CHIMEI INNOLUX CORPORATION AND SUBSIDIARIES … 2nd... · AND SUBSIDIARIES (FORMERLY INNOLUX...

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CHIMEI INNOLUX CORPORATION

AND SUBSIDIARIES

(FORMERLY INNOLUX DISPLAY CORPORATION

AND SUBSIDIARIES)

CONSOLIDATED FINANCIAL STATEMENTS

AND REVIEW REPORT OF INDEPENDENT ACCOUNTANTS

JUNE 30, 2009 AND 2010

-------------------------------------------------------------------------------------------------------------For the convenience of readers and for information purpose only, the auditors’ report and the accompanying financialstatements have been translated into English from the original Chinese version prepared and used in the Republic ofChina. In the event of any discrepancy between the English version and the original Chinese version or any differences inthe interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.

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REVIEW REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Stockholders of

Chimei Innolux Corporation

We have reviewed the accompanying consolidated balance sheets of Chimei Innolux

Corporation (formerly Innolux Display Corporation) and subsidiaries as of June 30, 2009 and 2010,

and the related consolidated statements of operations, of changes in stockholders’ equity and of

cash flows for the six-month periods then ended. These financial statements are the responsibility

of the Company’s management. Our responsibility is to issue a conclusion on these consolidated

financial statements based on our reviews.

Except as explained in the following paragraph, we conducted our reviews in accordance with

Republic of China Statement on Auditing Standards No. 36, “Review of Financial Statements”. A

review consists principally of inquiries of company personnel and analytical procedures applied to

financial data. It is substantially less in scope than an audit in accordance with generally accepted

auditing standards, the objective of which is the expression of an opinion regarding the financial

statements taken as a whole. Accordingly, we do not express such an opinion.

As disclosed in Note 1(2), the financial statements of certain consolidated subsidiaries were not

reviewed by independent accountants, which statements reflect total assets and liabilities of

$24,232,191,000 and $17,528,166,000, constituting 14% and 22% of the consolidated total assets

and liabilities, respectively as of June 30, 2009, and total net income of $491,979,000, constituting

12% of the consolidated net loss for the six-month period then ended.

Based on our reviews, except for the effect on the 2009 consolidated financial statements of such

adjustments, if any, as might have been determined to be necessary had the financial statements of

certain consolidated subsidiaries been reviewed as explained in the preceding paragraph, we are not

aware of any material modifications that should be made to the consolidated financial statements

referred to above in order for them to be in conformity with the “Rules Governing the Preparation

of Financial Statements by Securities Issuers” and generally accepted accounting principles in the

Republic of China.

As disclosed in Notes 1 and 4(10), Innolux Display Corporation merged with TPO Displays

Corporation and Chi Mei Optoelectronics Corporation on March 18, 2010. Innolux Display

Corporation is the surviving company and renamed as “Chimei Innolux Corporation.”

As disclosed in Note 3, effective January 1, 2009, the Company and its subsidiaries adopted the

amendments to R.O.C. SFAS No. 10, “Accounting for Inventories”.

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The consolidated financial statements of Chimei Innolux Corporation and subsidiaries as of and

for the six-month period ended June 30, 2010 expressed in U.S. dollars are presented solely for the

convenience of the reader and were translated from the financial statements expressed in New

Taiwan dollars using the exchange rate of U.S. $1.00 :NT $32.27 by the Federal Reserve as of June

30, 2010. This basis of translation is not in accordance with generally accepted accounting

principles in the Republic of China.

PricewaterhouseCoopers, Taiwan

August 5, 2010

-----------------------------------------------------------------------------------------------------------------------------------The accompanying consolidated financial statements are not intended to present the financial position and results of

operations and cash flows in accordance with accounting principles and practices generally accepted in countries and

jurisdictions other than the Republic of China. The standards, procedures and practices utilized in the Republic of

China governing the audit of such consolidated financial statements may differ from those generally accepted in countries

and jurisdictions other than the Republic of China. Accordingly, the accompanying financial statements and report of

independent accountants are not intended for use by those who are not informed about the accounting principles or

auditing standards generally accepted in the Republic of China, and their applications in practice. As the financial

statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of,

or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

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CHIMEI INNOLUX CORPORATION AND SUBSIDIARIES(FORMERLY INNOLUX DISPLAY CORPORATION AND SUBSIDIARIES)

CONSOLIDATED BALANCE SHEETSJUNE 30,

(Amounts expressed in thousands of New Taiwan dollars and U.S. dollars)(Reviewed only; not audited in accordance with generally accepted auditing standards)

2009 2010NT$ NT$ US$

(Unaudited)(Note 2)

ASSETSCurrent Assets

Cash and cash equivalents (Note 4(1)) $ 51,800,972 $ 62,079,475 $ 1,923,752Financial assets at fair value through profit or loss - current

(Note 4(2)) 251 1,058,810 32,811Available-for-sale financial assets - current (Note 4(6)) - 54,003 1,673Accounts receivable, net - third parties (Note 4(3)) 18,675,978 65,086,645 2,016,940Accounts receivable, net - related parties (Note 5) 1,587,029 12,246,302 379,495Other receivables (Notes 4(3)(16)) 1,151,903 5,094,019 157,856Other financial assets - current (Note 6) - 5,128 159Inventories, net (Note 4(4)) 15,482,690 66,541,100 2,062,011Prepayments 1,470,611 1,186,154 36,757Deferred income tax assets - current (Note 4(16)) 495,285 1,532,755 47,498Other current assets - 475,974 14,750

90,664,719 215,360,365 6,673,702Funds and Investments

Financial assets at fair value through profit or loss - non-current(Note 4(2)) 236,312 241,956 7,498

Available-for-sale financial assets - non-current (Note 4(6)) - 7,758,251 240,417Financial assets carried at cost - non-current (Note 4(8)) 314,439 4,637,786 143,718Investment in bonds without active market - non-current(Note 4(8)) 45,165 47,042 1,458

Long-term investments accounted for under the equity method(Note 4(5)) - 4,003,147 124,052

Other financial assets - non-current (Note 6) - 2,237 69595,916 16,690,419 517,212

Property, Plant and Equipment, Net (Notes 4(9), 5 and 6)Cost

Land - 4,971,341 154,055Buildings 9,459,287 151,618,245 4,698,427Machinery and equipment 46,589,885 301,868,773 9,354,471Testing equipment 3,243,389 4,427,281 137,195Transportation equipment 61,383 979,777 30,362Office equipment 617,734 1,858,289 57,586Leased assets - 1,519,744 47,095Leasehold improvements 31,741 211,576 6,556Other equipment 1,786,499 8,196,981 254,012

61,789,918 475,652,007 14,739,759Less: Accumulated depreciation ( 29,455,100) ( 89,016,913) ( 2,758,504)Construction in progress and prepayments for equipment 43,884,062 78,755,703 2,440,524

76,218,880 465,390,797 14,421,779Intangible assets (Note 4(10))

Goodwill - 15,232,058 472,019Other intangible assets - 2,108,157 65,329

- 17,340,215 537,348Other Assets

Assets leased to others, net (Note 4(9)) - 1,638,122 50,763Idle assets, net (Note 4(9)) - 981,805 30,424Deferred expenses 3,096,550 7,582,634 234,975Deferred income tax assets - non-current(Note 4(16)) 762,032 7,952,295 246,430

Refundable deposits 254,340 1,125,709 34,8844,112,922 19,280,565 597,476

TOTAL ASSETS $171,592,437 $ 734,062,361 $ 22,747,517

(Continued)

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CONSOLIDATED BALANCE SHEETS (CONTINUED)JUNE 30,


2009 2010NT$ NT$ US$

(Unaudited)(Note 2)

LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities

Short-term loans (Notes 4(11) and 5) $ 18,382,949 $ 19,640,386 $ 608,627Short-term bills payable (Note 4(12)) - 4,599,482 142,531Financial liabilities at fair value through profit or loss - current

(Note 4(2)) - 50 2Accounts payable - third parties 26,481,756 96,715,472 2,997,071Accounts payable - related parties (Note 5) 1,618,288 12,660,603 392,334Income tax payable (Note 4(16)) - 411,881 12,764Accrued expenses (Notes 4(15)(21) and 5) 2,868,753 12,456,309 386,003Dividend payable (Note 4(21) 627,707 - -Equipment payable (Note 5) 3,347,250 14,619,243 453,029Other payables (Notes 4(3) and 7) 69,680 2,370,075 73,445Receipts in advance 421,772 1,573,725 48,767Long-term loans - current portion (Notes 4(13), 5 and 6) 3,972,400 77,269,400 2,394,465Lease payable - current (Note 4(9)) 1,980,000 61,357Other current liabilities 1,575,235 4,010,589 124,282

59,365,790 248,307,215 7,694,677Long-term Liabilities

Hedging derivative liabilities - non-current (Note 4(7)) - 859,880 26,647Bonds payable (Note 4(14)) - 4,000,000 123,954Long-term loans (Notes 4(13), 5 and 6) 20,000,000 163,141,227 5,055,507Lease payable - non-current (Note 4(9)) - 3,950,000 122,405Preferred stock liabilities - non-current (Note 4(15)) - 15,000,000 464,828

20,000,000 186,951,107 5,793,341Other Liabilities

Accrued pension cost (Note 4(17)) - 105,137 3,258Other liabilities - other (Note 7) 1,537 5,149,256 159,568

1,537 5,254,393 162,826Total liabilities 79,367,327 440,512,715 13,650,844Stockholders' EquityEquity attributable to shareholders of the parent

Capital stock (Notes 4(18)(19))Common stock 31,285,460 73,091,298 2,264,992Common stock subscribed 100,707 26,600 824Stock dividends distributable 1,290,830 - -

Capital reserve (Note 4(20))Paid-in capital in excess of par value 50,338,046 50,583,821 1,567,518Capital reserve from long-term investments 14,285 14,285 443Capital reserve—from merger 270,648 140,015,445 4,338,873Employee stock option (Note 4(19)) - 375,261 11,629

Retained earnings (Note 4(21))Legal reserve 2,328,981 2,328,981 72,172Undistributed earnings 5,722,199 20,255,490 627,688

Other adjustments to stockholders' equityUnrealized gain on financial instruments (Note 4(6)) - 875,322 27,125Cumulative translation adjustments 873,954 1,913,690 59,303Treasury stock (Note 4(22)) - ( 12,995) ( 403)

92,225,110 289,467,198 8,970,164Minority interests - 4,082,448 126,509Total stockholders’ equity 92,225,110 293,549,646 9,096,673Commitments and Contingent Liabilities (Notes 5, 7 and 11)TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $171,592,437 $ 734,062,361 $ 22,747,517

The accompanying notes are an integral part of these consolidated financial statements.See report of independent accountants dated August 5, 2010.

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CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE SIX-MONTH PERIODS ENDED JUNE 30,

(Amounts expressed in thousands of New Taiwan dollars and U.S. dollars, except for earnings per share)(Reviewed only; not audited in accordance with generally accepted auditing standards)

2009 2010NT$ NT$ US$

(Unaudited)(Note 2)

Operating revenuesSales (Note 5) $ 71,527,538 $ 218,384,303 $ 6,767,409Less: Sales returns ( 156,160) ( 279,890) ( 8,673)

Sales allowance ( 1,029,194) ( 878,286) ( 27,217)Net operating revenues 70,342,184 217,226,127 6,731,519

Operating costsCost of goods sold (Notes 4(4)(24) and 5) ( 70,987,893) ( 190,716,776) ( 5,910,033)

Gross (loss) profit ( 645,709) 26,509,351 821,486Operating expenses (Note 4(24))

Sales and marketing expenses ( 1,801,842) ( 3,849,105) ( 119,278)General and administrative expenses ( 653,631) ( 2,922,310) ( 90,558)Research and development expenses ( 1,030,394) ( 3,517,745) ( 109,010)Total operating expenses ( 3,485,867) ( 10,289,160) ( 318,846)

Operating (loss) income ( 4,131,576) 16,220,191 502,640Non-operating income

Interest income 113,236 153,837 4,767Gain on valuation of financial assets (Note 4(2)) 106,202 1,360,900 42,172Investment income recognized under

equity-method (Note 4(5)) - 183,232 5,678Gain on sale of investments - 97,993 3,037Foreign exchange gain 157,300 - -Other non-operating income 125,964 811,870 25,159

Total non-operating income 502,702 2,607,832 80,813Non-operating expenses

Interest expense ( 378,637) ( 1,882,774) ( 58,344)Loss on valuation of financial liabilities

(Note 4(2)) ( 13,480) ( 675,983) ( 20,948)Foreign exchange loss - ( 489,507) ( 15,169)Other non-operating losses (Note 4(3)) ( 24,247) ( 157,024) ( 4,866)Total non-operating expenses ( 416,364) ( 3,205,288) ( 99,327)

(Loss) income before income tax ( 4,045,238) 15,622,735 484,126Income tax expense (Note 4(16)) ( 6,576) ( 2,286,243) ( 70,847)Consolidated net (loss) income ($ 4,051,814) $ 13,336,492 $ 413,279

Attributable to:Shareholders of the parent ($ 4,051,814) $ 12,926,895 $ 400,586Minority interests - 409,597 12,693

($ 4,051,814) $ 13,336,492 $ 413,279

Before tax After tax Before tax After tax Before tax After tax(Loss) earnings per common share (in dollars)

(Note 4(23))Basic (loss) earnings per share(Loss) income before income tax ($ 1.26) ($ 1.26) $ 2.78 $ 2.37 $ 0.086 $ 0.073Minority interests - - ( 0.07) ( 0.07) ( 0.002) ( 0.002)Net (loss) income ($ 1.26) ($ 1.26) ($ 2.71) ($ 2.30) ($ 0.084) ($ 0.071)

Diluted (loss) earnings per share(Loss) income before income tax ($ 1.26) ($ 1.26) $ 2.76 $ 2.36 $ 0.086 $ 0.073Minority interests - - ( 0.07) ( 0.07) ( 0.002) ( 0.002)Net (loss) income ($ 1.26) ($ 1.26) $ 2.69 $ 2.29 $ 0.084 $ 0.071


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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(Amounts expressed in thousands of New Taiwan dollars and U.S. dollars)

(Reviewed only; not audited in accordance with generally accepted auditing standards)

Capital Stock Capital Reserve Retain Earnings Other

Common

stock

Common

stock

subscribed

Stock

dividends

distributable

Paid-in

capital in

excess of

par value

Capital

reserve from

long-term

investments

Capital

reserve

from

merger

Employee

stock

options

Legal

reserve

Undistributed

Earnings

Unrealized

gain or loss on

financial

instruments

Cumulative

translation

adjustment

Treasury

stock

Minority

interests Total

2009 - New Taiwan Dollars

Balance at January 1, 2009 $31,131,470 $ 105,656 $ - $50,337,808 $ 14,285 $ 270,648 $ - $1,843,886 $11,828,376 $ - $ 892,201 $ - $ - $ 96,424,330

Appropriations of 2008 earnings

Legal reverse - - - - - - - 485,095 ( 485,095) - - - - -

Cash dividends - - - - - - - - ( 627,707) - - - - ( 627,707)

Retained earnings capitalized - - 941,561 - - - - - ( 941,561) - - - - -

Employees’ bonus capitalized - - 349,269 - - - - - - - - - - 349,269

Shares issued for employee stock options 153,990 ( 4,949) - 238 - - - - - - - - - 149,279

Consolidated net loss for the six-month

period ended June 30, 2009 - - - - - - - - ( 4,051,814) - - - - ( 4,051,814)

Cumulative translation adjustments - - - - - - - - - - ( 18,247) - - ( 18,247)

Balance at June 30, 2009 $31,285,460 $ 100,707 $ 1,290,830 $50,338,046 $ 14,285 $ 270,648 $ - $2,328,981 $ 5,722,199 $ - $ 873,954 $ - $ - $ 92,225,110

2010 - New Taiwan Dollars

Balance at January 1, 2010 $32,445,962 $ 102,450 $ - $50,583,821 $ 14,285 $ 270,648 $ - $2,328,981 $ 7,328,595 $ 1,009,179 $ 605,878 $ - $ - $ 94,689,799

Stocks issued pursuant to merger 40,463,816 - - - - 139,744,797 310,999 - - - - - - 180,519,612

Shares issued for employee stock options 181,520 ( 75,850) - - - - - - - - - - - 105,670

Compensation cost of employee stock

options - - - - - - 64,262 - - - - - - 64,262

Consolidated net income for the

six-month period ended June 30, 2010 - - - - - - - - 12,926,895 - - - 409,597 13,336,492

Shares of the parent held by subsidiaries

accounted as treasury stock - - - - - - - - - - - ( 12,995) - ( 12,995)

Changes in unrealized gain or loss on

available-for-sale financial instruments - - - - - - - - - ( 109,706) - - - ( 109,706)

Changes in unrealized gain or loss on

cash flow hedge - - - - - - - - - ( 24,151) - - - ( 24,151)

Cumulative translation adjustments - - - - - - - - - - 1,307,812 - - 1,307,812

Changes in minority interests - - - - - - - - - - - - 3,672,851 3,672,851

Balance at June 30, 2010 $73,091,298 $ 26,600 $ - $50,583,821 $ 14,285 $140,015,445 $ 375,261 $2,328,981 $20,255,490 $ 875,322 $1,913,690 ($12,995) $4,082,448 $293,549,646

(Continued)

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)(Amounts expressed in thousands of New Taiwan dollars and U.S. dollars)


Capital Stock Capital Reserve Retain Earnings Other

Common

stock

Common

stock

subscribed

Stock

dividends

distributable

Paid-in

capital in

excess of

par value

Capital

reserve from

long-term

investments

Capital

reserve

from

merger

Employee

stock

options

Legal

reserve

Undistributed

earnings

Unrealized

gain or loss onfinancial

instruments

Cumulative

translation

adjustment

Treasury

stock

Minority

interests Total

2010 - US Dollars (Unaudited-Note 2)

Balance at January 1, 2010 $1,005,453 $ 3,175 $ - $1,567,518 $ 443 $ 8,387 $ - $ 72,172 $ 227,102 $ 31,273 $ 18,775 $ - $ - $ 2,934,298

Stocks issued pursuant to merger 1,253,914 - - - - 4,330,486 9,637 - - - - - - 5,594,037

Shares issued for employee stock options 5,625 ( 2,350) - - - - - - - - - - - 3,275

