Chroma Ate Inc. and Subsidiaries. Consolidated Financial Statements for the Three Months Ended March 31, 2012 and 2011

Transcription

1 Chroma Ate Inc. and Subsidiaries Consolidated Financial Statements for the Three Months Ended, 2012 and 2011

2 CHROMA ATE INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Par Value) ASSETS Amount % Amount % LIABILITIES AND SHAREHOLDERS EQUITY Amount % Amount % CURRENT ASSETS CURRENT LIABILITIES Cash (Note 3) $ 1,556, $ 1,402, Short-term borrowings (Notes 11 and 17) $ 198,266 2 $ 164,000 1 Financial assets at fair value through profit or loss - current Short-term bills payable (Notes 12 and 17) 204, ,000 1 (Note 4) 45, ,634 5 Notes payable 81, ,305 1 Available-for-sale financial assets - current (Note 7) 392, Accounts payable - third parties 1,601, ,091, Notes receivable (Note 2) 36,286-9,489 - Accounts payable - related parties (Note 16) 2,267-31,214 - Accounts receivable - third parties (Notes 2 and 5) 2,949, ,427, Income tax payable 186, ,750 1 Accounts receivable - related parties (Notes 2 and 16) 2,920-10,427 - Accrued expenses (Note 14) 543, ,719 5 Inventories, net (Note 6) 1,947, ,296, Other payables 30, ,950 2 Prepayments 73, ,000 1 Receipts in advance 437, ,779 2 Deferred income tax assets - current 39,246-41,472 - Current portion of long-term liabilities (Notes 13 and 17) 22,160-52,436 1 Other current assets (Notes 4 and 16) 113, ,879 1 Other current liabilities 44,503-33,998 - Total current assets 7,157, ,048, Total current liabilities 3,352, ,792, LONG-TERM INVESTMENTS LONG-TERM LIABILITIES Available-for-sale financial assets - noncurrent (Note 7) 335, ,116 3 Long-term bank loans, net of current portion (Notes 13 and 17) 23,660-21,179 - Financial assets carried at cost - noncurrent (Note 8) 161, ,894 1 Investments accounted for by the equity method (Note 9) 354, ,672 3 OTHER LIABILITIES Prepayments for investments (Note 9) 22, Accrued pension costs 84, ,814 1 Guarantee deposits received 1,706-2,200 - Total long-term investments 873, ,682 7 Deferred income tax liabilities - noncurrent 57,827-48,535 - PROPERTY, PLANT AND EQUIPMENT (Notes 10 and 17) Total other liabilities 144, ,549 1 Cost Land 450, ,575 4 Total liabilities 3,520, ,940, Buildings 2,128, ,083, Machinery and equipment 958, ,758 7 SHAREHOLDERS' EQUITY OF PARENT COMPANY (Note 14) Miscellaneous equipment 1,047, ,931 8 Capital stock - $10 par value Total cost 4,586, ,315, Authorized: 450,000 thousand shares in 2012 and 2011 Less: Accumulated depreciation 1,804, ,555, Issued: 376,760 thousand shares in 2012 and 362,269 thousand 2,781, ,760, shares in ,767, ,622, Prepayment of equipment 3,898-13,264 - Capital surplus 925, ,122 8 Retained earnings Net property, plant and equipment 2,785, ,773, Legal reserve 1,102, ,859 8 Unappropriated earnings 1,938, ,349, INTANGIBLE ASSETS (Note 9) Other equity Trademark 947-3,360 - Cumulative translation adjustments 57,828-9,463 - Sale channel 6,955-9,833 - Unrealized valuation gain on financial instruments 202, ,126 1 Goodwill 136, ,968 1 Treasury stock - 1,926 thousand shares in 2012 and 1,852 Deferred pension cost 9, thousand shares in 2011 (30,238) - (30,238) - Core technology 21,307-74,590 1 Total shareholders' equity of parent company 7,962, ,969, Total intangible assets 175, ,751 2 MINORITY INTEREST 69, ,660 1 OTHER ASSETS Refundable deposits 382, ,691 - Total shareholders' equity 8,032, ,060, Deferred charges, net 71, ,179 - Deferred income tax assets - noncurrent 34,870-38,485 1 Other 71, ,032 - Total other assets 560, ,387 1 TOTAL $ 11,552, $ 12,000, TOTAL $ 11,552, $ 12,000, The accompanying notes are an integral part of the consolidated financial statements

3 CHROMA ATE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) Amount % Amount % OPERATING REVENUES $ 2,872, $ 3,448, LESS: SALES RETURNS 3,920-4,744 - SALES ALLOWANCES 2, NET OPERATING REVENUES (Note 16) 2,865, ,442, OPERATING COSTS (Notes 6 and 16) 2,088, ,485, GROSS PROFIT 777, , OPERATING EXPENSES Selling 227, ,374 6 General administrative 165, ,906 6 Research and development 154, ,699 4 Total operating expenses 548, , OPERATING INCOME 229, , NONOPERATING INCOME AND GAINS Rental income (Note 16) 7, ,686 - Interest income 2,254-1,509 - Investment income recognized by the equity method, net (Note 9) 1,364-10,413 - Foreign exchange gain, net ,605 1 Other (Note 4) 4,127-4,255 - Total nonoperating income and gains 15, ,468 1 NONOPERATING EXPENSES AND LOSSES Foreign exchange loss, net 21, Interest expenses 1,406-1,274 - Other (Note 4) 22, ,392 - Total nonoperating expenses and losses 45, ,666 - CONSOLIDATED INCOME BEFORE INCOME TAX 198, , INCOME TAX EXPENSE 39, ,763 2 CONSOLIDATED NET INCOME $ 158,811 6 $ 388, (Continued) - 2 -

