Walsin Technology Corporation and Subsidiaries

Transcription

1 Walsin Technology Corporation and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2009 and 2008 and Independent Auditors Report

2 INDEPENDENT AUDITORS REPORT The Board of Directors and Stockholders Walsin Technology Corporation We have audited the accompanying consolidated balance sheets of Walsin Technology Corporation and subsidiaries (collectively, the Company ) as of December 31, 2009 and 2008, and the related consolidated statements of income, changes in stockholders equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The accompanying 2009 and 2008 consolidated financial statements included assets of some investees of Gallatown Developments Limited ( Gallatown ) that were 5.13% (NT$2,564,820 thousand) and 4.60% (NT$2,415,390 thousand) of the consolidated total assets as of December 31, 2009 and 2008, respectively, and net sales that were 12.15% (NT$4,177,086 thousand) and 10.47% (NT$3,119,954 thousand) of the consolidated net sales for the years ended December 31, 2009 and 2008, respectively. These investment amounts were based on the financial statements audited by other independent auditors. Accordingly, our opinion, insofar as it relates to these amounts is based solely on the reports of the other auditors. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Walsin Technology Corporation and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China. As discussed in Note 3 to the consolidated financial statements, effective January 1, 2008, the Company adopted Interpretation , Accounting for Bonuses to Employees, Directors and Supervisors which provides that earnings distribution to employees, directors and supervisors should be accounted for as expenses

3 As discussed in Note 3 to the consolidated financial statements, effective July 1, 2008, the Company reclassified its consolidated financial assets in accordance with the newly amended Statement of Financial Instruments (SFAS) No Financial Instruments: Recognition and Measurement. As stated in Note 3 to the consolidated financial statements, effective January 1, 2009, the Company adopted the newly revised SFAS No Inventories. February 25, 2010 Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors report and consolidated financial statements shall prevail. Also, as stated in Note 2 to the consolidated financial statements, the additional footnote disclosures that are not required under generally accepted accounting principles were not translated into English

4 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars) ASSETS Amount % Amount % LIABILITIES AND STOCKHOLDERS EQUITY Amount % Amount % CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents (Notes 2 and 4) $ 6,583, $ 6,991, Short-term loans (Note 14) $ 4,115,073 8 $ 4,725,774 9 Financial assets at fair value through profit or loss - current (Notes 2 Short-term bills payable (Note 15) 34, ,096 - and 5) 18,818-3,510 - Notes payable 813, ,015,450 2 Notes receivable (Notes 2 and 6) 273, ,685 1 Accounts payable 5,039, ,219,340 8 Notes receivable from related parties (Notes 2, 6 and 25) 1,431-5,505 - Accounts payable to related parties (Note 25) 1,287-1,824 - Accounts receivable (Notes 2 and 6) 11,367, ,887, Income tax payable (Notes 2 and 22) 130, ,440 - Accounts receivables from related parties (Notes 2, 6 and 25) 11,687-7,800 - Financial liabilities at fair value through profit or loss - current (Notes 2 Other receivables 531, ,477 1 and 5) - - 5,809 - Other receivables from related parties (Note 25) 2,369-5,287 - Hedging derivative liabilities - current (Notes 2 and 28) 29,035-12,443 - Inventories (Notes 2 and 7) 5,152, ,798,798 9 Payables on equipment (Note 25) 491, ,877 1 Noncurrent assets classified as held for sale (Notes 2 and 8) - - 2,659 - Other payables (Note 25) 2,392, ,887,887 4 Deferred income tax assets - current (Notes 2 and 22) 96, ,636 - Current portion of long-term debt (Note 16) 1,844, ,141,760 4 Other current assets (Notes 2 and 17) 724, ,550 1 Other current liabilities 131, ,218 1 Total current assets 24,765, ,219, Total current liabilities 15,024, ,389, INVESTMENTS LONG-TERM LIABILITIES Long-term equity investments at equity method (Notes 2 and 9) 730, ,748 1 Long-term debt (Note 16) 7,447, ,563, Available-for-sale financial assets - noncurrent (Notes 2 and 10) 683, ,543 1 Hedging derivative liabilities - noncurrent (Notes 2 and 28) 17,317-76,898 - Financial assets carried at cost - noncurrent (Notes 2 and 11) 189, ,023 - Total long-term liabilities 7,465, ,640, Total investments 1,604, ,314 2 RESERVE FOR LAND VALUE INCREMENT TAX (Notes 12 and 13) 46,728-46,728 - PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 12) Cost OTHER LIABILITIES Land 629, ,527 1 Accrued pension cost (Notes 2 and 17) 243, ,134 1 Buildings and improvements 8,699, ,964, Guarantee deposits received 97, ,992 - Machinery and equipment 28,024, ,328, Other liabilities - others 14,919-38,260 - Transportation equipment 113, ,006 - Leasehold improvements 217, ,142 1 Total other liabilities 356, ,386 1 Other equipment 4,931, ,792, ,615, ,202, Total liabilities 22,892, ,520, Less: Accumulated depreciation (21,875,106) (44) (19,539,754) (37) Less: Accumulated impairment (187,863) - (190,295) - PARENT COMPANY STOCKHOLDERS EQUITY Construction in progress and prepayments for equipment 1,314, ,292,435 2 Common stock (Note 18) 6,638, ,671, Capital surplus Property, plant and equipment, net 21,866, ,765, Additional paid-in capital from share issuance in excess of par 5,696, ,725, Treasury stock transactions 1,993-2,522 - INTANGIBLE ASSETS (Note 2) Gain on disposal of property, plant and equipment 270, ,307 - Goodwill 126, ,268 - Long-term equity investments at equity method 71,380-56,271 - Land use rights 340, ,289 1 Capital surplus from business combination 1,487, ,487,077 3 Other intangible assets 10,668-26,079 - Retained earnings (Note 19) Legal reserve 214, ,867 1 Total intangible assets 477, ,636 1 Special reserve 208, ,097 - Accumulated deficit (448,398) (1) (231,589) - OTHER ASSETS (Notes 2 and 13) Cumulative translation adjustments (Note 2) 1,014, ,133,653 2 Idle assets 439, ,731 1 Unrealized valuation gain or loss on financial instruments (Notes 2 and 10) 71,244 - (465,020) (1) Guarantee deposits paid 77,738-81,910 - Unrealized revaluation increment 3,021-3,021 - Deferred charges 112,899-87,716 - Treasury stock (Notes 2 and 20) (108,853) - (143,933) - Deferred income tax assets - noncurrent 531, ,984 1 Other assets - others 103,096-99,836 - Total parent company stockholders equity 15,119, ,162, Total other assets 1,264, ,100,177 2 MINORITY INTEREST 11,966, ,884, Total stockholders' equity 27,086, ,047, TOTAL $ 49,978, $ 52,567, TOTAL $ 49,978, $ 52,567, The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated February 25, 2010) - 3 -