Compensation cost of employee stockoptions - - - - - - 1,991 - - - - - - 1,991

Consolidated net income for the six-monthperiod ended June 30, 2010 - - - - - - - - 400,586 - - - 12,693 413,279

Shares of the parent held by subsidiariesaccounted as treasury stock - - - - - - - - - - - ( 403) - ( 403)

Changes in unrealized gain or loss onavailable-for-sale financial instruments - - - - - - - - - ( 3,400) - - - ( 3,400)

Changes in unrealized gain or loss on cashflow hedge - - - - - - - - - ( 748) - - - ( 748)

Cumulative translation adjustments - - - - - - - - - - 40,528 - - 40,528

Changes in minority interests - - - - - - - - - - - - 113,816 113,816

Balance at June 30, 2010 $2,264,992 $ 825 $ - $1,567,518 $ 443 $4,338,873 $ 11,628 $ 72,172 $ 627,688 $ 27,125 $ 59,303 ($ 403) $ 126,509 $ 9,096,673


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CHI MEI INNOLUX CORPORATION AND SUBSIDIARIES(FORMERLY INNOLUX DISPLAY CORPORATION AND SUBSIDIARIES)

CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE SIX-MONTH PERIODS ENDED JUNE 30,


2009 2010

NT$ NT$ US$

(Unaudited)

(Note 2)

CASH FLOWS FROM OPERATING ACTIVITIES

Consolidated net (loss) income ($ 4,051,814) $ 13,336,492 $ 413,279

Adjustments to reconcile net (loss) income to netcash provided by operating activities:

Depreciation and amortization 5,398,356 29,964,971 928,571

Allowance for doubtful accounts - ( 7,061) ( 219)

Loss on market price decline of inventories 137,755 946,251 29,323

Compensation cost of employee stock options - 4,262 1,991

Amortization of investment in bonds without activemarkets ( 919) ( 957) ( 30)

Gain on financial assets and financial liabilities atfair value ( 17,217) ( 1,058,760) ( 32,809)

Investment income recognized under equity-method - ( 183,232) ( 5,678)

Gain on sale of investments - ( 97,993) ( 3,037)

Loss on disposal of property, plant and equipment 610 4,307 133

Changes in assets and liabilities

Accounts receivable - third parties ( 2,576,791) ( 7,979,243) ( 247,265)

Accounts receivable - related parties ( 65,223) ( 5,736,766) ( 177,774)

Other receivables 1,269,918 238,903 7,403

Inventories 2,022,380 ( 17,404,661) ( 539,345)

Prepayments ( 276,836) 1,996,152 61,858

Deferred income tax assets - 1,457,448 45,164

Other current assets 32,919 ( 424,322) ( 13,149)

Accounts payable - third parties 8,832,558 9,787,945 303,314

Accounts payable - related parties 641,754 1,337,907 41,460

Income tax payable ( 449,218) 303,204 9,396

Accrued expenses ( 726,789) 3,676,942 113,943

Other payables 58,860 ( 459,579) ( 14,242)

Receipts in advance 32,412 739,044 22,902

Other current liabilities 434,032 1,149,623 35,625

Accrued pension cost - 19,202 595

Other liabilities - other - 480,167 14,880

Net cash provided by operating activities 10,696,747 32,150,246 996,289

(Continued)

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CHIMEI INNOLUX CORPORATION AND SUBSIDIARIES(FORMERLY INNOLUX DISPLAY CORPORATION AND SUBSIDIARIES)CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE SIX-MONTH PERIODS ENDED JUNE 30,(Amounts expressed in thousands of New Taiwan dollars and U.S. dollars)


2009 2010

NT$ NT$ US$

(Unaudited)

(Note 2)

CASH FLOWS FROM INVESTING ACTIVITIES

Decrease in financial assets and liabilities at fair valuethrough profit or loss - current ($ 1,896) ($ 217,049) ($ 6,726)

Changes in hedging derivative liabilities - ( 120,129) ( 3,723)

Acquisition of financial assets carried at cost - ( 391,472) ( 12,131)

Proceeds from disposal of long-term equity investmentaccounted for under the equity-method - 199,398 6,179

Proceeds from disposal of financial assets carried at cost - 1,000 31

Decrease in other financial assets - 312,535 9,685

Acquisition of property, plant and equipment ( 23,097,067) ( 39,683,746) ( 1,229,741)

Proceeds from disposal of property, plant and equipment - 265,613 8,231

Decrease in refundable deposits 163,401 146,346 4,535

Increase in deferred expenses ( 1,996,686) ( 570,567) ( 17,681)

Net cash used in investing activities ( 24,932,248) ( 40,058,071) ( 1,241,341)

CASH FLOWS FROM FINANCING ACTIVITIES

Increase (decrease) in short-term loans, net 2,080,151 ( 10,057,128) ( 311,656)

Increase in short-term notes and bills payable - 3,670,398 113,740

Increase in long-term loans 9,000,000 20,305,000 629,222

Payment of long-term loans ( 4,081,309) ( 21,660,888) ( 671,239)

Decrease in lease payable - ( 990,000) ( 30,679)

(Decrease) increase in guarantee deposits received ( 629) 1,133 35

Proceeds from issuance of common stock for employeestock options 149,279 105,670 3,275

Net cash provided by (used in) financing activities 7,147,492 ( 8,625,815) ( 267,302)

Effect of changes in foreign currency exchange rate on cash ( 17,231) ( 499,114) ( 15,466)

Net cash provided by change in consolidated entities - 42,601,760 1,320,166

Net (decrease) increase in cash and cash equivalents ( 7,105,240) 25,569,006 792,346

Cash and cash equivalents at beginning of the period 58,906,212 36,510,469 1,131,406

Cash and cash equivalents at end of the period $ 51,800,972 $ 62,079,475 $ 1,923,752

Supplemental disclosures of cash flow information

Cash paid for interest $ 428,216 $ 1,819,951 $ 56,398

Cash paid for income tax $ 455,794 $ 74,170 $ 2,298

(Continued)

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CHIMEI INNOLUX CORPORATION AND SUBSIDIARIES(FORMERLY INNOLUX DISPLAY CORPORATION AND SUBSIDIARIES)CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE SIX-MONTH PERIODS ENDED JUNE 30,(Amounts expressed in thousands of New Taiwan dollars and U.S. dollars)


2009 2010

NT$ NT$ US$

(Unaudited)

(Note 2)

Acquisition of property, plant and equipment by cash

Increase in property, plant and equipment $ 23,678,733 $ 36,699,464 $ 1,137,263

Equipment payable at beginning of the period 2,765,584 1,824,086 56,526

Payables for equipment acquired from business merger - 15,779,439 488,982

Equipment payable at end of the period ( 3,347,250) ( 14,619,243) ( 453,029)

Paid in cash $ 23,097,067 $ 39,683,746 $ 1,229,742

Fair value for business combination

Current assets $ - $ 102,111,500 $ 3,164,286

Funds and investments - 47,638,690 1,476,253

Property, Plant and Equipment - 320,179,803 9,921,903

Goodwill - 15,232,058 472,019

Other intangible assets - 844,212 26,161

Other assets - 9,703,774 300,706

Current liabilities - ( 150,121,827) ( 4,652,055)

Long-term liabilities - ( 160,007,155) ( 4,958,387)

Other liabilities - ( 5,061,443) ( 156,847)

Proceeds from business combination - 180,519,612 5,594,039

Less: Stocks issued pursuant to merger (including Capitalreserve - from merger) - ( 180,208,613) ( 5,584,401)

Less: Employee stock options - ( 310,999) ( 9,638)

Net cash provided by business combination $ - $ - $ -


～ 12 ～

CHIMEI INNOLUX CORPORATION AND SUBSIDIARIES

(FORMERLY INNOLUX DISPLAY CORPORATION AND SUBSIDIARIES)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2009 AND 2010

(All amounts expressed in thousands of New Taiwan dollars,

except for earnings per share information or unless otherwise specified)


1. HISTORY AND ORGANIZATION

(1) Chimei Innolux Corporation

Chimei Innolux Corporation (the “Company”) was organized on January 14, 2003 under theAct for Establishment and Administration of Science Parks. The Company merged with TPODisplays Corporation and Chimei Optoelectronics Corporation on March 18, 2010, with theCompany as the surviving entity, and was then renamed as Chimei Innolux Corporation. TheCompany engages in the research, development, design, manufacture and sales of TFT-LCDpanels, modules and monitors of LCD, color filter, and low temperature poly-siliconTFT-LCD. As of June 30, 2010, the Company and its subsidiaries had 112,649 employees.The Company was listed on the Taiwan Stock Exchange Corporation (TSEC) in October2006.

(2) Consolidated subsidiaries

Ownership (%)

June 30,

Investor Subsidiary Main activities 2010 2009 Description

Chimei InnoluxCorporation

Innolux HoldingLtd.

Investment holdings 100 100 -


InnoJoyInvestmentCorporation

Investment company 100 100 -


InnoFunInvestmentCorporation



TPO Hong KongHolding Ltd.

Investment company 100 - C(c)


ToppolyOptoelectronics(B. V. I) Ltd.



Golden AchieverInternationalLtd.



Bright InformationHolding Ltd.



LandmarkInternationalLtd.



Leadtek GlobalGroup Limited

Order swapping and

investing company

100 - C(c)

～ 13 ～

Ownership (%)

June 30,



Yuan ChiInvestmentCo., Ltd.



Chi MeiOptoelectronicsJapan Co., Ltd.

Investing and sellingcompany

100 - C(c)


Gold UnionInvestments Ltd.



KeywayInvestmentManagementLimited



Chi MeiOptoelectronicsEurope B. V.

Investing and sellingcompany

100 - C(c)


Chi MeiOptoelectronics(Singapore) PteLtd.

Selling company 100 - C(c)


Honor LightServices Limited

Trading company 100 - C(c)


Chi Mei EnergyCorp.

Manufacturing andselling company

93 - C(c)


Chi Mei ElCorporation


90 - C(c)


Chi Mei LightingTechnologyCorporation


36 - C(c)(d)


JetronicsInternationalCorp.

Investment company 32 - C(c)(d)


ContrelTechnology Co.,Ltd.


13 - C(c)

Innolux HoldingLtd.

Lakers TradingLtd.

Order swapping andtrading company

100 100 -

Innolux HoldingLtd.

Rockets HoldingLtd.


Innolux HoldingLtd.

InnoluxCorporation Ltd.

Trading company 100 100 -

Innolux HoldingLtd.

Suns Holding Ltd. Investment company 100 100 -

Rockets HoldingLtd.

StanfordDevelopmentsLtd.


～ 14 ～

Ownership (%)

June 30,


Rockets HoldingLtd.

Mega ChanceInvestments Ltd.

Investment company 100 - C(a)

Rockets HoldingLtd.

Best ChinaInvestments Ltd.


Rockets HoldingLtd.

Excel Victory Ltd. Investment company 100 - C(a)

Rockets HoldingLtd.

Sonics TradingLimited

Order swapping andtrading company

100 100 -

Suns HoldingLtd.

WarriorsTechnologyInvestments Ltd.


Best ChinaInvestmentsLtd.

AsiawardInvestment Ltd.

Investment company 100 100 C(a)

Excel VictoryLtd.

Glory Ace

Investment Ltd.


Mega ChanceInvestmentsLtd.

Main Dynasty

Investment Ltd.


AsiawardInvestmentLtd.

InnocomTechnology(Xiamen) Ltd.

Processing company 100 100 -


InnocomTechnologyShenzhen Ltd.

Processing company - 100 C(b)


Full LuckyInvestments Ltd.

Investment company 100 - C(b)

Full LuckyInvestmentsLtd.

InnocomTechnologyShenzhen Ltd.

Processing company 100 - C(b)

Main DynastyInvestmentLtd.

InnocomTechnology(Jia-shan) Ltd.

Processing company 100 - C(a)

Glory AceInvestmentLtd.

InnocomTechnology(Chongqing)Co., Ltd.

Processing company 100 - C(a)

Chi MeiOptoelectronicsJapan Co., Ltd.

Chi MeiOptoelectronicsUSA, Inc.



Ningbo Chi MeiElectronics Ltd.

Processing company 100 - C(c)

Landmark Nanhai Chi Mei Processing company 100 - C(c)

～ 15 ～

Ownership (%)

June 30,


InternationalLtd.

ElectronicsCorp.


Ningbo Chi MeiOptoelectronicsLtd.



Nanhai Chi MeiOptoelectronicsLtd.



Fulintec ScienceEngineeringCo., Ltd.


53 - C(c)


Chi Mei LogisticsCo., Ltd.

Warehousingcompany

49 - C(c)(d)




9 - C(c)(d)


Chi Mei LogisticsCo., Ltd.


1 - C(c)

Fulintec ScienceEngineeringCo., Ltd.

Fu ChengOptoelectronicTechnology(Shanghai) Co.,Ltd.

Manufacturingcompany

100 - C(c)


Chi MeiOptoelectronicsGermany GmbH



Chi MeiOptoelectronicsUK Ltd.



Foshan Chi MeiLogistics Co.,Ltd.

Warehosing and

maintenance servicecompany

100 - C(c)


Ningbo Chi MeiLogistics Co.,Ltd.

Warehousingcompany

100 - C(c)


Kunshan Guan JyeElectronics Co.,Ltd.


100 - C(c)


Champ WinTechnologyCorporation


100 - C(c)

～ 16 ～

Ownership (%)

June 30,


Gold UnionInvestmentsLtd.

Ningbo Chi HsinElectrics Ltd.


Gold UnionInvestmentsLtd.

Dongguan Chi HsinElectronicsCorp.



Smart LightGlobal Limited


Smart LightGlobal Limited

Foshan Chi MeiLightingTechnology Ltd.


100 - C(c)

Chi Mei EnergyCorp.

Chi Mei EnergyEurope B. V.


ContrelTechnologyCo., Ltd.

Far TechnologyCo., Ltd.


ContrelTechnologyCo., Ltd.

Contrel HoldingLtd.


Far TechnologyCo., Ltd.

Ningbo ControlTechnology Co.,Ltd.


Contrel HoldingLtd.

Ningbo ControlTechnology Co.,Ltd.


ToppolyOptoelectronics(B. V. I.) Ltd.

ToppolyOptoelectronics(Cayman) Ltd.



Toptech TradingLimited



TPO Displays(Nanjing) Ltd.



TPO Displays(Sinepal) Ltd.



TPO DisplaysHong KongHolding Ltd.



TPO DisplaysHong Kong Ltd.



TPO DisplaysJapan K. K.


100 - C(c)

～ 17 ～

Ownership (%)

June 30,



TPO DisplaysEurope B. V.



TPO DisplaysUSA Inc.


TPO DisplaysHong KongHolding Ltd.

TPO DisplaysShanghai Ltd.



TPO DisplaysGermany GmbH.



TPO DisplaysSweden AB


BrightInformationHolding Ltd.

KunpalOptoelectronicsLtd.



VAPOptoelectronics(Nanjing）Corp.



Dragon FlameIndustrial Ltd.



Eastern VisionCo., Ltd.


A. The financial statements of consolidated subsidiaries as of and for the six-month periodended June 30, 2010 were reviewed by independent accountants.

B. The financial statements of certain consolidated subsidiaries as of and for the six-monthperiod ended June 30, 2009 were not reviewed by independent accountants which reflecttotal assets and liabilities of $24,232,191 and $17,528,166, constituting 14% and 22% ofthe consolidated total assets and liabilities, respectively, as of June 30, 2009, and total netincome of $491,979, constituting 12% of the consolidated net loss for the six-month periodthen ended.

C. Reasons for change in consolidated subsidiaries are set forth below:

(a) In the second half of 2009, the Company’s subsidiary, Rocket Holding Ltd., acquiredthe total shares and established the following companies: Mega Chance InvestmentsLtd., Excel Victory Ltd., Main Dynasty Investment Ltd., Glory Ace Investments Ltd.,Innocom Technology (Jia-shan) Ltd. and Innocom Technology (Chongqing) Ltd.,which were consolidated effective on the acquisition date.

(b) The Company’s subsidiary, Stanford Developments Ltd., originally directly owningInnocom Technology Shenzhen Ltd., established Full Lucky Investment Ltd. inSeptember 2009. The Company indirectly owned Innocom Technology Shenzhen Ltd.with the investment of Full Lucky Investment Ltd. Accordingly, Full Lucky wasconsolidated effective on the company was established date.

(c) Acquired on March 18, 2010 pursuant to business combination. Please refer to Notes 1and 4(10) for the related information of business combination.

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(d) The Company has 50% or more of the seats on the board of directors of Chi MeiLighting Technology Corporation, Jetronics International Corp. and Chi Mei LogisticsCo., Ltd., respectively. Those companies are included in the consolidated financialstatements of the Company as the Company has control over them.

(e) The Company assigned a representative as the general manager of Contrel TechnologyCo., Ltd. Therefore, the Company has substantial control over the company which wasthen consolidated.

(f) GIO Optoelectronics Corp., the Company’s investee, reelected the directors in June2010, and thereafter the Company’s representatives comprised less than 50% of theboard of directors. Accordingly, the Company discontinued consolidating the revenuesand expenses of GIO Optoelectronics Corp. on the day of losing control.

(3) Subsidiaries not included in the consolidated financial statements: None.

(4) The adjustment and disposition for the accounting period differences between the Companyand the subsidiaries: None.

(5) Special operating risks on the foreign subsidiaries: None.

(6) Significant restriction on remittance of funds for the foreign subsidiaries’ financial activitiesto the Company: None.

(7) Securities issued by the parent company which were held by subsidiaries: The stocks of theCompany held by the subsidiary Contrel Technology Co., Ltd. were accounted as treasurystocks. Please refer to Note 4(22) for the related information of treasury stocks.

(8) Information on convertible bonds and common stock issued by subsidiaries: No materialeffects on the stockholders’ equity of the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of the Company and its subsidiaries (collectively referredherein as the Group) are prepared in conformity with the “Rules Governing the Preparation ofFinancial Statements by Securities Issuers” and generally accepted accounting principles in theRepublic of China. The Group’s significant accounting policies are summarized as follows:

(1) Basis for preparation of consolidated financial statements

A. All majority-owned subsidiaries and controlled entities are included in the consolidatedfinancial statements.

B. The income (loss) of the subsidiaries is included in the consolidated statements of incomeeffective the date on which the Company gains control over the subsidiaries. The income(loss) of the subsidiaries is excluded from the consolidated statements of income effectivethe date on which the Company loses control over the subsidiaries.