4 CHROMA ATE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) Amount % Amount % ATTRIBUTED TO: Shareholders of parent company $ 164,242 6 $ 395, Minority interest (5,431) - (6,820) - $ 158,811 6 $ 388, Before Income Tax After Before Income Income Tax Tax After Income Tax EARNINGS PER SHARE (IN NEW TAIWAN DOLLARS; Note 15) Basic $ 0.49 $ 0.43 $ 1.18 $ 1.06 Diluted $ 0.48 $ 0.43 $ 1.17 $ 1.05 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) - 3 -

5 CHROMA ATE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Consolidated net income $ 158,811 $ 388,900 Adjustments: Depreciation 79,623 63,002 Amortization 13,209 17,257 Deferred income taxes (8,441) 13,609 Allowance for bad debts 4,677 5,842 Loss on decline in inventory market value 4,356 6,000 Investment income recognized by the equity method, net (1,364) (10,413) Loss on disposal and retirement of property, plant and equipment, net Gain on disposal of available-for-sale financial assets (90) - Net changes in operating assets and liabilities Financial assets at fair value through profit or loss (1,440) (493,098) Notes receivable (24,538) 14,309 Accounts receivable 304,386 40,369 Inventories 194,051 (216,095) Prepayments (22,593) (62,966) Other current assets (5,887) (66,240) Notes payable (27,879) (121,288) Accounts payable (402,955) 186,777 Income tax payable 45,735 18,160 Accrued expenses (67,499) (13,276) Other payables (116,119) 65,932 Receipts in advance 184,511 (12,625) Other current liabilities 9,697 (22,787) Accrued pension costs (148) (107) Net cash provided by (used in) operating activities 320,377 (198,508) CASH FLOWS FROM INVESTING ACTIVITIES Increase in available-for-sale financial assets (460,000) - Increase in refundable deposits (355,046) (7,949) Proceeds from the disposal of available-for-sale financial assets 220,090 - Increase in other assets (51,372) (658) Acquisition of property, plant and equipment (33,779) (61,274) Increase in prepayments for investments (22,590) - Proceeds of the disposal of property, plant and equipment 220 2,047 Increase in deferred charges - (10,868) Increase in financial assets carried at cost - (2,194) Proceeds from capital reduction on available-for-sale financial assets - 1,030 Net cash used in investing activities (702,477) (79,866) (Continued) - 4 -

6 CHROMA ATE INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in short-term bills payable $ 77,000 $ (118,600) Payment of long-term loans (7,685) (6,220) Decrease in minority interest (4,427) (4,400) Decrease in short-term borrowings (3,310) (25,390) Increase (decrease) in guarantee deposits received (524) 497 Net cash used in financing activities 61,054 (154,113) EFFECT OF EXCHANGE RATE CHANGES (23,865) 25,564 NET DECREASE IN CASH (344,911) (406,923) CASH, BEGINNING OF PERIOD 1,901,819 1,809,714 CASH, END OF PERIOD $ 1,556,908 $ 1,402,791 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 1,090 $ 1,623 Income taxes paid $ 2,861 $ 10,684 CASH PAID FOR ACQUISITION OF PLANT, PROPERTY AND EQUIPMENT Acquisition of plant, property and equipment $ 57,946 $ 51,051 Add: Accrued expense, beginning of period 8,096 12,343 Less: Accrued expense, end of period 32,263 2,120 Cash paid $ 33,779 $ 61,274 The accompanying notes are an integral part of the consolidated financial statements. (Concluded) - 5 -

7 CHROMA ATE INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements have been presented in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Interpretation No by the Securities and Futures Bureau (SFB) under the Financial Supervisory Commission, Executive Yuan, and accounting principles generally accepted in the Republic of China. The accounting policies presented do not differ from those presented in the notes to the Corporation and subsidiaries 2011 consolidated financial statements. Consolidation a. Basis of consolidation The consolidated financial statements have been prepared in accordance with the revised Statement of Financial Accounting Standards (SFAS) No. 7 - Consolidated Financial Statements, and include the financial statements of the Corporation and all investees over which the Corporation has substantive control. All significant intercompany transactions and balances were excluded from the consolidation. b. In conformity with the above bases for consolidation, the consolidated financial statements as of and for the three months ended, 2012 and 2011 included the accounts of the Corporation and its direct and indirect subsidiaries, as follows: Percentage of Ownership as of Investor Investee Business Explanation The Corporation Neworld Electronics Ltd. Chroma Investment Co., Ltd. Sensational Holding Ltd. Chroma Ate Europe B.V. Chroma Ate Inc. Chen Hwa Technology Inc. CHI Incorporation Ltd. Sale and maintenance of electronic test instruments, etc Investment Chroma Investment Co., Ltd. had 1,926 thousand shares of the Corporation s common stock as of, 2012, which accounted for 0.5% of the Corporation s outstanding shares. Investment Sale and maintenance of electronic test instruments, etc. Sale and maintenance of electronic test instruments, etc. Test of inductance, capacitance and resistance equipment and sale of parts Test of inductance, capacitance and resistance equipment and sale of parts (Continued) - 6 -

8 Percentage of Ownership as of Investor Investee Business Explanation Nova Electronics Inc. Chroma New Material Corporation San Eagle Development Corp. (San Eagle) Wei Kuang Automatic Equipment Co., Ltd. Testar Electronic Corporation Deep Red Holding Co., Ltd. Chroma Japan Corp. Chroma Systems Solutions, Inc. Import/export of computers, electronic instruments, etc. Sale and processing of gold wire Investment Design, manufacturing, installment and testing of automated factory conveyor systems Testing of LED products Note 1 Investment Sale and maintenance of electronic test instruments, etc. Sale and maintenance of electronic test instruments, etc Note 2 Neworld Electronics Ltd. Chroma Electronics (Shenzhen) Co., Ltd. Chroma Electronics (Shanghai) Co., Ltd. Sale of computerized automatic test systems, peripherals and electronic test instruments Sale of computerized automatic test systems, peripherals and electronic test instruments Chroma Ate Inc. Chroma Systems Solutions, Inc. Sale and maintenance of electronic test instruments, etc Note 2 Chroma Investment Co., Ltd. Quickwin Limited Investment Note 3 Chen Hwa Technology Inc. Chroma (Shanghai) Trading Co., Ltd. International and transit trading, simple commercial processing, commercial consulting services, etc CHI Incorporation Ltd. Chroma Ate (Suzhou) Co., Ltd. Sale of computerized automatic test systems, peripherals and electronic test instruments San Eagle Development Corp. Wei Kuang Mech Eng Inc. Investment Wei Kuang Mech Eng Inc. Mou Kuan Technologies (Nanjin) Co., Ltd. Wei Kuang Automatic Equipment (Nanjin) Co., Ltd. Wei Kuang Automatic Equipment (Xiamen) Co., Ltd. Assembly, sale and maintenance of factory conveyors and related systems and renders related after-sales services Sale and maintenance of electronic equipment and factory conveyor systems Sale and maintenance of electronic equipment and factory conveyor systems Deep Red Holding Co., Ltd. Sajet System Technology (Suzhou) Co., Ltd. Research, development and design of computer network security systems and information management (Concluded) - 7 -

