QUANTA COMPUTER INC. AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS

Transcription

1 (English Translation of Financial Report Originally Issued In Chinese) CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2011 AND 2010 (WITH INDEPENDENT AUDITORS REPORT THEREON) Address: No. 188 Wen Hwa 2 nd Rd., Kuei Shan Hsiang, Tao Yuan Shien, Taiwan Telephone:

2 TABLE OF CONTENTS Contents Page Cover Page 1 Table of Contents 2 Independent Auditor s Report 3 Consolidated Balance Sheets 4-5 Consolidated Statements of Income 6 Consolidated Statements of Change in Stockholders Equity 7 Consolidated Statements of Cash Flows 8-10 Notes to Consolidated Financial Statements

3 Independent Auditors Report To the Board of Directors and Shareholders of Quanta Computer Inc.: We have audited the accompanying consolidated balance sheets of Quanta Computer Inc. and its subsidiaries (the Consolidated Company) as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in stockholders equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Rules Governing Auditing and Certification of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those regulations and standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. An audit includes examining, on a test basis, evidences 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 financial statement presentation. We believe that our audits provide a reasonable basis for our opinion

4 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Quanta Computer Inc. and its subsidiaries as of December 31, 2011 and 2010, and the results of its operations and its consolidated cash flows for the years then ended in conformity with Guidelines Governing the Preparation of Financial Reports by Securities Issuers, and accounting principles generally accepted in the Republic of China KPMG CPA: Lin, Wan Wan Chiang, Chung Yi March 29, 2012 Note to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with the accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. The auditors report and the accompanying financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language auditors report and financial statements, the Chinese version shall prevail

5 (English Translation of Financial Report Originally Issued in Chinese) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2011 AND 2010 (All Amounts Expressed in Thousands of New Taiwan Dollars, Except for Share Data) December 31, 2011 December 31, 2010 Amount % Amount % ASSETS Current Assets: Cash and cash equivalents (Notes (2) and (4)(a)) $ 263,884, ,043, Financial assets reported at fair value through profit or loss 355, , current (Notes (2) and (4)(b)) Available-for-sale financial assets - current (Notes (2) and (4)(b)) 19,807, ,097,722 7 Held-to-maturity financial assets - current (Notes (2) and (4)(b)) 734, Financial assets carried at cost - current (Notes (2) and (4)(b)) Notes receivable, net 20,964-8,325 - Accounts receivable, net (Notes (2) and (4)(c)) - Related parties(note (5)) 239, , Other customers 187,367, ,192, Other receivables, net - Related parties(note (5)) , Other customers 2,069,338-1,370,895 - Other financial assets - current 13,404, ,065,518 2 Inventories (Notes (2) and (4)(d)) 113,906, ,374, Prepayments (Note (5)) 1,165,239-1,474,625 - Deferred income tax assets - current (Notes (2) and (4)(k)) 2,413,474-1,931,477 - Other current assets (Note (5)) 826, , ,195, ,321, Investments: Available-for-sale financial assets - noncurrent (Notes (2) and (4)(b)) 204,011-2,782,747 1 Held-to-maturity financial assets - noncurrent (Notes (2) and (4)(b)) ,568 - Financial assets carried at cost - noncurrent (Notes (2) and (4)(b)) 7,385, ,833,013 2 Long-term investments at equity (Notes (2) and (4)(e)) 683,703-1,016,412 - Other financial assets - noncurrent (Note (6)) 297, ,449-8,570, ,102,189 3 Property, Plant and Equipment at Cost: (Note (2)) Land 2,999, ,999,883 1 Buildings 28,250, ,546,582 5 Machinery and equipment 39,550, ,225,214 6 Molds and tools 583, ,772 - Transportation equipment 163, ,086 - Furniture and office facilities 1,726,343-1,489,541 - Leasehold improvements 1,638,937-1,485,233 - Miscellaneous equipment 3,602, ,905, ,515, ,225, Less: Accumulated depreciation (25,487,715) (3) (19,114,473) (4) Less: Accumulated impairment - - (84,000) - Construction in progress 169,466-1,112,411 - Prepayments for equipment 125,157-93,522-53,322, ,233,088 9 Intangible Assets (Note (2)) 1,724,178-1,639,057 - Other Assets Rental assets (Notes (2) and (4)(g)) 183, ,307 - Idle assets (Notes (2) and (4)(g)) 74, Deferred income tax assets -noncurrent (Note (2)) 88, ,477 - Other assets (Note (2)) 749, ,799-1,096,346-1,688,583 - TOTAL ASSETS $ 670,908, ,983, The accompanying notes are an integral part of the financial statements

