walsin technology corporation and subsidiaries · - 1 - independent auditors’ report the board of...

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

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

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In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Walsin Technology Corporation and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China. March 21, 2012

Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and consolidated financial statements shall prevail. Also, as stated in Note 2 to the consolidated financial statements, the additional footnote disclosures that are not required under generally accepted accounting principles were not translated into English.

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WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) 2011 2010 2011 2010 ASSETS Amount % Amount % LIABILITIES AND STOCKHOLDERS’ EQUITY Amount % Amount % CURRENT ASSETS CURRENT LIABILITIES

Cash and cash equivalents (Notes 2 and 4) $ 3,879,024 14 $ 9,627,139 17 Short-term loans (Note 14) $ 1,592,691 6 $ 3,843,314 7 Financial assets at fair value through profit or loss - current (Notes 2 and 5) 79,184 - 38,584 - Notes payable 192,639 1 700,848 1 Held-to-maturity financial assets - current (Notes 2 and 6) 23,993 - - - Accounts payable 1,018,496 4 5,173,028 9 Notes receivable (Notes 2 and 7) 151,892 1 244,633 - Income tax payable (Notes 2 and 22) 15,530 - 173,723 - Notes receivable from related parties (Notes 2, 7 and 24) 1 - 2,029 - Financial liabilities at fair value through profit or loss - current (Notes 2 and 5) - - 4,920 - Accounts receivable (Notes 2 and 7) 3,923,639 14 11,014,045 19 Hedging derivative liabilities - current (Notes 2 and 27) - - 2,172 - Accounts receivables from related parties (Notes 2, 7 and 24) 9,947 - 20,205 - Payables on equipment (Note 24) 603,211 2 1,095,456 2 Other receivables 85,461 - 515,573 1 Other payables (Note 24) 1,404,679 5 2,447,752 4 Other receivables from related parties (Note 24) 229,240 1 9,904 - Current portion of long-term debt (Note 16) 419,683 2 1,500,000 3 Inventories (Notes 2 and 8) 3,827,603 14 5,651,830 10 Other current liabilities 103,966 - 105,321 - Deferred income tax assets - current (Notes 2 and 22) 144,481 1 156,177 - Other current assets (Note 2) 790,033 3 547,944 1 Total current liabilities 5,350,895 20 15,046,534 26

Total current assets 13,144,498 48 27,828,063 48 LONG-TERM LIABILITIES

Financial liabilities at fair value through profit or loss - noncurrent (Notes 2, 5 INVESTMENTS and 15) - - 6,958 -

Long-term equity investments at equity method (Notes 2 and 9) 2,641,789 10 5,239,426 9 Bonds payable (Notes 2 and 15) - - 917,158 1 Available-for-sale financial assets - noncurrent (Notes 2 and 10) 675,367 2 1,032,790 2 Long-term debt (Note 16) 5,297,035 19 14,347,879 25 Financial assets carried at cost - noncurrent (Notes 2 and 11) 172,240 1 171,999 - Long-term payable 5,741 - - -

Total investments 3,489,396 13 6,444,215 11 Total long-term liabilities 5,302,776 19 15,271,995 26

PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 12) RESERVE FOR LAND VALUE INCREMENT TAX (Notes 12 and 13) 31,075 - 46,728 -

Cost Land 453,203 2 638,039 1 OTHER LIABILITIES Buildings and improvements 6,961,119 25 9,627,551 17 Accrued pension cost (Notes 2 and 17) 277,003 1 260,520 1 Machinery and equipment 17,393,001 63 29,218,033 51 Guarantee deposits received 81,522 - 172,568 - Transportation equipment 55,411 - 123,542 - Other liabilities - others 973 - 7,330 - Leasehold improvements 211,278 1 191,338 - Other equipment 2,424,223 9 4,965,056 9 Total other liabilities 359,498 1 440,418 1

27,498,235 100 44,763,559 78 Less: Accumulated depreciation (18,118,520 ) (66 ) (24,747,550 ) (43 ) Total liabilities 11,044,244 40 30,805,675 53 Less: Accumulated impairment (197,349 ) (1 ) (153,232 ) - Construction in progress and prepayments for equipment 608,106 2 1,999,153 3 PARENT COMPANY STOCKHOLDERS’ EQUITY

Capital stock Property, plant and equipment, net 9,790,472 35 21,861,930 38 Common stock (Note 18) 6,900,634 25 6,639,888 12

Advance receipts for common stock (Note 18) - - 6,639 - INTANGIBLE ASSETS (Note 2) Capital surplus

Computer software 141 - 126 - Additional paid-in capital from share issuance in excess of par 5,701,589 21 5,698,500 10 Goodwill - - 125,609 - Treasury stock transactions 9,961 - 13,195 - Land use rights 181,439 1 370,943 1 Gain on disposal of property, plant and equipment 244,284 1 244,284 - Other intangible assets 10,979 - 7,315 - Long-term equity investments at equity method 78,055 - 82,002 -

Capital surplus from business combination 1,487,077 6 1,487,077 3 Total intangible assets 192,559 1 503,993 1 Retained earnings (Note 19)

Legal reserve 95,257 - - - OTHER ASSETS (Notes 2 and 13) (Accumulated deficit) unappropriated earnings (542,961 ) (2 ) 952,566 2

Idle assets 193,569 1 362,864 1 Cumulative translation adjustments (Note 2) 1,095,554 4 235,214 - Guarantee deposits paid 74,570 - 84,250 - Unrealized valuation gain or loss on financial instruments (Notes 2 and 10) (347,838 ) (1 ) 69,672 - Deferred charges 75,688 - 133,756 - Unrealized revaluation increment 3,021 - 3,021 - Deferred income tax assets - noncurrent 355,719 1 329,108 1 Treasury stock (Notes 2 and 20) - - (68,855 ) - Other assets - others 127,013 1 140,144 -

Total parent company stockholders’ equity 14,724,633 54 15,363,203 27 Total other assets 826,559 3 1,050,122 2

MINORITY INTEREST 1,674,607 6 11,519,445 20 Total stockholders' equity 16,399,240 60 26,882,648 47 TOTAL $ 27,443,484 100 $ 57,688,323 100 TOTAL $ 27,443,484 100 $ 57,688,323 100 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 21, 2012)

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WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share) 2011 2010 Amount % Amount % NET SALES $ 25,102,369 100 $ 40,207,041 100 COSTS OF SALES 23,409,341 93 34,303,351 85 GROSS PROFIT 1,693,028 7 5,903,690 15 OPERATING EXPENSES

Selling 1,159,292 5 1,469,553 4 General and administrative 908,757 4 1,468,986 3 Research and development 511,262 2 696,083 2

Total operating expenses 2,579,311 11 3,634,622 9

OPERATING (LOSS) INCOME (886,283) (4) 2,269,068 6 NONOPERATING INCOME AND GAINS

Interest income 137,606 1 107,866 - Investment income recognized under equity method

(Notes 2 and 9) 182,434 1 236,744 1 Investment income (Notes 2 and 23) 20,931 - 27,574 - Gain on disposal of assets 86,489 - - - Gain on sale of investments, net 16,709 - 65,115 - Foreign exchange gain, net 59,715 - - - Reversal of allowance for doubtful accounts 598 - 35,765 - Reversal of impairment loss - - 63,167 - Valuation gain on financial assets - - 12,318 - Valuation gain on financial liabilities 11,858 - 23,186 - Others 125,568 1 214,726 1

Total nonoperating income and gains 641,908 3 786,461 2

NONOPERATING EXPENSES AND LOSSES

Interest expense 195,010 1 275,211 1 Loss on disposal of assets 10,833 - 35,029 - Foreign exchange loss, net - - 139,751 - Impairment loss 19,488 - - - Valuation loss on financial assets 22,366 - - - Others 346,592 1 315,824 1

Total nonoperating expenses and losses 594,289 2 765,815 2

(Continued)

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WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share) 2011 2010 Amount % Amount % (LOSS) INCOME BEFORE INCOME TAX $ (838,664) (3) $ 2,289,714 6 INCOME TAX EXPENSE (Notes 2 and 22) (112,114) (1) (555,390) (2) TOTAL CONSOLIDATED NET (LOSS) INCOME $ (950,778) (4) $ 1,734,324 4 ATTRIBUTED TO

Parent company stockholders $ (1,057,342) (4) $ 952,566 2 Minority interests 106,564 - 781,758 2

$ (950,778) (4) $ 1,734,324 4

2011 2010

Before Income

Tax

After Income

Tax

Before Income

Tax

After Income

Tax BASIC (LOSS) EARNINGS PER SHARE (NEW

TAIWAN DOLLARS, Notes 2 and 18) Basic (loss) earnings per share before distribution to

minority interest $ (1.22) $ (1.38) $ 3.35 $ 2.53 Basic (loss) earnings per share attributed to the

parent company's stockholders $ (1.54) $ 1.39 DILUTED EARNINGS PER SHARE (NEW TAIWAN

DOLLARS, Notes 2 and 18) Diluted earnings per share before distribution to

minority interest $ 3.34 $ 2.53 Diluted earnings per share attributed to the parent

company's stockholders $ 1.39 (Continued)

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WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share) Pro forma information assuming the Company’s shares held by its subsidiaries were accounted for as an investment instead of treasury stock is as follows:

2011 2010 CONSOLIDATED NET (LOSS) INCOME ATTRIBUTED TO

STOCKHOLDERS OF THE PARENT COMPANY

$ (1,060,576) $ 952,566 2011 2010

Before Income

Tax

After Income

Tax

Before Income

Tax

After Income

Tax BASIC (LOSS) EARNINGS PER SHARE (NEW

TAIWAN DOLLARS) Basic (loss) earnings per share before distribution to

minority interest $ (1.23) $ (1.39) $ 3.32 $ 2.52 Basic (loss) earnings per share attributed to the

parent company’s stockholders $ (1.54) $ 1.38 DILUTED EARNINGS PER SHARE (NEW TAIWAN

DOLLARS) Diluted earnings per share before distribution to

minority interest $ 3.32 $ 2.51 Diluted earnings per share attributed to the parent

company’s stockholders $ 1.38 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 21, 2012) (Concluded)

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WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) Capital Surplus Retained Earnings Unrealized Capital Stock Gain on Long-term Unappropriated Valuation Gain Issued and Advance From Share Disposal of Equity Capital Surplus Earnings Cumulative or Loss on Unrealized Outstanding Receipts for Issuance in Treasury Stock Property, Plant Investments at from Business (Accumulated Translation Financial Revaluation Minority Common Stock Common Stock Excess of Par Transactions and Equipment Equity Method Combination Legal Reserve Special Reserve Deficit) Adjustments Instruments Increment Treasury Stock Interest Total BALANCE, JANUARY 1, 2010 $ 6,638,023 $ - $ 5,696,878 $ 1,993 $ 270,307 $ 71,380 $ 1,487,077 $ 214,278 $ 208,097 $ (448,398 ) $ 1,014,362 $ 71,244 $ 3,021 $ (108,853 ) $ 11,966,717 $ 27,086,126 Transfer of special reserve to accumulated deficit (Note 19) - - - - - - - - (208,097 ) 208,097 - - - - - - Offset of accumulated deficit (Note 19) - - - - (26,023 ) - - (214,278 ) - 240,301 - - - - - - Employee stock warrants converted into common stock

(Note 18) 1,865 6,639 1,622 - - - - - - - - - - - - 10,126 Treasury stock transferred to employees (Note 20) - - - 11,202 - - - - - - - - - 39,551 - 50,753 Changes in the Company's common shares held by subsidiaries

(Note 20) - - - - - - - - - - - - - 447 - 447 Unrealized valuation gain or loss on available-for-sale financial

assets - - - - - - - - - - - 8,799 - - - 8,799 Unrealized valuation gain or loss on investee's available-for-sale

financial assets - - - - - - - - - - - (39,406 ) - - - (39,406 ) Unrealized valuation gain or loss on derivative financial liability

for cash flow hedging - - - - - - - - - - - 29,035 - - - 29,035 Change in equity in investee's net assets - - - - - 10,622 - - - - - - - - - 10,622 Cumulative translation adjustments on long-term equity

investments - - - - - - - - - - (779,148 ) - - - - (779,148 ) Minority interest - - - - - - - - - - - - - - (1,229,030 ) (1,229,030 ) Consolidated net income for 2010 - - - - - - - - - 952,566 - - - - 781,758 1,734,324 BALANCE, DECEMBER 31, 2010 6,639,888 6,639 5,698,500 13,195 244,284 82,002 1,487,077 - - 952,566 235,214 69,672 3,021 (68,855 ) 11,519,445 26,882,648 Appropriations and distributions (Note 19)

Legal reserve - - - - - - - 95,257 - (95,257 ) - - - - - - Stock dividends 257,196 - - - - - - - - (257,196 ) - - - - - - Cash dividends - - - - - - - - - (85,732 ) - - - - - (85,732 )

Employee stock warrants converted into common stock

(Note 18) 3,550 (6,639 ) 3,089 - - - - - - - - - - - - - Changes in the Company's common shares held by subsidiaries

