors as compensation expenses beginning January 1, These bonuses were previously recorded as appropriations from earnings. The adoption of this interpretation has no impact on the financial statements for the year ended December 31, Accounting for Employee Stock Options On January 1, 2008, the Corporation adopted the newly released SFAS No. 39, Accounting for Share-based Payment. The adoption of this interpretation had no impact on the financial statements for the year ended December 31, Accounting for Inventories On January 1, 2009, the Corporation adopted the newly revised SFAS No. 10, Accounting for Inventories. The main revisions are (1) inventories are stated at the lower of cost or net realizable value, and inventories are written down to net realizable value item-by-item except when the grouping of similar or related items is appropriate; (2) unallocated overheads are recognized as expenses in the year in which they are incurred; and (3) abnormal costs, write-downs of inventories are recorded as cost of sales for the year. The adoption resulted in increases of $511,746 thousand in net loss and $0.45 in after income tax basic loss per share for the year ended December 31, For comparison purposes, the Corporation also reclassified nonoperating income and gains of $6,592 thousand and nonoperating expenses and losses of $644,418 thousand to cost of sales for the year ended December 31,

16 4. CASH December 31 Cash in banks $ 2,004,254 $ 947,348 Time deposits 1,087,660 1,465,180 Cash on hand and petty cash 1,682 2,096 3,093,596 2,414,624 Less: Mortgage deposits - current (389,773) - $ 2,703,823 $ 2,414, FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS - CURRENT Financial assets held for trading December 31 Forward exchange contracts Domestic banks $ 13,008 $ 66,874 Foreign banks 44 52,374 Financial liabilities held for trading $ 13,052 $ 119,248 Forward exchange contracts Domestic banks $ 12,019 $ 3,208 Foreign banks 11,670 2,227 23,689 5,435 Interest rate swap contracts Domestic banks 44,039 64,084 $ 67,728 $ 69,519 The Corporation entered into forward exchange contract and interest rate swap transactions for the years ended December 31, 2009 and 2008 to hedge its exposures to adverse exchange rate and interest rate fluctuations of its foreign-currency assets or liabilities. The financial risk management objective of the Corporation is to minimize risks due to changes in fair value or cash flows. a. Forward exchange contracts Outstanding forward exchange contracts as of December 31, 2009 and 2008: December 31, 2009 Contract Amount Currency Maturity (In Thousands) Sell/buy US$/JPY January 5, 2010 to March 1, 2010 US$34,200/JPY3,065,365 Sell/buy US$/NT$ January 4, 2010 to March 19, 2010 US$83,400/NT$2,691,323 Sell/buy INR/US$ January 11, 2010 to January 28, 2010 INR981,830/US$21,

17 December 31, 2008 Contract Amount Currency Maturity (In Thousands) Sell/buy US$/JPY January 5, 2009 to February 26, 2009 US$52,065/JPY4,946,005 Sell/buy US$/NT$ January 5, 2009 to February 19, 2009 US$65,300/NT$2,166,838 Sell/buy INR/US$ January 9, 2009 to February 4, 2009 INR773,360/US$15,000 The contracts resulted in net losses of $53,337 thousand and net gains of $256,109 thousand for the years ended December 31, 2009 and 2008, respectively. b. Interest rate swap contracts The Corporation entered into an interest rate swap contract with a financial institution to hedge against adverse fluctuations of the floating interest rates of its bank loans. The contract resulted in net losses of $10,921 thousand and $65,491 thousand for the years ended December 31, 2009 and 2008, respectively. Contracts outstanding as of December 31, 2009 and 2008 are summarized as follows: Principal Amount (In Thousands) Maturity Date Range of Interest Rates Paid (Note 1) Range of Interest Rate Receivable (Note 2) December 31, 2009 NT$1,714,286 (Note 3) December 15, 2012 Daily range accrual, 2.35%+(3*TWD 90D CP)*N/M N is the number of days which TWD 5Y CMS-TWD 1Y CMS 0 in that calculation period 90-day commercial paper December 31, 2008 NT$2,000,000 (Note 3) December 15, 2012 Daily range accrual, 2.35%+(3*TWD 90D CP)*N/M N is the number of days which TWD 5Y CMS-TWD 1Y CMS 0 in that calculation period 90-day commercial paper Note 1: 3ML means three months LIBOR. Note 2: 90-day commercial paper means the interest rate in Taiwan for a 90-day commercial paper. Note 3: The principal amounts of the interest rate swap contracts decreases gradually as bank loans are repaid. 6. AVAILABLE-FOR- SALE FINANCIAL ASSETS December 31 Publicly listed stocks $ 206,960 $ 97,060 Less: Reclassified to noncurrent assets - (96,615) Reclassified to current assets $ 206,960 $