9 Note 1: In July 2009, the Corporation increased its investment in Testar Electronic Corporation ( Testar ) by $26,250 thousand; thus, the Corporation equity interest in Tesar rose to 56.9%. However, when the Corporation did not subscribe for additional shares issued by Testar in March 2010 for an increase of its capital for a $50,000 thousand capital increase in March 2010, the Corporation s equity interest in Testar decreased to 45.5%. Though the Corporation s holding of Testar s share did not exceed 50% as of December 31, 2010, the Corporation determined that it still had substantive control over Testar and thus includes its accounts in the consolidated financial statements. Note 2: The Corporation acquired 25% equity interest in Chroma Systems Solutions, Inc. for US$900 thousand on September 1, The Corporation s subsidiary, Chroma Ate Inc. (U.S.A.) held 50% equity interest in Chroma Systems Solutions, Inc., and thus the Corporation directly and indirectly held 75% equity interest in Chroma Systems Solutions, Inc. and controlled the investee. Note 3: Quick Win Limited was liquidated in April The Corporation and consolidated subsidiaries are hereinafter referred to as the Group. 2. EFFECTS OF CHANGE IN ACCOUNTING PRINCIPLES Financial Instruments The Group has adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 34, Financial Instruments: Recognition and Measurement since January 1, The main revisions includes (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Group are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost a debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change has no effect on consolidated net income and after income tax basic earnings per share for the three months ended, Operating Segments The Group has adopted the newly issued SFAS No Operating Segments since January 1, The requirements of the statement are based on the information about the components of the Group that management uses to make decisions about operating matters. SFAS No. 41 requires identification of operating segments on the basis of internal reports that are regularly reviewed by the Group's chief operating decision maker in order to allocate resources to the segments and assess their performance. This statement supersedes SFAS No. 20, Segment Reporting. 3. CASH Check and demand deposits $ 1,552,851 $ 1,399,131 Cash on hand 2,711 2,534 Petty cash 1,346 1,126 $ 1,556,908 $ 1,402,

10 4. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS - CURRENT Financial assets held for trading Open-end certificates $ 38,605 $ 536,546 Listed stocks - domestic 7,210 16,088 Financial assets held for trading (other current assets) $ 45,815 $ 552,634 Forward exchange contracts $ 113 $ - The Group entered into forward exchange contracts to hedge exposures due to exchange rate fluctuations for the three months ended on, 2012 and The purpose of the hedge strategy was to reduce most of the risks arising from changes in market prices and cash flows. There were no unexpired forward exchange contracts as of, Outstanding forward exchange contracts as of, 2012 were as follows:, 2012 Contract Amount Currency Maturity Date (In Thousands) Sell US$/NT$ US$2,000/NT$59,099 As of, 2012 and 2011, the Group recognized gains of $1,615 thousand and losses of $887 thousand, respectively, on financial assets held for trading. 5. ACCOUNTS RECEIVABLE - THIRD PARTIES Accounts receivable $ 3,018,933 $ 3,490,969 Less: Allowance for doubtful accounts 69,781 63,491 $ 2,949,152 $ 3,427, INVENTORIES, NET Raw materials $ 456,220 $ 613,804 Work in process 685, ,036 Semi-finished product 169, ,339 Finished goods 636, ,923 $ 1,947,833 $ 2,296,

11 Allowances for losses on decline in inventory market value as of, 2012 and 2011 were $83,108 thousand and $66,015 thousand, respectively. The cost of inventories recognized as cost of goods sold for the three months ended, 2012 and 2011 were $2,088,554 thousand and $2,485,986 thousand, respectively. The cost of goods sold for the three months ended, 2012 and 2011 included loss of $4,356 thousand and $6,000 thousand due to write-downs of inventory, respectively. 7. AVAILABLE-FOR-SALE FINANCIAL ASSETS Current Hua Nan Phoenix Money Market Fund $ 100,040 $ - Yuanta Wan Tai Money Market Fund 80,073 - Paradigm Pion Money Market Fund 80,034 - KGI Victory Money Market Fund 80,033 - Taishin 1699 Money Market Fund 40,037 - Taishin Lucky Bond Fund 12,048 - $ 392,265 $ - Noncurrent DynaColor, Inc. $ 293,630 $ 270,189 Chunghwa Telecom Co., Ltd. 37,485 37,775 Oppenheimer Fund 4,167 4,152 $ 335,282 $ 312, FINANCIAL ASSETS CARRIED AT COST - NONCURRENT % of % of Carrying Owner- Carrying Owner- Value ship Value ship Domestic stocks WK Technology Fund IV Ltd. $ 40, $ 40, Twoway Catv Service Inc. 36, , WK Technology Fund VI Ltd. 25, , EVT Technology Co., Ltd , Bay Zu Precision Corp. 2,194-2,194 - Cosmative Broadband Networks Co., Ltd , ,754 (Continued)