(Note 20) - - - - - - - - - - - - - 58,805 - 58,805 Unrealized valuation gain or loss on available-for-sale financial

assets - - - - - - - - - - - (283,801 ) - - - (283,801 ) Unrealized valuation gain or loss on investee's available-for-sale

financial assets - - - - - - - - - - - (133,709 ) - - - (133,709 ) Change in equity in investee's net assets - - - - - (3,947 ) - - - - - - - - - (3,947 ) Cumulative translation adjustments on long-term equity

investments - - - - - - - - - - 860,340 - - - - 860,340 Cash dividend received by subsidiaries - - - 83 - - - - - - - - - - - 83 Sale of the Company's stock held by subsidiaries (Note 20) - - - (3,317 ) - - - - - - - - - 10,050 - 6,733 Minority interest - - - - - - - - - - - - - - (9,951,402 ) (9,951,402 ) Consolidated net (loss) income for 2011 - - - - - - - - - (1,057,342 ) - - - - 106,564 (950,778 ) BALANCE, DECEMBER 31, 2011 $ 6,900,634 $ - $ 5,701,589 $ 9,961 $ 244,284 $ 78,055 $ 1,487,077 $ 95,257 $ - $ (542,961 ) $ 1,095,554 $ (347,838 ) $ 3,021 $ - $ 1,674,607 $ 16,399,240 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 21, 2012)

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WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) 2011 2010 CASH FLOWS FROM OPERATING ACTIVITIES

Total consolidated (loss) income $ (950,778) $ 1,734,324 Adjustments to reconcile net (loss) income to net cash provided by

operating activities

Depreciation and amortization 3,121,497 4,208,303 Compensation cost of treasury stock transferred to employees - 11,084 Valuation loss (gain) on financial assets 22,366 (12,318) Valuation gain on financial liabilities (11,858) (23,186) Amortization of bond discount 8,876 5,917 Impairment loss (reversal of impairment loss) on assets 19,488 (63,167) Net (gain) loss on disposal of assets (75,656) 35,029 Gain on disposal of available-for-sale financial assets - noncurrent (16,611) (62,331) Investment income recognized under equity method (182,434) (236,744) Cash dividends from equity-accounted investees 4,268 98,439 Impairment loss of available-for-sale financial assets - noncurrent 18,140 - Impairment loss of goodwill 6,995 - Net changes in operating assets and liabilities

Financial assets at fair value through profit or loss - current (80,532) 21,231 Held-to-maturity financial assets - current (23,993) - Notes receivable 87,526 29,197 Notes receivable from related parties 2,028 (598) Accounts receivable (1,315,889) 353,482 Accounts receivable from related parties (20,547) (8,518) Other receivables (13,114) 43,586 Other receivables from related parties (219,462) (7,535) Inventories (208,395) (498,944) Other current assets (504,706) 29,860 Deferred tax assets - noncurrent (48,596) 202,077 Other assets 279,727 (37,038) Notes payable (102,630) (112,702) Accounts payable 1,280,026 133,774 Accounts payable to related parties - (1,287) Income tax payable (75,559) 42,957 Other payables (77,043) 55,704 Other current liabilities 12,847 (26,592) Accrued pension cost 16,483 16,570 Other liabilities 49,471 (13,943) Long-term payable 5,741 -

Net cash provided by operating activities 1,007,676 5,916,631

(Continued)

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WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) 2011 2010 CASH FLOWS FROM INVESTING ACTIVITIES

Increase in available-for-sale financial asset - noncurrent $ (19,264) $ (558,470) Proceeds from disposal of available-for-sale financial asset -

noncurrent

32,806 311,383 Increase in long-term equity investments at equity method - (4,750,066) Decrease in restricted assets - 64,223 Proceeds from disposal of property, plant and equipment 350,430 57,710 Cash paid for acquisition of property, plant and equipment (2,770,571) (4,379,097) Increase in guarantee deposits paid (13,296) (6,512) Increase in intangible assets and deferred charges (8,570) (52,505)

Net cash used in investing activities (2,428,465) (9,313,334)

CASH FLOWS FROM FINANCING ACTIVITIES

Increase (decrease) in short-term loans 1,551,738 (271,759) Decrease in short-term bills payable - (34,997) Increase in long-term debt 1,859,355 6,555,800 Issuance of convertible bonds - 995,000 Increase in guarantee deposits received 23,027 75,045 Proceeds from transfer of treasury stock to employees - 39,669 Proceeds from disposal of treasury stock 15,679 - Proceeds from employee stock warrant converted into common stock - 10,126 Decrease in minority interest (99,481) (503,964) Cash dividends paid (85,649) -

Net cash provided by financing activities 3,264,669 6,864,920

EFFECT OF LOSS OF CONTROL OVER SUBSIDIARY (7,779,167) - EFFECT OF EXCHANGE RATE CHANGES ON CASH 187,172 (425,069) NET (DECREASE) INCREASE IN CASH AND CASH

EQUIVALENTS

(5,748,115) 3,043,148 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,627,139 6,583,991 CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,879,024 $ 9,627,139 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND

FINANCING ACTIVITIES

Property, plant and equipment transfer to intangible assets $ 7,895 $ 34,830 Property, plant and equipment transfer to deferred charges $ 25,891 $ 29,157 Property, plant and equipment transfer to idle assets $ 41,714 $ - Idle asset transfer to property, plant and equipment $ 5,510 $ 15,019 Transfer of current portion of long-term debt to current liabilities $ 419,683 $ 1,500,000 Changes of equity in the investee's net assets $ (3,947) $ 10,622

(Continued)

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WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) 2011 2010

Unrealized valuation gain or loss on available-for-sale financial assets $ (283,801) $ 8,799 Unrealized valuation gain or loss on investee's available-for-sale

financial assets

$ (133,709) $ (39,406) Unrealized valuation gain or loss on derivative financial liability for

cash flow hedging

$ - $ 29,035 Translation adjustments on long-term equity investments $ 860,340 $ (779,148) Changes in the Company's common shares held by subsidiaries $ 58,805 $ 447 Dividends to subsidiaries transferred to capital surplus $ 83 $ - Adjustments to stockholders' equity due to sale of the Company's stock

held by subsidiaries

$ 6,733 $ - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest (excluding capitalized interest) $ 264,656 $ 264,901 Income tax $ 138,735 $ 361,526

CASH PAID DURING THE YEAR FOR ACQUISITION OF

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment acquired $ 2,715,136 $ 4,982,659 Add: Payable for purchases of property, plant and equipment,

beginning of year

1,095,456 491,894 Deduct: Payable for purchases of property, plant and equipment, end

of year

(1,040,021) (1,095,456) Cash paid during the year for acquisition of property, plant and

equipment

$ 2,770,571 $ 4,379,097 The fair values of assets and liabilities of the subsidiary over which control was lost were summarized as follows: Current assets $ 19,074,228 Investments 4,678,750 Property, plant and equipment 11,773,294 Intangible assets 166,975 Other assets 152,437 Goodwill 125,609 Current liabilities (12,675,068) Long-term liabilities (11,412,123) Other liabilities (169,901) Minority interest (9,932,301) Net assets of the subsidiary 1,781,900 Cash balance of subsidiary (7,779,167) Long-term investment in the subsidiary before loss of control (1,781,900) Net cash in subsidiary over which control was lost $ (7,779,167) The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 21, 2012) (Concluded)

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WALSIN TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATIONS

Walsin Technology Corporation (“WTC”) was incorporated in the Republic of China (ROC) on July 29, 1970 to design, develop and manufacture semiconductors and LED (light-emitting diode) chips. In 1992, WTC purchased the machinery, equipment and inventory of the electronic department of Walsin Lihwa Corporation to establish its Yang-Mei Plant on July 1 and changed its major operations to the manufacture of electronic ceramics, including multilayer ceramic capacitors (“MLCC”) and ceramic resistors. In 1995, WTC established a branch in Kaohsiung to research, develop, produce and sell products such as chip resistors, RF (radio frequency) devices and high-frequency inductors and, in 2006, WTC established a branch in Taichung to produce disc capacitors and new products. WTC closed its operations in the Taichung branch in August 2009. WTC’s common stock began to be traded in Taiwan’s over-the-counter (OTC) market on November 21, 1997. Later, WTC’s stock ceased to be OTC traded and became listed on the Taiwan Stock Exchange on September 17, 2001. The major stockholder, Walsin Lihwa Corporation, held 18.11% ownership interest in WTC as of December 31, 2011. WTC’s head office is located at 566-1, Kao-shi Road, Yang-Mei, Taoyuan. Gallatown Developments Limited (“Gallatown”) was incorporated in the Cayman Islands as an investment holding company. Pan Overseas (B.V.I.) Investment (“POE-BVI”) was incorporated in the British Virgin Islands as an investing holding company. Prosperity Dielectrics Co., Ltd. (“PDC”), a listed company on the over-the-counter Stock Market of the Taiwan GreTai Securities Market, is engaged in manufacturing and selling of electric capacitors, resistors and semiconductor chip. Hannstar Board Corp. (“Hannstar”), a listed company on the Taiwan Stock Exchange, is engaged in manufacturing and selling printed circuit board. WTC lost its control over Hannstar after it lost the majority in the board of directors of Hannstar in its provisional stockholders’ convention. Hannstar was no longer included as a consolidated entity in the consolidated financial statement since June 10, 2011. As of December 31, 2011 and 2010, WTC and its subsidiaries had 8,611 and 22,755 employees, respectively.

2. SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, and accounting principles generally accepted in the Republic of China (“ROC”). For readers’ convenience, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the ROC. If inconsistencies arise between the English version and the Chinese version or if differences arise in the interpretations between the two versions, the Chinese version of the financial statements shall prevail. However, the Corporation’s financial statements do not include the English translation of additional disclosures that are not required under generally accepted accounting principles but are required by the Securities and Futures Bureau for their oversight purposes.

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Significant accounting policies are summarized as follows: Principles of Consolidation All significant intercompany balances and transactions have been eliminated upon consolidation. WTC and its subsidiaries adopted Statement of Financial Accounting Standards No. 7 - “Consolidated Financial Statements” and included all controlled investees in the consolidated financial statements as of and for the years ended December 31, 2011 and 2010. The consolidated entities (collectively, the “Company”) were as follows:

Name of Investor

Name of Subsidiary Ownership

Interest Principal Activity WTC PDC 42.90% Manufacturing and selling of electric

capacitors, resistors and semiconductor chip, etc.

WTC Hannstar 19.97% Manufacturing and selling printed circuit board

WTC POE-BVI 100.00% Investment holding WTC Gallatown 91.44% Investment holding Gallatown Walsin Technology Corporation (HK)

Limited (“WTC (HK)”) 100.00% Selling of passive electronic

components Gallatown Walsin Technology Hong Kong Holding

Ltd. (“WTHC-HK”) 100.00% Investment holding

Gallatown Walsin Technology Corporation (Malaysia) Sdn. Bhd. (“WTCM”)

100.00% Selling passive electronic components

Gallatown Walsin Electronics (S) Pte. Ltd. (“WES”) 100.00% Selling passive electronic components Gallatown Walsin Technology Corporation U.S.A.

(“WTCA”) 100.00% Marketing service

Gallatown Walsin Passive Component (HK) Limited (“WPC”)


Gallatown Eden International Corporation (HK) Limited (“Eden (HK)”)


Gallatown Kamaya Electric Co., Ltd. (Kamaya) 99.42% Manufacturing and selling high level electric chip and resistors

WTHC-HK Dongguan Walsin Technology Electronics Co., Ltd. (“DG”)

100.00% Manufacturing and selling passive electronic components

WTHC-HK Suzhou Walsin Technology Electronics Co., Ltd. (“SZ”)


WTHC-HK Walsin Electronics (Shenzhen) Co., Ltd. (“Shen Zhen”)


WTHC-HK Pan Overseas Electronic Co., Limited (Guang Zhou) (“POE-GZ”)


WTHC-HK Dongguan Huafai Trading Co., Ltd. (“Huafai”)

100.00% Trading of electronic parts, warehousing and commission agency

WTHC-HK Hua Ying Technology (Chongqing) Co., Ltd. (“Hua Ying”)

100.00% Manufacturing and selling of electric capacitors, and resistors

POE-BVI Gallatown 3.75% Investment holding POE-BVI Fine Bright Technology Limited (“FB”) 100.00% Investment holding FB Gallatown 4.81% Investment holding Kamaya Kamaya Electric(M) Sdn. Bhd. (“KM”) 100.00% Manufacturing and selling high level

electric chip and resistors Kamaya Kamaya Electric (HK) Limited 100.00% Selling passive electronic components Kamaya Kamaya, Inc. (“KI”) 100.00% Selling passive electronic components Kamaya Nitsuko Electronics Corporation (“NTK”) 70.00% Manufacturing and selling of film

capacitors, noise filters. PDC PDC Prime Holdings Limited (“PDC

Holdings”) 100.00% Investment holding

PDC Hannstar Board Corp. 0.01% Manufacturing and selling printed circuit board

PDC Frontier International Ltd. 100.00% Investment and trade business PDC Holdings PDC Success Investments Ltd. 100.00% Investment holding PDC Holdings Frontier Electronic Co., Ltd. 100.00% International trade

(Continued)

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Name of Investor

Name of Subsidiary Ownership

Interest Principal Activity PDC Success Investments Ltd. PDC (Suzhou) Co., Ltd. 100.00% Manufacturing and selling of

electronic parts and ceramic components

Frontier International Ltd. Dongguan Frontier Electronic Co., Ltd. 100.00% Manufacturing and selling transformer, coils and rectifier diode

Frontier International Ltd. Frontier Electronic (Kun Shan) Co., Ltd. 100.00% Manufacturing magnetic component and semiconductor

Frontier International Ltd. Hunan Frontier Electronic Co., Ltd. 100.00% Manufacturing and selling transformer, coils and magnetic component

Frontier Electronic Co., Ltd. Frontier Electronic (Chongqing) Co., Ltd. 100.00% Manufacturing and selling of electronic part, etc.

Hannstar Board Corp. Hannstar Board (BVI) Holdings Corp. 100.00% Investment holding Hannstar Board (BVI)

Holdings Corp. Hannstar Board International Holdings

Corp. 100.00% Investment holding

Hannstar Board International Holdings Ltd.