5 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Except Loss Per Share) Amount % Amount % NET SALES $ 34,375, $ 29,786, COSTS OF SALES 29,380, ,192, GROSS PROFIT 4,994, ,593, OPERATING EXPENSES Selling 1,267, ,272,301 4 General and administrative 1,394, ,245,339 4 Research and development 563, ,534 2 Total operating expenses 3,225, ,939, OPERATING INCOME 1,768, ,464 2 NONOPERATING INCOME AND GAINS Interest income 75, ,530 1 Investment income recognized under the equity method (Notes 2 and 9) ,386 - Investment income (Notes 2 and 23) 8,302-21,736 - Gain on disposal of assets 2, Foreign exchange gain, net ,296 - Reversal of allowance for doubtful accounts 9, Reversal of impairment loss (Notes 2 and 24) 13, Valuation gain on financial assets 11, Valuation gain on financial liabilities Others 228, ,435 1 Total nonoperating income and gains 350, ,573 2 NONOPERATING EXPENSES AND LOSSES Interest expense 306, ,424 2 Investment loss recognized under equity method (Notes 2 and 9) 2, Loss on disposal of assets ,839 - Loss on disposal of investments, net 1,676-18,261 - Foreign exchange loss, net 270, Impairment loss (Notes 2 and 24) ,409 1 Valuation loss on financial assets - - 8,636 - Others 265, ,539 1 Total nonoperating expenses and losses 847, ,179,108 4 (Continued) - 4 -

6 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Except Loss Per Share) Amount % Amount % INCOME (LOSS) BEFORE INCOME TAX $ 1,271,937 4 $ (54,071) - INCOME TAX EXPENSE (Notes 2 and 22) (143,579) (1) (145,263) (1) TOTAL CONSOLIDATED NET INCOME (LOSS) $ 1,128,358 3 $ (199,334) (1) ATTRIBUTED TO Parent company stockholders $ (436,303) (1) $ (605,044) (2) Minority interests 1,564, ,710 1 $ 1,128,358 3 $ (199,334) (1) Before Income Tax After Before Income Income Tax Tax After Income Tax BASIC EARNINGS (LOSS) PER SHARE (NEW TAIWAN DOLLARS, Notes 2 and 18) Basic earnings (loss) per share before distribution to minority interest $ 1.93 $ 1.71 $ (0.08) $ (0.30) Basic earnings (loss) per share attributed to the parent company's stockholders $ (0.66) $ (0.92) Pro forma information assuming common shares of the Parent Company held by its subsidiaries were not treated as treasury stock: CONSOLIDATED NET LOSS ATTRIBUTED TO STOCKHOLDERS OF THE PARENT COMPANY $ (436,303) $ (603,586) Before Income Tax After Before Income Income Tax Tax After Income Tax BASIC EARNINGS (LOSS) PER SHARE (NEW TAIWAN DOLLARS) Basic earnings (loss) per share before distribution to minority interest $ 1.92 $ 1.70 $ (0.08) $ (0.30) Basic earnings (loss) per share attributed to the parent company s stockholders $ (0.66) $ (0.91) The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated February 25, 2010) (Concluded) - 5 -