12 % of % of Carrying Owner- Carrying Owner- Value ship Value ship Foreign stocks and funds Fei Hong Industrial Co., Ltd. $ 17, $ 17, LasFocus Corporation 16, , WI Harper Inc. Fund VII LP 10,152-10,152 - Hangzhou New Material Chroma Co., Ltd. 8, , Chromatex S.A. 4, , H&Q/Gai Incubation Fund, L.P. 1,193-1,474-57,892 58,140 $ 161,646 $ 165,894 (Concluded) The above investments were measured at cost because they had no quoted prices in an active market quotation and their fair value could not be reliably measured. The Corporation recognized an impairment loss of $4,000 thousand in 2011 to reflect the other-than-temporary decline in value of the investment in EVT Technology Co., Ltd. 9. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD AND PREPAYMENT % of % of Carrying Owner- Carrying Owner- Value ship Value ship Adlink Technology Inc. (listed) $ 320, $ 312, DynaScan Technology Corp. 33, , , ,672 Prepayments for investment Chih Ho Shun Development Co., Ltd. 17,500 - EVT Technology Co., Ltd. 5,090-22,590 - $ 376,773 $ 359,672 The Group s investment in Adlink Technology Inc. was accounted for by the equity method because of the Group s significant influence over the investee s operating and financial policy decisions. The fair market values of Adlink Technology Inc., which were measured at closing prices as of, 2012 and 2011, were as follows: Adlink Technology Inc. $ 743,945 $ 827,

13 On October 27, 2006, the Corporation s board of directors resolved to incorporate a subsidiary, San Eagle Development Corp. ( San Eagle ), in the British Virgin Islands. Through San Eagle, the Corporation bought all of the issued shares of Wei Kuang Mech Eng Inc. from Scn Finance Corp. Wei Kuang Mech Eng Inc. had two 100% subsidiaries, Mou Kuan Technologies (Nanjin) Co., Ltd. ( Mou Kuan Nanjin ) and Wei Kuang Automatic Equipment (Nanjin) Co., Ltd. ( Wei Kuang Nanjin ). Mou Kuan Nanjin will assemble and sell factory conveyors and related systems and render after-sales services. Wei Kuang Nanjin will sell and maintain electronic equipment and factory conveyor systems. To enhance the Corporation s competitiveness, the Corporation paid $160,000 thousand in December 2006, $134,000 thousand in January 2007 and $239,000 thousand in January 2008 to acquire 100% equity interest in Silver Town Electronic Co., Ltd. ( Silver Town ) from Ever Growth Investment Holding Ltd., respectively. On February 29, 2008, the Corporation s board of directors resolved that the Corporation merge with Silver Town, with the Corporation as the survivor entity on the record date of March 21, Since Wei Kuang Automatic Equipment (Taiwan) Co., Ltd. was a 100% subsidiary of Silver Town before the merge, it became the Corporation s subsidiary after its merger with Silver Town. Wei Kuang Automatic Equipment (Taiwan) Co., Ltd. designs, manufactures, installs and tests automated factory conveyor systems. To strengthen its relationship with customers and enhance customer service, the Corporation s board of directors resolved on December 28, 2006 to establish Wei Kuang Automatic Equipment (Xiamen) Co., Ltd. ( Wei Kuang Xiamen ) through San Eagle and Wei Kuang Mech Eng Inc. The planned investment would amount to US$2,000 thousand. As of, 2012, the Corporation had remitted out an investment amount of $50,763 thousand. Wei Kuang Xiamen will sell and maintain electronic equipment and factory conveyor systems. To expand its market and strengthen its sale channel in North America, the Corporation acquired 25% equity interest in Chroma Systems Solutions, Inc. for US$900 thousand on September 1, The Corporation s subsidiary, Chroma Ate Inc. (U.S.A.), held 50% equity interest in Chroma Systems Solutions, Inc.; thus the Corporation directly and indirectly held 75% equity interest in Chroma Systems Solutions, Inc. and controlled the investee. Chroma Systems Solutions, Inc. is mainly sells and maintains electronic test instruments, etc. Taiwan Wei Kuang, Mou Kuan Nanjin, Wei Kuang Nanjin and Chroma Systems Solutions, Inc. were acquired by the Corporation and were accounted for by the purchase method. The movements of the differences between investment costs and the above investees net asset values, which were regarded as amortizable assets were as follows: Amortizable assets Three Months Ended Beginning balance $ 37,347 $ 104,595 Additions - - Amortization (8,137) (16,812) Ending balance $ 29,210 $ 87,

14 The movements of the difference between investment cost and net asset value regarded as goodwill for the three months ended, 2012 and 2011 were as follows: Cost Three Months Ended Beginning balance $ 143,451 $ 143,451 Additions - - Ending balance $ 143,451 $ 143,451 On December 27, 2007, the Corporation s board of directors resolved to incorporate a subsidiary, Chroma Japan Corp., in Japan to expand its foreign market. Chroma Japan Corp. is mainly engaged in the sale and maintenance of electronic test instruments, etc. In April 2011, Chroma Japan Corp. reduced its capital by 95% to offset deficit while increasing its capital by 150,000 thousand. As of, 2012, the full investment amount had been paid. The investment income and loss recognized by the equity method during three months ended, 2012 and 2011, which were calculated on the basis of the investees unreviewed financial statements for the same reporting periods as those of the Group, were as follows: Three Months Ended Adlink Technology Inc. $ 5,989 $ 12,910 Dynascan Technology Corp. (4,625) (2,497) $ 1,364 $ 10, PROPERTY, PLANT AND EQUIPMENT Accumulated depreciation Buildings $ 580,062 $ 528,012 Machinery and equipment 512, ,923 Miscellaneous equipment 712, ,902 $ 1,804,755 $ 1,555,837 Under one- to two-year operating lease contracts, the Corporation leased some floors of the office buildings to others (which included related parties; refer to Note 16). Rents were paid and collected monthly