C. All significant intercompany accounts and transactions are eliminated in the consolidatedfinancial statements.

(2) Translation of financial statements of foreign subsidiaries

Assets and liabilities of foreign subsidiaries are translated into New Taiwan dollars using theexchange rates at the balance sheet date. Equity accounts are translated at historical ratesexcept for beginning retained earnings, which is carried forward from prior year’s balance.Dividends are translated at the rates prevailing at the date of declaration. Profit and lossaccounts are translated at weighted-average rates of the year. The resulting translationdifferences are included in “cumulative translation adjustments” under stockholders’ equity.

～ 19 ～

(3) Use of estimates

The preparation of financial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affect the amountsreported in the financial statements and accompanying notes. Actual results could differfrom those assumptions and estimates.

(4) Convenience translation into U.S. dollars

The financial statements are stated in New Taiwan Dollars. Translation of the 2010 NewTaiwan dollar amounts into U.S. dollar amounts is included solely for the convenience of thereaders, using the Federal Reserve exchange rate on June 30, 2010, of NT$32.27 to US$1uniformly applied for all the financial statement accounts. Such translation amounts areunaudited and should not be construed as representations that the New Taiwan Dollaramounts represent, have been, or could be converted into U.S. dollars at this rate or anyother rate for exchange.

(5) Criteria for classifying assets and liabilities as current or non-current items

A. Assets that meet one of the following criteria are classified as current assets; otherwisethey are classified as non-current assets:

(a) Assets arising from operating activities that are expected to be realized or consumed,or are intended to be sold within the normal operating cycle;

(b)Assets held mainly for trading purposes;

(c) Assets that are expected to be realized within twelve months from the balance sheetdate; and

(d)Cash and cash equivalents, excluding restricted cash and cash equivalents and thosethat are to be exchanged or used to pay off liabilities more than twelve months afterthe balance sheet date.

B. Liabilities that meet one of the following criteria are classified as current liabilities;otherwise they are classified as non-current liabilities:

(a) Liabilities arising from operating activities that are expected to be paid off within thenormal operating cycle;

(b)Liabilities arising mainly from trading activities;

(c) Liabilities that are to be paid off within twelve months from the balance sheet date;and

(d)Liabilities for which the repayment date cannot be extended unconditionally to morethan twelve months after the balance sheet date.

(6) Foreign currency translation

A. The Company and its consolidated subsidiaries maintain their accounts in New Taiwandollars and functional currencies, respectively. Transactions denominated in foreigncurrencies are translated into New Taiwan dollars and their functional currencies at thespot exchange rates prevailing at the transaction dates.

B. Receivables, other monetary assets and liabilities denominated in foreign currencies aretranslated at the spot exchange rates prevailing at the balance sheet date. Exchange gainsor losses are recognized in profit or loss.

C. When a gain or loss on a non-monetary item is recognized directly in equity, anyexchange component of that gain or loss shall be recognized directly in equity.Conversely, when a gain or loss on a non-monetary item is recognized in profit or loss,any exchange component of that gain or loss shall be recognized in profit or loss.

～ 20 ～

However, non-monetary items that are measured on a historical cost basis are translatedusing the exchange rate at the date of the transaction.

(7) Cash and cash equivalents

Cash and cash equivalents include cash on hand and in banks and other short-term highlyliquid investments which are readily convertible to known amount of cash and which aresubject to insignificant risk of changes in value resulting from fluctuations in interest rates.

(8) Financial assets and financial liabilities at fair value through profit or loss

A. Equity financial instruments are recognized and derecognized using trade date accounting;bond investments, beneficiary certificates and derivative instruments are recognized andderecognized using settlement date accounting, and are recognized initially at fair value.

B. These financial instruments are subsequently remeasured and stated at fair value, and thegain or loss is recognized in profit or loss. The fair value of listed stocks, OTC stocks andclosed-end mutual funds is based on latest quoted fair prices of the accounting period.The fair value of open-end and balanced mutual funds is based on the net asset value atthe balance sheet date.

C. When a derivative is an ineffective hedging instrument, it is initially recognized at fairvalue on the date a derivative contract is entered into and is subsequently remeasured atits fair value. If a derivative is a non-option derivative, the fair value initially recognizedis zero.

D. Financial assets and financial liabilities at fair value through profit or loss are classifiedinto asset or liability held for trading and those designated at fair value through profit orloss at inception. Financial assets and financial liabilities are classified as held fortrading if acquired principally for the purpose of selling in the short term. Financialassets and financial liabilities designated as at fair value through profit or loss atinception are those that are managed and whose performance is evaluated on a fair valuebasis, in accordance with a documented Group’s investment strategy. Information aboutthese financial assets and financial liabilities is provided internally on a fair value basis tothe Group’s management personnel. The Group has designated almost all of itscompound debt instruments as financial liability at fair value through profit or loss.

(9) Available-for-sale financial assets

A. Available-for-sale financial assets are recognized and derecognized using trade dateaccounting; bond investments are recognized and derecognized using settlement dateaccounting, and are recognized initially at fair value plus transaction costs that aredirectly attributable to the acquisition of the financial asset.

B. The financial assets are remeasured and stated at fair value, and the gain or loss isrecognized in equity, until the financial asset is derecognized, at which time thecumulative gain or loss previously recognized in equity shall be recognized in profit orloss. The fair values of listed stocks, OTC stocks and closed-end mutual funds arebased on latest quoted fair prices of the accounting period. The fair values of open-endand balanced mutual funds are based on the net asset value at the balance sheet date.

C. If there is any objective evidence that the financial asset is impaired, the cumulativeloss that had been recognized directly in equity shall be transferred from equity toprofit or loss. When the fair value of an equity instrument subsequently increases,impairment losses recognized previously in profit or loss shall not be reversed. Whenthe fair value of a loan instrument subsequently increases and the increase can beobjectively related to an event occurring after the impairment loss was recognized inprofit or loss, the impairment loss shall be reversed to the extent of the loss recognizedin profit or loss.

～ 21 ～

(10) Financial assets carried at cost

A. Investment in unquoted equity instruments is recognized or derecognized using tradedate accounting and is stated initially at its fair value plus transaction costs that aredirectly attributable to the acquisition of the financial asset.

B. If there is any objective evidence that the financial asset is impaired; theimpairment loss is recognized in profit or loss. Such impairment loss shall not bereversed when the fair value of the asset subsequently increases.

(11) Investment in bonds without active markets

A. Investment in bonds without active markets is recognized and derecognized using tradedate accounting and is stated initially at its fair value plus transaction costs that aredirectly attributable to the acquisition of the financial asset.

B. This financial asset is carried at amortized cost.

C. If there is any objective evidence that the financial asset is impaired; the impairmentloss is recognized in profit or loss. If, subsequently, the fair value of the asset increasesand the increase can be objectively related to an event occurring after the impairmentloss was recognized in profit or loss, the previously recognized impairment loss shall bereversed to the extent of the amount of the amortized cost that would have beenrecognized at the date the impairment is reversed.

(12) Hedging derivative instruments

Derivatives are initially recognized at fair value on the date a contract is entered into andare subsequently remeasured at their fair value. The method of recognizing the resultinggain or loss depends on whether the derivative is designated as a hedging instrument andthe nature of the hedged item.

A. Fair value hedges:

Changes in the fair value of derivatives that are designated and qualify as fair valuehedges are recognized in profit or loss. Changes in the fair value of the hedged asset orliability that are attributable to the hedged item are recognized in profit or loss as anadjustment to the carrying amount of the hedged item. If the hedge no longer meets thecriteria for hedge accounting, the adjustment to the carrying amount of a hedged itemfor which the effective interest method was used is amortized to profit or loss over theperiod of maturity.

B. Cash flow hedges:

The effective portion of changes in the fair value of derivatives that are designated andqualify as cash flow hedges is recognized in equity.

a. If a hedge of a forecast transaction subsequently results in the recognition of afinancial asset or a financial liability, the associated gains or losses that wererecognized directly in equity are transferred to profit or loss in the same period orperiods when the hedged item affects profit or loss.

b. If a hedge of a forecast transaction subsequently results in the recognition of anon-financial asset or a non-financial liability, the associated gains and losses thatwere recognized directly in equity are transferred into profit or loss in the periodsduring which the asset acquired or liability assumed affects profit or loss.

(13) Allowance for doubtful accounts

Allowance for doubtful accounts is provided based on past experience and an evaluation ofthe collectability of notes and accounts receivable, and other receivables taking intoaccount the aging analysis of receivables and other factors.

～ 22 ～

(14) Transactions for accounts receivable securitization

Accounts receivable securitization is the transfer of a designated pool of accountsreceivable to a special purpose entity, in the form of issuing beneficial securities orasset-backed securities based on the accounts receivable. Under ROC Statement ofFinancial Accounting Standards (SFAS) No. 33 “Accounting for Transfers of FinancialAssets and Extinguishments of Liabilities”, such transfer of financial assets in which thetransferor surrenders control over those assets is accounted for as a sale to the extent thatconsideration other than beneficial interests in the transferred assets is received inexchange. The difference between the book value of accounts receivable and total proceedsreceived is recorded as a gain or loss on the disposal of financial assets.

(15) Inventories

The perpetual inventory system is adopted for inventory recognition. Inventories are statedat cost. The cost is determined using the weighted-average method. At the end of period,inventories are evaluated at the lower of cost or net realizable value, and the individualitem approach is used in the comparison of cost and net realizable value. The calculation ofnet realizable value is based on the estimated selling price in the normal course of business,net of estimated costs of completion and estimated selling expenses. As the value of rawmaterials and supplies decline and the cost of finished goods are over net realizable value,the net realizable value of raw materials and supplies becomes the replacement cost.

(16) Long-term investments accounted for under the equity method

A. Long-term equity investments in which the Group holds more than 20% of the investeecompany’s voting shares or has the ability to exercise significant influence on theinvestee’s operational decisions are accounted for under the equity method. The excessof the initial investment cost over the acquired net asset value of the investee isattributable to goodwill, and test impairment every year. Adjustment of the amount ofgoodwill amortized in previous year(s) is not required.

B. Long-term equity investments in which the Group holds more than 50% of the investeecompany’s voting shares or has the ability to exercise significant influence on theinvestee’s operational decisions are accounted for under the equity method andincluded in the consolidated financial statements.

C. Exchange differences arising from translation of the financial statements of overseasinvestee companies accounted for under the equity method are recorded as “cumulativetranslation adjustment”.

(17) Property, plant and equipment

A. Property, plant and equipment are stated at cost. Interest incurred on the acquisition ofproperty, plant and equipment is capitalized. Significant renewals or betterments arecapitalized and depreciated accordingly. Maintenance and repairs are expensed asincurred.

B. Depreciation is provided on a straight-line method using the estimated service lives ofthe assets plus one year as salvage value. The estimated useful lives of the assets are2 to 8 years, except for building which is 3 to 50 years.

C. Rents paid on capital leases are capitalized and depreciated accordingly. Any gain (loss)on the sale and leased back is capitalized and amortized over the lease term.

D. For sale and leased back assets, if the fair value is less than the book value, thedifference is recognized in profit or loss.

E. Property, plant and equipment that are idle or have no value in use are reclassified to“other assets” at the lower of the fair value less costs to sell or book value. The

～ 23 ～

resulting difference is included in current operations. Depreciation provided on theseassets is charged to non-operating expense.

(18) Intangible assets

A. Goodwill is the excess of the initial investment cost over the acquired net asset value ofthe investee when consolidated. Please refer to Note 2(19) for impairment of goodwill.

B. Patents and royalties are stated at cost and amortized over the estimated life of 5 to 10years using the straight-line method.

(19) Deferred expenses

Photo mask, pattern, bank charges for loans, license fee, power line installation cost andcomputer software are capitalized and amortized over the estimated period of economicbenefits under the straight-line method. The estimated period of economic benefits forphoto mask and pattern is 1 to 2 years, and others are 3 to 7 years.

(20) Impairment of non-financial assets

A. The Group recognizes impairment loss when there is indication that the recoverableamount of an asset is less than its carrying amount. The recoverable amount is thehigher of the fair value less costs to sell and value in use. The fair value less costs tosell is the amount obtainable from the sale of the asset in an arm’s length transactionafter deducting any direct incremental disposal costs. The value in use is the presentvalue of estimated future cash flows to be derived from continuing use of the asset andfrom its disposal at the end of its useful life. When the impairment no longer exists, theimpairment loss recognized in prior years shall be recovered.

B. The recoverable amount of goodwill, intangible assets with indefinite useful lives andintangible assets which have not yet been available for use are evaluated periodically.Impairment loss will be recognized whenever there is indication that the recoverableamount of these assets is less than their respective carrying amount. Impairment lossof goodwill recognized in prior years is not recoverable in the following years.

(21) Preferred stock liabilities

The Company issued preferred stocks which are mandatorily redeemable by payment ofcash or another financial asset and are classified as liabilities. The interest, dividends,losses and gains on such preferred shares are recognized in profit and loss.

(22) Retirement plan and pension cost

Under the defined benefit pension plan, net periodic pension costs are recognized inaccordance with the actuarial calculations. Net periodic pension cost includes servicecost, interest cost, and expected return on plan assets, and amortization of unrecognized nettransition obligation and gains or losses on plan assets. Unrecognized net transitionobligation is amortized on a straight-line basis over 15 years. Under the definedcontribution pension plan, net periodic pension costs are recognized as incurred.

(23) Income tax

A. Provision for income tax includes deferred income tax resulting from temporarydifferences, investment tax credits and loss carryforward. Valuation allowance ondeferred tax assets is provided to the extent that it is more likely than not that the taxbenefit will not be realized. Over or under provision of prior years’ income taxliabilities is included in current year’s income tax. When a change in the tax laws isenacted, the deferred tax liability or asset is recomputed accordingly in the period ofchange. The difference between the new amount and the original amount, that is, theeffect of changes in the deferred tax liability or asset, is recognized as an adjustment tocurrent income tax expense (benefit).

～ 24 ～

B. Investment tax credits arising from expenditures incurred on acquisitions of equipmentor technology, research and development, employees’ training, and equity investmentsare recognized in the year the related expenditures are incurred.

C. An additional 10% tax is levied on the unappropriated retained earnings and isrecorded as income tax expense in the year the stockholders resolve to retain theearnings.

D. According to the “Income Basic Tax Act”, effective January 1, 2006, income tax isaccounted for based on the income tax law or other regulations when income tax isequal or more than the basic tax. When income tax is less than the basic tax, incometax payable shall be equal to the basic tax. The difference cannot be deducted frominvestment tax credits based on other regulations.

(24) Earnings per share

A. The Company adopted R.O.C. SFAS No. 24, “Earnings per share”. Basic earnings pershare is calculated by dividing net income by the weighted average number of sharesoutstanding during the year. Diluted earnings per share is calculated by taking intoaccount the potentially dilutive securities that were assumed to have been converted tocommon stock at the beginning of the year.

B. Effective January 1, 2008, as employees’ bonus could be distributed in the form ofstock, the diluted EPS computation shall include the estimated shares that wouldincrease from employees’ stock bonus issuance in the calculation of theweighted-average number of common shares outstanding during the reporting year,taking into account the dilutive effects of stock bonus on potential common shares;whereas, basic EPS shall be calculated based on the weighted-average number ofcommon shares outstanding during the reporting year that include the shares ofemployees’ stock bonus for the appropriation of prior year earnings, which havealready been resolved at the stockholders’ meeting held in the reporting year. As thecapitalization of employees’ bonus is no longer classified as distribution of stockdividends (or retained earnings or capital reserve capitalized), the calculation of basicEPS and diluted EPS for all periods presented shall not be adjusted retroactively.

C. The potential common shares of the Company and subsidiaries include employee stockoptions and the estimated shares that would increase from employees’ stock bonusissuance as stated above. Treasury stock method is used to test whether or not potentialcommon shares have dilutive effect.

(25) Share-based payment - employee compensation plan

A. The employee stock options granted from January 1, 2004 through December 31, 2007are accounted for in accordance with EITF 92-070, EITF 92-071 and EITF 92-072“Accounting for Employee Stock Options” as prescribed by the Accounting Researchand Development Foundation, R.O.C., dated March 17, 2003. Under the share-basedemployee compensation plan, compensation cost is recognized using the intrinsic valuemethod and pro forma disclosures of net income and earnings per share are prepared inaccordance with the R.O.C. SFAS No. 39, “Accounting for Share-based Payment”.

B. For the grant date of the share-based payment agreements set on or after January 1,2008, the Company shall measure the services received during the vesting period byreference to the fair value of the equity instruments granted and account for thoseamounts as payroll expenses during that period.

C. Subject to elimination of the Company issued employee stock options and theproposed replacement Reward Scheme, the Company should calculate thecompensation cost of employee services before and after the merger. The former as

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part of the cost of merger; the latter is allocated by the remaining period tocompensation cost.

(26) Employees’ bonuses and directors’ and supervisors’ remuneration

Effective January 1, 2008, pursuant to EITF 96-052 of the Accounting Research andDevelopment Foundation, R.O.C., dated March 16, 2007, “Accounting for Employees’Bonuses and Directors’ and Supervisors’ Remuneration”, the costs of employees’ bonusesand directors’ and supervisors’ remuneration are accounted for as expenses and liabilities,provided that such recognition is required under legal or constructive obligation and theamounts can be estimated reasonably. However, if the accrued amounts for employees’bonuses and directors’ and supervisors’ remuneration are significantly different from theactual distributed amounts resolved by the stockholders at their annual stockholders’meeting subsequently, the differences shall be recognized as gain or loss in the followingyear. In addition, according to EITF 97-127 of the Accounting Research and DevelopmentFoundation, R.O.C., dated March 31, 2008, “Criteria for Listed Companies in Calculatingthe Number of Shares of Employees’ Stock Bonus”, the Company calculates the number ofshares of employees’ stock bonus based on the closing price of the Company’s commonstock at the previous day of the stockholders’ meeting held in the year following thefinancial reporting year, and after taking into account the effects of ex-rights andex-dividends.

(27) Treasury stocks

A. When a company acquires its outstanding shares as treasury stock, the acquisition costshould be debited to the treasury stock account (a contra account under stockholders’equity) if the shares are purchased.