6 (English Translation of Financial Report Originally Issued in Chinese) CONSOLIDATED BALANCE SHEETS (CONT'D) DECEMBER 31, 2011 AND 2010 (All Amounts Expressed in Thousands of New Taiwan Dollars, Except for Share Data) December 31, 2011 December 31, 2010 Amount % Amount % LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term debt (Note (4)(h)) $ 268,713, ,127, Financial liabilities reported at fair value through profit or loss - current (Notes (2) and ,445 - Notes payable 21,515-20,064 - Accounts payable - Related parties (Note (5)) 329, , Vendors 197,546, ,010, Income tax payable 8,726, ,323,148 1 Accrued expenses (Note (5)) 12,332, ,970,529 2 Other payables (Note (5)) 3,671, ,322,660 1 Other financial liabilities - current (Note (5)) 6,076, ,500,936 1 Current portion of long-term debt (Notes (2) and (4)(i)) ,826 - Warranty reserve (Note (5)) 11,238, ,445,915 2 Other current liabilities (Note (5)) 5,481, ,464, ,137, ,640, Long-Term Liabilities: Long-term debt (Note (4)(i)) 32,679, ,784,149 6 Other financial liabilities - noncurrent 56,142-62,892-32,736, ,847,041 6 Other Liabilities: Accrued pension cost 1, Other liabilities (Note (2)) 271, , , ,492 - Total Liabilities 547,146, ,860, Stockholders' Equity:: Common stock - authorized 4,200,000 thousand shares, 3,841,059 thousand 38,410, ,338,734 8 shares issued and outstanding in 2011; 3,833,873 thousand shares issued and outstanding in 2010 (Note (4)(l)) Advance receipts for common stock 6,243-21,388 - Capital Surplus:(Note (2)) Premium on stock issuance 13,356, ,178,421 3 Treasury stock 183, ,322 - Donated surplus Long-term investments at equity 520, ,473-14,060, ,827,260 3 Retained Earnings: Legal reserve (Note (4)(m)) 18,606, ,747,441 3 Retained earnings - unappropriated (Note (4)(p)) 49,620, ,249, ,227, ,996, Other Adjustments to Stockholders' Equity: Cumulative translation adjustments (Note (2)) 2,552, ,137 - Net loss not recognized as pension cost (Note (2)) (76) Unrealized gain on financial instruments (Note (2)) (6,579,593) (1) 163,394 - Treasury Stock (Notes (2) and (4)(q)) (333,094) - (475,840) - (4,360,272) (1) 418,691 - Total Parent Company's Equity 116,344, ,602, Minority interest 7,417, ,521,061 1 TOTAL Stockholders' Equity 123,761, ,123, Commitments and contingencies Liabilities(Note (7)) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 670,908, ,983, The accompanying notes are an integral part of the financial statements. -5 -

7 (English Translation of Financial Report Originally Issued in Chinese) CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (All Amounts Expressed in Thousands of New Taiwan Dollars, Except for Share Data) For The Years Ended December 31, Amount % Amount % Operating Revenues Sales Revenue $ 1,119,323, ,130,040, Less: Sales returns (5,583,319) (1) (4,477,166) - Sales allowances (4,012,137) - (835,399) - Net sales 1,109,727, ,124,727, Cost of goods sold (Note (4)(d)) (1,067,204,135) (96) (1,085,917,347) (97) Gross margin 42,523, ,810,207 3 Unrealized gross profit- end of the period (1,215) - (302) - Realized gains profit-beginning of the period ,522, ,810,226 3 Operating expenses Selling expenses (10,380,695) (1) (7,852,052) (1) General and administrative expenses (7,086,025) (1) (5,899,405) - Research and development expenses (9,171,294) (1) (9,082,567) (1) (26,638,014) (3) (22,834,024) (2) Income from operations 15,884, ,976,202 1 Non-operating income Interest income 7,336, ,548,279 - Investment income recognized under equity method (Notes (2) and (4)(e)) 26,348-69,606 - Dividend income 690, ,847 - Gain on disposal of investments 2,023, ,488 - Foreign exchange gains, net (Note (2)) 8,886, ,587,487 - Gain on valuation of financial assets (Notes (2) and (4)(b)) 62,299-87,888 - Gain on valuation of financial liabilities (Notes (2) and (4)(b)) - - 1,489 - Miscellaneous income 4,151,970-5,351, ,177, ,858,161 1 Non-operating expenses Interest expense (5,422,722) - (1,495,768) - Impairment loss (Notes (2) and (4)(b)) (344,463) - (113,491) - Loss on valuation of financial liabilities (Notes (2) and (4)(b)) (30,787) Miscellaneous disbursements (722,924) - (516,362) - (6,520,896) - (2,125,621) - Income before income tax 32,541, ,708,742 2 Income tax expense (Notes (2) and (4)(k)) (9,042,722) (1) (7,377,771) - Consolidated net income $ 23,498, ,330,971 2 Income attributable to : Shareholders of parent company $ 23,052, ,592,075 2 Minority interest income 446, ,896 - $ 23,498, ,330,971 2 Before Tax After Tax Before Tax After Tax Earnings per share attributable to parent company (Notes (2) and (4)(r)) Primary earnings per share $ Diluted earnings per share $ Assuming that company shares held by its subsidiaries are not regarded as treasury stock: Pro-forma primary earnings per share $ Pro-forma diluted earnings per share $ The accompanying notes are an integral part of the financial statements