7 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars) Capital Surplus Unrealized Long-term Retained Earnings Valuation Gain Issued and From Share Gain on Disposal Equity Capital Surplus Cumulative or Loss on Unrealized Outstanding Issuance in Treasury Stock of Property, Plant Investments at from Business Accumulated Translation Financial Revaluation Common Stock Excess of Par Transactions and Equipment Equity Method Combination Legal Reserve Special Reserve Deficit Adjustments Instruments Increment Treasury Stock Minority Interest Total BALANCE, JANUARY 1, 2008 $ 5,956,537 $ 5,723,382 $ 1,064 $ 270,307 $ 718 $ 1,487,077 $ 319,249 $ 208,097 $ 1,524,573 $ 435,598 $ 367,649 $ 3,021 $ (86,937 ) $ 1,580,659 $ 17,790,994 Appropriations and distributions (Note 19) Legal reserve ,618 - (126,618) Cash remunerations to directors and supervisors (20,490) (20,490) Bonuses to employees (51,225) (51,225) Stock dividends 710, (710,896) Cash dividends (241,889) (241,889) Employee stock warrants converted into common stock (Note 18) 3,850 2, ,890 Adjustment arising from changes in the Company's common shares held by subsidiaries (Note 20) (56,996) - (56,996) Unrealized valuation gain or loss on available-for-sale financial assets (567,915) (567,915) Unrealized valuation gain or loss on investee's available-for-sale financial assets (223,581) (223,581) Unrealized valuation gain or loss on derivative financial liability for cash flow hedging (41,173) (41,173) Change of equity in the investee's net assets , ,553 Cumulative translation adjustments on long-term equity investments , ,055 Cash dividends to subsidiaries - - 1, ,458 Minority interest ,898,161 8,898,161 Consolidated net (loss) income for (605,044 ) ,710 (199,334 ) BALANCE, DECEMBER 31, ,671,283 5,725,422 2, ,307 56,271 1,487, , ,097 (231,589 ) 1,133,653 (465,020 ) 3,021 (143,933 ) 10,884,530 26,047,508 Offset of accumulated deficit (Note 19) (231,589 ) - 231, Retirement of treasury stock (Note 20) (33,260 ) (28,544 ) (2,522 ) (12,095 ) , Acquisition of treasury stock (Note 20) (73,714 ) - (73,714 ) Treasury stock transferred to employees (Note 20) - - 1, ,163-36,156 Adjustment arising from changes in the Company's common shares held by subsidiaries (Note 20) (1,790) - (1,790) Unrealized valuation gain or loss on available-for-sale financial assets , ,314 Unrealized valuation gain or loss on investee's available-for-sale financial assets , ,354 Unrealized valuation gain or loss on derivative financial liability for cash flow hedging , ,596 Change of equity in the investee's net assets , ,109 Cumulative translation adjustments on long-term equity investments (119,291) (119,291) Minority interest (482,474 ) (482,474 ) Consolidated net (loss) income for (436,303 ) ,564,661 1,128,358 BALANCE, DECEMBER 31, 2009 $ 6,638,023 $ 5,696,878 $ 1,993 $ 270,307 $ 71,380 $ 1,487,077 $ 214,278 $ 208,097 $ (448,398 ) $ 1,014,362 $ 71,244 $ 3,021 $ (108,853 ) $ 11,966,717 $ 27,086,126 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated February 25, 2010) - 6 -

8 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Total consolidated income (loss) $ 1,128,358 $ (199,334) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 4,338,540 3,646,953 Compensation cost of treasury stock transferred to employees 1,986 - Impairment loss on financial assets carried at cost - 11,423 Impairment loss on available-for-sale financial assets - noncurrent - 27,355 Valuation gain (loss) on financial assets (11,405) 8,636 Valuation gain on financial liabilities - (190) (Reversal of impairment loss) impairment loss on idle assets (13,827) 174,631 Net (gain) loss on disposal of assets (2,821) 106,839 Loss on disposal of available-for-sale financial assets - noncurrent 2, Gain on disposal of subsidiary - (644) Investment loss (income) recognized under equity method 2,518 (13,386) Cash dividends from equity-accounted investees - 2,050 Net changes in operating assets and liabilities Financial assets at fair value through profit or loss - current (9,738) 287,590 Notes receivable 99,855 53,488 Notes receivable from related parties 4,074 14,306 Accounts receivable (480,109) 2,059,705 Accounts receivable from related parties (3,887) 6,277 Other receivables (153,142) 157,388 Other receivables from related parties 2,918 (2,007) Inventories (354,088) 2,409,970 Other current assets (53,236) 376,588 Deferred tax assets - noncurrent (24,738) 107,307 Other assets (3,260) (12,691) Notes payable (201,900) (32,817) Accounts payable 819,914 (3,537,269) Accounts payable to related parties (537) (35,874) Income tax payable (82,674) (172,151) Other payables 504,199 (1,221,914) Other current liabilities (162,343) 143,474 Accrued pension cost (39,183) (107,585) Other liabilities 31,930 (4,073) Net cash provided by operating activities 5,339,542 4,254,875 CASH FLOWS FROM INVESTING ACTIVITIES Increase in available-for-sale financial asset - noncurrent (73,517) (9,598) Proceeds from disposal of available-for-sale financial asset - noncurrent 15,168 1,769 Increase in financial assets carried at cost (18,000) - Increase in long-term equity investments (5,914) (152) Increase in restricted assets (2,431) (22,452) (Continued) - 7 -