B. When a company’s treasury stock is retired, the treasury stock account should becredited, and the capital surplus-premium on stock account and capital stock accountshould be debited proportionately according to the share ratio. An excess of thecarrying value of treasury stock over the sum of its par value and premium on stockshould first be offset against capital surplus from the same class of treasury stocktransactions, and the remainder, if any, debited to retained earnings. An excess of thesum of the par value and premium on stock of treasury stock over its carrying valueshould be credited to capital surplus from the same class of treasury stock transactions.

C. The cost of treasury stock is accounted for on a weighted-average basis.

D. Stocks held by subsidiaries of the Company are stated at the subsidiary's carrying valueof the shares, and reclassification from the Company's (16) Long-term investmentsaccounted for under the equity method account to treasury stock.

(28) Revenue and expenses

A. Revenue is recognized when the earning process is completed and payment is realizedor realizable. Expenses, including research and development costs, are charged toincome as incurred.

B. Regarding the sales to Company’s subsidiaries, sales revenue is recognized only whenthe subsidiary has sold the goods of the Company to customers. Goods which remainedunsold by the subsidiary at the end of the accounting period are recorded as inventoriesby the Company.

(29) Subsidy from the Government

The Company receives subsidies from the Government related to the research anddevelopment of certain products pursuant to agreements. The subsidy income is recordedas deferred income upon receipt of the fund and subsequently recorded in incomestatement based on the schedule agreed to by the Company and the Government.

～ 26 ～

(30) Settlement date accounting

If an entity recognizes financial assets using settlement date accounting, any change in thefair value of the asset to be received during the period between the trade date and thesettlement date/balance sheet date is not recognized for assets carried at cost or amortizedcost. For financial assets or financial liabilities classified as at fair value through profit orloss, the change in fair value is recognized in profit or loss. For available-for-sale financialassets, the change in fair value is recognized directly in equity.

(31) Merger

The Company accounts for its merger transaction pursuant to the R.O.C. SFAS No. 25,“Accounting for Business Combinations - Purchase Method”.

3. CHANGE IN ACCOUNTING PRINCIPLE

Effective January 1, 2009, the Group adopted the amendments to R.O.C. SFAS No. 10,“Accounting for Inventories”. As a result of this change in accounting principle, operating costincreased by $137,755, non-operating loss associated with inventories decreased by $137,755,net loss increased by $137,755 and loss per share increased by $0.04 for the six-month periodended June 30, 2009.

4. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

June 30,

2009 2010

Cash on hand $ 226 $ 934,158

Checking deposits - 205,991

Savings deposits 2,249,496 6,287,878

Foreign currency deposits 3,310,124 14,969,248

Time deposits 41,491,126 38,062,456

47,050,972 60,459,731

Cash equivalents - Repurchase bonds 4,750,000 1,619,744

$ 51,800,972 $ 62,079,475

(2) Financial assets and liabilities at fair value through profit or loss

June 30,

Item 2009 2010

Current items:

Financial assets held for trading

Derivatives $ 251 $ 1,058,810

Financial liabilities held for trading

Derivatives $ - ($ 50)

Non-current items:Financial assets designated as at fair value

through profit or loss

Convertible bonds -Sintronic Technology Inc. $ 220,000 $ 220,000

Adjustment of designatedas at fair value through profit or loss 16,312 21,956

$ 236,312 $ 241,956

～ 27 ～

A. The trading items and contract information of derivatives are as follows:

June 30, 2009

Book valueContract amount

(in thousands)

Foreign exchange forward contract

Sell TWD dollars (Sell TWD/Buy JPY) $ 251 TWD 171,400

JPY 500,000

June 30, 2010

Book valueContract amount

(in thousands)

Financial assets held for trading

Foreign exchange forward contract $ 17,175 EUR 10,000

- Sell EUR dollars (Sell EUR/Buy JPY) JPY 1,131,050

Foreign exchange forward contract 1,041,549 USD 710,000

- Sell USD dollars (Sell USD/Buy JPY) JPY 65,753,305

Foreign exchange forward contract 86 HKD 20,000

- Sell HKD dollars (Sell HKD/Buy USD) USD 2,572

$ 1,058,810

Financial liability held for trading

Foreign exchange forward contract HKD 12,000

- Sell HKD dollars (Sell HKD/Buy USD) ($ 50) USD 1,540

B. The gain and loss on financial assets and liabilities for the six-month periods ended June30, 2009 and 2010 was a loss of $92,722 and gain of $593,806, including the unrealizedgain on financial assets and liabilities of $17,217 and $1,058,760, respectively.

(3) Accounts receivable

June 30,

2009 2010

Notes receivable $ - $ 191,319

Accounts receivable 18,779,158 65,457,196

18,779,158 65,648,515

Less: Allowance for doubtful accounts ( 103,180) ( 353,955)

Allowance for sales returns anddiscounts - ( 207,915)

$ 18,675,978 $ 65,086,645

Accounts receivable securitization

A. In September 2006, the Company entered into $10 billion, 5-year revolving accountsreceivable securitization agreement with Chinatrust Commercial Bank, the trustee.Under the agreement, the Company transferred a pool of accounts receivable to thetrustee. The Company transferred its receivables to the bank three times a month, andthe bank issued securities backed by these accounts receivable monthly. After thetransfer of the accounts receivable, the Company continues to service, administer, andcollect the accounts receivable on behalf of the bank. The Company does not bear therisk of collectability, nor provide any collateral to the bank.

～ 28 ～

B. As of June 30, 2010, the Company had a one-time sale of accounts receivable totaling$12,955,977 and related rights to the trustee for the issuance of beneficiary certificates.Under the agreement, control over contractual rights of such financial assets wastransferred to the buyers, except for subordinated beneficiary certificates amounting to$1,642,197 for the six months ended June 30, 2010 (recorded as available-for-salefinancial assets). The seller’s beneficiary certificates was $2,241,706 for the six monthsended June 30, 2010 (recorded as available-for-sale financial assets-noncurrent.) TheCompany recognized the difference between the book value of the financial assets andthe proceeds received of $7,312 as a gain on sale of investments for the six monthsended June 30, 2010 (recorded as other revenue.) Collected receivables not yet replacedby new accounts receivable due to timing difference are recorded as accrued expensesand other current liabilities in the balance sheet, which amounted to $1,487,142 as ofJune 30, 2010 (recorded as other payables-other).

a. Assumptions used to evaluate retained interests:

A. Subordinated beneficiary certificates

June 30, 2010

Estimated dilution reserve rate 0.49%

Estimated loss rate of credit 0.00%

Estimated funding cost rate 1.81%

Estimated expense rate 0.05%

B. Seller’s beneficiary certificates

June 30, 2010

Excess of issuance upper-limit $ -

Ineligible accounts receivable 2,204

Aggregate excess concentrations 964,460

Reserved for accounts payable 22,578

b. Sensitivity analysis

As of June 30, 2010, the assumptions and sensitivity of the current fair value ofresidual cash flows with immediate 10% adverse changes in those assumptions wereas follows:

A. Effect to subordinated beneficiary certificates

June 30, 2010

Estimated dilution reserve rate $ 751

Estimated loss rate of credit -

Estimated funding cost rate 18,861

Estimated expense rate 526

B. Effect to seller’s beneficiary certificates

June 30, 2010

Ineligible accounts receivable $ -

Aggregate excess concentrations 31

Reserved for accounts payable -

～ 29 ～

c. Cash flows

Cash inflows from and cash outflows to securitization trustees are as follows:

March 18 to June 30, 2010

Cash from securitization $ 8,886,855

Income from securitization 150

Other cash inflows from retained interest 9

Other charges -

Accounts receivable factoring

A. The Group factored its accounts receivable to certain financial institutions withoutrecourse. Under the agreement, the Group is not required to bear uncollectible risk of theunderlying accounts receivable, but is liable for the losses incurred on any businessdispute. As the Group did not provide any collateral, these accounts receivable meet thederecognition criteria for financial assets. The Group has derecognized the accountsreceivable sold to financial institutions, net of the losses estimated for possible businessdisputes.

As of June 30, 2009 and 2010, the relevant information of accounts receivable factoredbut unsettled is as follows:

June 30, 2009

Institutions

Accounts

receivable

sold/

derecognized

Amount

advanced

Amount

retained

(Note) Limit

Mega International

Commercial Bank $ 2,031,284 $ 2,007,689 $ 23,595 $ 7,710,350

China Trust

Commercial Bank 709,508 631,550 77,958 6,004,230

Taishin Bank 2,516,834 1,968,700 548,134 4,741,045

Ta Chong Bank 1,743,857 1,384,207 359,650 4,101,250

Taipei Fubon Bank 286,264 257,638 28,626 721,820

$ 7,287,747 $ 6,249,784 $ 1,037,963 $23,278,695

June 30, 2010

Institutions

Accounts

receivable

sold/

derecognized

Amount

advanced

Amount

retained

(Note) Limit

Mega International

Commercial Bank $ 2,539,327 $ 2,539,327 $ - $ 6,430,000

Ta Chong Bank 326,969 - 326,969 4,372,400

Taishin Bank 75,992 - 75,992 2,250,500

Taipei Fubon Bank 5,870,597 5,342,820 527,777 39,962,450

$ 8,812,885 $ 7,882,147 $ 930,738 $53,015,350

a.Note: shown as “other receivables”.

～ 30 ～

b.For the six-month periods ended June 30, 2009 and 2010, the rate of the groupeadvanced amount were 0.77 to 1.22% and $0.57 to 0.78%, respectively.

c.For the six-month periods ended June 30, 2009 and 2010, the financing charges(expenses) incurred from accounts receivable factoring were $22,546 and $47,267,respectively, and shown as “other non-operating losses”.

(4) Inventories

June 30,

2009 2010

Raw materials and supplies $ 2,746,240 $ 15,923,669

Work in process 4,448,578 42,705,127

Finished goods 8,857,693 17,490,261

16,052,511 76,119,057

Less: Allowance for obsolescence and market

value decline ( 569,821) ( 9,577,957)

$ 15,482,690 $ 66,541,100

Expense and loss incurred on inventories for the six-month periods ended June 30, 2009 and2010 were as follows:

For the six-month periods ended June 30,

2009 2010

Cost of inventories sold $ 70,926,044 $ 189,730,042

Loss on market price decline 137,755 946,251

Income from sale of remnants, pieces and waste ( 75,906) ( 230,917)

Loss on disposal of inventories - 285,733

Others - ( 14,333)

$ 70,987,893 $ 190,716,776

(5) Long-term investments accounted for under the equity method

June 30,

2009 2010

Investee company

Carrying

value

Percent of

ownership

(%)

Carrying

value

Percent of

ownership

(%)

Ampower Holding Ltd. $ - - $ 1,745,241 45

Chi Mei Materials Technology

Corporation - - 1,126,857 18

TOA Optronics Corporation - - 420,611 40

GIO Optoelectronics Corp. - - 378,223 26

Others - - 332,215 -

$ - $ 4,003,147

A. Because of the merger on March 18, 2010, the long-term investments accounted forunder the equity method increased as of June 30, 2010 compared with the prior period.Please refer to Note 1 for information on merger.

～ 31 ～

B. The Group uses the equity method on its investments with less than 20% ownershipwhen it has significant influence on such companies.

(6) Available-for-sale financial assets

June 30, 2010

Current

Listed stocks $ 54,003

Non-current

Subordinated beneficiary certificates $ 1,642,197

Seller’s beneficiary certificates 2,241,706

Listed stocks

Himax Technologies, Inc. (Himax Cayman) 2,322,309

Entire Technology Co., Ltd. 995,847

China Electric Mfg. Corporation 323,050

Others 233,142

$ 7,758,251

A. Please refer to Note 4(3) for the information of subordinated beneficiary certificates andseller's beneficiary certificates.

B. The loss on available-for-sale financial assets was $109,706 for the six-month periodended June 30, 2010, and is shown as an adjustment to stockholders' equity as unrealizedgain or loss on financial instruments.

(7) Hedging derivative financial liabilities - non-current

June 30, 2010

Non-current

Interest rate swap contracts $ 487,253

Cross currency swap contracts 372,627

$ 859,880

The gain on fair value hedges was $91,111 for the six-month period ended June 30, 2010.Please refer to Note 10(6) for other information

(8) Financial assets carried at cost / Investment in bonds without active market

June 30,

2009 2010

Financial assets carried at cost - non-current

Listed stocks:

TPV Technology Ltd. $ - $ 2,958,216

Emerging stocks:

J TOUCH Corporation - 400,000

G-TECH Optoelectronics Corporation - 104,732

Advanced Optoelectronic Technology Inc. 48,357 -

Entire Technology Co., Ltd. 149,249 -

～ 32 ～

June 30,

2009 2010

Unlisted stocks:

Chi Lin Technology Co., Ltd. $ - $ 277,093

AvanStrate Inc. - 286,740

Top Taiwan VI Venture Capital Co., Ltd. - 198,490

Others 111,313 406,995

Embedded derivatives:

ILI Technology Corp. - Convertible bonds 5,520 5,520

$ 314,439 $ 4,637,786

Investment in bonds without active market -

non-current

Unlisted bonds:

ILI Technology Corp. – Convertible bonds $ 45,165 $ 47,042

A.The increase in above investments for the six-month period ended June 30, 2010, exceptfor J TOUCH Corporation, G-TECH Optoelectronics Corporation, and AvanStrate Inc.,resulted from the merger on March 18, 2010. Please refer to Note 1 for information onmerger.

B. The investment in TPV Technology Ltd. was acquired through private placement withcertain restrictions on the transfer of the shares. The restricted shares, whose fair valuecannot be measured, shall be accounted for as financial assets carried at cost. Theremaining investment is accounted for as financial assets carried at cost because there isno active market for price quoted.

C. The convertible bonds held by the Company’s subsidiaries were recognized in“Investments in bonds without active markets” since these do not have quoted prices in anactive market. The put options, call options and conversion options embedded inconvertible bonds were measured at cost since the convertible bonds have no quotedprices in an active market and their fair value cannot be measured reliably.

D.Advanced Opto-electronic Technology Inc. has terminated its public offering in June,2009. The shareholding percentage of the Company’s subsidiary in AdvancedOpto-electronic Technology Inc. was more than 20% after subscribing for the new sharesin October, 2009. Accordingly, the investment was recognized in “Long-term equityinvestment accounted for under the equity method.” The investment was reclassifized to“Financial assets carried at cost” in March, 2010 due to selling the shareholding.

E. Entire Technology Inc. was listed in TSE in August, 2009, and the investment wasrecognized in “Available-for-sale financial asset - non-current.”

～ 33 ～

(9) Property, plant and equipment

June 30, 2009

Original cost

Accumulated

depreciation Book value

Buildings $ 9,459,287 ($ 3,546,568) $ 5,912,719

Machinery and equipment 46,589,885 ( 23,145,759) 23,444,126

Testing equipment 3,243,389 ( 1,697,629) 1,545,760

Transportation equipment 61,383 ( 30,106) 31,277

Office equipment 617,734 ( 309,743) 307,991

Leasehold improvements 31,741 ( 31,079) 662

Other equipment 1,786,499 ( 694,216) 1,092,283

Construction in progress and

prepayments for equipment 43,884,062 - 43,884,062

$105,673,980 ($ 29,455,100) $ 76,218,880

June 30, 2010

Original cost

Accumulated

depreciation Book value

Land $ 4,971,341 $ - $ 4,971,341

Buildings 151,618,245 ( 11,969,474) 139,648,771

Machinery and equipment 301,868,773 ( 69,263,307) 232,605,466

Testing equipment 4,427,281 ( 2,428,781) 1,998,500

Transportation equipment 979,777 ( 347,182) 632,595

Office equipment 1,858,289 ( 866,376) 991,913

Leased assets 1,519,744 ( 407,946) 1,111,798

Leasehold improvements 211,576 ( 113,899) 97,677

Other equipment 8,196,981 ( 3,619,948) 4,577,033

Construction in progress and

prepayments for equipment 78,755,703 - 78,755,703

$554,407,710 ($ 89,016,913) $ 465,390,797

A.Please refer to Note 6 for property, plant and equipment pledged as collateral.

B. As of June 30, 2010, significant leasing agreements were as follows:

～ 34 ～

a. The contents of leasing agreements:

Leased Assets Period Annual Payment Terms and Conditions

Machinery 2008.05.19- Down payment was 1.The lease transfers ownership

equipment and 2013.05.19 $4,000,000 on May of the leased property to the

factory facility 19, 2008. lessee by the end of the lease

Repayment semi- term.

annually of 2.These leased assets have to be

$990,000 from May fully insured and the

19, 2009 to May 19, Company is responsible for

2013 with annual the maintenance and repair

floating interest of the leased assets.

rate at 2.0708% in

2010.

b. Leased assets and leased obligation payable were initially recognized at fair value atthe inception of the lease. The depreciation is computed using the straight-line methodover the useful economic life.

c. As of June 30, 2010, future lease payments were as follows:

Year Amount

The second half of 2010 $ 990,000

2011 1,980,000

2012 1,980,000

2013 980,000

5,930,000

Less: current portion of lease payable ( 1,980,000)

Lease payable – non-current $ 3,950,000

C. Certain property, plant and equipment of the Group are leased to related parties and othercompanies under operating lease agreements, and were reclassified to assets leased toothers.

June 30, 2010

Cost

Accumulated

Depreciation Book Value

Land $ 196,307 $ - $ 196,307

Buildings 1,497,029 ( 55,214) 1,441,815

$ 1,693,336 ($ 55,214) $ 1,638,122

D.Certain property, plant and equipment of the Group are idle, and were reclassified to idleassets.

June 30, 2010

CostAccumulated

Depreciation Book Value

Machinery and equipment $ 1,365,868 ($ 384,063) $ 981,805

～ 35 ～

The above acquired assets were due to the merger, thus the Company has appointedexperts to evaluate the fair value.

(10) Business combinations and intangible assets

A. The Company, formerly "Innolux Display Corporation", merged with TPO DisplaysCorporation and Chi Mei Optoelectronics Corporation based on the resolution in theshareholders’ meeting on January 6, 2010. Innolux Display Corporation is thesurviving company after the merger and was renamed as Chimei Innolux Corporation.TPO Displays Corporation and the shareholders of Chi Mei OptoelectronicsCorporation exchanged 3.82912866 and 2.05 common stocks, respectively, for 1common stock of Chimei Innolux Corporation; therefore 4,046,381,607 stocks wereissued by Chimei Innolux Corporation for the exchange. In addition, the preferredshareholders of Chi Mei Optoelectronics Corporation also exchanged 2.05 preferredstock for one preferred stock of Chimei Innolux Corporation, and 731,707,317 stockswere issued for the exchange. Please refer to Appendix 4 (15) for detailed explanationsof preferred stocks.