15 11. SHORT-TERM BORROWINGS Credit borrowings $ 198,266 $ 164,000 Interest rate (%) 1.3%-1.475% 1.18%-1.60% Due date May 16, 2012 April 29, SHORT-TERM BILLS PAYABLE Commercial paper $ 204,200 $ 70,000 Interest rate 0.72%-1.55% 1.06%-1.60% Due date May 17, 2012 June 28, LONG-TERM BANK LOANS Financial Collateral or Type Institution Terms Guarantee Mortgage loans E.SUN Bank Obtained on October 9, 2009, February 5, 2010, March 15, 2010 and September 3, 2010, respectively; repayable from October 2009 to September 2013 in equal monthly installments; 2.22% annual interest (floating), payable monthly Secured loans Far East Bank Obtained on May 26, 2006; repayable from May 2006 to June 2016 in equal monthly installments; 4.25% annual interest, payable monthly Less: Loans due in one year $ 21,179 $ 48,058 Machinery and equipment of Tester Electronic Corporation 24,641 25,557 Buildings of Chroma Ate Inc. in California 45,820 73,615 22,160 52,436 $ 23,660 $ 21, SHAREHOLDERS EQUITY OF PARENT COMPANY a. Capital surplus Under the Company Law, capital surplus may only be used to offset a deficit. Capital surplus, generated from shares issuance in excess of par value, including shares, the buyback of treasury stock, merger and donation, may be transferred to capital as stock dividends within a certain amount once a year. Under the revised Company Law issued on January 4, 2012, the aforementioned capital surplus also may be distributed in cash. The capital surplus generated from long-term investments accounted for by the equity method may not be used for any purpose

16 Details of capital surplus were as follows: The additional paid in capital $ 622,746 $ 622,746 Merger surplus 146, ,976 Long-term investments 106,614 99,578 Treasury stock 48,822 48,822 b. Appropriation of earnings and dividend policy $ 925,158 $ 918,122 The Corporation s Articles of Incorporation provide that a 10% legal reserve should be set aside from the annual net income less any accumulated deficit. The remainder, less special reserve based on regulations or relevant laws, together with unappropriated earnings of prior years, should be distributed as follows: 1) Remuneration to directors and supervisors 2) Bonus to employees - 5%-20% 3) Dividends The Corporation distributes both cash and stock dividends, taking into account future capital expenditure requirements and its cash position. However, the total of cash dividends paid in any given year may not be less than 20% of total dividends distributed in that year. The final amount, type and percentage of the dividends are subject to actual earnings and capital requirements of the Corporation in a particular year. For the three months ended, 2012 and 2011, the bonuses to employees estimated on the basis of past at 12.5% and 13%, respectively, of net income, were $20,000 thousand and $52,000 thousand, respectively. For the three months ended, 2012 and 2011, the remuneration to directors and supervisors accrued were both $2,100 thousand. Material differences between these estimates and the amounts proposed by the Board of Directors in the following year are adjusted for in the year of the proposal. If the actual amounts subsequently resolved by the shareholders differ from the proposed amounts, the differences are recorded in the year of shareholders resolution as a change in accounting estimate. If bonus shares are resolved to be distributed to employees, the number of shares is determined by dividing the amount of bonus by the closing price (after considering the effect of cash and stock dividends) of the shares of the day preceding the shareholder s meeting. A regulation issued by the Securities and Futures Bureau requires the setting aside from the unappropriated earnings of a special reserve equal to any debit balance of an account under shareholders equity. The balance of this special reserve is adjusted on the basis of the debit balance of the shareholders equity account at year-end. Legal reserve should be appropriated until the reserve equals the Corporation s paid-in capital. The reserve can only be used to offset a deficit. Under the revised Company Law issued on January 4, 2012, when the legal reserve has exceeded 25% of the Corporation s paid-in capital, the excess may be transferred to capital or distributed in cash. Under the Integrated Income Tax System, ROC resident shareholders are allowed a tax credit for the income tax paid by the Corporation. An imputation credit account (ICA) is maintained by the Corporation for such income tax and the tax credit was allocated to each shareholder

17 The appropriations of the 2011 earnings proposed by the Board of Directors on February 21, 2012 and that of 2010 earnings resolved by the annual shareholders meeting were as follows: Appropriation of Earnings For Fiscal For Fiscal Year 2011 Year 2010 Dividend Per Share (NT$) For Fiscal For Fiscal Year 2011 Year 2010 Legal reserve $ 152,257 $ 181,160 Cash dividends 941,900 1,376,623 $2.5 $3.8 Stock dividends 144, As proposed by the Board of Directors on February 21, 2012, the appropriation from 2011 earning included bonus to employees $215,000 thousand, and remuneration to directors and supervisors of $8,500 thousand from the year s earning. The approved amounts were the same with those accrued as of December 31, The appropriation of 2011 earnings will be resolved by the annual meeting of shareholders, which will be held on June 6, As approved in the shareholders meetings on June 9, 2011, the appropriations from the 2010 earning included bonus to employees $252,500 thousand, and remuneration to directors and supervisors of $8,500 thousand from year s earning. The approved amounts were the same as those accrued as of December 31, Information about the appropriations of earnings is available on the Market Observation Post System website of the Taiwan Stock Exchange. c. Treasury stock (Shares in Thousands) Beginning Sale/ Ending Purpose of Buyback Shares Purchase Dividend Transfer Shares First quarter of 2012 The Corporation s shares held by subsidiaries 1, ,926 First quarter of 2011 The Corporation s shares held by subsidiaries 1, ,852 As of, 2012 and 2011, the market values of the Corporation s outstanding shares held by its subsidiaries were $144,804 thousand and $175,894 thousand, respectively. These shares held by the subsidiaries as investments are recorded as treasury stock, but the subsidiaries have the same rights as those of other common shareholders, except for participation in the Corporation s raising of cash capital and voting rights. Under the Securities and Exchange Law, the buyback amount of treasury stock should not exceed 10% of total issued shares, and the buyback cost should not exceed the sum of the retained earnings, additional paid-in capital in excess of par value and realized capital surplus. In addition, the Corporation should not provide treasury stock as collateral and should not exercise shareholders rights on those shares before their transfer