8 (English Translation of Financial Report Originally Issued in Chinese) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (All Amounts Expressed of New Taiwan Dollars in Thousands, Except for Share Data) Capital Stock Common Certificates of Bond- Advance Receipts Capital Legal Special Unappropriated Retained Cumulative Translation Net loss not recognized Unrealized Gain or Loss on Financial Minority Total Stock to-stock Conversion for Common Stock Surplus Reserve reserve Earnings Adjustments as pension cost Instruments Treasury Stock Interest Balance as of January 1, 2010 $ 37,819, ,936 47,283 12,143,990 14,516,146 1,731,257 38,275,607 1,722, ,997 (475,840) 7,389, ,008,869 Reversal of special reserve (1,731,257) 1,731, Conversion of empleyee stock options 121,690 - (25,895) 328, ,306 Convertible bonds payable converted into common stock 397,283 (148,936) - 1,397, ,645,594 Dividends distributed to subsidiaries as an adjustment of capital surplus , ,686 Consolidated net income for the year ended December 31, ,592, ,896 19,330, earnings distribution: (Note 1) Legal reserve ,231,295 - (2,231,295) Cash dividends (14,118,379) (14,118,379) Effects of change in percentage of ownership in long-term equity investments (22,616) (22,616) Unrealized loss on available-for-sale financial assets (451,543) - - (451,543) Changes in minority interests (607,541) (607,541) Changes in equities of investee company under the equity method recognized according to ownership (35,558) (990,889) - (75,060) - - (1,101,507) Balance as of December 31, ,338,734-21,388 13,827,260 16,747,441-42,249, , ,394 (475,840) 7,521, ,123,840 Conversion of empleyee stock options 71,860 - (15,145) 177, ,316 Disposal of company shares held by subsidiaries regarded as treasury stock transactions , , ,648 Convertible bonds payable converted to common stock , ,729 Consolidated net income for the year ended December 31, ,052, ,193 23,498, earnings distribution: (Note 2) Legal reserve ,859,207 - (1,859,207) Cash dividends (13,821,849) (13,821,849) Effects of change in percentage of ownership in long-term equity investments Unrealized loss on available-for-sale financial assets (6,405,505) - - (6,405,505) Changes in minority interests (549,644) (549,644) Changes in equities of investee company under the equity method recognized according to ownership , ,821,354 (76) (337,482) - - 1,496,214 Balance as of December 31, 2011 $ 38,410,594-6,243 14,060,186 18,606,648-49,620,745 2,552,491 (76) (6,579,593) (333,094) 7,417, ,761,754 Retained Earnings Other adjustment item Note 1: Bonuses to employees amounted to 1,985,000 and emoluments to directors amounted to 42,000 had been charged against earnings. Note 2: Bonuses to employees amounted to 1,655,000 and emoluments to directors amounted to 42,000 had been charged against earnings. The accompanying notes are an integral part of the consolidated financial statements

9 (English Translation of Financial Report Originally Issued in Chinese) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (All Amounts Expressed in Thousands of New Taiwan Dollars, Except for Share Data) For The Years Ended December 31, Amount Amount Cash flows from operating activities: Consolidated net income $ 23,498,729 19,330,971 Adjustments to reconcile consolidated net income to net cash provided by (used in) operating activities: Depreciation 5,873,618 5,019,432 Amortization 613, ,835 Provision for doubtful accounts 96, ,757 Provision (reversal) for sales return and allowances 2,100,951 (1,041,439) Reversal for warranty reserve (308,936) (1,194,014) Amortization of premium on financial assets Foreign exchange rate effect convertible corporate on bonds payable - (16,498) Amortization of corporate bonds issue cost - 1,374 Provision for inventory market price decline and obsolescene 674,556 1,635,875 Investments income recognized under equtiy method (26,348) (69,606) Cash dividends received from long-term investment at equity 89,351 11,659 Loss on disposal and retirement of property, plant and equipment 113,071 62,493 Expense reclassified from property, plant and equipment 4,127 2,473 Gain on disposal of intangible assets (14) - (Gain) loss on disposal and retirement of idle assets (19,570) 17,524 Loss on disposal of other assets - 42 Gain on disposal of investements (2,209,653) (760,186) Gain on disposal of long-term investment at equity (4,019) - Unrealized valuattion gain of financial assets and liabilities (3,432) - Loss on permanent market decline on financial assets 344, ,491 Reversal for impairment loss of non-financial assets (79) (23,313) Unrealized (gain) loss of foreign-exchange (3,240) 9,015 Effects of exchange rate change on long-term debt 686,263 (1,375,350) Others 74, ,322 Change in operating assets and liabilities: Decrease in financial assets held for trading 148, ,520 Increase in notes receivable (12,640) (1,423) Decrease (increase) in accounts receivable 2,306,963 (36,522,095) Increase in other receivables (211,800) (375,821) Increase in inventories (28,992,820) (32,044,702) Decrease ( increase) in prepayments 427,208 (683,528) ( Increase) decrease in other current assets (167,161) 80,255 Increase in other financial assets (1,173,165) (496,777) ( Increase) decrease in deferred income tax assets (66,224) 135,763 (Decrease) increase in financial liabilities held for trading (16,445) 16,445 Increase in notes payable 1,436 8,158 (Decrease) increase in accounts payable (9,530,534) 42,796,294 Increase in income tax payable 4,199,714 2,129,646 Increase in accrued expense 762, ,037 (Decrease) increase in other payable (395,862) 118,805 Increase in other financial liabilities 2,474, ,978 Increase in other current liabilities 1,027,138 2,127,689 Decrease in other operating liabilities (120,625) (125,692) Net cash provided by operating activities 2,255,757 1,571,428 The accompanying notes are an integral part of the consolidated financial statements