B. TPO Displays Corporation, founded in 1999, operated in the research, development,manufacture, and the sale of Low Temperature Poly Silicon thin film transistor liquidcrystal displays (LTPS/TFT-LCD) and the sale of super-twisted nematic thin filmtransistor liquid crystal displays (STN/TFT-LCD). Chi Mei OptoelectronicsCorporation was established in 1998 and operated in the research, manufacture, and thesale of thin film transistor liquid crystal displays.

C. The merger date was March 18, 2010. The Company accounts for its mergertransaction pursuant to the R.O.C. SFAS No. 25, “Accounting for Businesscombinations - Purchase Method”. The relevant information is as follows:

Business combinations

Amount

Stocks issued pursuant to combination $ 40,463,816

Capital reserve—from merger 139,744,797

Value of employee stock options 310,999

Acquisition cost 180,519,612

Less: fair value of the net assets acquired from TPO Displays

Corporation and Chi Mei Optoelectronics Corporation ( 165,287,554)

Goodwill $ 15,232,058

The purchase price of this merger is still under assessment period, and the Companyhas appointed experts to evaluate the fair value of identifiable net assets. Theinformation above represents only the estimated value.

D. There is no contingent price, options, commitment, or significant disposal of assets inthe merger contract.

E. Pro Forma Supplementary information to the consolidated profit and managementresults.

Since March 18, 2010, the management results of TPO Displays Corporation and ChiMei Optoelectronics Corporation are consolidated into the profit and loss statements ofChi Mei Innolux Corporation. The pro forma profit and loss statement for the first halfof 2010 is based on the assumption that the management results of TPO DisplaysCorporation and Chi Mei Optoelectronics Corporation has already been consolidatedsince January 1, 2010. In order to compile the comparative profit and loss statement, itis assumed that the merger had occurred at the beginning of the last fiscal year for

～ 36 ～

comparison. Pro Forma consolidated profit and loss statement is as follows: (Thefollowing is the pro forma individual statement of the first half of 2009 and 2010 forChi Mei Optoelectronics Corporation.)


2009 2010

Amount % Amount %

Operating revenues $ 191,299,649 100 $ 279,795,715 100

Operating costs ( 209,579,778) (110) ( 256,652,572) ( 92)

Gross (loss) profit ( 18,280,129) ( 10) 23,143,143 8

Operating expenses ( 11,710,159) ( 6) ( 10,329,934) ( 4)

Operating (loss) income ( 29,990,288) ( 16) 12,813,209 5

Non-operating income 3,694,072 2 5,908,612 2

Non-operating expenses ( 9,177,130) ( 5) ( 9,054,017) ( 3)

(Loss) income before

income tax ( 35,473,346) ( 19) 9,667,804 3

Income tax benefit

(expense) 1,089,924 - ( 1,908,869) -

Consolidated net (loss)

income ($ 34,383,422) ( 19) $ 7,758,935 3

Before tax After tax Before tax After tax

Pro forma basic earnings

(loss) per share

Net income (loss) ($ 4.94) ($ 4.79) $ 1.32 $ 1.06

Pro forma diluted earnings

(loss) per share

Net income (loss) ($ 4.94) ($ 4.79) $ 1.32 $ 1.06

When calculating the basic and diluted earnings per share above, the Companyassumed that the merger of TPO Displays Corporation and Chi Mei OptoelectronicsCorporation occurred at the beginning of 2010.

Other intangible assets

F. The following intangible assets resulted from the payment on the TFT-LCD relatedtechnology, technical license fees, and land use right in China.

June 30, 2010

Patents $ 1,930,265

Loyalty 177,532

$ 2,108,157

(11) Short-term loans

June 30,

2009 2009

Credit loans $ 18,382,949 $ 19,091,726

Secured loans - 548,660

$ 18,382,949 $ 19,640,386

Range of interest rates 0.76%～5.00% 0.01%～5.31%

Please refer to Note 5(2) G for assets pledged as collateral for short-term loans.

～ 37 ～

(12) Short-term bills payable

June 30, 2010

Commercial bill payable $ 4,600,000

Less: discount on commercial bill payable ( 518)

$ 4,599,482

Issue rate 0.4%~1%

(13) Long-term loans

June 30, 2009

Period Amount

Mega International Commercial Bank

and 22 others - syndicated bank loans

2004/8 ~ 2011/8 $ 3,972,400

Mizuho Corporation Bank and 3 others -

syndicated bank loans

2008/9 ~ 2010/12 2,000,000


and 20 others - syndicated bank loans

2008/11 ~ 2013/11 18,000,000

23,972,400

Less: current portion ( 3,972,400)

$ 20,000,000

Range of interest rates 1.06%~1.62%

June 30, 2010

Period Amount

Syndicated bank loans:


and 20 others - mortgaged syndicated

bank loans

2008/11 ~ 2013/11 $ 30,430,000

Mizuho Corporation Bank and 3 others

- syndicated bank loans

2008/9 ~ 2010/12 2,000,000



bank loans

2010/5 ~ 2013/11 16,890,000



bank loans

2005/3 ~ 2012/3 2,800,000

China Trust Commercial Bank and 10

others - mortgaged syndicated bank

loans

2008/9 ~ 2013/8 5,100,000

Bank of Taiwan and 33 others -

mortgaged syndicated bank loans

2004/12 ~ 2011/12 1,814,880



2004/12 ~ 2011/12 9,332,730

～ 38 ～

June 30, 2010

Period Amount


other banks and financial institutions -


2006/9 ~ 2012/7 $ 2,484,318


other banks and financial institutions -


2006/6 ~ 2012/7 27,720,157



2006/11 ~ 2013/11 34,930,000



2008/10 ~ 2013/11 6,870,777



2008/9 ~ 2015/2 46,201,440



2010/3 ~ 2015/2 500,000

Bank of America and 12 others -

secured syndicated bank loans

2009/6 ~ 2011/6 1,932,188



2007/6 ~ 2012/6 1,932,188



2007/4 ~ 2011/7 3,354,492

First Bank and 11 others - mortgaged


2008/7 ~ 2013/7 2,248,000

Bank of Taiwan and 22 others - secured


2008/5 ~ 2011/5 19,290,000

Commercial papers 2005/7 ~ 2012/10 5,348,258

Secured loans 2008/11 ~ 2013/9 309,192

Unsecured loans 2005/9 ~ 2010/12 19,670,000

$ 241,158,620

Less: administrative expenses from

syndicated loans ( 747,993)

Less: current portion ( 77,269,400)

$ 163,141,227

Range of interest rates 0.7%~2.72%

A.Please refer to Notes 5(2) G and 6 for assets pledged as collateral for long-term loans.

B. Because of the merger on March 18, 2010, the long-term loans increased as of June 30,2010 compared with the prior period. Please refer to Note 1 for information on merger.

C. The agreements of the syndicated loan, which were acquired from the merger, except forMizuho Bank and other three syndicated loans due before the end of 2010, the rest hasbeen renegotiated with the syndicated loan bank. Under the loan agreements, theCompany is required to maintain the following financial ratios:

a. Current ratio is in excess of 100%

～ 39 ～

b. Debt to total equities ratio is below 150%

c. Times of interest earned ratio is above 3 times.

d. Tangible net value is above $100,000,000.

(14) Bonds payable

June 30, 2010

Secured domestic bonds $ 4,000,000

The bonds payable was acquired because of merger. The bonds payable was originallyissued on December 26, 2008 for a period of four years and forty-four days (maturity dateof February 8, 2013), at par value of $4 billion and a coupon rate of 2.72%. From the issuedate, interest payments are calculated by coupon rate annually; repayable in two equalinstallments on the fourth year and maturity date. For the six-month period ended June 30,2010, the interest expense incurred from bonds payable was $31,299.

(15) Preferred stock liabilities – non-current

June 30, 2010

Preferred shares - series B-private placement $ 15,000,000

A.The preferred shares were acquired because of merger on March 18, 2010. The preferredshares are not applied to trade in OTC market.

B. For the six-month period ended June 30, 2010, the outstanding preferred shares were731,707,317 shares, and par value at $10. Dividends payable was $836,509, and shownas accrued expense.

C. According to the R.O.C. SFAS No. 36, “Presentation and Disclosure of FinancialInstruments”, the following are the preferred shareholders’ rights and other terms andconditions:

a. Preferred shareholders are entitled to receive cumulative cash dividends once a year atthe following annual rates, calculated at the actual issuance price:

Period Annual Rate

From 1st to 3rd years 3.00%

From 4th to 6th years 3.75%

From 7th to 9th years 4.75%

10th year and thereafter 6.00%

After the financial statements are approved at the shareholders’ meeting, the board ofdirectors will determine the grant date for the distribution of preferred dividendsdeclared in the previous year. Preferred cash dividends must be weighted by thefraction of the period they are outstanding in the issuance year. Preferred shareholdersare not entitled to receive any stock dividends for common shareholders (whetherdeclared out of unappropriated earnings or capital surplus);

b. By the end of the year, if the Company has no earnings or the earnings are notsufficient for the declaration of preferred dividends, the undistributed dividends shouldbe accumulated until the Company declares an earnings distribution in the subsequentyear;

c. If the Company will be liquidated or dissolved, preferred shareholders have priorityover the common shareholders on the Company’s assets available for distribution toshareholders. However, the pre-emptive rights to the assets should not exceed the

～ 40 ～

issuance value of the shares;

d. Preferred shareholders have no voting rights;

e. Preferred shareholders have the same right as common shareholders to subscribe tonew shares;

f. Preferred shareholders may not be transferred to common shareholders duringissuance period;

g. Any paid-in capital arising from the excess of par value from issuance of preferredshares may not be transferred to capital.

D.Based on the resolution in the shareholders’ meeting in June, 2010, the issued preferredstock aforementioned are withdrawn through the revenue, the acquired return from newstock issuance, or both. The withdrawing cost is the original issue price plus theaccumulated dividend at the day before cancellation. However, the board of directors hasnot determined the base date of capital reduction by the audit report date.

(16) Income tax

A. Income tax expense and income tax payable were reconciled as follows:


2009 2010

Income tax expense $ 6,576 $ 2,286,243

Net changes in deferred income tax assets

(liabilities) - 7,272,011

Loss carryforwards from acquisitions - ( 4,983,627)

Investment tax credits from acquisitions - ( 3,745,832)

Deferred income tax assets of subsidiaries

from acquisitions - ( 316,325)

Over (under) provision of prior year’s

income tax 1,014 ( 7,726)

Prepaid income tax and withholding tax ( 21,030) ( 112,327)

Net (income tax refund receivable) income

tax payable ($ 13,440) $ 392,417

Income tax payable $ - $ 411,881

Income tax refund receivable shown as

“other receivables” ( 13,440) ( 19,464)

($ 13,440) $ 392,417

B. The deferred income tax assets and liabilities were as follows:

June 30,

2009 2010

Deferred income tax liabilities ($ 372,367) ($ 675,773)

Deferred income tax assets 5,509,127 40,046,425

Valuation allowance ( 3,879,443) ( 29,885,602)

$ 1,257,317 $ 9,485,050

～ 41 ～

C. The temporary differences, unused investment tax credits and related amounts ofdeferred income tax assets and liabilities were as follows:

June 30,

2009 2010

Amount Tax effect Amount Tax effect

Current items:

Allowance for

obsolescence and

market value decline

$ 569,821 $ 113,964 $ 1,147,539 $ 195,796

Unrealized gross profit 183,496 45,874 169,160 28,757

Allowance for doubtful

accounts 55,372 11,074 5,372 913

Accrued loyalty and

estimated warranty 1,551,856 310,371 2,828,659 480,872

Allowance for sales

returns and discounts - - 130,300 22,151

Unrealized exchange

loss 56,259 14,065 1,334,771 226,911

Unrealized valuation

gain on financial

assets and liabilities ( 251) ( 63) ( 620,836) ( 105,542)

Loss carryforwards - - 16,854,770 2,865,311

Investment tax credits - - 8,328,031

Others - - 76,966 41,794

495,285 12,084,994

Less: Valuation

allowance -

current - - ( 10,552,239)

$ 495,285 $ 1,532,755

Non-current items:

Unrealized gain on

investments ($1,861,519) ($ 372,304) ($ 3,354,301) ($ 570,231)

Impairment loss of

goodwill 136,148 27,230 125,399 21,318

Impairment loss of

assets - - 1,138,922 352,678

Loss carryforwards 4,530,574 906,115 59,509,294 10,116,580

Investment tax credits - 4,078,434 - 17,285,917

Others - - 274,379 79,396

4,639,475 27,285,658

Less: Valuation

allowance -

non-current ( 3,877,443) ( 19,333,363)

$ 762,032 $ 7,952,295

～ 42 ～

D.As of June 30, 2010, the unused investment tax credits are as follows:

Period Details of tax credit Amount Year of expiry

2006 Tax credits for research and development $ 986,999 2010

2007 Tax credits for research and development 1,159,124 2011



2006 Acquisition of equipment or technology 7,390,658 2010



2009 Acquisition of equipment or technology 325,645 2013

2006 Tax credits for training 11,032 2010




2007 Tax credits for investment in barren area 1,802,489 2011

2008 Tax credits for investment in barren area 2,754,467 2012

2009 Tax credits for investment in barren area 510,898 2013

$25,613,948

E. As of June 30, 2010, the unused loss carryforwards are as follows:

F. The investment tax credits and loss reliefs listed in item 4 and 5 include the part whichare acquired but not utilized by both surviving and acquired company. In accordancewith Article 38 of Business Mergers and Acquisitions Act, Chimei Innolux Corporationshall deduct the loss reliefs, which are not subtracted before the merger, of all involvedcompanies for the last five years from the net income of each year within the 5 yearssince the loss fiscal year. The amount of deduction is calculated based on the ratio ofsurviving company equity shareholders of all involved companies after the merger. Theamounts of succeeding and potential loss reliefs and investment tax credits of ChimeiInnolux Corporation are $4,983,627 and $3,745,832, respectively.

G.As of June 30, 2010, the Company’s income tax returns through 2006 have beenassessed and approved by the Tax Authority.

H.The Company’s indirectly-owned Mainland China subsidiaries are foreign-investedmanufacturing enterprises established in the PRC. Under the PRC tax regulations, theircorporate income tax shall be levied at the rate of 18% to 25%, and they are exempt fromcorporate income tax for the first and second profit-making years and are subject to a

Year in which

loss was incurred

Unused loss

carryforwards Amount Year of expiry

2006 $ 6,158,386 $ 1,046,926 2011

2007 4,312,017 733,043 2012

2008 6,423,159 1,091,937 2013 ~ 2018

2009 52,016,222 8,842,757 2014 ~ 2019

2010 7,454,280 1,267,228 2015

$ 76,364,064 $ 12,981,891

～ 43 ～

50% reduction of corporate income tax from the third through fifth profit-making years.These subsidiaries can use investment tax credits on national production equipment forthe first profit-making year.

(17) Retirement plan

A. The Company has a non-contributory and funded defined benefit pension plan inaccordance with the Labor Standards Law, covering all regular employees. TheCompany contributes monthly an amount equal to 2% of the employees’ monthly salariesand wages to the retirement fund deposited with Bank of Taiwan, the trustee, under thename of the independent retirement fund committee. For the six-month period endedJune 30, 2010, net pension costs recognized by the Company under the defined benefitplan amounted to $12,450. In January 2009, the Company has obtained an approval letterfrom the Science-based Industrial Park Administration for the suspension ofcontributions to the retirement fund. Accordingly, the Company has not recognized anypension cost for the six-month period ended June 30, 2009. The balance of the retirementfund deposited with Bank of Taiwan was $98,139 and $1,134,680 as of June 30, 2009and 2010, respectively.

B. In accordance with the Labor Pension Act, the Company has established a definedcontribution employee retirement plan, which is applicable to domestic employees.Employees have the option to join the plan and the Company contributes monthly anamount of at least 6% of total monthly salaries and wages to the employees’ individualpersonal pension accounts at the “Bureau of Labor Insurance”. Pension benefits are paidbased on the accumulated balance of the employees’ personal pension account in lumpsum or in monthly payments. The pension expense under the defined contribution planamounted to $55,728 and $212,216 for the six-month periods ended June 30, 2009 and2010, respectively.

C. The Company’s directly-owned Mainland China subsidiaries have a funded definedcontribution plan. Monthly contributions to an independent fund administered by thegovernment in accordance with the pension regulations in the People’s Republic of China(PRC) are based on the employees' monthly salaries and wages. The Company’ssubsidiaries contribute monthly an amount equal to 11% or 10% of the employees’monthly salaries based on the employees’ domiciles to their independent funds. Exceptfor monthly contributions, the Company’s subsidiaries have no other obligation. The netpension costs recognized by the Company’s subsidiaries under the defined contributionplan for the six-month periods ended June 30, 2009 and 2010 amounted to $126,519 and$211,728, respectively.

D. The Company’s subsidiaries in other countries have a funded defined contribution plan inaccordance with relevant local laws and regulations. The net pension costs recognized bythe Company’s subsidiaries under the defined contribution plan for the six-month periodended June 30, 2010 amounted to $45,619.

(18) Common stock

A.As of June 30, 2010, the Company’s authorized and outstanding capital was$105,000,000 (including $2,000,000 reserved for stock options) and $73,091,298,respectively, with a par value of $10 (dollars) per share.

B. The stockholders at the special stockholders’ meeting on January 6, 2010 approved themerger of the Company with other companies by share conversion, with the Company asthe surviving company. The Company issued 4,046,382 thousand new shares accordingto the merger contract. Please refer to Note 4(10) for information on merger.

C. The new stocks, which are issued due to the merger, include the common stock issued byacquired company in May and December, 2006 through private replacement. The

～ 44 ～

issuance of 570,929 thousand stocks was determined based on the exchange ratio in themerger contract. The rights and obligations of the private common equity are the same asother issued common stocks except for the restriction regulated by securities act onnegotiation and listing application after at least three years since the date of negotiablesecurities payment and an additional public issuance. The aforementioned privatecommon equity has not been publicly issued as of June 30, 2010.