9 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars) Proceeds from disposal of property, plant and equipment $ 199,448 $ 293,924 Acquisition of property, plant and equipment (1,338,815) (3,672,838) Increase in other intangible assets (367) (44,709) Decrease (increase) in guarantee deposits paid 4,172 (3,511) Increase in deferred charges (20,501) (14,257) Net cash used in investing activities (1,240,757) (3,471,824) CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in short-term loans (610,701) 528,228 Decrease in short-term bills payable (164,099) (15,677) (Decrease) increase in long-term debt (3,412,913) 1,502,072 (Decrease) increase in guarantee deposits received (24,469) 18,457 Cash paid for acquisition of treasury stock (73,714) - Proceeds from transfer of treasury stock to employees 34,170 - Proceeds from employee stock warrant converted into common stock - 5,890 Payments of remunerations to directors and supervisors - (20,490) Payments of bonuses to employee - (51,225) Payments of cash dividends - (240,431) (Decrease) increase in minority interest (273,821) 60,059 Net cash (used in) provided by financing activities (4,525,547) 1,786,883 EFFECT OF EXCHANGE RATE CHANGES ON CASH 19,591 (349,988) NET CASH PROVIDED BY ACQUISITION OF HANNSTAR BOARD CORP. - 3,445,235 NET CASH USED IN DISPOSAL OF XI AN WALSIN UNITED TECHNOLOGY CO., LTD. - (25,728) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (407,171) 5,639,453 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,991,162 1,351,709 CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,583,991 $ 6,991,162 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES Property, plant and equipment transfer to idle assets, deferred charges and intangible assets $ 324,812 $ 359,493 Property, plant and equipment transfer to noncurrent assets classified as held for sale $ - $ 2,659 Idle asset transfer to property, plant and equipment $ - $ 3,763 Transfer of current portion of long-term debt to current liabilities $ 1,844,189 $ 2,141,760 (Continued) - 8 -

10 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars) Adjustment due to change of equity in the investee's net assets $ 15,109 $ 55,553 Unrealized valuation gain or loss on available-for-sale financial assets $ 297,314 $ (567,915) Unrealized valuation gain or loss on investee's available-for-sale financial assets $ 217,354 $ (223,581) Unrealized valuation gain or loss on derivative financial liability for cash flow hedging $ 21,596 $ (41,173) Translation adjustments on long-term equity investments $ (119,291) $ 698,055 Cash dividends to subsidiaries transferred to capital surplus $ - $ 1,458 Changes of the Company's common shares held by subsidiaries $ (1,790) $ (56,996) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year Interest (excluding capitalized interest) $ 310,490 $ 788,097 Income tax $ 216,623 $ 427,515 CASH PAID DURING THE YEAR FOR ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment acquired $ 1,157,832 $ 2,945,388 Add payable for purchases of property, plant and equipment, beginning of year 672,877 1,400,327 Deduct: Payable for purchases of property, plant and equipment, end of year (491,894) (672,877) Cash paid during the year for acquisition of property, plant and equipment $ 1,338,815 $ 3,672,838 (Continued) - 9 -

11 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars) Fair values of assets and liabilities of Hannstar Board Corp. ( Hannstar ), a subsidiary acquired in 2008, at acquisition are summarized as follows: Cash $ 3,982,600 Financial assets at fair value through profit or loss - current 120,862 Available-for-sale financial assets - current 295,620 Financial assets carried at cost - noncurrent 33,330 Accounts receivable 7,151,538 Inventories 2,126,624 Other current assets 853,012 Property, plant and equipment 11,802,221 Goodwill 126,268 Other assets 295,117 Short-term loans (1,801,517) Accounts payable (5,343,203) Other current liabilities (1,980,134) Long-term debts (7,384,680) Other liabilities (62,144) Minority interest (8,634,009) Cash paid for acquisition of Hannstar 1,581,505 Cash balance of Hannstar (3,982,600) The carrying value of long-term equity investments at equity method as of June 13, 2008 of Hannstar (1,044,140) Net cash provided by acquisition of Hannstar $ (3,445,235) Fair values of assets and liabilities of Xi An Walsin United Technology Co., Ltd. ( Xi An ), a subsidiary disposed of in 2008, at disposal are summarized as follows: Cash $ 59,566 Other receivable 451 Other current assets 3,864 Property, plant and equipment 390 Other assets 179 Other payable (254) Other current liabilities (38) Minority interest (30,964) Total cost of disposal of Xi An 33,194 Cash balance of Xi An (59,566) Gain on disposal of subsidiary 644 Net cash used in disposal of Xi An $ (25,728) The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated February 25, 2010) (Concluded)