10 (English Translation of Financial Report Originally Issued in Chinese) CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D) FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (All Amounts Expressed in Thousands of New Taiwan Dollars, Except for Share Data) For The Years Ended December 31, Amount Amount Cash flows from investing activities: Acquisitions of available-for-sale financial assets (116,169,492) (138,483,832) Proceeds from disposal of available-for-sale financial assets 129,535, ,701,077 Acquisitions of held-to-maturity financial assets (545,919) - Proceeds from disposal of held-to-muturity financial investment - 2,097,782 Acquisitions of financial assets carried at cost (1,206,872) (271,927) Proceeds from disposal of financial assets carried at cost 147, ,779 Proceeds from return of capital by financial assets carried at cost 542, ,955 Increase in long-term investments at equity - (59,969) Proceeds from disposal of long-term investments at equity 34,908 10,573 Acquision of subsidiray (440,559) (40,770) Proceeds from return of capital by long-term investment at equity 40,324 13,198 Purchase of property, plant and equipment (7,165,545) (10,563,353) Proceeds from disposal of property, plant and equipment 486,632 99,213 Purchase of rental assets (188) (43,272) Proceeds from disposal of idle assets Purchase of intangible assets (129,947) (140,551) Proceeds from disposal of intangible assets 29,707 - Increase in other financial assets (2,974,237) (3,483,190) Increase in other assets (540,379) (593,281) Net cash provided by (used in) investing activities 1,644,537 (13,886,320) Cash flows from financing activities: Increase in short-term debts 123,418,211 72,107,046 Redemption of convertible corporate bonds - (3,240) Increase in long-term debts 1,720,800 33,558,807 Repayment of long-term debts (63,486) (1,807,128) (Decrease) increase in other financial liabilities (10,356) 16,165 Distribution of cash dividends (14,168,728) (14,640,845) Issuance of capital by cash 204, ,000 Capital return (138,734) - Conversion of employee stock options 234, ,736 Cost of treasury stocks bought back (138,960) - Changes in minority interest - (173,250) Net cash provided by financing activities 111,057,323 89,725,291 Foreign exchange rate effects 11,883,627 (5,164,459) Net increase in cash and cash equivalents 126,841,244 72,245,940 Cash and cash equivalents, beginning of the period 137,043,179 64,797,239 Cash and cash equivalents, end of the period $ 263,884, ,043,179 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 4,922,691 1,290,299 Income tax $ 4,719,627 5,197,748 Non-cash investing and financing activities: Current portion of long-term debt $ - 48,825 Cash dividends payable $ 735, ,109 Financial assets carried at cost transferred to available-for-sale financial assets $ 218, ,681 Financial assets carried at cost transferred to long-term investments at equity $ - 144,987 Purchase of property and equipment with cash and other payables: Property, plant and equipment $ 6,865,261 11,179,914 Decrease (increase) in payables on equipment 300,284 (616,561) Cash paid $ 7,165,545 10,563,353 The accompanying notes are an integral part of the consolidated financial statements

11 (English Translation of Financial Report Originally Issued in Chinese) CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D) FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 (All Amounts Expressed in Thousands of New Taiwan Dollars, Except for Share Data) For The Years Ended December 31, Amount Amount Acquisition of assets and liabilities of fair value of subsidiaries Cash $ 84, ,764 Notes receivable and accounts receivable 345,362 1,396,563 Other receivables 8,811 2,971 Other financial assets - current 101,799 - Inventories 68, ,957 Prepayments 3,621 - Other current assets 2, Property, plant and equipment 1,272, ,564 Intangible assets 29,848 - Other assets 1,901 6,829 Goodwill 214, ,997 Minority interest - (276,997) Short-term debts (1,336,228) (339,644) Notes payable and accounts payable (202,981) (1,287,819) Accrued expenses (24,350) (563) Income tax payable - (1,383) Other payables (45,228) (27,596) Other current liabilities (441) (45,276) Purchase price on acquisition of subsidiaires 524, ,534 Cash balance of subsidiaries at the acquisition date (84,011) (321,764) Cash paid on acquisition of subsidiaries $ 440,559 40,770 The accompanying notes are an integral part of the financial statements

12 (1) Organization and Business Quanta Computer Inc. (the Company ) was incorporated on May 9, 1988 in the Republic of China (ROC). The Company engages primarily in the manufacturing, processing, and sales of laptop computers and telecommunication products. Currently, its Linko factory campuses concentrate on research and development of laptop computers and telecommunication products, while positioned as center of global operation. The shares of the Company became officially listed and traded on the Taiwan Stock Exchange on January 8, As of December 31, 2011 and 2010, the Company and its subsidiaries (the Consolidated Company ) had 108,872 and 68,720 employees, respectively. (2) Summary of Significant Accounting Policies The Company s consolidated financial statements were prepared in accordance with Guidelines Governing the Preparation of Financial Reports by Securities Issuers and generally accepted accounting principles of the Republic of China. The significant accounting policies and their measurement basis are as follows: (a) Status of Consolidation (i) Subsidiaries included in the consolidated financial statements: Shareholding ratio Investor Subsidiary Principal Business The Company Quanta Int l Holding company Ltd.(QIL) QCJ Manufacture, after-sale service and sales of computer and telecommunication products Quanta Computer Investment company Technology Investment Corp.(QCTI) Quanta Venture Venture capital 99.99% 99.99% Capital Co., Ltd. (QVC) Quanta Cloud Wholesale of computers 99.90% 99.90% Technology and computer accessories Inc.(QCT) (Initial DataOn Systems Inc.) Quanta Network Systems Inc. (QNS) FaceVsion Technology Inc.(FVT) Manufacture and sales of telecommunication equipment Wholesale of electric components, equipment and retail of other telecommunication products Note % As of June 30, 2011, QNS has completed for liquidation