Hannstar Board (SAMOA) Holdings Corp.

100.00% Investment holding


Walsin Board Corp.

100.00% Manufacturing and selling printed circuit board


Hannstar Board Holdings (Hong Kong) Ltd.



Hannstar Board International (Singapore) Private Ltd.



Hannstar Board Tech (Jiang Yin) Corp. 100.00% Manufacturing and selling printed circuit board


Hannstar Precision Tech (Jiang Yin) Corp.

100.00% Manufacturing and selling printed circuit board

(Concluded) A subsidiary is excluded from the consolidated financial statements when the Company loss substantial control over it, but the subsidiary’s income and expenses during the period the Company has control over it are consolidated. a. The information of subsidiaries not included in the consolidated financial statements: None. b. The difference of the fiscal year between parent company and subsidiaries: None. c. Special risks of business operation of subsidiaries overseas: None. Foreign Currencies The consolidated financial statements of foreign operations are translated into New Taiwan dollars at the following exchange rates: a. Assets and liabilities - at exchange rates prevailing on the balance sheet date; b. Stockholders’ equity - at historical exchange rates; c. Dividends - at the exchange rate prevailing on the dividend declaration date; and d. Income and expenses - at average exchange rates for the year. Exchange differences arising from the translation of the financial statements of foreign operations are recognized as a separate component of stockholders’ equity. Such exchange differences are recognized in profit or loss in the year in which the foreign operations are disposed of. Non-derivative foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange differences arising from settlement of foreign-currency assets and liabilities are recognized in profit or loss. At the balance sheet date, foreign-currency monetary assets and liabilities are revalued using prevailing exchange rates and the exchange differences are recognized in profit or loss.

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

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A derivative that does not meet the criteria for hedge accounting is classified as a financial asset or a financial liability held for trading. If the fair value of the derivative is positive, the derivative is recognized as a financial asset; otherwise, the derivative is recognized as a financial liability. Fair values of financial assets and financial liabilities at the balance sheet date are determined as follows: Publicly traded stocks - at closing prices; open-end mutual funds - at net asset values. Held-to-maturity Financial Assets Held-to-maturity financial assets are carried at amortized cost using the effective interest method (straight-line method is used if there will be no significant difference). Held-to-maturity financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. Profit or loss is recognized when the financial assets are derecognized, impaired, or amortized. All regular way purchases or sales of financial assets are accounted for using trade date basis. An impairment loss is recognized when there is objective evidence that the investment is impaired. The impairment loss is reversed if an increase in the investment’s recoverable amount is due to an event which occurred after the impairment loss was recognized; however, the adjusted carrying amount of the investment may not exceed the carrying amount that would have been determined had no impairment loss been recognized for the investment in prior years. Impairment of Accounts Receivable An allowance for doubtful accounts is provided on the basis of a review of the collectibility of accounts receivable. The Company assesses the probability of collections of accounts receivable by examining the aging analysis of the outstanding receivables and assessing the value of the collateral provided by customers. As discussed in Note 3 to the consolidated financial statements, on January 1, 2011, the Company adopted the third-time revised Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement.” One of the main revisions is that impairment of receivables originated by the Company should be covered by SFAS No. 34. Accounts receivable are assessed for impairment at the end of each reporting period and considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the accounts receivable, the estimated future cash flows of the asset have been affected. Inventories Inventories consist of raw materials, supplies, finished goods, work-in-process and semi-finished goods and are stated at the lower of cost or net realizable value. Inventory write-downs are made item by item, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date. Estimated losses on scrap and slow-moving items are recognized as an allowance for inventory obsolescence on the balance sheet. Investments Accounted for by Equity Method Investments in which the Company holds 20% or more of the investees’ voting shares or exercises significant influence over the investees’ operating and financial policy decisions are accounted for by the equity method.

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The investment cost is allocated to the assets and liabilities of the investee on the basis of their fair values (proportionate to the percentage of ownership) at the date of investment, and the investment cost in excess of the fair value of the identifiable net assets of the investee is recognized as goodwill. Goodwill is not amortized, but should be tested for impairment every year and for specific events or changes in circumstances which indicated that such carrying value may not be recoverable. The fair value of the net identifiable assets of the investee in excess of the investment cost is used to reduce the fair value of each of the noncurrent assets of the investee (except for financial assets other than investments accounted for by the equity method, noncurrent assets held for sale, deferred income tax assets, prepaid pension or other postretirement benefit) in proportion to the respective fair values of the noncurrent assets, with any excess recognized as an extraordinary gain. The Company’s investments previously classified as available-for-sale financial assets are reclassified into investments accounted for by the equity method when the Company is able to exercise significant influence over the investee. The carrying amount of the investment at the beginning of the year is deemed cost for the purpose of applying the equity method. When the Company subscribes for its investee’s newly issued shares at a percentage different from its percentage of ownership in the investee, the Company records the change in its equity in the investee’s net assets as an adjustment to investments, with a corresponding amount credited or charged to capital surplus. When the adjustment should be debited to capital surplus, but the capital surplus arising from long-term investments is insufficient, the shortage is debited to retained earnings. An investment is evaluated for impairment on the balance sheet date and loss is recognized if there is objective evidence showing that the investment is impaired. The impairment losses on those investments in which the Company has significant influence but with no control are evaluated at their respective carrying amounts. Available-for-sale Financial Assets Available-for-sale financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are remeasured at fair value, with changes in fair value recognized in equity until the financial assets are disposed of, at which time, the cumulative gain or loss previously recognized in equity is included in profit or loss for the year. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. The recognition, derecognition and the fair value bases of available-for-sale financial assets are the same with those of financial assets at fair value through profit or loss. Cash dividends are recognized on the ex-dividend date, except for dividends distributed from the pre-acquisition profit, which are treated as a reduction of investment cost. Stock dividends are not recognized as investment income but are recorded as an increase in the number of shares. The total number of shares subsequent to the increase is used for recalculation of cost per share. An impairment loss is recognized when there is objective evidence that the financial asset is impaired. Any subsequent decrease in impairment loss on an equity instrument classified as available-for-sale is recognized directly in equity. Financial Assets Carried at Cost Investments in equity instruments with no quoted prices in an active market and with fair values that cannot be reliably measured, such as non-publicly traded stocks and stocks traded in the Emerging Stock Market, are measured at their original cost. The accounting treatment for dividends on financial assets carried at cost is the same with that for dividends on available-for-sale financial assets. An impairment loss is recognized when there is objective evidence that the asset is impaired. A reversal of this impairment loss is disallowed.

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

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

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Stock-based Compensation Employee stock options granted on or after January 1, 2008 are accounted for under SFAS No. 39, “Accounting for Share-based Payment.” Under the statement, the value of the stock options granted, which is equal to the best available estimate of the number of stock options expected to vest multiplied by the grant-date fair value, is expensed on a straight-line basis over the vesting 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. Employee stock options 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 (lost control on June 10, 2011) and PDC used the intrinsic value method. Treasury Stock Treasury stock is the Company’s 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 in 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. The Company adopted Statement of Financial Accounting Standards No. 30 “Accounting for Treasury Stocks,” which requires the Company to treat intercompany stockholdings as treasury stock. Revenue Recognition Revenue from sales of goods is recognized when the Company has transferred to the buyer the significant risks and rewards of ownership of the goods, primarily upon shipment, because the earnings process has been completed and the economic benefits associated with the transaction have been realized or are realizable. Earnings (Loss) Per Share Basic earnings (loss) per common share is calculated by dividing net earnings (loss) attributable to common stock by the weighted-average number of common shares outstanding. On a diluted basis, both net earnings (loss) and shares outstanding are adjusted to assume the conversion of employee stock options from the date of issuance, and adopt the treasury stock method to calculate the stock warrants’ dilutive potential common shares. However, if the employee stock options contain an anti-dilutive effect, they will be excluded from the earnings (loss) per share calculation. Hedge Accounting Derivatives that are designated and effective as hedging instruments are measured at fair value, with subsequent changes in fair value recognized either in profit or loss, or in stockholders’ equity, depending on the nature of the hedging relationship.

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Hedge accounting recognizes the offsetting effects on profit or loss of changes in the fair values of the hedging instrument and the hedged item as follows: Cash flow hedge: The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in stockholders’ equity. The amount recognized in stockholders’ equity is recognized in profit or loss in the same year or years during which the hedged forecast transaction or an asset or liability arising from the hedged forecast transaction affects profit or loss. However, if all or a portion of a loss recognized in stockholders’ equity is not expected to be recovered in the future, the amount that is not expected to be recovered is reclassified into profit or loss. Nonderivative Financial Instruments The recognition and valuation of nonderivative financial assets and liabilities are in accordance with the above accounting policies and generally accepted accounting principles. Reclassifications Certain accounts in the consolidated financial statements as of and for the year ended December 31, 2010 have been reclassified to conform to the presentation of the consolidated financial statements as of and for the year ended December 31, 2011.

3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES Financial Instruments On January 1, 2011, the Company adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement.” The main revisions included loans and receivable originated by the Company under the scope of SFAS No. 34. This accounting change did not have any effect on the Company’s consolidated financial statements for the year ended December 31, 2011. Operating Segments On January 1, 2011, the Company adopted the newly issued SFAS No. 41, “Operating Segments.” The statement requires that segment information be disclosed based on the information about the components of the Company that management uses to make operating decisions. SFAS No. 41 requires identification of operating segments on the basis of internal reports that are regularly reviewed by the Company's chief operating decision maker in order to allocate resources to the segments and assess their performance. This statement supersedes SFAS No. 20, “Segment Reporting.” For this accounting change, the Company restated the segment information in the consolidated financial statements as of and for the year ended December 31, 2010 to conform to the disclosures as of and for the year ended December 31, 2011.

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4. CASH AND CASH EQUIVALENTS Cash and cash equivalents as of December 31, 2011 and 2010 were summarized as follows: 2011 2010 Cash on hand $ 7,731 $ 7,293 Demand deposits 91,410 1,499,982 Checking deposits 4,499 32,350 Foreign currency deposits 1,883,790 2,175,219 Certificates of deposits 1,707,594 5,238,295 Cash equivalents 184,000 674,000 $ 3,879,024 $ 9,627,139 Certificates of deposits amounting to $20,600 thousand as of December 31, 2011 and 2010 had been pledged to the Bureau of Tariff and suppliers to secure imported goods and were reported as other assets - guarantee deposits paid (see Note 25). Certificates of deposits amounting to $1,300 thousand as of December 31, 2010 had been pledged for litigation. The amounts was reported as other assets - guarantee deposits paid (see Note 25). Certificates of deposits amounting to $5,159 thousand and $1,459 thousand as of December 31, 2011 and 2010, respectively, had been pledged for litigation and to secure purchase orders of oil. The amounts were reported under other assets - guarantee deposits paid (see Note 25). Certificates of deposit amounting to $29,594 thousand and $18,118 thousand as of December 31, 2011 and 2010, respectively, had been pledged to secure electricity purchase guarantee deposits. The amounts were reported under other assets - guarantee deposits paid (see Note 25).

5. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS Financial assets or liabilities held for trading as of December 31, 2011 and 2010 were summarized as follows: 2011 2010 Financial assets held for trading

Domestic listed companies $ 61,940 $ - Stock index funds 17,244 - Forward exchange contracts, net - 38,584

$ 79,184 $ 38,584 Financial liabilities held for trading

Foreign exchange swap, net $ - $ 4,920 Embedded derivatives of convertible bonds (Note 15) - 6,958 Less: Noncurrent liabilities - (6,958) $ - $ 4,920

The Company entered into derivative contracts during the year ended December 31, 2010 to manage exposures to exchange rate fluctuations. The financial risk management objective of the Company is to minimize risks due to changes in foreign exchange rate.

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For information on outstanding forward exchange contracts and foreign exchange swap as of December 31, 2010, please see Note 27.

6. HELD-TO-MATURITY FINANCIAL ASSETS

December 31 2011 2010 Note interest investment collective fund trust scheme $ 23,993 $ - In December 2011 SZ bought half-year investment commodity at par value of $23,993 thousand.

7. NOTES AND ACCOUNTS RECEIVABLE

Notes and accounts receivable as of December 31, 2011 and 2010 were summarized as follows:

2011 2010 Third parties

Notes receivable $ 151,892 $ 244,633 Less: Allowance for doubtful accounts - - 151,892 244,633 Accounts receivable 4,028,014 11,147,170 Less: Allowance for doubtful accounts (104,375) (133,125) 3,923,639 11,014,045

$ 4,075,531 $ 11,258,678

Related parties

Notes receivable $ 1 $ 2,029 Accounts receivable 9,947 20,205 Less: Allowance for doubtful accounts - - $ 9,948 $ 22,234

Factored accounts receivable of WTC were as follows:

(Unit: US$ in Dollars; NT$ in Thousands)

Year Ended December 31, 2010

Counterparties

Receivable Sold at Year -

Beginning Receivable Sold Amounts Collected

Receivable Sold at Year-end

Advances Received at Year-end

Interest Rates on Advances Received (%) Credit Line

Far Eastern International NT$ 70,937 NT$ 164,543 NT$ 235,480 NT$ - NT$ - - NT$ - Bank (Note 2) (Note 3) (Note 4) Far Eastern International

Bank 26,496 123,997 150,493 - - - - NT$ 97,433 NT$ 288,540 NT$ 385,973 NT$ - NT$ -

Note 1: Receivable sold at year end had been removed from the receivable account. Note 2: US$2,214,678.10 Note 3: US$5,648,576.00 Note 4: US$7,863,254.10 The above credit lines may be used on a revolving basis.