18 15. EARNINGS PER SHARE The numerators and denominators used in calculating earnings per share (EPS) were as follows: First quarter of 2012 Amounts (Numerator) Shares EPS Before After (Denominator) Before After Income Tax Income Tax (Thousands) Income Tax Income Tax Basic EPS Income of common shareholders $ 183,285 $ 164, ,834 $ 0.49 $ 0.43 Add: Bonus to employees - - 3,125 Diluted EPS Income of common shareholders with dilutive effect of potential common shares $ 183,285 $ 164, ,959 $ 0.48 $ 0.43 First quarter of 2011 Basic EPS Income of common shareholders $ 442,876 $ 395, ,834 $ 1.18 $ 1.06 Add: Bonus to employees - - 3,263 Diluted EPS Income of common shareholders with dilutive effect of potential common shares $ 442,876 $ 395, ,097 $ 1.17 $ 1.05 The average number of shares outstanding for EPS calculation was adjusted retroactively for the issuance of stock dividend, resulting in a decrease in the basic EPS after income tax for the three months ended, 2011 from $1.10 to $ RELATED-PARTY TRANSACTIONS a. The related parties and relationships with the Corporation were as follows: Related Party DynaScan Technology Corp. ( DynaScan Technology ) Adlink Technology Inc. ( Adlink ) EVT Technology Co., Ltd. (EVT) DynaScan Electronics (Shanghai) Co., Ltd. ( DynaScan Shanghai ) DynaScan Technology Inc. ( DynaScan U.S.A. ) Mou Kuan Industry Co., Ltd. (Mou Kuan Inc.) Relationship with the Group Equity-method investee Equity-method investee Same chairman Subsidiary of DynaScan Technology Subsidiary of DynaScan Technology Same general manager with Wei Kuang Automatic Equipment Co., Ltd

19 b. Significant transactions with related parties are summarized below: The related party transactions were conducted under normal terms unless specified otherwise. 1) Sales Three Months Ended Amount % Amount % EVT $ 2,226 - $ Adlink 1,204-1,881 - Other ) Purchase $ 3,614 - $ 2,671 - Adlink $ 2,246 - $ 22,107 1 Other ) Rental income $ 2,298 - $ 22,107 1 DynaScan Technology $ $ Other $ $ The Corporation leased out some floors of the buildings in Hwa-Ya Technical Park in Lin-Kou to the above related party under an operating lease contract, and this lease was based on market prices. Rents were paid and collected monthly. 4) Accounts receivable Amount % Amount % DynaScan Technology $ 1,656 - $ Adlink 1,264-1,975 - DynaScan Shanghai - - 7,841 - Other ) Other current assets - other receivable $ 2,920 - $ 10,427 - DynaScan Technology $ 3,777 3 $ 2,437 2 Other $ 3,824 3 $ 2,

20 6) Accounts payable Amount % Amount % Adlink $ 2,240 - $ 23,156 1 DynaScan Technology 27-7,799 - Other $ 2,267 - $ 31, ASSETS PLEDGED The assets pledged as collaterals for bank loans and for product warranty were as follows: Property, plant and equipment, net $ 882,999 $ 880, FINANCIAL INSTRUMENTS a. Fair value Non-derivative financial instruments Carrying Carrying Value Fair Value Value Fair Value Assets Financial assets carried at cost - noncurrent $ 161,646 $ 165,894 b. The methods and significant assumptions applied in determining fair values of financial instruments were as follows: 1) Short-term financial instruments - the carrying value reported in the balance sheets approximates the fair value of these assets, including cash, receivables, short-term bank loans, short-term bills payable and payables because of the short maturities of these instruments. 2) Fair values of financial instruments designated as at FVTPL and available-for-sale are based on their quoted prices in an active market. For those instruments with no quoted market prices, their fair values are determined using valuation techniques incorporating estimates and assumptions consistent with those generally used by other market participants to price financial instruments. 3) Investments carried at cost have no active market; thus, their fair value are not disclosed. 4) Long-term liabilities refer to bank loans. Their fair value is estimated using present value of future cash flows discounted by the interest rates the Corporation may obtain for similar loans. Since the long-term loans have floating-rate interest, their carrying amount approximates their fair value. c. The fair values of financial assets and liabilities were not simultaneously determined by quoted price in active markets and by estimations using valuation technique

21 d. As of, 2012 and 2011, (a) on financial instruments exposed to cash flow interest rate risk, financial assets amounted to $1,554,216 thousand and $1,401,316 thousand, respectively, and financial liabilities amount $21,179 thousand and $48,058, respectively, and (b) on financial instruments exposed to fair value interest risk, the financial assets amounts were $7,000 thousand each for three month-end dates and financial liabilities amounted $427,107 thousand and $259,557 thousand, respectively. e. Financial risks: 1) Market risk The Group s foreign-currency assets and liabilities are exposed to exchange rate risks; fair values of long- and short-term borrowings with fixed interest rates are exposed to interest rate risks; and fair values of financial assets at fair value through profit or loss and available-for-sale are exposed to price risks. 2) Credit risk Credit risk represents the potential impacts to financial assets that the Group might encounter if counter-parties or third parties breach the contracts. The credit risk amount listed above is an evaluation over the contracts with positive fair value at the balance sheet date. The Group believed it had no credit risk exposure as of, 2012 and 2011 was zero because all of counter-parties are reputable financial institutions with good rating credit. 3) Liquidity risk The Group has sufficient operating capital to meet cash demand and is free from the liquidity risk arising from contract defaults by counter-parties to financial instrument contracts. 4) Cash flow risk resulting from changes of interest rate The Group s long- and short-term debts have fixed interest rates; thus, the Group s cash flow risk is low. For some debts with floating rates, the Group expects interest rate fluctuations to have no significant effect on future cash flows. 19. EXCHANGE RATE INFORMATION OF FOREIGN CURRENCY FINANCIAL ASSETS AND LIABILITIES The monetary assets or liabilities denominated in foreign currencies have material effect on the Corporation and subsidiaries financial statements as follow: Financial assets Foreign Currencies Exchange Rate Foreign Currencies Exchange Rate Monetary items JPY $ 191, $ 70, HKD 137, , RMB 89, , USD 85, , EUR 2, , (Continued)