D.For the six-month periods ended June 30, 2009 and 2010, the Company issued commonstock for 14,842 and 10,567 thousand shares, respectively, through the exercise ofemployee stock options under the stock-based employee compensation plan. As of June30, 2009 and 2010, the amount of $100,707 and $26,600 (9,991 and 2,660 thousandshares) represents payments received in advance for shares to be issued, respectively, andwas shown as “Common stock subscribed”.

E. In June 2009, the stockholders at their annual stockholders’ meeting resolved to transferunappropriated earnings of $941,561 and employees’ stock bonus of $349,269 tocommon stock (shown as “stock dividends distributable”).

F. In accordance with the Board of Directors’ resolution in August 2007, the Companydecided to issue 300 million shares of common stock for cash, including 149,967.5thousand units of global depository receipts (GDRs), which represent 299,935 thousandshares of common stock with a unit of GDRs representing 2 shares of common stock. Perunit was issued premium 9.02 US dollar.

G.There are 720 thousand units of GDRs outstanding which represent 1,440 shares ofcommon stock as of June 30, 2010.

(19) Share-based payment-employee compensation plan

A. As of June 30, 2010, the Company’s share-based payment transactions are set forthbelow:

Type of arrangement Grant date

Quantity granted

(in thousand units)

Contract

period

Vesting

conditions

Employee stock options 2004.01.09 47,000 6 years Note A, C

Employee stock options 2004. 03.31 20,000 6 years Note A, C

Employee stock options 2004.05.07 15,000 6 years Note A, C

Employee stock options 2004.12.03 28,000 6 years Note A


Employee stock options 2007.12.20 25,000 6 years Note B


Note A：The employees may exercise the stock options in installment based on 30%,

30% and 40% of total options granted on completion of the specified year(s)of service (one year to four years) from the grant date.

Note B：The employees may exercise the stock options in installment based on 40%,

30% and 30% of total options granted on completion of the specified years ofservice (three to five years) from the grant date.

Note C：The employee stock options expired in the first semi-annual of 2010.

Note D：The fair value of employee stock options which were granted on May 13, 2010

was estimated using the Black-Scholes option pricing model. The informationis as follows:

～ 45 ～

Type of

arrangement Grant date

Price

(dollar)

Strike

price

(dollar)

Expected

volatility

(%)

Expected

Duration

(Month)

Expected

dividend

yield (%)

Risk-free

interest

rate (%)

Fair

value

per unit

Employee

stock

options

2010.05.13 39.85 39.85 51.57 48.6 0 0.80 15.12~

16.98

B. Employee stock options acquired because of merger

a. Details

Type of arrangement Grant date

Quantity granted

(in thousand units)

Contract

period

Vesting

conditions

Employee stock options 2006.04.01 17 5 years Note 2

Employee stock options 2007.12.27 120 5 years Note 2

Employee stock options 2009.09.30 24,819 5 years Note 2

Employee stock options 2006.07.19 11 (Note 1) 6 years Note 3



1. Each unit of stock options can subscribe for 1,000 shares of common stock

2. The employees may exercise the stock options in installment based on 50%, and50% of total options granted on completion of the specified years of service (two tothree years) from the grant date.

3. The employees may exercise the stock options in installment based on 25%, 25%,25% and 25% of total options granted on completion of the specified years ofservice (two to five years) from the grant date.

4. The unit of employee stock options above were adjusted by share conversion rate.

b.For the employee stock options assumed by the Company due to business combination,the cost after calculation attributable to acquisition cost (equal amount was recognizedas capital reserve - employee stock options under stockholders’ equity) andattributable to compensation cost over the remaining vesting period after businesscombination was $310,999 and $453,371, respectively.

c.The fair value of employee stock options is estimated using the Hull & White (2002)Enhanced FASB 123 of the aforementioned binomial model. The information is asfollows:

Type of

arrangement Grant date

Price

(dollar)

Strike

price

(dollar)

Expected

volatility

(%)

Expected

duration

(Month)

Expected

dividend

yield (%)

Risk-free

interest

rate (%)

Fair

value

per unitEmployee stock

options

2006.04.01 51.60 91.20 45.10 24.34 0.61 0.82 0.62

Employee stock

options

2007.12.27 51.60 64.00 45.10 36.30 0.61 0.82 2.66~

2.8

Employee stock

options

2009.09.30 51.60 39.20 45.10 36.78 0.61 0.82 3.57~

4.14

Employee stock

options

2006.07.19 51.60 55.21 45.10 12.04 0.61 0.82 4.64~

4.77

Employee stock

options

2007.07.02 51.60 67.53 45.10 24.78 0.61 0.82 4.23~

4.41

Employee stock

options

2007.12.27 51.60 80.63 45.10 48.54 0.61 0.82 3.65~

3.82

～ 46 ～

C. For the six-month periods ended June 30, 2009 and 2010, details of the employee stockoption plan are as follows:

For the six-month period ended June 30, 2009

Stock Options

Quantity

(in thousand

units)

Weighted

average

exercise

price

(in dollars)

Range of

exercise

price (in

dollars)

Weighted

average

remaining

vesting

period

Weighted

average stock

price of stock

options at

exercise date

Outstanding

options at the

beginning of the

period

71,192 $ 37.30

Options exercised ( 14,842) 10.06 $ 34.51

Outstanding

options at the end

of the period 56,350 43.19 $ 10.00 1.16 years

$ 84.40 4.50 years

Exercisable options

at the end of the

period 26,550 10.00


Stock Options

Quantity

(in thousand

units)

Weighted

average

exercise

price

(in dollars)

Range of

exercise

price (in

dollars)

Weighted

average

remaining

vesting

period

Weighted

average stock

price of stock

options at

exercise date

Outstanding

options at the

beginning of the

period 44,631 $ 51.09

Options increased

from merger 24,990 53.76

Options granted 20,000 39.84

Options exercised ( 10,567) 10.00 $ 45.43

Options expired ( 3,938) 10.00

Outstanding

options at the end

of the period 75,116 35.81 $ 10.00 0.98 year

$ 66.80 3.50 years

$ 39.85 4.88 years

$39.2~91.2 3.36 years

Exercisable options

at the end of the

period 5,214 46.00

D. The following sets forth the pro forma consolidated net income and earnings per sharebased on the assumption that the compensation cost is accounted for using the fair value

～ 47 ～

method for the stock options granted before the effectiveness of R.O.C. SFAS No. 39,“Accounting for Share-based Payment”:

For the six-month periods

ended June 30,

2009 2010

Consolidated net Net (loss) income as reported ($ 4,051,814) $ 12,926,895

(loss) income Pro forma net (loss) income ($ 4,216,839) $ 12,754,497

Basic (loss) earnings Basic (LPS) EPS as reported ($ 1.26) $ 2.30

per share (LPS/EPS) Pro forma basic (LPS) EPS ($ 1.31) $ 2.29

Diluted (loss) earnings Diluted (LPS) EPS as reported ($ 1.26) $ 2.29

per share (LPS/EPS) Pro forma diluted (LPS) EPS ($ 1.31) $ 2.26

(20) Capital reserve

A. Under R.O.C. Securities and Exchange Act, paid-in capital in excess of par value(including consolidation premium) and donated surplus of capital reserve may be usedto increase the registered capital, and the annual capitalized amount shall not exceed10% of issued and outstanding capital.

B. The capital reserve can only be used to offset losses and /or to increase capital.

C. Please refer to Note 4(19) for employee stock options information.

(21) Retained earnings

A. Pursuant to the ROC Company Law, 10% of the annual after-tax net income of eachcompany must be appropriated as legal reserve until the total amount of the legalreserve equals the share capital. Such reserve can only be used to offset a deficit andcannot be distributed as cash dividends. When the legal reserve has reached 50% of thecompany’s issued share capital, up to 50% thereof can be used to increase share capitalin accordance with resolutions at the stockholders’ meeting.

B. In accordance with the Company’s Articles of Incorporation, net income must bedistributed in the following order:

a. to cover prior years’ losses, if any;

b. as legal reserve equal to 10% of net income after tax and distribution pursuant toclause (a);

c. as any other legally required reserve;

d. to pay dividends on preferred shares;

e. to pay bonuses to employees not less than 8% of net income after tax anddistribution pursuant to clauses a. to d.; and

f. the remaining amount, if any, shall be distributed pursuant to the proposal of theboard of directors in accordance with the Company’s dividend policy and resolutionapproved at the stockholders’ meeting, of which 0.1% should be paid asremuneration to directors and supervisors and the remaining amount as dividends toshareholders.

Dividends may be distributed in the form of cash or shares, or a combination of both;provided, however, that dividends distributed in respect of any fiscal year in the formof shares shall not exceed two-thirds of total dividends to stockholders. All sharesissued, outstanding and fully paid as of the relevant dividend record date are entitled to

～ 48 ～

share equally in any dividend or other distribution approved by the stockholders.

C. The appropriation of 2008 earnings had been resolved at the stockholders’ meeting inJune 2009. Details are summarized below:

2008

AmountDividends per

share (in dollars)Legal reserve $ 485,095 $ -

Stock dividends 941,561 0.30

Cash dividends 627,707 0.20

$ 2,054,363

Information on the appropriation of the Company’s earnings referred above as resolvedby the Board of Directors and approved by the stockholders will be posted in the“Market Observation Post System” at the website of the Taiwan Stock Exchange.

D. The estimated amounts of employees’ bonus and directors’ and supervisors’remuneration for the year ended December 31, 2008 were $349,269 and $1,571,respectively, which were computed based on certain percentages of net income,prescribed by the Company's Articles of Incorporation, and were recognized asoperating costs or operating expenses for the year ended December 31, 2008.Information on the appropriation of the Company’s employees’ bonus and directors’and supervisors’ remuneration as resolved by the Board of Directors and approved bythe stockholders will be posted in the “Market Observation Post System” at the websiteof the Taiwan Stock Exchange Employees’ bonus and directors’ and supervisors’remuneration for 2008 as resolved by the stockholders at the stockholders’ meeting onJune 19, 2009 were not significantly different from those amounts recognized in the2008 financial statements. Employees’ bonus totaling $349,269 was distributedthrough issuance of 10,429,000 shares of stock at $33.49 (in dollars) per share and bycash of $17 (in dollars). The calculation of shares of employees’ stock bonusdistributed is based on the closing price of the Company's common stock on June 18,2009, the previous day of the 2009 stockholders’ meeting, after taking into account theeffects of ex-rights and ex-dividends. The estimated employees’ bonus is $742,686 forthe six-month period ended June 30, 2010 (shown as “Accrued expenses.”)

E. As of June 30, 2010, the undistributed earnings, on a tax basis, is as follows:

Before January 1, 1998: $ -

On and after January 1, 1998:

Subjected to 10% additional tax 7,328,595

Not yet subjected to 10% additional tax ( 12,926,895)

$ 20,255,490

F. Information related to the Imputation Tax System as of and for the six-month periodsended June 30, 2009 and 2010 is as follows:

June 30,2009 2010

Balance of the tax credit account $ 1,246,954 $ 1,030,424

The stockholders at the stockholders’ meeting decided not to pay dividends in 2010, sothere is no creditable tax rate for 2009. The estimated creditable tax rate is 5.09% for2010.

～ 49 ～

(22) Treasury stocks

A. Change in treasury stocks in the first semi-annual of 2010

For the six-month period ended June 30, 2010Number of shares (in thousands)

Reason for reacquisition Beginning Increase Decrease Ending AmountThe stocks of the

Company held bysubsidiaries transferredfrom long-terminvestments - 389 - 389 $12,995

B. Stocks held by subsidiaries of the Company are treated as treasury stock. The treasurystocks held by the subsidiaries which the Company’s ownership is more than 50%cannot be participated in cash capital increase and have no right to vote. The remainingheld by subsidiaries has equal right to common stockholders.

C. The Company's subsidiary, Contrel Technology Co., Ltd., holds 3,004 thousand of theCompany’s stocks, and the book value on Contrel Technology Co., Ltd. is $33.40 dollarper share. Base on the ownership percentage held by Contrel, the treasury stockamounted to $12,995.

(23) (Loss) earnings per common share


AmountNumber of

shares(in thousands)

Loss percommon share

Before tax After tax Before tax After taxBasic loss per share:

Consolidated net loss ($4,045,238) ($4,051,814) 3,226,207 ($ 1.25) ($ 1.26)

As employee stock options had anti-dilutive effect for the first half of 2009, these were notincluded in the calculation of earnings per share.


AmountNumber of

shares(in thousands)

Earnings percommon share

Before tax After tax Before tax After taxBasic earnings per share:

Consolidated net income $15,622,735 $13,336,492 5,609,870 $ 2.78 $ 2.37

Minority interests ( 416,617) ( 409,597) ( 0.07) ( 0.07)

Shareholders of the parent $15,206,118 $12,926,895 $ 2.71 $ 2.30

Diluted earnings per share:

Consolidated net income $15,622,735 $13,336,492 $ 2.76 $ 2.36

Minority interests ( 416,617) ( 409,597) ( 0.07) ( 0.07)

Dilutive effect of stockequivalents:Employee stock options - - 13,226 - -

Employee bonus - - 25,645 - -

Shareholders of the parent $15,206,118 $12,926,895 5,648,741 $ 2.69 $ 2.69

There is no significant effect of the treasury stocks shown in Note 4(22) had no significanteffect in the calculation of earnings per share.

～ 50 ～

(24) Personnel, depreciation and amortization expenses


Operating costs Operating expenses Total

Personnel expenses

Salaries $ 2,557,235 $ 678,675 $ 3,235,910

Labor and health insurance 79,230 33,295 112,525

Pension 142,815 39,432 182,247

$ 2,779,280 $ 751,402 $ 3,530,682

Depreciation $ 4,161,482 $ 369,154 $ 4,530,636

Amortization $ 637,987 $ 229,733 $ 867,720


Operating

costs

Operating

expenses

Non-operating

expenses (Note) Total

Personnel expenses

Salaries $ 8,384,839 $2,238,232 $ - $10,623,071

Labor and health insurance 493,731 150,059 - 643,790

Pension 367,296 114,717 - 482,013

$ 9,245,866 $2,503,008 $ - $11,748,874

Depreciation $26,853,379 $ 690,141 $ 87,942 $27,631,462

Amortization $ 1,291,669 $1,041,840 - $ 2,333,509

Note: Non-operating expenses pertain to depreciation of rental and idle assets.

5. RELATED PARTY TRANSACTIONS

(1) Names of related parties and their relationship with the Company

Names of related parties Relationship with the Company

Hon Hai Precision Industry Co., Ltd. and

subsidiaries (Hon Hai and subsidiaries)

Same major stockholder

Advanced Optoelectronic Technology Inc.

(Advanced)

An indirect investee company of Hon Hai

accounted for under the equity method

Pan-International Industrial Co. and subsidiaries

(Pan-International and subsidiaries)

An indirect investee company of Hon Hai

accounted for under the equity method

Leadtek Global Group Limited (LGG) Subsidiary (Note B)

Chi Mei El Corporation (CMEC) Subsidiary (Note B)

Ningbo Chi Mei Optoelectronics Ltd. (NBCMO) An indirect wholly-owned subsidiary (Note B)

Nanhai Chi Mei Electronics Corp. (NHCME) An indirect wholly-owned subsidiary (Note B)

TPO Displays Shanghai Ltd. (TPO Shanghai) An indirect wholly-owned subsidiary (Note B)

Chi Mei Corporation and subsidiaries

(CMC and subsidiaries)

A company which accounted the Company and

its subsidiaries under equity method

A. Except for those transactions with the above related parties, there were no materialtransactions between the other related parties for the six-month periods ended June 30,2009 and 2010.

～ 51 ～

B. The Group had new related parties due to the merger on March 18, 2010. The disclosureof transactions between the Company and the related parties is from March 18, 2010, butthe disclosure of balance sheet accounts is as of June 30, 2010.

(2) Significant transactions and balances with related parties

A. Sales


2009 2010

Amount

% of

net sales Amount

% of

net sales

CMC and subsidiaries $ - - $15,538,251 7

Hon Hai and subsidiaries 3,194,746 5 7,066,376 4

Others 56,460 - 339,804 -

$ 3,251,206 5 $22,944,431 11

Sales prices charged to related parties were similar to non-related party transactions. Thecollection period was 30~120 days to related parties, and 30~90 days to non-relatedparties.

B. Purchases

There is no similar transaction to compare with, and the transaction terms were decidedby negotiation or at market prices. The payment term was 30~120 days to related parties,and 30~180 days to non-related party after delivery.

C. Processing costs


2009 2010

Amount

Accrued

expenses Amount

Accrued

expenses

Hon Hai and subsidiaries $ 347,292 $1,099,235 $ 984,168 $2,106,501

The Group subcontracted the processing of products of Hon Hai and subsidiaries inMainland China. The processing fees were charged based on cost plus method.

D. Accounts receivable

June 30,


2009 2010

Amount

% of net

purchases Amount

% of net

purchases

CMC and subsidiaries $ - - $ 9,531,657 5


Advanced 92,953 - 748,915 -

Pan-International and

subsidiaries 184,143 - 298,694 -

Others 81,794 - 668,815 -

$ 2,629,652 4 $14,921,121 7

～ 52 ～

2009 2010

Amount

% of total

accounts

receivable Amount

% of total

accounts

receivable



Others 19,399 - 244,536 1

$ 1,587,029 8 $12,246,302 16

E. Accounts payable

June 30,

2009 2010

Amount

% of total

accounts

payable Amount

% of total

accounts

payable



Others 279,621 - 800,763 -

$ 1,618,288 6 $12,660,603 11

F. Property transactions


Acquisition of

property, plant and

equipment

Payable shown as

“equipment payable”

Hon Hai and subsidiaries $ 149,598 $ 18,523

G. Endorsements and guarantees

The total balance of the Group’s endorsements and guarantees for the secured loan as ofcertain subsidiaries is shown below: Please refer to Notes 11(1) B and 11(2) C forexplanation.