18 7. ACCOUNTS RECEIVABLE December 31 Accounts receivable- third parties $ 4,257,961 $ 3,950,718 Less: Allowance for doubtful accounts (14,806) (17,513) The movements of the doubtful accounts are summarized as follows: $ 4,243,155 $ 3,933,205 Year Ended December 31 Beginning balance $ 17,513 $ 19,727 Written off (3,129) - Reclassification 422 (2,214) Ending balance $ 14,806 $ 17, INVENTORIES, NET December 31 Finished goods $ 1,040,547 $ 1,230,287 Work in process 2,395,544 2,938,559 Raw materials and supplies 1,863,799 1,717,649 $ 5,299,890 $ 5,886,495 As of December 31, 2009 and 2008, the allowance for inventory devaluation was $1,057,659 thousand and $712,072 thousand, respectively. The cost of inventories recognized as cost of sales for the years ended December 31, 2009 and 2008 was $27,174,921 thousand and $31,147,797 thousand, respectively, which included $407,795 thousand and $644,418 thousand, respectively, due to write-downs of inventories. 9. FINANCIAL ASSETS CARRIED AT COST - NONCURRENT Unlisted December 31 % of % of Carrying Owner- Carrying Owner- Value ship Value ship Kingpak Technology Corporation ( Kingpak ) $ 113,160 6 $ 113,160 6 Asia Pacific Microsystems, Inc. ( Microsystems ) 63, ,890 4 Uniflex Technology Inc. ( Uniflex ) 59, ,156 4 Calin Technology Co., Ltd. ( Calin Technology ) 40, ,032 4 (Continued)

19 Unlisted December 31 % of % of Carrying Owner- Carrying Owner- Value ship Value ship Andes Technology Corporation ( Andes ) $ 19,404 4 $ 34,994 4 Transcom Corporation ( Transcom ) 9, ,595 6 Integrated Solutions Technology, Inc. ( Integrated Solutions ) 3, ,510 1 Mobilic Technology (Cayman) Corp. ( Mobilic Cayman ) Yo-Shih Investment Corporation ( Yo-Shih ) $ 309,463 $ 319,337 (Concluded) There are no reliable quoted prices for emerging and unlisted stocks to estimate fair value. Therefore, these investments are carried at cost. The offset the accumulated deficts, Andes reduced its capital in December 2009, and Microsystems reduced its capital in December Thus, the Corporation recognized impairment losses of $15,590 thousand and $52,273 thousand for the years ended December 31, 2009 and 2008, respectively. In June 2008, Yo-Shih reduced its capital and returned $600 thousand to the Corporation. Corporation recognized an impairment loss of $900 thousand for the year ended December 31, The 10. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD Unlisted December 31 % of % of Carrying Owner- Carrying Owner- Value ship Value ship Wintek Technology (Cayman) Corporation ( Wintek Technology Cayman ) $ 8,184, $ 8,093, Masstop LLC 2,399, ,774, Wintek (B.V.I.) Corporation ( Wintek BVI ) 468, , Wintek International Holding (Cayman) Corporation ( Wintek International Holding ) 338, , United Win Investment Corporation ( United Win Investment ) 181, , Wintek Electro-Optics Corporation ( Wintek Electro-Optics ) 172, , Wintek (Central Europe) GmbH ( Wintek Central Europe ) 143, , Mactech Corporation ( Mactech ) 104, , Wintek Europe , FlexMedia Electronics Corporation ( Flex Media ) , $ 11,993,300 $ 12,352,