22 Foreign Currencies Exchange Rate Foreign Currencies Exchange Rate Financial liabilities Monetary items HKD $ 11, $ 16, JPY 9, , USD 6, , RMB 5, , EUR (Concluded) 20. ADDITIONAL DISCLOSURES Business relationship and significant intercompany transactions for the year ended, 2012 and 2011: Tables 1 and Table 2 (attached). 21. SIGNIFICANT EVENTS On January 17, 2012, the Corporation, Dynapack International Corporation and HERAN Co., Ltd. won a bidding document, The Action Plan of Developing Land Surrounded MRT Airport Station to Improve Civilians Life, which had been reviewed and approved by the Ministry of the Interior. The total bid price was to $10,088,890 thousand, covering land with an area of 222,300 square meters. As a result of winning the above bid, the Corporation acquired 35%, or 77,805 square meters, of a certain piece of land for $3,511,312 thousand. As of, 2012, the Corporation had just paid bid deposit $353,040 thousand. On April 18, 2012, the Corporation signed the land purchase contract with the Ministry of the Interior which required the Corporation to pay the first installment of the bid amount, $353,111 thousand, within ten days from the contract date. The Corporation paid the first installment by the bid deposit and the remaining amounts was paid by additional cash. 22. SEGMENT INFORMATION The information provided to the Group s chief operating decision maker to allocate resources to the segments and assess their performance should stress on any product or service provided. According to SFAS No Operating Segments., the Segment should be reported by the Group is as follows: a. Special materials department b. Test instrument department c. Automatic equipment department

23 d. Other. 1) Segment revenue and operation Segment Revenue Segment Income Before Tax Special material department $ 1,408,369 $ 1,748,890 $ 10,432 $ 6,917 Test Instrument department 1,664,460 2,328, , ,743 Automatic equipment department 312, ,227 51,154 5,686 Other 74,928 63,049 (18,529) (22,883) Adjustments and eliminations (593,921) (933,875) 10,652 7,398 Total continuing operating segment $ 2,865,847 $ 3,442, , ,861 Investment income recognized by the equity method 1,364 10,413 Rent income 7,277 7,686 Interest income 2,254 1,509 (Loss) gain on disposal of property, plant and equipment (274) (230) Gain on disposal of investment Foreign exchange (loss) gain (21,105) 24,605 Valuation gain (loss) on financial assets 1,592 (923) Other (expense) revenue (20,290) (3,020) Interest expense (1,406) (1,274) Income before tax $ 198,607 $ 446,663 The above revenue reported was generated by transaction with external customers and by intersegment. The intersegment transactions for the three months ended, 2012 and 2011, had been adjusted and eliminated. The segment operating income refer to profits earned by each segment, excluded the allocated investment income (loss) recognized by the equity method, gain (loss) on disposal of investments, rental income, interest income, gain (loss) on disposal of property, plant and equipment, gain (loss) on disposal of investment, foreign exchange gain (loss), valuation gain (loss) on financial assets, interest expense and income tax expense. The segment operating income was provided to the Group s chief operating decision maker to allocate resources to each segment and evaluated its performance. 2) Segment assets Segment assets Special materials department $ 1,723,051 $ 1,953,146 Test Instrument department 8,270,452 8,422,453 Automatic equipment department 1,058,787 1,015,852 (Continued)

24 Other $ 775,127 $ 629,811 Adjustments and eliminations (1,660,898) (1,491,025) 10,166,519 10,530,237 Financial assets at fair value through profit or loss 45, ,634 Available-for-sale financial assets - current 392,265 - Other financial assets (other current assets) Long-term investment 873, ,682 Deferred income tax assets 74,116 79,957 Total segment assets $ 11,552,529 $ 12,000,510 (Concluded) 23. PRE-DISCLOSURE FOR ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS Under Rule No issued by the Financial Supervisory Commission (FSC) on February 2, 2010, the Corporation pre-discloses the following information on the adoption of International Financial Reporting Standards (IFRSs) as follows: a. On May 14, 2009, the FSC announced the Framework for Adoption of International Financial Reporting Standards by Companies in the ROC. In this framework, starting 2013, companies with shares listed on the Taiwan Stock Exchange or traded on the Taiwan GreTai Securities Market or Emerging Stock Market should prepare their financial statements in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards, International Accounting Standards, and the Interpretations as well as related guidances translated by the Accounting Research and Development Foundation (ARDF) and issued by the FSC. To comply with this framework, the Group has set up a project team and made a plan to adopt the IFRSs. Leading the implementation of this plan is Mr. Ying, the general manager. The main contents of the plan, anticipated schedule and status of execution as of, 2012 were as follows: Contents of Plan Assessment: From January 1, 2010 to, 2012 Responsible Department Status of Execution Set up an IFRS project team Accounting Done Set up an IFRS transition plan Accounting Done Establish an employee education and training program Human resource Done Identify the differences between the current accounting policies and IFRSs Accounting Done Verify the entities to be consolidated under the IFRSs Accounting Done Assess the effects on the Group of the exemptions and selections shown in IFRS 1 - First-time Adoption of International Financial Reporting Standards Accounting Done Assess the related IT system for the adjustments required for MIS Done IFRS transition Assess the related internal control for the adjustments required for IFRS transition Internal control Done (Continued)