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Pursuant to the factoring agreements, losses from commercial disputes (such as sales returns and discounts) shall be borne by WTC, while losses from credit risk shall be borne by the banks.

8. INVENTORIES

Inventories as of December 31, 2011 and 2010 were summarized as follows:

2011 2010 Raw materials $ 1,157,540 $ 1,414,238 Supplies 65,035 78,897 Work-in-process 453,912 1,159,046 Semi-finished goods 539,110 822,850 Finished goods 1,503,681 1,836,303 Inventories in transit 108,325 340,496 $ 3,827,603 $ 5,651,830 As of December 31, 2011 and 2010, the allowance for inventory devaluation was $394,624 thousand and $639,273 thousand, respectively. The cost of inventories recognized as cost of goods sold in 2011 and 2010 was $23,409,341 thousand and $34,303,351 thousand, respectively, which included a net gain of $359,122 thousand and $984,228 thousand, respectively, due to write-downs of inventories, loss from disposal of inventory, income from scrap sales and loss on physical inventories.

9. LONG-TERM EQUITY INVESTMENTS

Long-term equity investments accounted for under equity method as of December 31, 2011 and 2010 were summarized as follows: 2011 2010 Original Investment Carrying Ownership Carrying Ownership Cost Value Percentage Value Percentage Listed companies Hannstar Board Corp. (Hannstar) $ 1,566,277 $ 2,111,313 19.97 $ - - Global Brands Manufacture Co.,

Ltd. (GBM) - - - 4,575,923 39.83 Unlisted companies Kunshan Walsin Color

Electronics & Plastics Co., Ltd. (“Walsin Color-KS) 192,852 157,769 49.00 165,193 49.00

Walsin Color Co., Ltd. (WC) 379,386 372,707 29.14 498,310 32.14 $ 2,138,515 $ 2,641,789 $ 5,239,426

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Investment income (loss) recognized under equity method for the years ended December 31, 2011 and 2010 was summarized as follows: 2011 2010 Hannstar $ 99,157 $ - GBM 141,544 210,750 WC (37,780) 30,098 Walsin Color-KS (20,487) (4,104) $ 182,434 $ 236,744 The major operation of WC before 2008 was selling of TFT-LCD and providing management services to group companies. WC changed its major operations to be an investment holding company and provide management services to group companies after 2009. Walsin Color-KS engaged in manufacturing and selling of passive electronic components. Hannstar, a company listed on the Taiwan Stock Exchange, is engaged in manufacturing and selling of printed circuit boards. On June 10, 2011, WTC had not taken control of Hannstar by losing the majority of the board of directors in Hannstar’s provisional stockholders’ convention. But WTC still has significant influence over Hannstar; thus, the investment was accounted for by the equity method in 2011, as before. The investment income of $99,157 thousand for the period from June 10 to December 31, 2011 was recorded as “investment income recognized under equity method” for the year ended December 31, 2011. GBM, a company listed on the Taiwan Stock Exchange, is engaged in manufacturing and selling of printed circuit board. In March 2010, Hannstar acquired 165,000 thousand shares of common stock of GBM at $28.75 per share. The Company accounts for this investments by the equity method. WTC had not taken control of Hannstar by gaining the majority of the board of directors. Then, the Company ceased to have control of Hannstar, Hannstar was no longer included as a consolidated entity in the consolidated financial statement, since June 10, 2011. The investment income for the period from January 1 to June 9, 2011 was recorded as “investments income recognized under equity method” for the year ended December 31, 2011.

10. AVAILABLE-FOR-SALE FINANCIAL ASSETS - NONCURRENT

Available-for-sale financial assets as of December 31, 2011 and 2010 were summarized as follows: 2011 2010 Listed companies

Walton Advanced Electronics Ltd. $ 510,103 $ 510,103 Gigabyte Technology Co., Ltd. 232,124 232,124 Walsin Lihwa Corp. 82,071 82,071 Walton Chaintech Corporation 19,264 - Hannstar Board Corp. 1,019 - Nuvoton Technology Corp. - 18,000

Foreign listed companies NEC 3,777 23,880 Sharp Corporation 8,796 7,745 Hitachi Ltd. 39,382 35,293

(Continued)

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2011 2010

Sony Corporation $ 23,919 $ 29,419 Murata Seisakusho Co., Ltd. 4,334 3,757 Mizuho Financial Group 1,016 2,308 Unrealized valuation (loss) profit of available-for-sale financial

assets

(250,438) 88,090 $ 675,367 $ 1,032,790

(Concluded) As of December 31, 2011 and 2010, the market values of listed companies were determined by the closing prices. Kamaya Electronic Ltd. and NTK evaluated the equity securities of Sony Corporation, Mizuho Financial Group and NEC and recognized an impairment loss of $18,140 thousand for the year ended December 31, 2011, which was recorded as a deduction of investment income. For additional information, please see Note 23 to the consolidated financial statements.

11. FINANCIAL ASSETS CARRIED AT COST Financial assets carried at cost as of December 31, 2011 and 2010 were summarized as follows:

2011 2010 Original Investment Carrying Carrying Cost Value Value

Unlisted companies

Elcon International Co., Ltd. $ 18,819 $ - $ - Ta Cheng Investment Co., Ltd. 150,100 150,100 150,100 Euroc Venture Capital Corp. 14,430 9,230 9,230 Parawin Venture Capital Corp. 15,000 10,000 10,000 HannSpree Inc. 35,000 - -

Foreign unlisted companies Suzaka Spa 176 176 161 Dohoku Denshi Kogyo 1,562 - - Mikasa Denshi Kogyo 547 - - Naie Denshi Kogyo 547 - - Hokko Denshi Kogyo 2,734 2,734 2,508

$ 238,915 $ 172,240 $ 171,999 The Company’s financial assets carried at cost do not have a quoted market price in an active market and their fair value could not be reliably measured. Therefore, the above equity investments were carried at cost and evaluated for impairment loss periodically.

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12. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment as of December 31, 2011 and 2010 were summarized as follows:

2011 2010 Revaluation Accumulated Accumulated Carrying Carrying Cost Increment Depreciation Impairment Value Value

Land $ 388,385 $ 64,818 $ - $ 9,748 $ 443,455 $ 629,095 Buildings and improvements 6,961,119 - 2,962,045 90,758 3,908,316 6,361,716 Machinery and equipment 17,393,001 - 12,892,250 49,843 4,450,908 10,886,075 Transportation equipment 55,411 - 38,757 - 16,654 39,386 Leasehold improvements 211,278 - 188,252 - 23,026 14,677 Other equipment 2,424,223 - 2,037,216 - 387,007 1,931,828 Construction in progress and

prepayments for equipment

608,106 - - 47,000 561,106 1,999,153 $ 28,041,523 $ 64,818 $ 18,118,520 $ 197,349 $ 9,790,472 $ 21,861,930 For the year ended December 31, 2011, interest expense (before capitalized interest) was $197,843 thousand; capitalized interest on asset construction amounted to $2,833 thousand; and the capitalized interest rates range from 1.18% to 1.40%. PDC revalued its land and the revaluation increment as of December 31, 2011 and 2010 was as follows:

Revaluation

Year

Revaluation Increment

Reserve for Land Value

Increment Tax Land 2008 $ 64,818 $ 13,734 Hannstar revalued its land and the revaluation increment as of December 31, 2010 was as follows:

Revaluation

Year

Revaluation Increment


Increment Tax Land 1997 $ 56,797 $ 15,653 Because the ownership of farm land can not be registered under the name of a legal entity according to certain restrictions under the land regulations, the ownership of the land stated below resides in the specific third person assigned by Hannstar and Hannstar was the designated obligee, which prohibits the selling, pledging or hypothecating of the property. The designated amount was $22,860 thousand. The related information was as follows:

Location of Land Number of

Land Square Meter

(㎡) Amount Stone Brook Section, Shulin Town, Taipei County 48-6 2,100 $ 17,967 See Note 24 to the consolidated financial statements for property, plant and equipment transactions with related parties.

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13. OTHER ASSETS Other assets as of December 31, 2011 and 2010 were summarized as follows: 2011 2010 Idle assets

Land $ 142,383 $ 221,564 Buildings and improvements 176,175 317,784 Machinery and equipment 276,124 375,385 Other equipment 35,134 516,534

629,816 1,431,267 Less: Accumulated depreciation (327,352) (853,914) Less: Accumulated impairment (108,895) (214,489) 193,569 362,864 Guarantee deposits paid 74,570 84,250 Deferred charges (Note 2) 75,688 133,756 Deferred tax asset - noncurrent (Note 22) 355,719 329,108 Prepaid pension cost (Note 17) 105,154 134,226 Other assets - other 21,859 5,918 $ 826,559 $ 1,050,122 WTC revalued its land and revaluation increments of idle assets over the years were as follows:

Revaluation

Year Revaluation Increments


Increment Tax

Land 1993-2005 $ 22,804 $ 17,341 PDC sold the land and buildings in Nantou to non-related parties in March 2011, and resulted in disposal gain which was record as “gain on disposal of assets” for the year ended December 31, 2011.

14. SHORT-TERM LOANS

Short-term loans as of December 31, 2011 and 2010 were summarized as follows:

2011 2010

Interest

Rate % Amount Interest Rate % Amount

Credit loans 1.10-2.50 $ 1,592,691 0.6707-7.30 $ 3,843,314

15. BONDS PAYABLE

Bonds payable as of December 31, 2010 were summarized as follows: 2010 Liability component

Unsecured domestic convertible bonds - first issue $ 1,000,000 Discount on bonds payable (82,842)

$ 917,158

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On September 3, 2010, Hannstar issued 5-year unsecured convertible bonds, with a face value of NT$1,000,000 thousand and a coupon rate of zero percent. The effective interest rate was 1.76%. If the bonds are not converted, Hannstar shall redeem the bonds at 100% of their face value upon maturity. According to SFAS No. 36, Hannstar has bifurcated the bonds into liability component and equity component. The equity component, conversion option, was $76,918 thousand. Liability component includes $6,958 thousand of embedded derivative measured at fair value and $917,158 thousand of non-derivative liabilities measured at amortized cost. The terms and conditions of the bonds are summarized as follows: a. Date of issuance: September 3, 2010 b. Par value: NT$100 thousand c. Location of issuance: Taiwan d. Price of issuance: 100% e. Total amount: NT$1,000,000 thousand f. Interest rate: 0% g. Date of maturity: September 3, 2015 h. Provision of conversion option:

The bonds are convertible into Hannstar’s common shares at predetermined price.

i. Conversion period: From October 4, 2010 to August 24, 2015 j. Conversion price and adjustment:

1) NT$28.50 per share at the issuing date. 2) For any subsequent changes in Hannstar’s paid-in capital, the conversion price is adjusted

accordingly. 3) NT$24.63 per share on December 31, 2010.

k. Provision of request to redeem the bonds:

1) Redemption at maturity:

Unless previously redeemed or converted or purchased and cancelled, Hannstar will redeem the Bonds at 100 percent of their principal amount in NT dollars on the Maturity Date.

2) Redemption at the option of Hannstar:

Hannstar may redeem the bonds after one month from the date of issue until 40 days before the date of maturity at a redemption price equal to the par value of outstanding principal amount in advance, (i) if the closing price of the common shares on the TSE translated into NT dollars at the prevailing rate for a period of 30 consecutive trading days, is at least 30% of the conversion price or (ii) in whole but not in part at any time prior to date of maturity, if at least 90% of principal amount of the bonds has already been redeemed, converted or purchased and cancelled.

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3) Redemption at the option of bondholders:

Hannstar will, at the option of the holder of any Bonds, redeem all or some of that holder’s bonds on September 3, 2013, at 100 percent of their principal amount in NT dollars.