20 The difference between the cost of investment and the Corporation s equity in the carrying value of the investee s net assets resulted in goodwill. The movements of goodwill for the years ended of December 31, 2009 and 2008 are summarized as follows: Year Ended December 31 Beginning balance $ 40,570 $ 40,113 Effect of exchange rate changes (1,002) 457 Ending balance $ 39,568 $ 40,570 The Corporation and a subsidiary, United Win Investment, have acquired more than 20% equity interest in FlexMedia; thus, this investment was accounted for by the equity method. In November, 2009, the Corporation and United Win Investment disposed of all their holdings in FlexMedia. The Investment Commission ( IC ) of the Ministry of Economic Affairs ( MOEA ) had authorized the Corporation s investment in United Win (China) Technology Limited ( United Win China ). This investment was made through Wintek Technology Cayman, United Win Technology (Cayman) Corporation ( United Win Cayman ) and United Win (H.K.) Technology Limited ( United Win H.K. ). United Win China produces and assembles electronic and related products in Mainland China. The MOEA had authorized the Corporation s investment in Dongguan Masstop Liquid Crystal Display Co., Ltd. ( Dongguan Masstop ) through Masstop LLC and Masstop Asia Pacific Limited ( Masstop ). Dongguan Masstop produces and processes liquid crystal modules. The Corporation invested in Wintek Technology (India) Private Limited ( Wintek Technology India ), a LCD and LCM manufacturer and seller through Wintek Far East (Cayman) Corporation ( Wintek Far East ) and Wintek International Holding. The Corporation invested in Wintek Far East (Cayman) Corporation through Wintek Electro-Optics in December The Corporation merged with Wintek Europe on September 30, 2009, with the Corporation as the survivor entity. Also, on September 30, 2009, the Corporation recorded the assets and liabilities of Wintek Europe at their prevailing fair value and wrote off its investment in Wintek Europe. The financial statements used as basis for calculating the carrying values of the equity-method investments as of December 31, 2009 and 2008 and the net income or loss on these investments recognized by the Corporation for the years ended December 31, 2009 and 2008 were audited, except for Wintek Europe in Under certain regulations, neither this investee s revenue nor capital warranted the audit of their financial statements. Investment net income (loss) recognized was as follows: Net Income (Loss) of the Investee Year Ended December 31 Investment Net Income Net Income (Loss) (Loss) of the Recognized Investee Investment Net Income (Loss) Recognized Masstop LLC $ (319,143) $ (316,619) $ (36,633) $ (33,842) Wintek Technology Cayman 279, ,155 (25,145) (36,985) Mactech 28,128 51, ,306 24,634 Wintek International Holding (39,651) (39,651) (118,410) (118,410) (Continued)