13 Investor Subsidiary Principal Business The Company Puzzle Logic Wholesale of electric Inc.(PLI) components, equipment and retail of other telecommunication products Gem-Tech Precision Metal Co., Ltd. (GTP) CloudCast Technology Inc., (CLO) The Company, QCTI and QVC The Company and QCTI TWDT Precision Co., Ltd. (TWDT) Quanta Storage Inc. (QSI) RoyalTek Company Ltd. (RTK) Manufacture, wholesale and retail of product molds Service, wholesale and retail of information software, service of data processing Shareholding ratio Note % - CLO was established in May 2011, and as of December 31, 2011, CLO s issued capital amounted to $30,000. Computers, electronic products, optical products and other transportation manufacturing business 55.00% 55.00% Optical industry 29.78% 29.50% Although the Company is holding less than 50% of QSI's outstanding equity shares, it has controlling interest over QSI's finance, operation and employment decision. Therefore, QSI was included in the consolidated financial statements. Satellite guided navigation systems and peripherals, navigated map and design, manufacture, sales, integration of digital map Quanta Microsystem Electronic company Inc. (QMIT) 37.57% 37.57% Although the Company is holding less than 50% of RTK s outstanding equity shares, it has controlling interest over RTK s finance, operation and employment decision. Therefore, RTK was included in the consolidated financial statements. QIL QCE Computer BV(QCE) Integration, after-sale service and sales of notebook PCs, and peripherals Access International Investment company Co. (AIC) Quanta Asia Ltd. Investment company and (QAL) after-sale service Quanta Capital Management Ltd. (QCML) Investment company

14 Shareholding ratio Investor Subsidiary Principal Business Note QIL Quanta Research Investment company International, Inc. (QRII) QCT LLC (QCTU) Sales of notebook PCs, and peripherals % - QCTU was established in July 2011 and its initial investment amounted to USD 100. QCE AIC ThinkTech Ind.E Com. DE Information SA(TNH) Quanta Manufacturing Inc. (QMI) Quanta Service Inc. (QSI-USA) Quanta Computer USA, Inc.(QCA) Manufacture and sales of computers and peripherals Integration of notebook PCs, and peripherals Sales and after-sale service of notebook PCs, and peripherals After-sale service and sales of notebook PCs, and peripherals QCH Inc.(QCH) Sales of notebook PCs, and peripherals QMI Quanta Integration of notebook Manufacturing PCs, and peripherals Nashville LLC. (QMN) 60.00% 60.00% QSI-USA QCA QCH QAL Quanta Service Nashville LLC. (QSN) Quanta Computer Nashville LLC. (QCN) QCH Nashville LLC. (QCHN) Quanta Development Ltd.(QDL) Quanta International Technology Ltd.(QIT) Sales of notebook PCs, and peripherals Sales and after-sale service for notebook PCs, and peripherals Sales of notebook PCs, and peripherals Investment company and sales of notebook PCs, and peripherals Sales of notebook PCs, and peripherals QRII QIT Q_Bus International Ltd.(Q-Bus) Quanta Research Cambridge Inc. (QRC) QCG Computer GMBH (QCG) Investment Company Research and development of notebook PCs, and peripherals Sales of notebook PCs, and peripherals

15 Shareholding ratio Investor Subsidiary Principal Business QDL Quanta Investment Company Development (Hong Kong) Ltd. (QDLHK) QDLHK Tech-Front Manufacture and sales of (ShangHai) notebook PCs, and Computer Ltd. peripherals (TFC) Tech-Com (ShangHai) Computer Ltd. (TCC) Tech-Trend (ShangHai) Computer Ltd. (TTC) Tech-Lead (ShangHai) Computer Ltd. (TLC) Tech-Giant (ShangHai) Computer Ltd. (TGC) Tech-Wave (Shanghai) Warehousing Co., Ltd.(TWW) Tech-Full Computer (Changshu) Co., Ltd. (TNC) Tech-Front (Chongqing) Computer Co., Ltd. (TFQ) Tech-Wave (Chongqing) Logistics Co.,Ltd. (TWQ) Kenseisha Shanghai P.M.P. Co., Ltd. (KSH) CloudTech (Shanghai) Technology Co., Ltd. (YDSH) Manufacture and sales of notebook PCs, and peripherals Sales of notebook PCs, and peripherals Manufacture and sales of notebook PCs, and peripherals Manufacture and sales of notebook PCs, and peripherals Manufacture and storage of notebook PCs, and peripherals Manufacture of notebook PCs, design and manufacture of non-metallic molds Manufacture and sales of notebook PCs Manufacture and storage of notebook PCs, and peripherals Manufacture and sales of precise machinery, its peripherals and metallic molds R&D, sales, after-sale service and technical advice of servers, computers, network equipment and software Note % - TWQ was established in October 2011, and its initial investment amounted to USD % - YDSH was established in June 2011, and its initial investment amounted to USD 1,