Net foreign exchange loss on embedded derivatives of convertible bonds was $116 thousand in 2010. 16. LONG-TERM DEBT

Long-term debts as of December 31, 2011 and 2010 were summarized as follows: 2011 2010

Annual Interest Rate

% Balance


% Balance First Commercial Bank syndicated loan

Unsecured loan repayable from August 29, 2007 to February 27, 2012, with the first installment due on February 27, 2011, followed by semiannual installments at 30% each and the final 40% on February 27, 2012; in May 2011, the Company paid the principal in full in advance. - $ - 1.600 $ 2,500,000

Yuanta Commercial Bank Unsecured loan repayable from December 29, 2010 to

December 21, 2013. The authorized credit limit may be used on revolving basis for a period of three years from December 29, 2010. The principal is fully repayable upon maturity; floating interest. 1.5710 500,000 1.350 200,000

Hua Nan Bank Unsecured loan repayable from December 30, 2010 to

December 30, 2013; the principal is fully repayable upon maturity; floating interest. 1.4757 300,000 1.2326 300,000

Taishin Bank Unsecured loan repayable from February 25, 2011 to

February 25, 2014. The principal is fully repayable upon maturity; floating interest. 1.5300 500,000 - -

First Commercial Bank Unsecured loan repayable from February 25, 2011 to


Fubon Financial Unsecured loan repayable from February 25, 2011 to


Far Eastern International Bank Unsecured loan repayable from February 25, 2011 to

January 24, 2014. The principal is fully repayable upon maturity; floating interest. 1.5710 350,000 - -

HSBC Unsecured loan repayable from May 27, 2011 to May

27, 2014. The principal is fully repayable upon maturity; floating interest. 2.0200 500,000 - -

China Development Industrial Bank Unsecured loan repayable from June 29, 2011 to June


China Development Industrial Bank Unsecured loan repayable from September 30, 2011

to September 30, 2014. The principal is fully repayable upon maturity; floating interest. 1.6500 100,000 - -

(Continued)

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2011 2010


% Balance


% Balance China Development Industrial Bank

Unsecured loan repayable from December 21, 2011 to December 21, 2014. The principal is fully repayable upon maturity; floating interest. 1.6000 $ 100,000 - $ -

Chang Hwa Bank Unsecured loan repayable from June 30, 2011 to June


Industrial Bank of Taiwan Unsecured loan repayable from June 30, 2011 to June

30, 2014. The principal is fully repayable upon maturity; floating interest. 1.5645-1.5687 400,000 - -

Land Bank Unsecured loan repayable from September 7, 2011 to

September 7, 2014 with the first installment due on September 7, 2013 followed by semiannual installment at 15% each and the final 70% on September 7, 2014; floating interest. 1.7008-1.7030 300,000 - -

Chinatrust Commercial Bank Unsecured loan repayable from October 4, 2011 to

July 31, 2014. The principal is fully repayable upon maturity; floating interest. 1.6490-1.6500 300,000 - -

ING Bank Unsecured loan repayable from January 19, 2010 to

January 18, 2013; the principal is fully repayable upon maturity; floating interest. 1.8600 302,750 1.8550 291,300

Chinatrust Commercial Bank Secured loan repayable from May 14, 2010 to June

28, 2013; floating interest. 1.6800 292,911 1.71 268,724 BNP PARIBAS Bank

Secured loan repayable from July 22, 2010 to July 21, 2012; floating interest. 2.362 238,034 2.39-2.44 231,995

China Development Industrial Bank Secured loan repayable from July 28, 2010 to July 27,

2012. 1.281 181,649 1.0028 174,728 First Commercial Bank

Secured loan repayable from November 23, 2011 to November 22, 2014, with the first installment due on May 23, 2013 followed by semiannual installment at 25% each. 2.6085 151,374 - -

Far Eastern International Bank syndication loan Unsecured loan repayable from December 14, 2010 to

December 14, 2013; the principal is fully repayable upon maturity. - - 1.35 4,800,000

Far Eastern International Bank Unsecured loan repayable from September 27, 2010

to September 27, 2013; the principal is fully repayable upon maturity. - - 1.05 291,300

Far Eastern International Bank Unsecured loan repayable from March 25, 2010 to

August 24, 2012; the principal is fully repayable upon maturity. - - 1.05 174,780

Far Eastern International Bank Unsecured loan repayable from September 27, 2010

to September 27, 2013; the principal is fully repayable upon maturity. - - 1.05 436,950

(Continued)

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2011 2010


% Balance


% Balance Mega International Commercial Bank

Unsecured loan repayable from September 27, 2010 to September 27, 2013, with the first installment due on September 27, 2012, followed by semiannual installments at 30% each and the final 40% on September 27, 2013. - $ - 1.16 $ 436,950

Ta Chong Bank Unsecured loan repayable from June 25, 2010 to June

25, 2013, with the first installment due on June 25, 2012, followed by semiannual installments at 30% each and the final 40% on June 25, 2013. - - 1.05 873,900

E.SUN Commercial Bank Unsecured loan repayable from May 5, 2010 to May

5, 2013. The principal is due in semiannual installments commencing May 4, 2012. - - 0.99 436,950

Taishin International Bank Unsecured loan repayable from April 22, 2010 to

April 22, 2013, with the first installment due on April 22, 2012, followed by semiannual installments at 30% each and the final 40% on April 22, 2013. - - 1.05 582,600

Taishin International Bank Unsecured loan repayable from November 17, 2010

to April 22, 2013, with the first installment due on April 22, 2012, followed by semiannual installments at 30% each and the final 40% on April 22, 2013. - - 1.15 174,780

Bank SinoPac Unsecured loan repayable from March 24, 2010 to

March 24, 2013; the principal is fully repayable upon maturity. - - 1.21 174,780

Bank SinoPac Unsecured loan repayable from October 21, 2010 to

October 21, 2013, with the first installment due on October 21, 2012, followed by semiannual installments at 30% each and the final 40% on October 21, 2013. - - 1.10 291,300

China Development Industrial Bank Unsecured loan repayable from March 23, 2010 to

March 22, 2013, with the first installment due on March 23, 2012, followed by semiannual installments at 30% each and the final 40% on March 23, 2013. - - 1.15 436,950

HSBC Unsecured loan repayable from March 23, 2010 to

March 22, 2013. The principal is due in semiannual installments commencing from March 23, 2012. - - 1.07 436,950

Shanghai Commercial & Savings Bank Unsecured loan repayable from December 29, 2009 to

December 29, 2012. The principal is due in semiannual installments commencing from June 29, 2012. - - 1.14 291,300

Fubon Financial Unsecured loan repayable from March 22, 2010 to

March 22, 2013, with the first installment due on March 22, 2012, followed by semiannual installments at 30% each and the final 40% on March 22, 2013. - - 1.14 582,600

(Continued)

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2011 2010


% Balance


% Balance Chinatrust Commercial Bank

Unsecured loan repayable from September 27, 2010 to September 27, 2013, with the first installment due on September 27, 2012, followed by semiannual installments at 30% each and the final 40% on September 27, 2013. - $ - 1.25 $ 291,300

Bangkok Bank Unsecured loan repayable from January 11, 2010 to

January 10, 2014. The principal is due in semiannual installments commencing from January 11, 2012. - - 2.30 582,600

Bangkok Bank Unsecured loan repayable from June 10, 2010 to June

10, 2014. The principal is due in semiannual installments commencing from June 8, 2012. - - 1.55-2.31 555,806

Bank of ANZ Unsecured loan repayable from June 29, 2010 to June

29, 2013. The principal is due in quarterly installments commencing from June 29, 2012. - - 1.80 29,336

5,716,718 15,847,879 Less: Current portion (419,683) (1,500,000)

$ 5,297,035 $ 14,347,879

(Concluded) In August 2007, WTC entered into a syndicated credit facility with First Bank and other banks. According to the terms of the loan contract, WTC promised to maintain specific financial ratios such as current ratio, liability ratio and net value of tangible assets during the loan period. As of December 31, 2011, liability ratio (the ratio of total liability to the tangible net worth, including minority interest) was not higher than 140% - current ratio was not lower than 100% and interest coverage ratio (earnings before income tax, interest, depreciation and amortization divided by interest expense) was not lower than 300%. The net value of tangible assets (including minority interest), was not lower than $23,500,000 thousand. These ratio calculations are based on WTC’s annual and semiannual consolidated audited financial statements for the years ended December 31, 2011 and 2010. On February 9, 2010, WTC had obtained the bank’s consent to extend the date of loan maturity to February 2012, and paid the principal in full in advance in May 2011. WTC should maintain certain financial ratios in its audited annual and semiannual consolidated financial statements during the loan term. In January 2010, WTHC-HK entered into a syndicated credit facility with ING Bank and other banks. According to the terms of the loan contract, WTC promised to maintain specific financial ratios such as current ratio, liability ratio and net value of tangible assets during the loan period. As of December 31, 2011, liability financial ratio (the ratio of total liability to the tangible net worth, including minority interest) was not higher than 140%, current ratio was not less than 100% and interest coverage ratio (earnings before income tax, interest, depreciation and amortization divided by interest expense) was not lower than 300%. The net value of tangible assets (including minority interest), was not lower than $23,500,000 thousand. These ratio calculations are based on WTC’s annual and semiannual consolidated audited financial statements for the years ended December 31, 2011 and 2010. In January 2011, WTHC-HK had obtained the bank’s consent to extend the date of loan maturity to January 2013. In May 2010, Kamaya obtained a secured loan from Chinatrust Commercial Bank. The loan term is two years from May 2010 to May 2012. The secured loan was guaranteed by WTC. Kamaya will pay interest every month at floating rate. For the year ended June 30, 2011, Kamaya had obtained the bank’s consent to extend the date of loan maturity to June 2013.

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In July 2010, Kamaya obtained a secured loan from BNP PARIBAS Bank. The loan term is two years from July 2010 to July 2012. The secured loan was guaranteed by WTC. Kamaya will pay interest every month at floating rate. In July 2010, DG obtained a secured loan from China Development Industrial Bank. The loan term is two years from July 2010 to July 2012. The secured loan was guaranteed by WTC. DG will pay interest every quarter at floating rate. In November 2011, DG obtained a secured loan from First Commercial Bank. The loan term is three years from November 2011 to November 2014. The secured loan was guaranteed by WTC. DG will pay interest semiannually at floating rate. As of November 25, 2009, Hannstar entered into a syndicated credit facility for $700,000 thousand with Far Eastern International Bank and other banks to repay debts and for improving financial structure. The principal had been fully repaid in December 2010. As of June 23, 2010, Hannstar entered into a secured loan agreement for $2,800,000 thousand with Far Eastern International Bank for working capital needs. Common stock of GBM was pledged to secure long-term debt under the loan agreement with Far Eastern International Bank. The 60% secured loan was stated at the lower of closing price before the date of allocating or average price for a period of 60 trading days, the 40% loan was sated as unsecured loan. The authorized credit limit with Far Eastern International Bank was $2,400,000 thousand, and the principal had been fully repaid in December 2010. As of June 23, 2010, Hannstar entered into a syndicated credit facility for $4,800,000 thousand with Far Eastern International Bank and other banks to repay debts and for working capital needs. The authorized credit limit with Far Eastern International Bank and other banks was $4,800,000 thousand as of December 31, 2010. Under loan agreements with banks: a. Hannstar should maintain certain financial ratios in its audited annual and semiannual consolidated

financial statements during the loan term. b. Hannstar Board International Holdings (Hong Kong) Ltd. and Hannstar Board International Holdings

Ltd. should maintain certain financial ratios in their audited annual and semiannual consolidated financial statements during the loan term. Under the loan agreements with Taishin International Bank and Ta Chong Bank, Hannstar Board International Holdings Ltd. should maintain certain financial ratios in its audited annual consolidated financial statements during the loan term.

c. Hannstar Board Tech (Jiang Yin) Corp. and Hannstar Precision Tech (Jiang Yin) Corp. should maintain

certain financial ratios in their audited annual financial statements during the loan term. Hannstar Board International Holdings Ltd. should maintain certain financial ratios in its audited annual consolidated financial statements during the loan term.

17. PENSION PLAN

The pension plan under the Labor Pension Act (LPA) is a defined contribution plan. Under the LPA, companies including WTC, PDC and Hannstar (lost control on June 10, 2011) make monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

- 34 -

Under the Labor Standards Law, WTC, PDC and Hannstar (lost control on June 10, 2011) have defined benefit pension plan covering all eligible employees. The benefits are calculated on the basis of the length of service and average monthly wages of the six months before retirement. WTC, PDC and Hannstar (lost control on June 10, 2011) contribute amounts equal to 3%, 2% and 2.76%, respectively, of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. The pension fund is deposited in the Bank of Taiwan in the committee’s name. The fair value of WTC’s plan assets was greater than the net periodic pension cost; thus, WTC had stopped contributing to the fund deposited in Bank of Taiwan from December 1, 2010 to November 30, 2011. NTK and Kamaya both have a defined benefit pension plan and a defined contribution plan in compliance with their local laws. Net pension costs of defined benefit pension plans for 2011 and 2010 were summarized as follows: 2011 2010 Service cost $ 29,844 $ 32,142 Interest cost 6,139 7,969 Expected return on plan assets (7,966) (9,941) Amortization of net transition obligation (108) (168) Amortization of unrecognized net loss 627 867 Other - (163) Net pension cost $ 28,536 $ 30,706 Assumptions used in determining the actuarial present value of the projected benefit obligation as of December 31, 2011 and 2010 were summarized as follows: 2011 2010 Weighted-average discount rate 2.00% 2.00% Expected long-term rate of return on plan assets 2.00% 2.00% Assumed rate of increase in future compensation levels 2.00%-2.25% 2.00%-2.50% 2011 2010 Actuarial present value of benefit obligations

Vested benefits $ 294,173 $ 283,558 Nonvested benefit 147,246 247,108

Accumulated benefit obligation 441,419 530,666 Additional benefits based on future salaries 52,283 115,591 Projected benefit obligation 493,702 646,257 Plan assets at fair value (312,979) (494,935) Projected benefit obligation in excess of plan assets 180,723 151,322 Unrecognized net transition assets - 643 Unrecognized net loss (8,874) (25,671) Accrued pension cost, net $ 171,849 $ 126,294 Accrued pension cost for the years ended December 31, 2011 and 2010 was summarized as follows: 2011 2010 Accrued pension cost $ 277,003 $ 260,520 Prepaid pension cost (reported as other currents - other) (105,154) (134,226) $ 171,849 $ 126,294

- 35 -

The subsidiaries in PRC, WES and KM have their defined contribution plans pursuant to existing laws. 18. CAPITAL STOCK