12 WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2009 AND 2008 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATIONS Walsin Technology Corporation ( WTC ) was incorporated in the Republic of China (ROC) on July 29, 1970 to design, develop and manufacture semiconductors and LED (light-emitting diode) chips. In 1992, WTC purchased the machinery, equipment and inventory from electronic department of Walsin Lihwa Corporation to establish its Yang-Mei Plant on July 1 and changed its major operation to the manufacture of electronic ceramics, including multilayer ceramic capacitors ( MLCC ) and positive temperature coefficient resistors ( PTCR ). In 1995, WTC established a branch in Kaohsiung to research, develop, produce and sell products such as chip resistors, RF (radio frequency) devices and high-frequency inductors and, in 2006, WTC established a branch in Taichung to produce disc capacitors and new products. The Company closed its operations in the branch Taichung and cancelled the registration in August WTC s common stock began to be traded in Taiwan s over-the-counter (OTC) market on November 21, Later, WTC s stock ceased to be OTC traded and became listed on the Taiwan Stock Exchange on September 17, The major stockholder, Walsin Lihwa Corporation, held 18.13% ownership interest in WTC as of December 31, WTC s head office is located at 566-1, Kao-shi Road, Yang-Mei, Taoyuan. Gallatown Developments Limited ( Gallatown ) is incorporated in the Cayman Islands as an investment holding company. Pan Overseas (B.V.I.) Investment ( POE-BVI ) is incorporated in the British Virgin Islands as an investment holding company. Eden Technology Corporation (Samoa) ( ETC SAMOA ) is formed in Western Samoa as an investment holding company. ETC SAMOA had liquidated in September Prosperity Dielectrics Co., Ltd. ( PDC ), a listed company on the Emerging Stock Market of the Taiwan GreTai Securities Market, is engaged in manufacturing and selling of electric capacitors, resistors and semiconductor chip. Hannstar Board Corp. ( Hannstar ), a listed company on the Taiwan Stock Exchange, is engaged in manufacturing and selling printed circuit board. In order to lower operating costs, strengthen competitiveness, and expand operating scale, PDC s directors approved the merger with Frontier Electronics Co., Ltd. ( Frontier ) on October 18, 2007, with PDC as the surviving entity. The merger took effect on March 31, 2008, and PDC thus assumed all rights and obligations of Frontier on that date. The merger was approved by the non-profit organization named Gre Tai Securities Market (the GTSM ), Securities and Futures Bureau, and Ministry of Economic Affairs of the Republic of China. In order to lower operating costs, strengthen competitiveness, and expand operating scale, POE International Co., Ltd. (POEI) merged with Eagle Advanced Ceramics Corporation ( EACC ), with POEI as the surviving entity. The merger took effect on April 1, Then, WTC merged with POEI, with WTC as the surviving entity. The merger took effect on December 31, Therefore, the shares of POEI held by WTC were canceled since the merger took effect. As of December 31, 2009 and 2008, the Company had 20,823 and 16,284 employees, respectively

13 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, and accounting principles generally accepted in the ROC. In preparing consolidated financial statements in conformity with these guidelines and principles, the Company is required to make certain estimates and assumptions that could affect the amounts of allowance for doubtful accounts, allowance for inventory devaluation, property depreciation and impairment, pension liabilities, bonuses to employees, director and supervisors, and pending litigations. Actual results could differ from these estimates. For the convenience of readers, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language consolidated financial statements shall prevail. However, the accompanying consolidated financial statements do not include the English translation of the additional footnote disclosures that are not required under generally accepted accounting principles but are required by the Securities and Futures Bureau (SFB, formerly the Securities and Futures Commission before July 1, 2004) for their oversight purposes. The Company s significant accounting policies are summarized as follows: Principles of Consolidation All significant intercompany balances and transactions have been eliminated upon consolidation. WTC and its subsidiaries adopted Statement of Financial Accounting Standards No. 7 - Consolidated Financial Statements and included all controlled investees in the consolidated financial statements in 2009 and The consolidated entities (collectively, the Company ) are summarized as follows: Name of Investor Name of Subsidiary Ownership Interest Principal Activity WTC PDC 43.49% Manufacturing and selling of electric capacitors, resistors and semiconductor chip WTC Hannstar 20.12% Manufacturing and selling printed circuit board WTC POE-BVI % Investment holding WTC Gallatown 90.12% Investment holding Gallatown Gallatown Gallatown Gallatown Gallatown Walsin Technology Corporation (HK) Limited ( WTC (HK) ) Walsin Technology Hong Kong Holding Ltd. ( WTHC-HK ) Walsin Technology Corporation (Malaysia) Sdn. Bhd. ( WTCM ) Walsin Electronics (S) Pte. Ltd. ( WES ) Walsin Technology Corporation U.S.A. ( WTCA ) % Selling of passive electronic components % Investment holding % Selling passive electronic components % Selling passive electronic components % Marketing service (Continued)