16 Shareholding ratio Investor Subsidiary Principal Business Note QDLHK CloudTech(BeiJing) R&D, sales, after-sale % - YUNDA was established in Technology Co., service and technical November 2011, and its Ltd.( YUNDA) advice of servers, initial investment amounted computers, network to USD 1,000. equipment and software Q_Bus Exmore Services Holding Company 95.00% 95.00% Holding Ltd. (EXM) Tech Chain Ltd. Holding Company (TCL) EXM Exmore Services Investment Company Holding (Hong Kong) Ltd. (EXMHK) EXMHK Gem-Tech Manufacture and sale of (Shanghai) Precision non-metallic product molds Mold Co., Ltd. (GTM) TCL Tech Chain Investment company Ltd.(Hong Kong) Ltd.(TCLHK) TCLHK Zhan Yun (Shanghai) Electronics Co., Ltd. (ZYES) Manufacture of notebook PCs and peripherals Changshu Zhan Yun Manufacture of notebook Electronics Co., Ltd. PCs, and peripherals (ZYEC) Q_Bus and TCLHK QSI Zhan Yun (Chongqing) Electronics Co., Ltd. (ZYEQ) QSI (CAYMAN) Manufacture of notebook PCs, and peripherals Standard (Shanghai) Assembly and sale of Energy Co., Ltd. battery (STD) Quanta Storage International Ltd.(QSI (CAYMAN)) Quanta Storage Investment Inc. Quanta Storage (BVI) Ltd. (QSL(BVI)) Quanta Storage Holding Ltd.(QSH) Investment company Investment company Investment company Investment company % - ZYEQ was established in November 2011, and its initial investment amounted to USD 2, % 69.00% E-Forward Technology Ltd.(SAMOA) (E-FOR) Manufacture and sale of optical disc drives

17 Shareholding ratio Investor Subsidiary Principal Business QSL(BVI) Quanta Storage Investment company Holding (Hong Kong) Ltd. (QSH(H.K.)) Note QSH(H.K.) QSI(H.K.) TECHMAN Investment company Electronics (Hong Kong) Ltd. (Original name is Quanta Storage Investment (Hong Kong) Ltd.) (QSI(H.K.)) Quanta Storage (Shanghai) Ltd. (QSS) Quanta Storage (Changshu) Ltd. (QSC) Manufacture of optical storage facilities and optics Manufacture of optical storage facilities and optics Techman Electronics Manufacture of optical (Changshu) Co. storage facilities and optics Ltd.(TECHMAN) QSH Quanta Storage After sales service of America, Inc. optical disc drives and (QSU(America)) peripherals E-FOR TWDT DTG FDDT PLI PLISA FVT Quanta Storage Asia Ltd. (SAMOA) (QSA) DTG (BVI) Ltd. (DTG) Fly Dragon International Ltd. (FDDT) Dragontech City Metallic Changshu Co., Ltd.(CSDT) Puzzle Logic USA, Inc. (PLIUS) Puzzle Logic Asia, Inc. (PLISA) Puzzle Logic (Shenzhen) Ltd. (PLISZ) FaceVsion Technology USA LLC. (FVTUS) Sales and after sales service of optical disc drives and peripherals Import and export business Investment company and Trading business Manufacture of molds and tools Production design Holding Company Wholesale and retail of electronic equipment and components. Wholesale and retail of electronic equipment and components % - As of December 31, 2011, FDDT s initial investment amounted to USD 17, % - As of December 31, 2011, CSDT s initial investment amounted to USD 25,000. FaceVsion Technology Hong Investment company Kong Ltd. (FVTHK)

18 Shareholding ratio Investor Subsidiary Principal Business FVTHK FaceVsion Trading business (Changshu) Trading Co., Ltd. (FVTC) Note RTK RTKI Royaltek International Enterprises Ltd.(RTKI) Royaltek Trading (Changshu) Co., Ltd.(RTKT) Investment company Import and export business and wholesale of electronic products QMIT QMJ, Inc. Import and export business and wholesale of electronic products % - As of December 31, 2011, QMJ s initial investment amounted to JPY 10,000. (ii) (iii) Subsidiaries excluded in the consolidated financial statements: None. The consolidated financial statements include the accounts of the Company and those of the aforementioned subsidiaries in which the Company has controlling interest. All material inter-company transactions have been eliminated in the consolidated financial statements. (b) Foreign Currency and Financial Report Translation The Consolidated Company s functional currency is expressed in the New Taiwan dollar, the national currency of the ROC. Foreign currency transactions during the period are translated at exchange rates on the transaction dates. Foreign currency-denominated assets and liabilities are translated into New Taiwan Dollar at the exchange rate prevailing on the balance sheet date, and the resulting realized and unrealized gains or losses are recognized as non-operating income or expenses. The Company adopted the amended ROC Statement of Financial Accounting Standards ( SFAS ) No. 14, Accounting for Foreign Currency Transactions and Translation of Foreign Financial Statements. Under SFAS No. 14, non-monetary assets and liabilities denominated in foreign currencies are stated at historical cost. The exchange differences from the translation of available-for-sale financial assets are recognized as an adjustment to shareholder s equity. The exchange difference from the translation of financial assets (liabilities) reported at fair value through profit or and loss and financial assets carried at cost are recognized in earnings. All foreign currency-denominated consolidated subsidiaries record their transactions in their functional currency. The translation difference which results in further exchange loss is included in stockholders equity as cumulative translation adjustments