December 31 2011 2010 Authorized capital

Share (’000) 800,000 800,000 Par value $ - $ 10 Capital $ 8,000,000 $ 8,000,000

Issued capital

Share (’000) 690,063 663,988 Par value $ 10 $ 10 Capital $ 6,900,634 $ 6,639,888

WTC’s paid-in capital as of January 1, 2011 was $6,639,888 thousand. During the year ended December 31, 2010, employee stock warrants were converted into 355,000 common shares at $18.70 per share. As of December 31, 2010, the procedures for registration of 355,000 common shares issued for the execution of employee stock warrants were not completed; thus the proceeds were reported as advance receipts for common stock. As of January 2011, the procedures for registration of 355,000 common shares issued for the execution of employee stock warrant were completed and converted into 355,000 common shares. As at June 22, 2011, WTC stockholders’ meeting resolved to issue additional capital stock of $257,196 thousand through stock dividend. Thus, as of December 31, 2011, WTC’s paid-in capital had increased to $6,900,634 thousand, divided into 690,063,380 common shares with NT$10 par value. WTC’s paid-in capital as of January 1, 2010 was $6,638,023 thousand. During the year ended December 31, 2010, employee stock warrants were converted into 541,500 common shares at $18.70 per share. As of December 31, 2010, the procedures for registration of 355,000 common shares issued for the execution of employee stock warrant were not completed; thus, the proceeds were reported as advance receipts for common stock. As of December 31, 2010, WTC’s paid-in capital had increased to $6,639,888 thousand, divided into 663,988,765 common shares with NT$10 par value. Earnings per share is calculated using the weighted average number of shares of common stock outstanding during the year. For the year ended December 31, 2010, the weighted average number of shares used in the calculation of earnings per share had been restated for the retroactive effect of the stock dividends issued in 2011. Earnings (loss) per share for the years ended December 31, 2011 and 2010 was calculated as follows:

2011 Amount (Numerator) Loss Per Share (In Dollars)

Before Tax (Before

Minority Interest Loss)

After Tax (Before


After Tax (Attributed to

Parent Company

Stockholders) Shares

(Denominator)

Before Tax (Before


After Tax (Before



Parent Company

Stockholders) Basic loss per share - for

common stock $ (838,664 ) $ (950,778 ) $ (1,057,342 ) 687,764,583 $ (1.22) $ (1.38) $ (1.54)

- 36 -

2010 Amount (Numerator) Earnings Per Share (In Dollars)

Before Tax (Before


After Tax (Before



Parent Company

Stockholders) Shares

(Denominator)

Before Tax (Before


After Tax (Before



Parent Company

Stockholders) Basic earnings per share -

for common stock $ 2,289,714 $ 1,734,324 $ 952,566 684,495,941 $ 3.35 $ 2.53 $ 1.39 Potential common shares

with dilutive effect Employee stock

warrants - - - 48,156 Bonuses paid to

employees - - - 1,843,173 Diluted earnings per

shares $ 2,289,714 $ 1,734,324 $ 952,566 686,387,270 $ 3.34 $ 2.53 $ 1.39

Due to net loss in 2011, the diluted earnings per share had not been calculated. The Accounting Research and Development Foundation issued Interpretation 2007-052 which requires companies to recognize bonuses paid to employees, directors and supervisors as compensation expenses beginning January 1, 2008. These bonuses were previously recorded as appropriations from earnings. The Company may decide to distribute bonuses to employees in cash or shares; in this case, the Company should presume that the entire amount of the bonus will be settled in shares and, if the resulting potential shares have a dilutive effect, these shares should be included in the weighted average number of shares outstanding used in the calculation of diluted earnings per share (EPS). The number of shares is estimated by dividing the entire amount of the bonus by the closing price of the shares at the balance sheet date. The dilutive effect of the potential shares should be included in the calculation of diluted EPS until the stockholders resolve the number of shares to be distributed to employees at their meeting in the following year.

19. RETAINED EARNINGS

Based on the ROC Company Law and WTC’s Articles of Incorporation, 10% of WTC’s earnings, less tax and any deficit, should be appropriated as legal reserve until this reserve equals to the paid-in capital and as special reserve as regulated by laws or domestic authorities. Unappropriated earnings could be retained for operating needs, if necessary. The remaining balance, if any, should be distributed in the following order: a. Bonuses to employees - 5%, including subsidiaries’ employees, if approved by the board of directors; b. Remuneration to directors and supervisors - 2%; and c. Any remainder, as dividends, bonuses to stockholders. WTC’s Articles of Incorporation also provide that profit of WTC may be distributed by way of cash dividend and/or stock dividend. Distribution of profits provides that ratio for cash dividend shall not exceed 50% of the total distribution. However, according to the capital budget of next year, WTC can make certain adjustment to the dividend policy stated above to raise the ratio of cash dividend up to 100% of the total distribution to stockholders if necessary.

- 37 -

The appropriations of earnings for 2010 and 2009 had been approved in the shareholders’ meetings on June 22, 2011 and June 25, 2010, respectively. The appropriations and dividends per share were as follows:

Appropriation of Earnings Dividends Per Share

(NT$) For For For For Year 2010 Year 2009 Year 2010 Year 2009 Legal reserve $ 95,257 $ - $ - $ - Stock dividends 257,196 - 0.387 - Cash dividends 85,732 - 0.129 - WTC’s board of directors had proposed and the stockholders had approved the distribution from 2010 earnings. Information on earnings appropriation can be accessed online through the Market Observation Post System of the Taiwan Stock Exchange (http://e-mops.tse.com.tw). WTC’s stockholders approved the board of director’s proposal to offset $214,278 thousand of the legal reserve and $26,023 thousand of the capital surplus with accumulated deficit in 2009. Information on the offsetting of loss can be accessed online through the Market Observation Post System of the Taiwan Stock Exchange (http://e-mops.tse.com.tw). Due to the net loss and accumulated deficit for the year ended and as of December 31, 2011, WTC did not appropriate bonuses to employees, directors and supervisors. For the year ended December 31, 2010, the accrued bonus to employees was $36,495 thousand, and the accrued remuneration to directors and supervisors was $14,598 thousand. The bonus to employees and remuneration to directors and supervisors represented 5% and 2%, respectively, of net income (net of the bonus and remuneration). Material differences between such estimated amounts and the amounts proposed by the Board of Directors in the following year are adjusted for in the current year. If the actual amounts subsequently resolved by the stockholders differ from the proposed amounts, the differences are recorded in the year of stockholders’ resolution as a change in accounting estimate. If a share bonus is resolved to be distributed to employees, the number of shares is determined by dividing the amount of the share bonus by the closing price (after considering the effect of cash and stock dividends) of the shares of the day immediately preceding the stockholders’ meeting. The amounts of the bonus to employees and the bonus to directors and supervisors approved in 2011 were $18,437 thousand and $7,375 thousand and the related amounts accrued in 2010 were $36,495 thousand and $14,598 thousand. The differences had been adjusted in profit and loss for the year ended December 31, 2011. On November 23, 2007, WTC’s board of directors resolved to issue employee stock warrants in accordance with Article 28.3 of the Securities and Exchange Law, which limited the number of warrants for distribution to 4,000,000 units. Each unit has the right to buy one newly issued common share. The exercise price is the closing price of WTC’s common shares at the warrant issuance date. The warrant holder can exercise the right up to 50% of the granted warrant units no earlier than two years from the granted date. After three years from the granted date, warrant holders are eligible to exercise all the warrants owned. As of December 25, 2007, WTC had issued 4,000,000 units of the employee stock warrants to the employees at the exercise price of NT$21.55 dollars per unit. The exercise price of these warrants mentioned above had been retroactively restated to NT$18.00 dollars per share for the distribution of stock dividends issued over the years. The employee stock warrants issued by WTC were exercised at market value; thus there was no intrinsic value or compensation cost recognized in 2011 and 2010.

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WTC’s employee stock warrants and related information for the years ended December 31, 2011 and 2010 were summarized as follows: 2011 2010

Units (Thousands)

Weighted- average

Exercise Price (Dollars)

Units (Thousand)

Weighted- average

Exercise Price (Dollars)

Outstanding, beginning of year 2,786.5 $ 18.7 3,697.0 $ 18.7 Forfeited (211.0) - (369.0) - Exercised - - (541.5) - Adjustment from ownership

dilution - (0.7) - -

Outstanding, end of year 2,575.5 $ 18.0 2,786.5 $ 18.7 Exercisable, end of year 2,575.5 2,786.5 The information on WTC’s outstanding stock warrants as of December 31, 2011 was as follows:

Outstanding Stock Warrants Weighted- Exercisable Stock Warrants

Range of Exercise Price

(Dollars)

Units (Thousands)

average Expected

Remaining Years

Weighted- average

Exercise Price (In Dollars)

Units (Thousands)

Weighted- average

Exercise Price (In Dollars)

$18.70-18.00 2,575.5 0.98 $18.00 2,575.5 $18.00

20. TREASURY STOCK

Treasury stock transactions for the years ended December 31, 2011 and 2010 were summarized as follows:

2011

Purchase Reason

Treasury Stock

Held as of January 1, 2011

Increase During the Period

Decrease During the Period

Treasury Stock Held as of

December 31, 2011

Common shares held by subsidiaries 18,950,797 57,287 (19,008,084) -

2010

Purchase Reason

Treasury Stock

Held as of January 1, 2010

Increase During the Period

Decrease During the Period

Treasury Stock Held as of

December 31, 2010

Treasury stock for granting to the

employees

2,885,000 - (2,885,000) - Common shares held by subsidiaries 18,950,797 - - 18,950,797 21,835,797 - (2,885,000) 18,950,797 As of December 31, 2010, the treasury stock of WTC in the amount of $68,855 thousand was held by subsidiaries.

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The shares held by WTC for granting to the employees should be transferred to employees within three years from the date when the shares were bought. The employees of WTC and the subsidiaries, in which WTC holds directly or indirectly more than one half of the total number of voting shares, have the right to exercise the warrants owned from the granted date. The highest number of treasury shares held by WTC as of December 31, 2010 was 2,885,000 shares, which amounted to $39,551 thousand, pursuant to the law. The treasury stock had been granted to employees as of December 31, 2010. According to the Stock Exchange Law of ROC, the treasury stock should not be pledged and does not have the same right as the common stock. PDC, WTC’s subsidiary, held 1,479,744 shares of WTC. In 2011, after the stock dividends were received by PDC, 57,287 shares were added to treasury stock. Besides, after the sale of all of shares by PDC, 1,537,031 shares were deducted from treasury stock and the loss of $3,317 thousand was recognized as a deduction of the capital surplus from treasury stock transactions in stockholders’ equity. As at December 31, 2011, PDC did not hold any share of WTC’s common stock. Thus, WTC recorded decrease in treasury stock in the amount of $48 thousand for the year ended December 31, 2011. On June 10, 2011, WTC had not taken control of Hannstar by losing the majority of the board of directors in Hannstar’s provisional stockholders’ convention. Since then, Hannstar was not a subsidiary of WTC. As of June 10, 2011, 17,471,053 shares of WTC’s common stock held by Hannstar with carrying value of $58,757 thousand were recorded as decrease in treasury stock for the year ended December 31, 2011. WTC transferred to employees 2,885,000 treasury shares amounting to $39,669 thousand in 2010. Based on Interpretation 2007-266 issued by the Accounting Research and Development Foundation, employee stock options granted during the year ended December 31, 2010 were priced using the Black-Scholes model, and compensation cost of $11,084 thousand (recorded as salary expense) was recognized in 2010. In 2010, the amount of $11,202 thousand was recorded as capital surplus - treasury stock, including compensation cost of $11,084 thousand and the difference of $118 thousand between the transferred value of $39,669 thousand and the book value of $39,551 thousand of the treasury shares granted.

21. PERSONNEL, DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSES

Personnel, depreciation, depletion and amortization expenses for the years ended December 31, 2011 and 2010 were summarized as follows:

Function

Expense Item

2011 2010 Operating

Cost Operating Expenses Total Operating

Cost Operating Expenses Total

Personnel expense Salaries $3,057,440 $925,349 $3,982,789 $3,896,322 $1,226,267 $5,122,589 Labor/health insurance 269,478 86,313 355,791 313,662 97,453 411,115 Pension cost 69,656 56,791 126,447 73,898 39,133 113,031 Others 163,103 54,723 217,826 185,775 54,484 240,259

Depreciation 2,853,094 187,934 3,041,028 3,865,393 236,572 4,101,965 Amortization 16,584 14,177 30,761 19,691 21,095 40,786

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22. INCOME TAX Components of income tax expense (benefit) were summarized as follows: Current income tax benefit $ (26,661) Deferred income tax asset and allowance adjustment 192,446 Prior year’s tax expense adjustment (53,671) Income tax expense, net $ 112,114 Under Article 10 of the Statute for Industrial Innovation passed by the Legislative Yuan in April 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the fiscal year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that fiscal year. This incentive took effect from January 1, 2010 and is effective till December 31, 2019. In May 2010, the Legislative Yuan passed another amendment of Article 5 of the Income Tax Law, which reduced a profit-seeking enterprise’s income tax rate from 20% to 17%, effective January 1, 2010. Deferred income tax assets as of December 31, 2011 were summarized as follows: Deferred income tax assets

Tax credits $ 143,368 Loss carryforwards 155,192 Impairment loss 23,510 Unrealized loss from inventory devaluation 58,537 Net loss on equity investments 50,164 Unrealized loss from idle assets impairment 24,399 Useful lives of property, plant and equipment is different from tax law 220,970 Others 54,790

Total deferred income tax asset 730,930 Less: Allowance (230,730) Deferred income tax assets, net 500,200 Deferred income tax assets - noncurrent (355,719)

Deferred income tax assets - current $ 144,481 Income tax benefit for the current year ended December 31, 2011 were summarized as follows: Income tax loss at statutory rate of 17% (rounded-off) $ (96,342) Tax effect on adjusting items:

Other adjustments for permanent difference 69,681 Income tax benefit for the current year $ (26,661) The income tax payable of $15,530 thousand as of December 31, 2011 was mainly the tax payable of WTC, PDC and the subsidiaries in PRC in 2011. WTC’s information on imputation credit (“IC”) on the undistributed earnings as of December 31, 2011 was summarized as follows: IC on undistributed earnings as of December 31, 2011 $ 75,679 Undistributed earnings before 1997 $ - Undistributed earnings in 1998 and onward $ (542,961) Expected IC ratio on earnings to be distributed in 2012 - Actual IC ratio on distributed earnings in 2011 12.58%

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The investment tax credits of WTC and PDC as of December 31, 2011, for income tax purposes were summarized as follows:

Expiry Year Investment Tax

Credit 2012 $ 87,950 2013 52,968 2014 2,450 $ 143,368 Losses carryforwards of WTC, PDC, WTCA and subsidiaries in PRC as of December 31, 2011 for income tax purposes were summarized as follows: Expiry Year Amount 2016 $ 102,051 2019 48,000 2023 5,141 $ 155,192 WTC’s income tax returns through 2008 had been approved by the tax authorities. PDC’s income tax returns through 2009 had been approved by the tax authorities.