14 Name of Investor Name of Subsidiary Ownership Interest Principal Activity Gallatown Gallatown Gallatown Walsin Technology Corporation (Japan) Limited ( WTCJ ) Walsin Passive Component (HK) Limited ( WPC ) Eden International Corporation (HK) Limited % Research Centre % Selling passive electronic components % Selling passive electronic components Gallatown Kamaya 98.04% Manufacturing and selling high level electric chip and resistors WTHC-HK WTHC-HK WTHC-HK WTHC-HK WTHC-HK Dongguan Walsin Technology Electronics Co., Ltd. ( DG ) Suzhou Walsin Technology Electronics Co., Ltd. ( SZ ) Walsin Electronics (Shenzhen) Corporation Limited Pan Overseas Electronic Co., Limited (Shanghai) Guangzhou Pan Overseas Trading Co., Ltd. ( POE-T ) % Manufacturing and selling passive electronic components % Manufacturing and selling passive electronic components % Selling passive electronic components % Selling passive electronic components % Selling passive electronic components WTHC-HK Pan Overseas Electronic Co., Limited (Guang Zhou) ( POE-GZ ) % Manufacturing and selling passive electronic components POE-BVI Gallatown 4.33% Investment holding POE-BVI Fine Bright Technology % Investment holding Limited ( FB ) FB Gallatown 5.55% Investment holding PDC PDC Prime Holdings Limited ( PDC Holdings ) % Investment holding PDC Hannstar Board Corp 0.01% Manufacturing and selling printed circuit board PDC Frontier International Ltd % Investment and trade business PDC Holdings PDC Success Investments % Investment holding Ltd. PDC Holdings PDC Technology Ltd % Investment holding PDC Holdings PDC Top Investments Ltd % Investment holding PDC Holdings Frontier Electronic Co., Ltd % International trade PDC Success Investments Ltd. PDC Technology Ltd. PDC Top Investments Ltd. PDC (Suzhou) Co., Ltd % Manufacturing and selling of electronic parts and semiconductor chip PDC Trading (Shen Zhen) Co., Ltd. PDC Electronics (Shen Zhan) Co., Ltd % International trade and transit trade % Manufacturing and selling of electronic parts (Continued)

15 Name of Investor Name of Subsidiary Ownership Interest Principal Activity Kamaya Kamaya Electric(M) Sdn. Bhd. ( KM ) % Manufacturing and selling high level electric chip and resistors % Selling passive electronic components Kamaya Kamaya Electric (HK) Limited Kamaya Kamaya, Inc. ( KI ) % Selling passive electronic components Kamaya Nitsuko Electronics 70.00% Manufacturing and selling of Corporation ( NTK ) film capacitors, noise Frontier International Ltd. Frontier International Ltd. Frontier International Ltd. Hannstar Board Corp. Hannstar Board (BVI) Holdings Corp. Hannstar Board (BVI) Holdings Corp. Hannstar Board International Holdings Ltd. Hannstar Board International Holdings Ltd. Hannstar Board International Holdings Ltd. Hannstar Board International Holdings Ltd. Hannstar Board Holdings (Hong Kong) Ltd. Dongguan Frontier Electronic Co., Ltd. Frontier Electronic (Kun Shan) Co., Ltd. Hunan Frontier Electronic Co., Ltd. Hannstar Board (BVI) Holdings Corp. Hannstar Board International Holdings Corp. Hannstar Board Precision (SAMOA) Holdings Corp. Hannstar Board Holdings Corp. (SAMOA) filters % Manufacturing and selling transformer, coils and rectifier diode % Manufacturing electric component and semiconductor % Manufacturing and selling transformer, coils and magnetic component % Investment holding 74.99% Investment holding % Investment holding % Investment holding Walsin Board Corp % Manufacturing and selling printed circuit board Hannstar Board Holdings (Hong Kong) Ltd. Hannstar Board International (Singapore) Private Ltd. Hannstar Board Tech (Jiang Yin) Corp % Investment holding % Investment holding % Manufacturing and selling printed circuit board Hannstar Board Holdings (Hong Kong) Ltd. Hannstar Precision Tech (Jiang Yin) Corp % Manufacturing and selling printed circuit board (Concluded) A subsidiary is included in the consolidated financial statements when the Company had substantial control over it. a. The information of subsidiaries not included in the consolidated financial statements: None