June 30, 2010

Leadtek Global Group Limited $ 27,970,500

Ningbo Chi Mei Electronics Ltd. 11,574,000

Nanhai Chi Mei Optoelectronics Ltd. 8,037,500

Chi Mei El Corporation 1,500,000

TPO Displays Shanghai Ltd. 1,287,081

$ 50,369,081

6. PLEDGED ASSETS

As of June 30, 2009 and 2010, the assets pledged were as follows:

～ 53 ～

Assets Purpose of collateral Book value, June 30,

2009 2010

Other financial assets - current

Pledged time deposits Tariff guarantee $ - $ 5,128

Property, plant, and equipment Pledged for long-term loan andperformance guarantee oflease payable 16,136,435 285,105,530

Deferred assets Pledged for long-term loan - 744,596

Construction in progress andprepayments forequipment

Performance guarantee offreight forwarding contractand research & developmentplan - 2,237

$16,136,435 $285,857,491

7. COMMITMENTS AND CONTINGENT LIABILITIES

Except for the guarantees to certain subsidiaries, the Group had other commitments andcontingent liabilities as follows:

(1) As of June 30, 2010, the future minimum lease payments required to be made by theCompany for land and offices were as follows:

2010.07.01 ~ 2011.06.30 $ 630,260

2011.07.01 ~ 2015.06.30 1,674,645

After 2015.07.01 3,043,230

$ 5,348,135

(2) As of June 30, 2010, the future minimum lease payments required to be made by the Groupfor office and warehouse leases were as follows:

2010.07.01 ~ 2011.06.30 $ 48,260

2011.07.01 ~ 2015.06.30 77,024

After 2015.07.01 17,103

$ 142,387

(3) As of June 30, 2010, the total amount of contracts for machinery and equipment and buildingconstruction was $78,870,928, of which $16,878,781 remains unpaid.

(4) As of June 30, 2010, the total outstanding letters of credit for the purchase of fixed assetswas $7,463,839.

(5) On November 7, 2005, 50 companies including the Company and Apple Computer Inc. werenamed as defendants in a lawsuit brought by Honeywell Int’l Inc. and Honeywell IntellectualProperties Inc., alleging that those 50 companies had infringed upon U.S. Patent No.5280371, held by Honeywell Int’l Inc. and Honeywell Intellectual Properties Inc. Thelawsuit had been rescinded in October, 2009.

(6) On February 2, 2007, the Company was named as defendant in a lawsuit brought by AnvikCompany, alleging that the Company had infringed upon Anvik’s patent of TFT-LCD panelsproduced by the machines purchased from Nikon Company. Based on the opinion of theCompany’s legal counsel, the lawsuit will not have a material adverse effect on theCompany’s financial position or operations in the short-term as this case has not yet enteredinto substantive hearing.

～ 54 ～

(7) Mondis filed a lawsuit with the court against the Company on December 31, 2007, andJanuary 15, 2009, alleging infringement, among others, of its patent on liquid crystal displayand claimed damages for its losses. The Company has appointed attorneys in this areatending to this case. Based on the opinion of the Company’s legal counsel, the ultimateoutcome of this litigation and the damages that the Company may incur cannot reasonably bedetermined as the litigation is still under the trial and investigations of the court andcompetent authorities in the U.S.A. However, the Company does not expect that the lawsuitwill have a material adverse effect on the Company’s financial position or results ofoperations in the short term.

(8) Plasma Physic and Solar Physics filed a lawsuit against the Company and its subsidiary onApril 18, 2008, alleging infringement, among others, of their patents on liquid crystaldisplays used in the Company and its subsidiary’s products. The two sides had come to asettlement and the lawsuit had been rescinded in 2009. According to the attorneys’ opinions,the ultimate outcome of this litigation and the damages that the Company may incur cannotreasonably be determined as the litigation is still under the trial and investigations of thecourt and competent authorities in the U.S.A. However, the Company does not expect thatthe lawsuit will have a material adverse effect on the Company’s financial position or resultsof operations in the short term.

(9) The Company, Chi Mei Optoelectronics Japan Co., Ltd., Chi Mei Optoelectronics UK Ltd.,Chi Mei Optoelectronics Europe B.V. and Chi Mei Optoelectronics USA Inc. have acceptedthe investigations of anti-fair competition from the authorities in United States, Europe,Japan and Canada since December 2006 and from the Taiwan Trade Fair Commission sinceApril 7, 2009, and have also faced class action lawsuits relating to anti-fair competitionmatters in United States and Canada. Regarding the above lawsuits, the Company hadreached an agreement with the United States Department of Justice in December, 2009,agreeing to pay penalties of US$220,000 thousand in installment over five years. The finaljudgment will be rendered by the United States Department of Justice. As of June 30, 2010,the unpaid penalties amounted to $5,883,450 (shown under “Other payables- others” and“Other liabilities- others”). Furthermore, the Company had received a letter from theTaiwan Trade Fair Commission in November 2009, notifying the Company that they hadstopped the investigation into the Company. As of June 30, 2010, it was not possible for theCompany to predict the effects of these litigations in the territories above other than theUnited States.

(10) In December 2006, L.G. Display Co., Ltd. (formerly L.G. Philips LCD Co., Ltd., “LGD”)filed a patent infringement lawsuit against CMO and other companies in the same industrywith the United States District Court in the District of Delaware, alleging that CMO andthe other companies infringed LGD’s patent relating to several products. On May 4, 2007,CMO has filed a patent infringement lawsuit against L.G. Philips LCD Co., Ltd. and itssubsidiary L.G. Philips LCD America, Inc. (LPLA), in the United States District Court inthe Eastern District of Texas. CMO alleged that each defendant infringed its patent. As ofJune 30, 2010, the Company was not able to determine the impact regarding the foregoinglitigation.

(11) On September 8, 2008, Apeldyn Corporation sued companies which infringed its patent inthe United States District Court for the Eastern District of New York. Currently, the casehas been filed and under ongoing litigation. As of June 30, 2010, the Company was notable to determine the impact regarding the foregoing litigation.

(12) Aratech Japan Corporation filed a lawsuit with the Eastern District Court of Texas againstthe Company on July 31, 2008, alleging infringement, among others, of its patent. TheCompany has appointed attorneys in this area tending to this case. Due to initialdiscovery proceedings, there is no damage that the Company may incur promptly for thislitigation and the Company’s production and shipments are not affected by this litigation.

～ 55 ～

(13) Air Liquide Japan filed a civil lawsuit with the Tokyo District Court against the Company’saffiliate - TPO Displays Japan K.K. in July, 2009, claiming damages of around JPY$98,000 thousand for its losses. The two sides had come to a settlement and the lawsuithad been rescinded on June 15, 2010.

(14) Mondis filed a lawsuit with the Duesseldorf District Court (“Court”) in Germany againstthe Company on May 8, 2009, alleging infringement, among others, of its patent on liquidcrystal display and claiming damages for its losses. The Company has appointed externalattorneys in this area tending to this case. Based on the opinion of the Company’s legalcounsel, the ultimate outcome of this litigation and the damages that the Company mayincur cannot reasonably be determined as the litigation is still being tried and investigatedin the Court. However, the Company does not expect that the lawsuit will have a materialadverse effect on the Company’s financial position or results of operations in the shortterm.

(15) Doosan Mecatec Co., Ltd. filed a civil lawsuit against Chi Mei El Corporation and theCompany in February, 2010, alleging their default on debts and infringement, amongothers, of its patent and claiming damages for its losses. As of June 30, 2010, it was notpossible for the Company to predict the effect of this litigation.

(16) Sony Corp. filed a lawsuit with the United States International Trade Commission (USITC)against the Company on March 18, 2010, alleging infringement, among others, of its patent.USITC has put this case on file for investigation in April, 2010; however, the executiveofficer of the court has not decided the length of the suit nor the court date.

(17) Under a memorandum of understanding made with a certain company in September 2009,the Company will purchase raw materials from that company in the amount above theminimum agreed amount each month from September 2009 to October 2010. TheCompany agreed to make partial advance payments and set off the credit loan according tothe agreed proportion on the time of delivery.

(18) In March 2006, under an agreement on a mutual cross-license covering LCD patents withSharp Corporation of Japan, the Company should pay all royalty by installment in theperiod of the contract.

(19) In December 2007, the Company entered into a share subscription agreement to form astrategic alliance with TPV Technology Limited. The Company also agreed to reserve itscertain capacity for TPV Technology Limited for the first three years starting from January2008.

8. SIGNIFICANT CATASTROPHE

None.

9. SUBSEQUENT EVENTS

None.

10.OTHERS

(1) Financial statement presentation

Certain accounts in the June 30, 2009 consolidated financial statements were reclassified toconform to the June 30, 2010 consolidated financial statement presentation.

(2) Fair value of financial instruments

June 30, 2009

～ 56 ～

Fair value

Book value

Quotations

in an active

market

Estimated

using a

valuation

technique Description

Non-derivative financial instruments

Assets

Financial assets with fair value

equal to book value

$73,215,882 $ - $73,215,882 A

Financial assets at fair value

through profit or loss

236,312 - 236,312 B

Financial assets carried at cost 314,439 - - C

Investment in bonds without active

markets

45,165 - - C

Refundable deposits 254,340 - 252,760 D

Liabilities

Financial liabilities with fair value

equal to book value

58,944,018 - 58,944,018 B

Long-term loans 20,000,000 - 20,000,000 E

Guarantee deposits received 1,537 - 1,674 D

Derivative financial instruments

Assets

Forward exchange contracts 251 - 251 F

June 30, 2010

Fair value

Book value

Quotations

in an active

market

Estimated

using a

valuation


Non-derivative financial instruments

Assets

Financial assets with fair value

equal to book value

$144,511,569 $ - $144,511,569 A

Available-for-sale financial assets 7,812,254 3,994,308 3,817,946 E

Financial assets carried at cost

- non-current

4,632,266 - - G

Investment in bonds without active

markets

47,042 - - G

Other financial assets - non-current 2,237 - 2,219 B

Refundable deposits 197,484 - 195,858 B

Liabilities

Financial liabilities with fair value $244,753,440 - $244,753,440 A

～ 57 ～

June 30, 2010

Fair value

Book value

Quotations

in an active

market

Estimated

using a

valuation


equal to book value

Bonds payable 4,000,000 - 4,069,967 H

Long-term loans 163,141,227 - 163,141,227 C

Preferred stock liabilities 15,000,000 - 15,000,000 J

Lease payable 5,930,000 - 5,930,000 I

Guarantee deposits received 53,163 - 52,725 B

Derivative financial instruments

Assets

Forward exchange contracts 1,058,810 - 1,058,810 D

Derivative instruments with

bond investments embedded5,520 - - G

Liabilities:

Forward exchange contracts 487,250 - 487,250 D

Interest rate swap contract 487,253 - 487,253 D

Cross currency swap contract 372,627 - 372,627 D

Off-balance-sheet financial instruments

Endorsements and guarantees 50,369,081 - 50,369,081 J

The methods and assumptions used to estimate the fair values of the above financialinstruments are summarized below:

A. For short-term instruments, the fair values were determined based on their carryingvalues, not based on quotations in an active market nor estimated using a valuationbecause of the short maturities of the instruments. This method was applied to Cash andcash equivalents, Accounts receivable (including related parties), Other receivables,Other financial assets-current, Short-term loans, Accounts payable (including relatedparties), Income tax payable, Accrued expenses, Dividend payable, Equipment payable,Other payables - other, Long-term loans - current portion and Other current liabilities.

B. The fair value of other financial assets-non-current, Refundable deposits and Guaranteedeposits received was based on the present value of expected cash flow amount. Thediscount rate was the one-year deposit rate of the Directorate General of PostalRemittances and Savings Bank.

C. The fair values of Long-term loans are their carrying values because they bear floatinginterest rates.

D. The fair values of derivative financial instruments which include unrealized gains orlosses on unsettled contracts were determined based on the amounts to be received orpaid assuming that the contracts were settled as of the reporting date.

E. Available-for-sale financial assets are regarded as quoted in an active market if quotedprices are readily and regularly available from an exchange, dealer, broker industry

～ 58 ～

group, pricing service or regulatory agency, and those prices represent actual andregularly occurring market transactions on an arm’s-length basis. If the market for afinancial instrument is not active, an entity establishes fair value by using a valuationtechnique.

F. Financial assets at fair value through profit or loss are regarded as quoted in activemarket if quoted prices are readily and regularly available from an exchange, dealer,broker industry group, pricing service or regulatory agency, and those prices representactual and regularly occurring market transaction on an arms-length basis. If the marketfor a financial instrument is not active, an entity establishes fair value by using avaluation technique.

G. These financial assets are not quoted in an active market, and its fair value cannot bemeasured reliably.

H. Fair value of bonds payable was based on the present value of expected cash flows,which approximates their carrying amount.

I. Leased obligation payable is based on the present value of expected cash flow amount.The discount rate is the effective interest rate of loans. The fair values of Leasedobligation payable are their carrying values because they bear floating interest rates.

J. Liability on preferred stocks - the fair value of the non-current portion is based on thepresent value of future cash flow amount to be paid, with the appropriate yield rate tomaturity as the discount rate. The future cash flow amount is confirmed due to thedividends amount and the dividends day for preferred stocks are fixed for every year.Accordingly, the criterion the Company uses when determining yield rate to maturity onpreferred stocks is the Company’s credit rating.

K. The fair value of endorsements and guarantees depends on the amount of contract.

(3) Information of interest rate risk items

As of June 30, 2009 and 2010, the financial assets with fair value risk due to the change ofinterest amounted to $46,522,603 and $39,978,563, respectively; the financial liabilitieswith fair value risk due to change in interest amounted to $18,382,949 and $43,239,868,respectively; the financial assets with cash flow risk due to the change of interest amountedto $0 and $3,883,903, respectively; and the financial liabilities with cash flow risk due tothe change of interest amounted to $23,972,400 and $247,088,620, respectively.

(4) Procedure of financial risk control

A. The Group adopted a comprehensive risk management and control system to identify allrisks, including market risk, credit risk, liquidity risk, and cash flow risk, so thatmanagement can precisely measure these risks and control them effectively.

B. The objective of the Group’s risk management is to adjust risk exposures to maintainproper liquidity and effectively control significant market risks after appropriatelytaking into consideration the economic environment, competition, operating needs andthe changes of market value risk.

C. The Company’s operations and business activities expose it primarily to the financialrisks of changes in fair value and interest rate. The Company enters into cash flow andfair value hedge transactions to manage the financial risks associated with the changes infair value and interest rates. Cash flow hedge is used to minimize the Company’sexposure to the risk of interest rate changes, and fair value hedge is used to reduce theCompany’s exposure to the risk of market price changes. Fair value hedge is used tohedge the risks of fluctuations in exchange rate on foreign-currency denominated assetsor liabilities. The Company uses foreign exchange forward contracts to hedge theseexposures. The Company enters into transactions at fixed rates to reduce the exposures

～ 59 ～

on transactions vulnerable to both foreign currency and interest rate changes. TheCompany uses interest rate swap contracts and cross currency swap contracts to hedgethese exposures.

(5) Information of material financial risk

A. Market risk

The Group’s major import and export transactions are conducted in USD and JPY. Thechange of fair value will be caused by foreign exchange rate; however, the Groupexamines its net foreign currency position through regularly evaluating the positions offoreign currency assets and foreign currency liabilities, and uses the net foreign currencyposition as the risk management basis when entering into foreign currency loans, forwardexchange contracts and foreign exchange options. Thus, most of the market risk could beoffset or hedged. No material market risk is expected.

The Group is exposed to price risk because of investments in foreign exchange options,with fair value in the active market. The Group sets limits to control the transactionvolume and stop-loss amount of derivatives to reduce its market risk.

B. Credit risk

The counterparties of the Group’s receivables are international computer and electronicscompanies with good credit standing. No significant bad debts occurred in the past threeyears. The Group regularly evaluates the adequacy of its allowance for doubtful accounts.It is assessed that no significant credit risk will arise.

As the counterparties of forward exchange contracts and foreign exchange optionsundertaken by the Group are reputable financial institutions, the possibility of default bythe counterparties is considered low.

Loan guarantees provided by the Group are in compliance with the Group’s “Proceduresfor Provision of Endorsements and Guarantees” and are only provided to affiliatedcompanies of which the Group owns directly or indirectly more than 50% ownership or acompany which trades with the Company. As the Company is fully aware of the creditconditions of these related parties, it has not asked for collateral for the loan guaranteesprovided. In the event that these related parties fail to comply with loan agreements withbanks, the maximum loss to the Group is the total amount of loan guarantees as listedabove. No significant credit risk is expected.

C. Liquidity risk

The major counterparties of the Group’s receivables are high-credit-quality internationalcompanies. Its receivables are due within one year and the collection condition ofreceivables is normal. No significant liquidity risk is expected.

The Group entered into forward exchange contracts, foreign currency option contracts,and cross-currency interest swap contracts for hedging exchange rate fluctuation offoreign-currency assets or liabilities. The expected cash inflow (outflow) upon settlementof derivative transactions will be offset against the inflow (outflow) of hedged assets andliabilities. The Group has sufficient operating capital to meet the above cash demand. Theinterest rate of the interest rate swap contracts and swap contracts have taken the Group’scost of capital into account. In addition, the exchange rate of forward exchange contracts,forward exchange option contracts, and cross-currency swap contracts have been fixed.Therefore, there is no material fund raising risk and cash flow risk.

As of June 30, 2010, the Group’s projected cash flows for the outstanding derivativefinancial instruments were as follows:

～ 60 ～

(in thousands)

Financial instrument Period Cash outflow Cash inflow

Foreign exchange

forward contract 2010/7 EUR 10,000 JPY 1,131,050

2010/7 ~ 2010/9 USD 710,000 JPY 65,753,305

2010/8 ~ 2010/9 HKD 32,000 USD 4,112

Cross currency

swap contracts (Note) 2010/11 ~ 2013/11 TWD 7,263,194 USD 216,406

Interest rate

swap contracts (Note) 2010/8 ~ 2015/2 TWD 1,501,622 TWD 467,905

Note: The cross-currency swap contracts and interest rate swap contracts are calculatedbased on the most recent floating interest rate.

D. Cash flow risk

The Group borrows loans with floating interest rate. The effective rate of loans would bechanged due to change in market interest rate. The Group has also transferred some offloating interest rate loans to fixed interest rate loans to reduce the risk of interest raterising. The Group’s working capital is sufficient to hedge the cash flow risk arising fromfluctuations in interest rates.

The IRS contract is settled based on the fixed amount of interest to be paid or received,which is based on the nominal principal times the difference of interest rates. The Grouphas no sufficient cash flow risk.