19 (c) Use of Estimates The preparation of the accompanying consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. (d) Basis for Classifying Assets and Liabilities as Current or Non-Current Unrestricted cash, cash equivalents, assets held for trading or other assets that the Consolidated Company will convert to cash or use within in a relatively short period of time one year or one operating cycle, whichever is longer, are classified as current assets, otherwise are classified as non-current assets. Debts due within one year or one operating cycle, whichever is longer, are classified as current liabilities, otherwise are classified as non-current liabilities. (e) Cash Equivalents Cash equivalents are defined as highly liquid short-term investments which are readily convertible into known amounts of cash and with maturities within three months. Interest rate fluctuations have little effect on the values of these investments. Cash equivalents include short-term bills with repurchase agreements, commercial paper and banker s acceptance, which are stated at cost. (f) Financial Assets (Liabilities) Reported at Fair Value Through Profit or Loss Financial assets held for trading are those that the Consolidated Company principally holds for the purpose of short-term profit taking. The financial derivatives, except for those that meet the criteria of hedge accounting, are reported as financial assets (liabilities) at fair value though profit or loss. Financial assets (liabilities) reported at fair value through profit or loss is initially measured at fair value, and transaction costs are expenses that are directly attributable to the acquisition. At each balance sheet date subsequent to initial recognition, financial assets (liabilities) reported at fair value through profit or loss are remeasured at fair value, with changes in fair value recognized directly in profit or loss in the year in which they arise. All regular way purchases or sales of financial assets are recognized and derecognized on a trading date basis. (g) Available-for-sale Financial Assets Available-for-sale financial assets are measured at fair value, and changes therein, other than impairment losses and foreign exchange gains and losses on available-for-sale monetary items, are recognized directly in equity. When an investment is derecognized, the cumulative gain or loss in equity is transferred to profit or loss. All regular way purchases or sales of financial assets are recognized and derecognized on a trading date basis. If there is any objective evidence which indicates that a financial asset is impaired, a loss is recognized in earnings. If, in a subsequent period, the amount of the impairment loss for equity securities decreases, the previously recognized impairment loss is reversed to the extent of the decrease and will be recorded as an adjustment to equity. The amount of the decrease for debt securities is recognized in profit or loss, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized

20 (h) Held-to-maturity Financial Assets Held-to-maturity financial assets are those that the Consolidated Company has a positive intent and ability to hold to maturity. Held-to-maturity financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. Disposal, impairment loss and amortization of held-to-maturity financial assets are recognized directly in profit or loss. All regular way purchases or sales of financial assets are recognized and derecognized on a trading date basis. If, in a subsequent period, the amount of the impairment loss decreases and the decrease is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss is reversed to the extent of the decrease. The reversal may not result in a carrying amount of the financial asset that exceeds the amortized cost that would have been determined as if no impairment loss had been recognized. (i) Financial Assets Carried at Cost Investments that do not have significant influence, a quoted market price in an active market and whose fair value cannot be reliably measured are carried at original cost. If there is objective evidence that a financial asset is impaired, a loss is recognized. The subsequent recovery in fair value is not recognized. (j) Notes and Account Receivables, and Other Receivables Notes and Account receivable are rights resulting from the sale of goods or rendering of services. Other receivables are receivables arising from non-operating activities. The Consolidated Company first assesses whether any objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The carrying amount of the asset shall be reduced through the use of an allowance account. The amount of the loss shall be recognized in profit or loss. Upon determining the amount of impairment, the present value of the estimated future cash flows shall include collateralized financial asset and related insurance recoverable amount. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date impairment is reversed. The amount of the reversal shall be recognized in profit or loss. An allowance for doubtful accounts is provided and recognized based on the Consolidated Company s evaluation of the collectable probability of notes and accounts receivables before December 31,

21 (k) Assets Impairment In accordance with the Statement of Financial Accounting Standards No. 35 (SFAS 35) Impairment of Asset, the Consolidated Company assesses at each balance sheet date whether there is any indication that an asset may have been impaired. If any such indication exists, the Consolidated Company estimates the recoverable amount (which is the higher of fair value less costs to sell or value in use) of the asset. The Consolidated Company recognizes impairment loss for an asset whose carrying value is higher than the recoverable amount. The Consolidated Company reverses an impairment loss recognized in prior periods for assets other than goodwill if there is indication that the impairment loss recognized no longer exists or has decreased. The carrying value after the reversal should not exceed the recoverable amount or the depreciated or amortized balance of the assets assuming no impairment loss was recognized in prior periods. The Consolidated Company performs an impairment test on the cash-generating unit to which goodwill is allocated on an annual basis and recognizes an impairment loss on the excess of carrying value over the recoverable amount. (l) Inventories The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The fixed manufacturing overheads are allocated to the work-in-process and finish goods by the normal capacity of the manufacturing equipment, and the variable costs are allocated by the actual output. Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted average cost principle. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses at the end of the period. A provision for inventory devaluation and obsolescence is recorded when management determines that the market values of inventories are less than their costs or based on the number of months that inventory items remain unsold. Such provisions are reversed in whole or in part if management further determines that the market values of inventories are greater than their costs. (m) Long-Term Investments at Equity Long-term equity investments in investees in which the Consolidated Company has controlling interest over their operation, financial and dividend policies and owns more than 20% (or owns even less than 20%, but the Consolidated Company can exercise significant influence) of the investees voting shares, are accounted for under the equity method. It has controlling interest over their operation, financial and dividend policies and owns more than 50%, except for under the equity method, the company was included in the consolidated financial statements. Upon sale of long-term investments, the weighted-average method is adopted in calculating the cost and gain or loss on disposal thereof. The capital surplus and cumulative translation adjustments arising from long-term equity investments are adjusted against current year s gain or loss based on the percentage of sale