16 b. The difference of the fiscal year between parent company and subsidiaries: None. c. Special risks of business operation for subsidiaries overseas: None. Current/Noncurrent Assets and Liabilities Current assets include cash and cash equivalents, and those assets held primarily for trading purposes or to be realized, sold or consumed within one year from the balance sheet date. All other assets such as property, plant and equipment and intangible assets are classified as noncurrent. Current liabilities are obligations incurred for trading purposes or to be settled within one year from the balance sheet date. All other liabilities are classified as noncurrent. Cash and Cash Equivalents Cash includes cash on hand and unrestricted bank deposits. Cash equivalents consist of time deposits, commercial paper and bank notes, which can be readily converted into cash without significant penalty or have a value that will not be significantly affected by interest rate fluctuations, and with carrying amounts that approximate their fair values. Financial Instrument at Fair Value through Profit or Loss Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss (FVTPL) include financial assets or financial liabilities held for trading and those designated as at FVTPL on initial recognition. The Company recognizes a financial asset or a financial liability on its balance sheet when the Company becomes a party to the contractual provisions of the financial instrument. A financial asset is derecognized when the Company has lost control of its contractual rights over the financial asset. A financial liability is derecognized when the obligation specified in the relevant contract is discharged, cancelled or expired. Financial instruments at FVTPL are initially measured at fair value. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss. At each balance sheet date subsequent to issue of initial recognition, financial assets or financial liabilities at FVTPL are remeasured at fair value, with changes in fair value recognized directly in profit or loss in the year in which they arise. Cash dividends received subsequently (including those received in the year of investment) are recognized as income for the year. On derecognition of a financial asset or a financial liability, the difference between its carrying amount and the sum of the consideration received and receivable or consideration paid and payable is recognized in profit or loss. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. A derivative that does not meet the criteria for hedge accounting is classified as a financial asset or a financial liability held for trading. If the fair value of the derivative is positive, the derivative is recognized as a financial asset; otherwise, the derivative is recognized as a financial liability. Fair values of financial assets and financial liabilities at the balance sheet date are determined as follows: publicly traded stocks - at closing prices; and open-end mutual funds - at net asset values. Allowance for Doubtful Accounts An allowance for doubtful accounts is provided on the basis of a review of the collectibility of accounts receivable and pass loss experience on receivable and pertinent factors. The Company assesses the probability of collections of accounts receivable by examining the aging analysis of the outstanding receivables at the balance sheet date

17 Inventories Inventories consist of raw materials, supplies, finished goods, work-in-process and semi-finish goods. Before January 1, 2009, inventories were stated at the lower of cost or market value. Any write-down was made on a category by category basis. Market value meant replacement cost for raw materials and supplies and net realizable value for finished goods, work-in-process and semi-finish goods. 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. Estimated losses on scrap and slow-moving items are recognized as an allowance for inventory obsolescence on the balance sheet. Accounting for Noncurrent Assets Held for Sale Noncurrent assets classified as held for sale can be sold immediately or within one year under general business conditions. When assets are reclassified as noncurrent assets held for sale, they have to be stated at the lower of carrying value or fair value on the balance sheet as an individual account. The Company should discontinue the depreciation, depletion or amortization of these assets. When these assets carrying value is lower than fair value, the Company can recognize a loss in the income statement. If the fair value increases after a loss is recognized, the Company can recognize a gain. The gain recognized cannot exceed the accumulated impairment loss according to SFAS No. 35 Financial Instruments: Asset Impairment Loss. Long-term Equity Investments Accounted for by Equity Method Investments in corporations in which the Company s ownership interest is over 20% or the Company exercises influence on the operating and financial policy decision are accounted for by the equity method. Before January 1, 2006, the difference between the acquisition cost and the Company s proportionate share in the investee s equity was amortized by the straight-line method over five years. Effective January 1, 2006, pursuant to the revised Statement of Financial Accounting Standard No. 5, Long-term Investments under the 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 portion of the acquisition cost in excess of the fair value of the identifiable net assets acquired is recognized as goodwill. Goodwill is not amortized, but should be tested for impairment every year and for specific events or changes in circumstances which indicated that such carrying value may not be recoverable. The 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 (except for financial assets other than investments accounted for by the equity method, noncurrent assets held for sale, deferred income tax assets, prepaid pension or other postretirement benefit) in proportion to the respective fair values of the noncurrent assets, with any excess recognized as an extraordinary gain. 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 amortized. For any investment discount arising on acquisitions before January 1, 2006, the unamortized amount continues to be amortized over the remaining year. An impairment loss is recorded if there is objective evidence that the investment is impaired. The Company s investments previously classified as available-for-sale financial assets are reclassified into investment accounted for by the equity method when the Company is able to exercise significant influence over the investee. The carrying amount of the investment at the beginning of the year is deemed cost for the purpose of applying the equity method

18 When the Company subscribes for its investee s newly issued shares at a percentage different from its percentage of ownership in the investee, the Company records the change in its equity in the investee s net assets as an adjustment to investments, with a corresponding amount credited or charged to capital surplus. When the adjustment should be debited to capital surplus, but the capital surplus arising from long-term investments is insufficient, the shortage is debited to retained earnings. An investment is evaluated for impairment on the balance sheet date and loss is recognized if there is objective evidence showing that the investment is impaired. The impairment losses on those investments in which the Company has significant influence but with no control are evaluated at their respective carrying amounts. Available-for-sale Financial Assets Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition or issuance of the financial assets. After initial recognition, they are measured at fair value and the changes in fair value of available-for-sale financial assets are recorded as an adjustment of stockholders equity. When the financial assets are disposed of, the related accumulated fair value changes are taken out of stockholders equity and recognized in the profit and loss. All purchases and sales of investments are recorded on the trade date basis. The recognition, derecognition and the fair value bases of available-for-sale financial assets are the same with those of financial assets at fair value through profit or loss. Cash dividends are recognized on the ex-dividend date, except for dividends distributed from the pre-acquisition profit, which are treated as a reduction of investment cost. Stock dividends are not recognized as investment income but are recorded as an increase in the number of shares. The total number of shares subsequent to the increase is used for recalculation of cost per share. The difference between the initial cost of a debt instrument and its maturity amount is amortized using the effective interest method, with the amortized interest recognized in profit or loss. An impairment loss is recognized when there is objective evidence that the asset is impaired. Any subsequent decrease in impairment loss on an equity instrument classified as available-for-sale is recognized directly in equity. Financial Assets Carried at Cost Investments in equity instruments with no quoted prices in an active market and with fair values that cannot be reliably measured, such as non-publicly traded stocks and stocks traded in the Emerging Stock Market, are measured at their original cost. The accounting treatment for dividends on financial assets carried at cost is the same as that for dividends on available-for-sale financial assets. An impairment loss is recognized when there is objective evidence that the asset is impaired. A reversal of this impairment loss is disallowed. Property, Plant and Equipment and Idle Assets Property, plant and equipment are stated at cost less accumulated depreciation. Expenditures that would increase the value or extend the useful lives of property, plant and equipment are capitalized. Interest incurred during asset construction period is capitalized until the asset is substantially completed and ready for its intended use