21 Net Income (Loss) of the Investee Year Ended December 31 Investment Net Income Net Income (Loss) (Loss) of the Recognized Investee Investment Net Income (Loss) Recognized United Win Investment $ (30,636) $ (30,636) $ (13,922) $ (13,922) Wintek Central Europe 16,637 16,637 22,090 22,090 Wintek BVI 8,517 8,517 (20,269) (20,269) Wintek Europe (6,754) (6,754) (4,800) (4,800) Wintek Electro-Optics (8,146) (4,583) 2,067 5,124 FlexMedia (24,226) (2,423) (36,768) (3,677) $ (95,838) $ (30,671) $ (126,484) $ (180,057) (Concluded) Wintek BVI, United Win Investment, Wintek Central Europe and Wintek Europe as of December 31, 2008 were excluded from the Corporation s consolidated financial statements since those companies were engaged in overseas sales or investment, and their operating results had no significant effect on the consolidated financial statements. The others were included in the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated from the consolidation. 11. PROPERTY, PLANT AND EQUIPMENT Cost Year Ended December 31, 2009 Beginning Ending Balance Addition Reclassification Disposal Balance Land $ 2,365,861 $ - $ - $ - $ 2,365,861 Buildings 5,409,345 66, ,835-6,118,193 Machinery and equipment 17,452, ,287 2,874,951 (208,461) 20,381,436 Transportation equipment 32, (785) 31,940 Furniture and fixtures 69,037 4, (4,187) 69,569 Leasehold improvements 2, (358) 2,380 Miscellaneous equipment 2,990,644 4,201 84,260 (1,405) 3,077,700 Construction in progress 508, ,736 (642,835) - 79,043 Prepayments for equipment 2,949,693 1,146,969 (3,087,573) - 1,009,089 31,780,443 $ 1,697,835 $ (127,871) $ (215,196) 33,135,211 Accumulated depreciation Buildings 948,314 $ 288,550 $ - $ - 1,236,864 Machinery and equipment 6,250,840 3,279,998 (93,762) (53,306) 9,383,770 Transportation equipment 20,705 4,144 - (746) 24,103 Furniture and fixtures 28,585 14,660 - (3,680) 39,565 Leasehold improvements 1, (358) 1,476 Miscellaneous equipment 907, ,089 (287) (425) 1,499,088 8,157,393 $ 4,180,037 $ (94,049) $ (58,515) 12,184,866 Accumulated impairment Land 33,981 $ - $ - $ - 33,981 Buildings 4, ,292 38,273 $ - $ - $ - 38,273 Property, plant and equipment, net $ 23,584,777 $ 20,912,

22 Cost Year Ended December 31, 2008 Beginning Ending Balance Addition Reclassification Disposal Balance Land $ 2,365,861 $ - $ - $ - $ 2,365,861 Buildings 4,766, , ,049-5,409,345 Machinery and equipment 10,272, ,299 6,511,347 (53,339) 17,452,659 Transportation equipment 28,137 4,620 - (433) 32,324 Furniture and fixtures 81,817 21,797 1,214 (35,791) 69,037 Leasehold improvements 76,664 1,590 (75,516) - 2,738 Miscellaneous equipment 1,547, ,306 1,319,552 (6,217) 2,990,644 Construction in progress 60, ,909 (421,529) - 508,142 Prepayments for equipment 7,639,839 3,400,772 (8,090,918) - 2,949,693 26,838,501 $ 5,390,523 $ (352,801) $ (95,780) 31,780,443 Accumulated depreciation Buildings and improvements 708,750 $ 239,564 $ - $ - 948,314 Machinery and equipment 3,580,796 2,883,876 (179,579) (34,253) 6,250,840 Transportation equipment 16,428 4,710 - (433) 20,705 Furniture and fixtures 51,109 12,150 - (34,674) 28,585 Leasehold improvements 21,461 18,943 (39,166) - 1,238 Miscellaneous equipment 344, ,870 - (5,283) 907,711 4,722,668 $ 3,728,113 $ (218,745) $ (74,643) 8,157,393 Accumulated impairment Land 33,981 $ - $ - $ - 33,981 Buildings 4, ,292 38,273 $ - $ - $ - 38,273 Property, plant and equipment, net $ 22,077,560 $ 23,584,777 Under an operating lease, the Corporation rents the site of its manufacturing facilities from the MOEA under various contracts, with the latest expiry in December The monthly rentals are $244 thousand. Interest capitalized for the period was as follows: Year Ended December 31 Interest expense $ 382,714 $ 552,409 Interest capitalized (recorded under prepayments for equipment and construction in progress) 45,738 79,627 Interest rates 1.81%-2.47% 2.87%-3.22% In August 2007, the Corporation entered into an agreement to buy from Hannstar Display Corporation ( Hannstar ) a TFT-LCD factory and related equipment. The transaction ceiling price was NT$9,000,000 thousand, subject to adjustment based on the progress of factory asset delivery. As of January 31, 2009, the Corporation had completed this transaction and payment, which was recorded under the relevant asset account. The Corporation also agreed to take over the rental leases for two years from December 1, 2007, which Hannstar entered into with Walsin Technology Corporation ( Walsin )