25 Contents of Plan Responsible Department Status of Execution Decide which IFRS accounting policies apply to the Group Accounting Done Decide which IFRS 1 exemptions and selections will be Accounting Done applied by the Group on IFRS adoption Complete the compilation of IFRS - based financial Accounting Done statements Complete the preparation of comparative financial information based on IFRSs for the year ended December 31, 2012 Accounting In progress Complete the adjustments to related internal control, Internal control, MIS In progress including the financial reporting process (Concluded) b. Following are the material differences the Group had determined between the existing accounting policies and the accounting policies to be adopted under IFRSs. 1) Reconciliation of the balance sheets as of January 1, 2012 Assets ROC GAAP Reconciliations IFRSs Notes Deferred income tax assets - current $ 35,191 $ (35,191) $ - 5) a) Inventories 2,165,322 41,727 2,207,049 5) g) Net property, plant and equipment 2,793,484 (11,832) 2,781,652 5) e) Intangible assets 183,603 (9,289) 174,314 5) b) Prepayments - noncurrent - 11,832 11,832 5) e) Deferred charges 77,140 (77,140) - 5) f) Long-term prepaid expense - 77,140 77,140 5) f) Deferred income tax assets 32,673 34,347 67,020 5) a) and b) Liabilities Accrued pension cost 85,033 (8,435) 76,598 5) b) Equities Capital surplus 925,158 (6,315) 918,843 5) c) and d) Cumulative translation adjustment/foreign 86,888 (86,888) - 5) c) and d) currency translation reserve Unrealized gain on financial 139,609 5, ,271 5) d) instruments/unrealized gain from available-for-sale financial assets Treasury stock (30,238) (5,662) (35,900) 5) d) Retained earnings 1,773, ,232 1,907,

26 2) Reconciliation of the balance sheets as of, 2012 Assets ROC GAAP Reconciliations IFRSs Notes Deferred income tax assets - current $ 39,246 $ (39,246) $ - 5) a) Inventories 1,947,833 41,727 1,906,106 5) g) Net property, plant and equipment 2,785,146 (3,898) 2,781,248 5) e) Intangible assets 175,466 (9,289) 166,177 5) b) Prepayments - noncurrent - 3,898 3,898 5) e) Deferred charges 71,654 (71,654) - 5) f) Long-term prepaid expense - 71,654 71,654 5) f) Deferred income tax assets 34,870 38,326 73,196 5) a) and b) Liabilities Accrued pension cost 84,885 (9,198) 75,687 5) b) Equities Capital stock Capital surplus 925,158 (6,315) 918,843 5) c) and d) Cumulative translation adjustment/foreign 57,828 (86,888) (29,060) currency translation reserve Unrealized gain on financial 202,424 5, ,086 5) d) instruments/unrealized gain from available-for-sale financial assets Treasury stock (30,238) (5,662) (35,900) 5) d) Retained earnings 1,938,206 50,465 1,988,671 3) Reconciliation of the consolidated statement of comprehensive income for the three months ended, 2012 ROC GAAP Reconciliations IFRSs Notes Net operating sales $ 2,865,847 $ (169,634) $ 2,696,213 Operating costs 2,088,554 (127,907) 1,960,647 Operating expenses 548,210 (763) 547,447 5) b) Non-operating expenses/losses (30,476) - (30,476) Income tax expense 39, ,872 5) b) Other comprehensive income Foreign currency translation reserve (29,606) (29,606) Unrealized gain (loss) from 208, ,086 available-for-sale financial assets 4) Exemptions from IFRS 1 IFRS 1 - First-time Adoption of International Financial Reporting Standards establishes the procedures for the Group s first consolidated financial statements prepared in accordance with IFRSs. Under IFRS 1, the Group is required to determine the accounting policies under IFRSs and retrospectively apply those accounting policies in its opening balance sheet at the date of transition to IFRSs (January 1, 2012; the transition date), except the optional exemptions and mandatory exceptions to such retrospective application provided under IFRS 1. The main optional exemptions the Group adopted are summarized as follows: a) Employee benefits The Group elected to recognize all cumulative actuarial gains and losses in retained earnings as of January 1,

27 b) Cumulative translation differences The Group elected to reset the cumulative translation differences to zero at the date of transition to IFRSs, and the reversal has been used to offset accumulated earnings as of January 1, ) Notes on the reconciliation of the significant differences: As of, 2012, based on the Group s assessment, the significant differences between the Group s current accounting policies under ROC GAAP and the ones under IFRSs are stated as follows: a) Classification of deferred income tax asset/liability and valuation allowance Under ROC GAAP, a deferred tax asset and liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, it is classified as current or noncurrent on the basis of the expected length of time before it is realized or settled. Under IFRSs, a deferred tax asset and liability is classified as non-current asset or liability. As of, 2012 and January 1, 2012, the amounts reclassified from deferred income tax assets to noncurrent assets were $39,246 thousand and $35,191 thousand, respectively. b) Employee benefits- actuarial gains and losses of employee benefits Under ROC GAAP, actuarial gains and losses on defined benefit plans directly recognized to equity; instead, actuarial gains and losses should be accounted for under the corridor approach, which results in the deferral of gains and losses. Under the corridor approach, actuarial gains and losses should be amortized over the expected average remaining working lives of the participating employees. Under IAS No Employee Benefits, the Group elects to recognize actuarial gains and losses as other comprehensive income immediately in full in the period in which they occur. The subsequent reclassification to earnings is not permitted. As of, 2012 and January 1, 2012, accrued pension cost was adjusted for an increase of $854 thousand each. Under ROC GAAP, the minimum pension liabilities are the minimum amount that the Group should recognize in the balance sheet. If the book value of accrued pension cost is less than the minimum pension liabilities, the Group should recognize the difference between those two amounts. Under IFRSs, there are no such requirements. As of, 2012 and January 1, 2012, intangible assets and accrued pension cost were adjusted for decrease of $9,289 thousand each. As of, 2012 and January 1, 2012, the Group performed the actuarial valuation under IAS No Employee Benefits, and accrued pension cost was adjusted for increases of $9,198 thousand and $8,435 thousand, respectively, and deferred income tax assets were adjusted for decreases of $920 thousand and $844 thousand, respectively. Pension cost and income tax expense for the three months ended, 2012 were also adjusted for a decrease of $763 thousand and an increase of $76 thousand, respectively