19 Depreciation is calculated using the straight-line method or fixed-percentage on declining base method over the following estimated service lives prescribed by government authorities: Buildings and improvements Machinery and equipment Transportation equipment Other equipment Leasehold improvements 1 to 55 years 1 to 12 years 3 to 6 years 1 to 10 years Lower of six years or the contract term Property, plant and equipment (including idle assets) that are not used in operations are classified as other assets at the lower of net realizable values or book values, and any excess of book value over net realizable value is reported as nonoperating loss. An additional service life and a new residual value will be determined for any depreciable asset which is still in use after the end of its prescribed useful life, and the original residual value is depreciated on the straight-line method. Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is credited or charged to nonoperating income. Impairment loss is recognized immediately when the recoverable value of property, plant and equipment significantly falls below carrying value. If the loss is reversed, the increase in carrying amount of the asset is recognized, but the increased carrying amount should not exceed the carrying amount that would have been determined had no impairment loss been recognized in the past. A reversal of an impairment loss is immediately recognized as gain. If revalued property, plant and equipment show impairment loss, this loss should be recognized as a reduction of unrealized revaluation increment. A reversal of an impairment loss on a revalued asset is recognized as an addition to the revaluation increment. However, to the extent that an impairment loss on the same revalued asset was previously recognized as gain or loss, a reversal of that impairment loss is also recognized as gain or loss. Intangible Assets Intangible assets are stated at cost and amortized on a straight-line basis over their maturity periods. Landrights is amortized on a straight-line basis over useful lives. License fee is amortized on a straight-line basis over the contract term or over the economic useful lives of the assets. Computer software is amortized on a straight-line basis over three years or over the economic useful lives of the assets. Impairment loss is recognized immediately for any significant decline in the value of intangible asset. If the loss is reversed, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount should not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is immediately recognized as gain. However, impairment loss of goodwill can t be reversed. Deferred Charges Deferred charges are stated at cost and amortized on a straight-line basis over their maturity periods

20 Stock-based Compensation An accounting entry is not necessary for the issuance of non-remunerative employee stock warrants. As the employee stock warrants are exercised, the accounting entry is the same as that for common shares issued. Employee stock option granted between January 1, 2004 and December 31, 2007 were accounted for under the interpretations issued by the Accounting Research and Development Foundation. WTC and the subsidiaries of Hannstar and PDC used the intrinsic value method. Employee stock options granted on or after January 1, 2008 are accounted for under Statement of Financial Accounting Standards (SFAS) No. 39, Share-based Payment. Under SFAS No. 39, the value of the stock options granted, which is equal to the best available estimate of the number of stock options expected to vest multiplied by the grant-date fair value, is expensed on a straight-line basis over the vesting period, with a corresponding adjustment to capital surplus - employee stock options. The estimate is revised if subsequent information indicates that the number of stock options expected to vest differs from previous estimates. Pension Cost WTC, PDC, Frontier, Hannstar and KT each have defined benefit pension plans covering all employees. Pension cost under a defined benefit plan is determined by actuarial valuations. Contributions made under a defined contribution plan are recognized as pension cost during the year in which employees render services. Curtailment or settlement gains or losses on the defined benefit plan are recognized as part of the net pension cost for the year. NTK, Kamaya and Sevco also have defined benefit plans based on their local laws. Under local laws, the subsidiaries in PRC have a defined contribution plan and recognize net pension costs based on monthly contributions. Treasury Stock Treasury stock is the Company own stock acquired according to the Stock Exchange Law. When the Company does not dispose or write off these stocks, their cost is listed as a deduction of stockholders equity. The difference is listed as capital surplus - treasury stock when the disposal price is higher than book value. If the price is lower, the difference will be recognized as deduction of capital surplus - treasury stock, but the capital surplus- treasury stock is insufficient, the shortage is debited to retained earnings. Foreign-currency Transactions Foreign-currency transactions are recorded in New Taiwan dollars at exchange rates in effect on the transaction date. Gains or losses caused by applying prevailing exchange rates when foreign-currency receivables and payables are settled, are credited or charged to nonoperating income. Assets and liabilities denominated in foreign currencies are translated at the exchange rates prevailing on the balance sheet date, and any resulting gains or losses are credited or charged to non-operating income