23. INVESTMENT INCOME

Investment income for the years ended December 31, 2011 and 2010 was summarized as follows: 2011 2010 Dividends income $ 46,066 $ 27,574 Impairment loss of available-for-sale financial assets, noncurrent (18,140) - Impairment loss of goodwill (6,995) - $ 20,931 $ 27,574

24. RELATED PARTY TRANSACTIONS

The names and relationship of related parties were summarized as follows:

Related Party Relationship with the Company Walsin Lihwa Corporation (“Walsin Lihwa”) WTC’s 18.11% stockholder as of December 31, 2011 Kunshan Walsin Color Electronics & Plastics Co.,

Ltd. (“Walsin Color-KS) 49% investee of POE-BVI as of December 31, 2011

Walsin Color Co., Ltd. 29.14% investee of WTC as of December 31, 2011 Hannstar Board Corp. 19.97% investee of WTC as of December 31, 2011 Hannstar Color Shanghai Electronics & Plastic Co.,

Ltd. A subsidiary of Walsin Color Co., Ltd.

(Continued)

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Related Party Relationship with the Company

Winbond Electronics Corp. Related party in substance Global Brands Manufacturing Co., Ltd. Related party in substance Dynamic Skyline Ltd. Related party in substance Walton Advanced Engineering, Inc. (“Walton

Advanced”) Related party in substance

Hannstar Board Tech (Jiang Yin) Corp. Related party in substance Up First Investment Limited Related party in substance CMKC (HK) Limited Related party in substance Walton Advanced Engineering (Suzhou), Inc.

(“Walton-SZ”) Related party in substance

Hannstar Display Corporation (“Hannstar Display”) Related party in substance Hannstar Union Co., Ltd. Related party in substance Walton Chaintech Corp. Related party in substance Info-Tek Corporation Related party in substance

(Concluded) Major transactions with related parties were summarized as follows: Sales Years Ended December 31 2011 2010 Others $ 142,639 $ 44,646 The selling prices to related parties were similar to the selling prices to third parties. Rental Expense Years Ended December 31 2011 2010 Walsin Lihwa $ 13,927 $ 10,934 Others 3,709 3,708 $ 17,636 $ 14,642 Rental expense was based on market rate and the Company determined that the terms of payment were at arm’s length. Notes and Accounts Receivable December 31 2011 2010 Others $ 9,948 $ 22,234 Other Receivables December 31 2011 2010 Others $ 27,369 $ 9,904

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Other receivable included receivable from related parties for financial activities and sale of equipment, materials, etc. Due from Related Company Due from related company for the year ended December 31, 2011 was as follows:

2011

Related Party Highest

Balance Ending

Balance Interest

Receivable Interest

Income

Interest Rate Walsin Color-KS $ 201,541 $ 201,541 $ 330 $ 3,169 6.56 Payables on Equipment and Other Payables December 31 2011 2010 Others $ 3,703 $ 2,762 Payable on equipment and other payables include payable for purchase of equipment and receipts (payments) under custody. Property Transactions Acquisitions of property, plant and equipment from related parties for the years ended December 31, 2011 and 2010 were summarized as follows:

Related Party Items 2011 2010 Hannstar Union Co., Ltd. Other equipment, construction in process

and prepayment for equipments $ 857 $ 761

Hannstar Board Corp. Machinery and equipment and other equipment

120 -

Walton Advanced Machinery and equipment - 10 Walsin Color Co., Ltd. Machinery and equipment and other

equipments - 620

Purchase prices of machinery equipment and other equipment were based on carrying value. Stock Transactions Sales of stock of Hannstar to related parties for the year ended December 31, 2010 were summarized as follows:

2010 Related Party Items Selling Price Book Value Gain

Global Brands

Manufacturing Co., Ltd. Info-Technology Corporation $ 90,499 $ 71,143 $ 19,356

As of December 31, 2010, the unrealized profit of $6,253 thousand from intercompany stock transactions was included in deferred unrealized profit.

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Guarantees WTC had guaranteed the borrowings of its subsidiaries. Please see Note 26-b for details. Compensation of Directors, Supervisors and Management Personnel 2011 2010 Remuneration $ 2,095 $ 17,899 Salaries, incentives and special compensation 30,799 46,758 Bonuses 433 2,543 $ 33,327 $ 67,200

25. PLEDGED ASSETS

As of December 31, 2011 and 2010, the following assets had been pledged as collateral or security deposit to meet the requirements of customs authorities and suppliers: Financial Statement Classification Pledged Asset 2011 2010 Other assets - refundable deposits Time deposits $ 55,353 $ 41,477

26. COMMITMENTS AND CONTINGENCIES

a. Letters of credit

As of December 31, 2011 and 2010, outstanding letters of credit of the Company were summarized as follows:

Unit: Dollars

2011 2010 U.S. dollars $ - $ 20,977,895 New Taiwan dollars - 41,234,000 Japanese Yen 17,830,000 5,400,000 Euros - 43,500

b. Loan guarantees

As of December 31, 2011 and 2010, WTC had guaranteed the following borrowings of its subsidiaries:

Unit: Thousand

2011 2010 DG US$ 11,000 US$ 6,000 WTHC-HK 10,000 10,000 KAMAYA 17,670 17,225

c. WTC signed a construction contract amounting to $318,800 thousand with Fu Tai Construction Co. in

September 2007 and had paid $318,481 thousand as of December 31, 2011. The amount of $318,800 thousand was reported as buildings and improvements.

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27. OTHERS

Fair Value of Financial Instruments The fair values of nonderivative and derivative financial instruments as of December 31, 2011 and 2010 were summarized as follows: 2011 2010 Nonderivative Financial Instruments Carrying Value Fair Value Carrying Value Fair Value Assets

Cash and cash equivalents $ 3,879,024 $ 3,879,024 $ 9,627,139 $ 9,627,139 Financial assets at fair value through

profit or loss - current

79,184 79,184 - - Held-to-maturity financial assets -

current

23,993 23,993 - - Notes receivable 151,892 151,892 244,633 244,633 Notes receivable from related parties 1 1 2,029 2,029 Accounts receivable 3,923,639 3,923,639 11,014,045 11,014,045 Accounts receivable from related

parties

9,947 9,947 20,205 20,205 Other receivables 85,461 85,461 515,573 515,573 Other receivables from related

parties

229,240 229,240 9,904 9,904 Other current assets 595,025 595,025 - - Long-term equity investments at

equity method

2,641,789 1,600,614 5,239,426 4,408,729 Available-for-sale financial assets -

noncurrent

675,367 675,367 1,032,790 1,032,790 Financial assets carried at cost -

noncurrent

172,240 - 171,999 - Guarantee deposits paid 74,570 74,570 84,250 84,250

Liabilities Short-term loans 1,592,691 1,592,691 3,843,314 3,843,314 Notes payable 192,639 192,639 700,848 700,848 Accounts payable 1,018,496 1,018,496 5,173,028 5,173,028 Payable on equipment 603,211 603,211 1,095,456 1,095,456 Other payables 1,404,679 1,404,679 2,447,752 2,447,752 Current portion of long-term debt 419,683 419,683 1,500,000 1,500,000 Bonds payable - - 917,158 921,083 Long-term debt 5,297,035 5,297,035 14,347,879 14,347,879 Long-term payable 5,741 5,741 - - Guarantee deposits received 81,522 81,522 172,568 172,568

2011 2010 Derivative Financial Instruments Carrying Value Fair Value Carrying Value Fair Value Forward exchange contract (financial

assets at fair value through profit or loss - current)

$ - $ - $ 38,584 $ 38,584 Foreign exchange swap (financial

liabilities at fair value through profit or loss - current)

- - 4,920 4,920 Embedded derivatives of convertible

bonds (financial liabilities at fair value through profit or loss - noncurrent)

- - 6,958 6,958 Interest rate swap contract (financial

liabilities at fair value through profit or loss - current)

- - 2,172 2,172

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Methods and assumptions used to estimate the fair values of financial instruments were as follows:

a. The carrying amounts of the following short-term financial instruments approximate their fair values

because of their short maturities: Cash and cash equivalents, notes and accounts receivable, notes payable, short-term bank loans and other financial instruments.

b. Fair values of financial instruments designated as at FVTPL and available-for-sale are based on their

quoted prices in an active market. For those instruments with no quoted market prices, their fair values are determined using valuation techniques incorporating estimates and assumptions consistent with those generally used by other market participants to price financial instruments. Fair values of derivatives are based on their quoted prices in an active market. For those derivatives with no quoted market prices, their fair values are determined using valuation techniques incorporating estimates and assumptions consistent with those generally used by other market participants to price financial instruments.

c. Held-to-maturity financial assets are based on their quoted prices in an active market. For those

instruments with no quoted market prices, their fair values are determined using valuation techniques incorporating estimates and assumptions consistent with those generally used by other market participants to price financial instruments.

d. Long-term equity investment at equity method do not have quoted prices in an active market and entail

an unreasonably high cost to obtain verifiable fair value, thus the fair value was based on the net asset value per share in the financial report as of the balance sheet date verified and certified by an independent accountant.

e. Financial assets carried at cost are investments in unquoted shares, which have no quoted prices in an

active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

f. Bonds payable are based on their quoted prices in an active market.

Fair values of financial assets and liabilities, based on quoted market prices or valuation techniques, were as follows: Quoted Market Prices Valuation Techniques December 31 December 31 2011 2010 2011 2010 Assets

Financial assets at fair value through profit or loss - current

Marketable equity securities $ 61,940 $ - $ - $ - Stock index funds 17,244 - - - Forward exchange contracts - - - 38,584 Held-to-maturity financial

assets - current

- - 23,993 - Available-for-sale financial

assets - noncurrent

675,367 1,032,790 - - Liabilities

Financial liabilities at fair value through profit or loss - current

Forward exchange swap - - - (4,920) (Continued)

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Quoted Market Prices Valuation Techniques December 31 December 31 2011 2010 2011 2010

Financial liabilities at fair value through profit or loss - noncurrent

Embedded derivatives of

convertible bonds

$ - $ - $ - $ (6,958) Hedging derivative liabilities -

current

Interest rate swap contract - - - (2,172)

(Concluded) Nominal Amount December 31, 2010

Financial Instruments Nominal Amount

(In Thousands) Signing Date Maturity Date Interest rate swap contract US$ 5,920 2008.06.30 2011.03.25 Interest rate swap contract US$ 2,000 2008.08.23 2011.03.25 Interest rate swap contract US$ 3,280 2009.03.25 2011.03.25 Forward exchange contract US$ 76,100 2010.08.05-2010.12.22 2011.01.04-2011.12.23 Forward exchange contract US$ 1,000 2010.12.15 2011.01.10 Foreign exchange swap US$ 10,000 2010.04.21 2011.04.25 Forward exchange contract US$ 1,000 2010.11.05 2011.01.31 Credit Risk The counterparties to the contracts above are all commercial or investment banks or broker or third-parties with high credit ratings; thus, credit risks are considered insignificant. Market Price Risk The Company measured market price risk of financial instruments for trading purposes by market value, and set up the loss limitations according to the acceptable risk. The gain or loss of financial instruments for non-trading purposes derived from the fluctuation of interest rate or exchange rate is to be offset by the loss or gain on the hedged item attributable to the risk being hedged and thus, the market risk is insignificant. Liquidity Risk, Cash Flow Risk and Forecasted Cash Flow Risk The Company has the ability to meet its financial obligations; thus, liquidity risks virtually do not exist. Forward rates for forward contracts are fixed; thus, cash flow risks are insignificant. In addition, the possibility that the Company’s forward exchange contracts cannot be sold at a reasonable price in the market is remote; thus, liquidity risk is low.

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The Type, Purpose and Strategy of the Derivative Financial Instruments

Type Purpose Strategy

Interest rate swap Hedging (See below) Forward exchange contracts Trading - Foreign exchange swap Trading - Embedded derivatives of convertible bonds Trading - The Company signed the rate exchange contract with the bank. The major purpose of the contract is to hedge the risk of exposed interest rate in financial activity. The Company’s strategy is to hedge the majority of the cash flow risk. The Company used fixed interest rate as hedging instrument in exchange contract and evaluated the hedge periodically. Net foreign exchange gains related to forward exchange contract were of $33,102 thousand and $70,256 thousand, respectively, for the years ended December 31, 2011 and 2010.

28. EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY FINANCIAL ASSETS AND LIABILITIES

The significant foreign-currency financial assets and liabilities as of December 31, 2011 and 2010 were summarized as follows:

Unit: Foreign Currencies/New Taiwan Dollars in Thousand

2011 2010

Foreign

Currencies Exchange

Rate New Taiwan

Dollars Foreign

Currencies Exchange

Rate New Taiwan

Dollars Financial assets Monetary items

USD $ 325,438 30.2750 $ 9,852,635 $ 497,343 29.1300 $ 14,487,602 EUR 158 39.1707 6,189 2,541 38.9491 98,970 Japanese Yen 732,689 0.3903 285,969 1,157,571 0.3583 414,758 Hong Kong dollars 327,198 3.8966 1,274,960 264,347 3.7471 990,535 Renminbi 628,591 4.7986 3,016,357 668,689 4.4203 2,955,806 Singapore dollars 21 23.3154 490 2,738 22.7294 62,233 Malaysian dollars 1,771 9.5309 16,879 10,202 9.4517 96,426

Nonmonetary items Renminbi - - - 7,317 4.4203 32,343

Long-term equity investments at equity method Renminbi 32,878 4.7986 157,768 37,382 4.4203 165,240

Financial liabilities Monetary items

USD 287,547 30.2750 8,705,485 478,398 29.1300 13,935,734 EUR 360 39.1707 14,101 316 38.9491 12,308 Japanese Yen 3,867,597 0.3903 1,509,523 3,240,371 0.3583 1,161,025 Hong Kong dollars 12,680 3.8966 49,409 94,865 3.7471 355,469 Renminbi 192,205 4.7986 922,315 779,800 4.4203 3,446,950 Singapore dollars - - - 520 22.7294 11,819 Malaysian dollars 3,228 9.5309 30,766 10,644 9.4517 100,604

Nonmonetary items U.S. dollars - - - 74 29.1300 2,156

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29. OPERATING SEGMENT FINANCIAL INFORMATION

Business Segments

The Company’s reportable segments under SFAS No. 41 are as follows:

A segment - passive component B segment - passive component C segment - printed circuit board a. Segment revenue and results

The analysis of the Company’s revenue and results from continuing operations by reportable segment was as follows: The Company’s operating segment information for the years ended December 31, 2011 and 2010 was as follows:


A Segment B Segment C Segment

Adjustment and

Elimination Total Net sales $ 13,352,642 $ 2,485,991 $ 10,023,064 $ (759,328) $ 25,102,369 Cost of sale (12,752,894) (2,171,979) (9,256,852) 772,384 (23,409,341) Gross profit 599,748 314,012 766,212 13,056 1,693,028 Operating expenses (1,571,688) (312,428) (700,888) 5,693 (2,579,311) Operating income (loss) (971,940) 1,584 65,324 18,749 (886,283) Nonoperating income and gain 223,693 148,251 323,669 (53,705) 641,908 Nonoperating expenses and

losses

(261,538)

(91,910)

(240,841)

-

(594,289) Income (loss) before income tax $ (1,009,785) $ 57,925 $ 148,152 $ (34,956) $ (838,664)



Adjustment and

Elimination Total Net sales $ 15,932,530 $ 3,253,796 $ 21,999,455 $ (978,740) $ 40,207,041 Cost of sale (13,182,390) (2,620,722) (19,508,759) 1,008,520 (34,303,351) Gross profit 2,750,140 633,074 2,490,696 29,780 5,903,690 Operating expenses (1,791,053) (319,848) (1,531,851) 8,130 (3,634,622) Operating income (loss) 959,087 313,226 958,845 37,910 2,269,068 Nonoperating income and gain 503,588 71,331 446,815 (235,273) 786,461 Nonoperating expenses and

losses

(266,347)

(66,067)

(410,218)

(23,183)

(765,815) Income (loss) before income tax $ 1,196,328 $ 318,490 $ 995,442 $ (220,546) $ 2,289,714

All intercompany transactions had been eliminated upon consolidation.

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b. Segment assets and liabilities

Segment assets December 31, 2011


Adjustment and

Elimination Total Cash and cash equivalents $ 2,734,863 $ 1,144,161 $ - $ - $ 3,879,024 Notes and account receivable 3,570,081 544,718 - (29,320) 4,085,479 Inventories 3,280,200 547,403 - - 3,827,603 Other current assets 1,216,785 132,178 - 3,429 1,352,392 Total current assets 10,801,929 2,368,460 - (25,891) 13,144,498 Investments 4,566,859 30,188 - (1,107,651) 3,489,396 Property, plant and equipment 8,757,491 1,033,300 - (319) 9,790,472 Intangible assets 177,636 14,923 - - 192,559 Other assets 699,439 152,189 - (25,069) 826,559 Total assets $ 25,003,354 $ 3,599,060 $ - $ (1,158,930) $ 27,443,484

December 31, 2010


Adjustment and

Elimination Total Cash and cash equivalents $ 2,250,830 $ 870,239 $ 6,506,070 $ - $ 9,627,139 Notes and account receivable 3,685,272 749,820 6,931,275 (85,455) 11,280,912 Inventories 3,368,823 532,645 1,750,362 - 5,651,830 Other current assets 593,192 68,633 654,227 (47,870) 1,268,182 Total current assets 9,898,117 2,221,337 15,841,934 (133,325) 27,828,063 Investments 4,582,187 131,718 4,955,180 (3,224,870) 6,444,215 Property, plant and equipment 8,933,096 880,862 12,219,212 (171,240) 21,861,930 Intangible assets 195,619 14,544 168,221 125,609 503,993 Other assets 646,066 283,644 132,851 (12,439) 1,050,122 Total assets $ 24,255,085 $ 3,532,105 $ 33,317,398 $ (3,416,265) $ 57,688,323 Segment liabilities December 31, 2011


Adjustment and

Elimination Total Short-term loans $ 1,208,198 $ 384,493 $ - $ - $ 1,592,691 Notes and accounts payable 968,402 299,065 - (56,332) 1,211,135 Income tax payable 4,257 11,273 - - 15,530 Other payables 1,723,810 305,141 - (21,061) 2,007,890 Other current liabilities 499,773 23,876 - - 523,649 Total current liabilities 4,404,440 1,023,848 - (77,393) 5,350,895 Long-term debt 5,302,776 - - - 5,302,776 Reserves 17,341 13,734 - - 31,075 Other liabilities 352,502 6,996 - - 359,498 Total liabilities $ 10,077,059 $ 1,044,578 $ - $ (77,393) $ 11,044,244

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December 31, 2010


Adjustment and

Elimination Total Short-term loans $ 1,150,018 $ 302,952 $ 2,390,344 $ - $ 3,843,314 Notes and accounts payable 1,298,350 344,150 4,251,979 (20,603) 5,873,876 Income tax payable 79,314 26,224 68,185 - 173,723 Other payables 1,700,071 282,426 1,583,900 (23,189) 3,543,208 Other current liabilities 1,571,427 16,507 19,559 4,920 1,612,413 Total current liabilities 5,799,180 972,259 8,313,967 (38,872) 15,046,534 Long-term debt 2,466,747 - 12,805,248 - 15,271,995 Reserves 17,341 13,734 15,653 - 46,728 Other liabilities 321,223 9,146 150,269 (40,220) 440,418 Total liabilities $ 8,604,491 $ 995,139 $ 21,285,137 $ (79,092) $ 30,805,675

c. Revenue from major products and services

The Company’s revenue from continuing operations by major products and services was as follows: Years Ended December 31 2011 2010 Multilayer ceramic capacitors $ 7,886,741 $ 9,747,970 Chip resistors 3,955,977 4,661,009 Printed circuit 10,023,064 21,999,455 Others 3,236,587 3,798,607 $ 25,102,369 $ 40,207,041

d. Geographical information

The Company operates in two principal geographical areas - Asia and America. The Company’s revenue from continuing operations from external customers and information about its noncurrent assets by geographical location are detailed below.

Revenue from External

Customers Noncurrent Assets 2011 2010 2011 2010 Asia $ 19,849,579 $ 29,758,922 $ 10,260,649 $ 22,859,210 America 4,577,028 9,487,216 13,498 9,251 Europe 675,762 960,903 - - $ 25,102,369 $ 40,207,041 $ 10,274,147 $ 22,868,461 Noncurrent assets excluded those classified as financial instruments, deferred tax assets and post-employment benefit assets.

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e. Information about major customers

Individual customers which accounted for more than 10% of total consolidated revenue for the years ended December 31, 2011 and 2010 were as follows:

2011 2010 Amount % Amount % Customer A $ - - $ 6,833,898 17 Customer B - - 5,544,141 14 $ - - $ 12,378,039 31

30. PRE-DISCLOSURE FOR ADOPTION OF INTERNATIONAL FINANCIAL REPORTING

STANDARDS

Under Rule No. 0990004943 issued by the Financial Supervisory Commission (FSC) on February 2, 2010, the Company’s pre-disclosure information on the adoption of International Financial Reporting Standards (IFRSs) was as follows: a. On May 14, 2009, the FSC announced the “Framework for Adoption of International Financial

Reporting Standards by Companies in the ROC.” In this framework, starting 2013, companies with shares listed on the TSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market should prepare their financial statements in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, International Financial Reporting Standards, International Accounting Standards, Interpretations as well as related guidance translated by the ARDF and issued by the FSC. To comply with this framework, the Company has set up a project team and made a plan to adopt the IFRSs. Leading the implementation of this plan is Mr. Tsai, Tsung-Lin. The main contents of the plan, anticipated schedule and status of execution as of December 31, 2011 were as follows:

Plan Item Responsible Division Plan Progress

1) Establish the IFRSs taskforce IFRSs taskforce and accounting division Finished 2) Set up a work plan for IFRSs

adoption IFRSs taskforce and accounting division Finished

3) Complete the identification of

GAAP differences and impact IFRSs taskforce and accounting division Finished

4) Complete the identification of

consolidated entities under IFRSs IFRSs taskforce and accounting division Finished

5) Evaluate optional exemptions

under IFRS based on IFRS 1 IFRSs taskforce and accounting division Finished

6) Complete modification to the IT

systems IFRSs taskforce and IT division Finished

7) Complete modification to the

internal controls IFRSs taskforce and internal audit

division Finished

8) Determine IFRSs accounting

policies IFRSs taskforce and accounting division Finished

(Continued)

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Plan Item Responsible Division Plan Progress

9) Select optional exemptions under

IFRS based on IFRS 1 IFRSs taskforce and accounting division Finished

10) Complete the preparation of

opening date balance sheet under IFRSs

IFRSs taskforce and accounting division In progress according to the plan

11) Prepare comparative financial

information under IFRSs for 2012

IFRSs taskforce and accounting division -

12) Complete modification to the

relevant internal controls (including financial reporting process and information systems)

IFRSs taskforce and accounting division In progress according to the plan

(Concluded)

b. As of December 31, 2011, the material differences between the existing accounting policies and the accounting policies to be adopted under IFRSs were as follows:

Accounting Issues Description of Differences

Allowance for sales returns and others Under ROC GAAP, provisions for estimated sales returns

and others are recognized as a reduction in revenue in the period the related revenue is recognized based on historical experience. Allowance for sales returns and others is recorded as a deduction in accounts receivable. Under IFRSs, the allowance for sales returns and others is a present obligation with uncertain timing and an amount that arises from past events and is therefore reclassified as provisions (classified under current liabilities) accordingly.

Classifications of deferred income tax

asset/liability and valuation allowance 1) Under ROC GAAP, a deferred tax asset or liability is

classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, it is classified as either current or noncurrent based on the expected length of time before it is realized or settled. Under IFRSs, a deferred tax asset or liability is classified as noncurrent asset or liability.

2) In addition, under ROC GAAP, valuation allowance

is provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. Under IFRSs, deferred tax assets are only recognized to the extent that it is probable that there will be sufficient taxable profits and the valuation allowance account is not used.

(Continued)

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Accounting Issues Description of Differences

Employee benefits 1) Under ROC GAAP, it is not allowed to recognize

actuarial gains and losses from defined benefit plans directly to equity; instead, actuarial gains and losses should be accounted for under the corridor approach which resulted in the deferral of gains and losses. Under IFRSs, the Company will recognize actuarial gains and losses immediately in full in the period in which they occur, as other comprehensive income. The subsequent reclassification to earnings is not permitted.

2) Under ROC GAAP, unrecognized net transition

obligation and unrecognized actuarial losses should be amortized by the straight-line method or corridor approach over the employee’s remaining service period. Under IFRSs, unrecognized net transition obligation should be included in unappropriated earnings.

3) Under ROC GAAP, compensated absences are

recognized as salary expense when earned by employees. Under IFRSs, accumulating compensated absences are recognized as salary expense when the employees render services that increase their entitlement to future compensated absences.

The classification of reserve for land value

increment tax Under ROC GAAP, reserve for land value increment tax

is classified under long-term liabilities. Under IFRSs, reserve for land value increment tax is classified as deferred tax liability according to its nature.

The classification of idle assets Under ROC GAAP, idle assets are classified under other

assets. Under IFRSs, idle assets are classified as property, plant and equipment according to their nature.

The classification of land use rights Under ROC GAAP, land use rights are classified under

intangible assets. Under IFRSs, land use rights are classified as long-term prepaid rents according to their nature.

A change in investor’s ownership interest in

associate resulting from the issuance of new shares by the associate without losing significant influence

Under ROC GAAP, a decrease in the investor’s proportionate share in the net assets of its investee resulting from its subscription for additional shares of stock issued by the investee at a rate different from its existing equity ownership in the investee is adjustment to capital surplus. Under IFRSs, it should be treated as a deemed disposal.

(Concluded)

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c. The Company has prepared the above assessments in accordance with (a) the 2010 version of the IFRSs translated by the ARDF and issued by the FSC and (b) the Guidelines Governing the Preparation of Financial Reports by Securities Issuers amended and issued by the FSC on December 22, 2011. These assessments may be changed as the FSC may issue new rules governing the adoption of IFRSs, and as other laws and regulations may be amended to comply with the adoption of IFRSs. Actual results may differ from these assessments.

walsin technology corporation and subsidiaries · - 1 - independent auditors’ report the board of...

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