22 Unrealized inter-company profits or losses resulting from transactions between the Company and an investee accounted for under the equity method are deferred. Intercompany profits or losses arising from fixed assets transactions are recognized over the estimated economic lives of such assets. Inter-company profits or losses arising from transactions involving other assets are recognized when realized. When the Consolidated Company s share in losses of an equity-method investee equals its investment in the investee plus any advances made to the investee, the Consolidated Company discontinues applying the equity method. The Consolidated Company continues to recognize its share in losses of the investee if (a) the Consolidated Company commits to provide further financial support to the investee or (b) the losses of the investee are considered to be temporary and sufficient evidence shows imminent return to profitability. When the Consolidated Company s share in losses of an investee over which the Consolidated Company has control exceeds its investment in the investee, unless the other shareholders of the investee have assumed legal or constructive obligations and have demonstrated the ability to make payments on behalf of the investee, the Consolidated Company has to bear all of the losses in excess of the capital contributed by shareholders of the investee. Any credit balance on the carrying value of a long-term investment and advances are reclassified to other liabilities in the balance sheets. (n) Property, Plant, and Equipment and Depreciation Property, plant, and equipment are stated at cost. Major additions, improvements, and replacements are capitalized. Interest incurred up to the time when the asset is ready for its intended use is capitalized as part of the acquisition cost. Depreciation is calculated by using the straight-line method over the economic useful lives plus one year for any residual value. Assets still in use after full depreciation may continue to be depreciated based on the remaining estimated economic lives and residual values. The economic useful lives of major property and equipment are as follows: Buildings 3-50 years Machinery and equipment 2-10 years Molds and tools 2-3 years Furniture and office facilities 3-9 years Transportation equipment 5-8 years Miscellaneous equipment 2-11 years Leasehold improvement 2-5 years Rental assets and idle fixed assets, which are not used for operating purposes, are classified as other assets

23 (o) Intangible Assets The Consolidated Company adopts the Statement of Financial Accounting Standard No. 37 (SFAS 37) Intangible Assets. According to SFAS 37, intangible assets are stated at cost, except for the government grant which is stated at fair value. The intangible assets with finite life is measured at its cost plus the revaluation increment arising from the revaluation in accordance with the laws, less any accumulated amortization and any impairment losses. The intangible assets with indefinite life are measured at its cost plus the revaluation increment arising from the revaluation in accordance with the laws, less any accumulated impairment losses. The depreciable amount of intangible assets with definite lives is determined after deducting its residual value. Amortization is recognized as an expense on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. Royalty fees and patent are amortized over the patent effective period upon commencement of commercial production. Land usage rights are amortized over a period of 30 years to 50 years. Computer software is amortized over a period of 3 years. Trademarks are amortized over a period of 10 years. According to SFAS 37, the amortization of intangible assets with indefinite lives can t be recognized. The residual value, the amortization period, and the method for amortizing an intangible asset with definite useful life are reviewed at least once a year at the end of each financial year. The changes thereof are accounted for as changes in accounting estimate. The useful life of an intangible asset with indefinite lives that is not being amortizes shall be reviewed each perio d to determine whether events and circumstances continue to support an indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite shall be accounted for as a change in accounting estimate. The difference between investment cost and net equity in investments, representing goodwill, is not amortized and instead tested for impairment annually. While an indication of asset impairment exists, the Company estimates the recoverable amount of the asset. Impairment loss is recognized for the excess of the carrying amount over the expected recoverable amount and is recognized in profit or loss. (p) Deferred Expenses Telephone connection charge is amortized over a period of 3 years

24 (q) Convertible Corporate Bonds Payable The cost of issuing convertible bonds with bondholders put options before January 1, 2006 is capitalized and amortized over the period from the issue date to the expiration date of the put option. The unamortized amount is reported as deferred expense. When bondholders exercise their conversion rights, the unamortized issue costs, interest payable, recognized interest premium, and the par value of the convertible bonds are written-off. The excess of the net written-off carrying amount over the par value of the common stock entitlement certificate or common stock is recognized as capital surplus premium on stock issuance. (r) Warranty Reserve An allowance is provided for products sold with warranty, based on estimated warranty cost and in the consideration of past experience, and is recognized as current expense. (s) Pension Plan The Consolidated Company has adopted SFAS No.18 Accounting for Pensions as the basis of accounting for its defined benefits pension plan. Net periodic pension cost recognized in accordance with SFAS No. 18, includes the current service cost, amortization of net transition asset or obligation, prior service cost and amortization of unrecognized gain (loss) on pension plan on straight-line basis over the expected average remaining service period of 21 years of the employees in accordance with the rules set by the SFB. Under this plan, the Consolidated Company contributes monthly an amount equal to 2% of gross salary to a pension fund, which is deposited into a designated depository account with the Bank of Taiwan. Pursuant to the Act, the Consolidated Company contributes an amount equal to 6% of gross salary of each employee to the Council of Labor Affairs. These contributions are recognized as pension expense during the period when contributions are made. The Consolidated Company adopts a defined contribution pension plan (mainly for foreign subsidiaries) according to local regulations and recognizes monthly pension contributions as current expenses. According to the regulations of the Peoples Republic of China government, the subsidiaries in mainland China contribute basic retirement insurance fees according to the legal percentages of employee s salary and recognize these fees as current expenses. The other foreign subsidiaries do not adopt SFAS No 18 Accounting for Pensions if the local governments do not have pension acts or the subsidiaries do not adopt any defined benefit employee pension plan