(6) Fair value hedge and cash flow hedge

A. Fair value hedge

The Group evaluated the risk of fair value changes on interest payments associated withborrowings denominated in foreign currency and entered into cross currency swapcontracts to hedge the exposure.

Fair value,

Hedge Item Hedging Financial Instrument June 30, 2010

Foreign currency long-term loans Cross currency swap contracts ($ 351,187)

B. Cash flow hedge

The Group evaluates the risk of future cash flow changes on principal paymentsassociated with the Group’s floating interest rate bearing borrowings (bothcurrent-portion and long term) due to interest rate changes to be significant, andaccordingly, entered into interest rate swap and cross-currency swap contracts to hedgesuch exposures.

Hedge Item Hedging Fair value, Future cash Expected Timing for the

～ 61 ～

FinancialInstrument

June 30, 2010 demand Recognition of Gains OrLosses from Hedge

Long-termloans

Interest rateswap contracts

($ 487,253) 2008~2015 2008 ~ 2015

Cross-currencyswap contracts

( 21,440) 2005~2013 2005 ~ 2013

($ 508,693)

Item June 30, 2010

Adjustment to shareholders’ equity ($ 508,693)

～62～

11. ADDITIONAL DISCLOSURES REQUIRED BY THE SECURITIES AND FUTURES BUREAU

(1) Related information of significant transactionsAll the transactions with subsidiaries disclosed below had been eliminated when preparing reviewed consolidated financial statements. The disclosure information as follows is for reference only.

A. Loans granted during the six-month period ended June 30, 2010

Financing

company’s name Counterparty

Financial

statement

account

Maximum

balance for

the period

Ending

balance Interest rate

Type of

financing

(Note A)

Transaction

amount

Reason for

short-term

financing

Allowance

for

bad debts

Collateral

Financing

limit

for each

borrowing

company

Financing

company’s

financing

amount limitName Value

Chimei Innolux

Corporation

Chi Mei

El Corporation

Other receivables

– related parties$ 998,500 $ 998,500 2.152% ~ 2.156% 2 $ - Note B $ - - - Note C Note D

Chimei Innolux

Corporation

Chi Mei

Energy Corp.

Other receivables

– related parties762.000 762.000 2.152% ~ 2.231% 2 - Note B - - - Note C Note D

Note A: The type No. 1 represents business relationship.

The type No. 2 represents necessary for short-term financing.

Note B: Provision of financial support for operations.

Note C: Not to exceed 10% of the Company’s net equity.

Note D: Not to exceed 40% of the Company’s net equity. If it’s for short-term loans, not to exceed 30% of the Company’s net equity.

B. Endorsements and guarantees provided during the six-month period ended June 30, 2010

Endorsement/

guarantee

provider

Guaranteed party

Limits on

endorsement/

guarantee amount

provided to each

counterparty

Maximum

balance for

the period Ending balance

Amount of

endorsement/guarantee

collateralized by properties

Ratio of accumulated


to net equity per latest

financial statements

Maximum


amounts allowableName

Nature of

relationship

(Note A)

Chimei Innolux

Corporation

Leadtek

Global Group Limited

1 Note B $ 27,970,500 $ 27,970,500 $ - 10 Note C

Chimei Innolux

Corporation

Ningbo Chi Mei

Electronics Ltd.

2 Note B 11,574,000 11,574,000 - 4 Note C

Chimei Innolux

Corporation

Nanhai Chi Mei

Optoelectronics Ltd.

2 Note B 8,037,500 8,037,500 - 3 Note C

Chimei Innolux

Corporation

Chi Mei El Corporation 1 Note B 1,500,000 1,500,000 - 1 Note C

Chimei Innolux

Corporation

Taiwan TFT LCD Association 3 Note B 36,400 - - - Note C

Note A: The type No. 1 represents the Company’s subsidiary.

The type No. 2 represents the Company’s indirect wholly-owned subsidiary.

The type No. 3 represents mutual guarantors as required by construction contracts.

Note B: Limits on endorsement/guarantee amount provide to each counter party did not exceed 0.5% of the Company’s net equity for each entity. Maximum endorsement/guarantee amounts

allowable should not exceed 1% of the Company’s net equity.

Note C: Maximum endorsement/guarantee amount provided to each counter party did not exceed 50% of the Company’s net equity. If endorsements and guarantees were provided for investees

which the Company directly (or indirectly) owns more than 50% of equity interest, the endorsement/guarantee should not exceed 100% of the Company’s net equity.

～63～

C. Marketable securities held as at June 30, 2010:

Kind and name of marketable securities Relationship with the Company General ledger accounts

June 30, 2010

Number of shares

(in thousands) Book value Percentage

Market value/

Net worth

Common stock of Innolux Holding Ltd. A subsidiary of the Company Long-term investments accounted for under

the equity method199,944 $12,663,312 100 $12,733,898

Common stock of InnoJoy Investment Corporation A subsidiary of the Company Long-term investments accounted for under

the equity method150,000 2,174,540 100 2,174,540

Common stock of InnoFun Investment Corporation A subsidiary of the Company Long-term investments accounted for under


Common stock of TPO Hong Kong Holding Ltd. A subsidiary of the Company Long-term investments accounted for under

the equity method1,158,844 2,286,949 100 890,966

Common stock of Toppoly Optoeletronics (B.V. I.) Ltd. A subsidiary of the Company Long-term investments accounted for under


Common stock of Bright Information Holding Ltd. A subsidiary of the Company Long-term investments accounted for under

the equity method2,782 70,675 57 70,675

Common stock of Golden Acheiver International Ltd. A subsidiary of the Company Long-term investments accounted for under

the equity method39 ( 271,708) 100 ( 230,376)

Common stock of Landmark International Ltd. A subsidiary of the Company Long-term investments accounted for under


Common stock of Leadtek Global Group Limited A subsidiary of the Company Long-term investments accounted for under


Common stock of Yuan Chi Investment Co., Ltd. A subsidiary of the Company Long-term investments accounted for under

the equity method- 1,926,809 100 1,904,218

Common stock of Chi Mei Optoelectronics Japan

Co., Ltd.

A subsidiary of the Company Long-term investments accounted for under

the equity method- 1,529,719 100 1,529,719

Common stock of Gold Union Investments Ltd. A subsidiary of the Company Long-term investments accounted for under


Common stock of Keyway Investment

Management Limited



Common stock of Chi Mei Optoelectronics Europe B.V. A subsidiary of the Company Long-term investments accounted for under

the equity method- 115,470 100 115,470

Common stock of Chi Mei Optoelectronics (Singapore)

PTE Ltd.


the equity method10 5,419 100 5,419

Common stock of Honor Light Services Limited A subsidiary of the Company Long-term investments accounted for under

the equity method685 1,138 100 1,138

Common stock of Chi Mei Energy Corp. A subsidiary of the Company Long-term investments accounted for under

the equity method115,933 - 93 364,189

Common stock of Chi Mei El Corporation A subsidiary of the Company Long-term investments accounted for under

the equity method40,500 ( 840,433) 90 ( 833,251)

Common stock of Chi Mei Lighting Technology

Corporation



～64～

Kind and name of marketable securities Relationship with the Company General ledger accounts

June 30, 2010

Number of shares


Market value/

Net worth

Common stock of Jetronics International Corp. A subsidiary of the Company Long-term investments accounted for under

the equity method2,690 $ 161,485 32 $ 189,822

Common stock of Contrel Technology Co., Ltd. A subsidiary of the Company Long-term investments accounted for under


Common stock of Global Display Taiwan Co., Ltd. An investee under equity method Long-term investments accounted for under


Common stock of Ampower Holding Ltd. An investee under equity method Long-term investments accounted for under


Common stock of Chi Mei Materials Technology

Corporation

An investee under equity method Long-term investments accounted for under

the equity method72,567 1,090,977 17 952,109

Common stock of GIO Optoelectronics Corp. An investee under equity method Long-term investments accounted for under


Common stock of Exploit Technology Co., Ltd. An investee under equity method Long-term investments accounted for under

the equity method9,211 - 15 72,936

Common stock of Optivision Technology Incorporated An investee under equity method Long-term investments accounted for under


Common stock of Powerking Optoelectronics Co., Ltd. An investee under equity method Long-term investments accounted for under


Common stock of i3ZD Inc. An investee under equity method Long-term investments accounted for under

the equity method450 - 40 -

Common stock of Himax Technologies Inc.

(Himax Cayman)

None Available-for-sale financial assets - current 577 54,003 - 54,003

Common stock of Formosa Epitaxy Incorporation None Available-for-sale financial assets -

non-current321 13,142 - 13,142

None Available-for-sale financial assets -

non-current- 1,642,197 N/A -


non-current- 2,241,706 N/A -


non-current- 220,000 N/A Note

Common stock of AvanStrate Inc. None Financial assets carried at cost - non-current 900 286,740 0.91 Note

Common stock of TPV Technology Ltd. None Financial assets carried at cost - non-current 150,500 2,958,216 7 Note

Common stock of Chi Lin Technology Co., Ltd. None Financial assets carried at cost - non-current 15,797 277,093 4 Note

None Financial assets carried at cost - non-current 20,000 198,490 9 Note

Common stock of Himax Media Solutions Company None Financial assets carried at cost - non-current 6,000 11,657 7 Note

Common stock of Himax Analogic Company None Financial assets carried at cost - non-current 1,500 2,817 4 Note

Common stock of Allied Integrated Patterning Corp. None Financial assets carried at cost - non-current 2,430 6,807 3 Note

Common stock of Honest Precision Industries Co., Ltd. None Financial assets carried at cost - non-current 2,085 6,219 7 Note

Note: The investment was measured at cost since its fair value cannot be measured reliably.

～65～

D. Acquisition or sale of the same security with the accumulated cost exceeding $100 million or 20% of the Company’s paid-in capital during the six-month period ended June 30, 2010:

In addition to the information of Toppoly Optoelectronics (B. V. I.) disclosed below, please refer to Note 4(10) for the asset acquired because of merger.

Beginning balance Acquisition from merger Acquisition Disposal Ending balance

Marketable

securities

type and name

Financial

statement

account Counterparty

Nature of

relationship

Shares/units

(thousands) Amount

Shares/units

(thousands) Amount

Shares/units

(thousands) Amount

Shares/units

(thousands) Amount

Carrying

value

Gain (loss)

on disposal

Shares/units

(thousands) Amount

Innolux

Holding Ltd.

Long-term

investments

accounted

for under

the equity

method

Note Note 191,944 $ 6,198,247 - $ - 8,000 $ 252,240 - $ - $ - $ - 199,944 $ 6,450,487

Toppoly

Optoelectronics

(B. V. I.) Ltd.

Long-term

investments

accounted

for under

the equity

method

Note Note - - 93,430 1,995,883 29,000 936,410 - - - - 122,430 2,932,293

AvanStrate Inc. Finacial

assets

carried at

cost

AvanStrate

Inc.

None - - - - 900 286,740 - - - - 900 286,740

$ 6,198,247 $ 1,995,883 $ 1,475,390 $ - $ - $ - $ 9,669,520

Note: The wholly-owned subsidiary capital increase in cash.

E. Acquisition of real estate properties exceeding $100 million or 20% of the Company’s paid-in capital during the six-month period ended June 30, 2010: Please refer to Note 4(10) for the explanation to

the assets acquired because of merger.

F. Disposal of real estate properties exceeding $100 million or 20% of the Company’s paid-in capital during the six-month period ended June 30, 2010: None.

G. Purchases from or sales to related parties exceeding $100 million or 20% of the Company’s paid-in capital during the six-month period ended June 30, 2010:

Company Counterparty

Relationship

with the Company

Transactions

Difference with general

transactions

Notes and accounts

receivable (payable)

Purchases/

Sales Amount

Percentage of

purchases/sales

Credit

terms Unit price Credit terms Balance

Percentage

of balance

Chimei Innolux

Corporation

Innolux Corporation

Ltd.

An indirect wholly-owned

subsidiary

Sales $ 14,439,862 7 90 days Similar with

general

transactions

No material

difference$ 3,535,636 5

Chimei Innolux

Corporation

Innocom Technology

(Shenzhen) Ltd.


subsidiary

Sales 7,332,944 4 90 days Similar with

general

transactions

No material

difference2,004,634 3

Chimei Innolux

Corporation

TPO Display HK Ltd. An indirect wholly-owned

subsidiary

Sales 3,199,584 2 50-60 days Similar with

general

transactions

No material


～66～


Relationship

with the Company

Transactions


transactions

Notes and accounts


Purchases/

Sales Amount

Percentage of

purchases/sales

Credit


Percentage

of balance

Chimei Innolux

Corporation

Chi Lin Technology Co.,

Ltd.

A subsidiary of Chi Mei

Corporation

Sales $ 14,181,832 7 30-60 days Similar with

general

transactions

No material


Chimei Innolux

Corporation

Hon Hai Precision

Industry Co., Ltd.

Same major stockholder Sales 3,096,639 1 30-60 days Similar with

general

transactions

No material


Chimei Innolux

Corporation

Chi Mei Optoelectronics

Japan Co., Ltd.

A subsidiary of the Company Sales 1,722,588 1 45-120 days No transactions

comparable

with sales

from related

parties

No material


Chimei Innolux

Corporation

Nexgen Mediatech Inc. A subsidiary of Chi Mei

Corporation

Sales 948,000 - 60-90 days Similar with

general

transactions

No material

difference453,459 1

Chimei Innolux

Corporation

Nanhai Chi Mei



subsidiary

Sales 817,210 - 60 days Similar with

general

transactions

No material

difference99,537 -

Chimei Innolux

Corporation

Foxconn Japan Co., Ltd. An indirect wholly-owned

subsidiary of Hon Hai

Precision Industry Co., Ltd.


general

transactions

No material

difference170,288 -

Chimei Innolux

Corporation

Hongfujin Precision

Industry (Wuhan) Co.,

Ltd.





general

transactions

No material

difference592,732 1

Chimei Innolux

Corporation

Toptech Trading Limited An indirect wholly-owned

subsidiary


general

transactions

No material

difference325,822 1

Chimei Innolux

Corporation

Futaijing Precision

Electronics (Beijing)

Co., Ltd.





general

transactions

No material

difference184,198 -

Chimei Innolux

Corporation

TPO Displays Shanghai

Ltd.


subsidiary


general

transactions

No material

difference434,803 1

Chimei Innolux

Corporation

Foxconn CZ S.R.O. An indirect wholly-owned




general

transactions

No material

difference280,506 -

Chimei Innolux

Corporation

Ningbo Chi Mei

Electronics Ltd.


subsidiary


general

transactions

No material

difference3,326 -

～67～


Relationship

with the Company

Transactions


transactions

Notes and accounts


Purchases/

Sales Amount

Percentage of

purchases/sales

Credit


Percentage

of balance

Chimei Innolux

Corporation

Cheng Uei Precision

Industry Co., Ltd.

The Chairmen of Cheng Uei

and Hon Hai Precision

Industry Co., Ltd. are

immediate family members

Sales $ 166,080 - 30 days Similar with

general

transactions

No material

difference$ 60,987 -

Chimei Innolux

Corporation

Ningbo Chi Mei



subsidiary

Sales 140,176 - 30-60 days Similar with

general

transactions

No material

difference474,683 1

Chimei Innolux

Corporation

Pan-International

Industrial Co.

An indirect investee company

of Hon Hai Precision

Industry Co., Ltd. accounted

for under the equity method


general

transactions

No material

difference64,232 -

Chimei Innolux

Corporation

Funing Precision

Component Co., Ltd






general

transactions

No material

difference116,457 -

Chimei Innolux

Corporation

Foxconn Precision

Electronics (Yantai)

Co., Ltd.






general

transactions

No material

difference78,403 -

Chimei Innolux

Corporation

Chi Mei Materials

Technology

Corporation


accounted for under the

equity method

Purchases 1,849,694 1 30 days No transactions

comparable

with purchases

from related

parties.

No material

difference( 718,431) 1

Chimei Innolux

Corporation

Hon Hai Precision

Industry Co., Ltd.

Same major stockholder Purchases 1,599,621 1 90 days No transactions

comparable

with purchases

from related

parties.

No material


Chimei Innolux

Corporation

Chi Mei Corporation Accounted the Company under

equity method

Purchases 942,667 1 90 days No transactions

comparable

with purchases

from related

parties.

No material


Chimei Innolux

Corporation


Ltd.


Corporation

Purchases 902,358 1 30-180 days Similar with

general

transactions

No material

difference( 1,136,736) 1

～68～


Relationship

with the Company

Transactions


transactions

Notes and accounts


Purchases/

Sales Amount

Percentage of

purchases/sales

Credit


Percentage

of balance

Chimei Innolux

Corporation

Advanced

Optoelectronic

Technology Inc.





Purchases $ 748,915 1 90 days No transactions

comparable

with purchases

from related

parties.

No material

difference

($ 279,299) -

Chimei Innolux

Corporation

Glorious Falcon

International Ltd.




Purchases 454,837 - 90 days No transactions

comparable

with purchases

from related

parties.

No material

difference

( 47,157) -

Chimei Innolux

Corporation

Ningbo Chi Mei

Material Technology

Corp.



equity method


comparable

with purchases

from related

parties.

No material

difference

( 238,270) -

Chimei Innolux

Corporation

Foxconn Technology CZ

S. R. O.




411,576 - 30 days No transactions

comparable

with purchases

from related

parties.

No material

difference

( 842,718) 1

Chimei Innolux

Corporation

Futaihua Industrial

(Shenzhen) Limited





comparable

with purchases

from related

parties.

No material

difference

- -

Chimei Innolux

Corporation

Best Vision Technology

PTE.Ltd.


subsidiary of

Pan-International


comparable

with purchases

from related

parties.

No material

difference

( 226,670) -

Chimei Innolux

Corporation

TPO Displays Hong

Kong Ltd.


subsidiary


comparable

with purchases

from related

parties.

No material

difference

( 154,739) -

～69～


Relationship

with the Company

Transactions


transactions

Notes and accounts


Purchases/

Sales Amount

Percentage of

purchases/sales

Credit


Percentage

of balance

Chimei Innolux

Corporation

TPO Displays (Sinepal)

Ltd.


subsidiary

Purchases $ 282,334 - 60 days No transactions

comparable

with purchases

from related

parties.

No material

difference

($ 95,988) -

Chimei Innolux

Corporation

G-TECH

Optoelectronics

Corporation






comparable

with purchases

from related

parties.

No material

difference( 215,075) -

Chimei Innolux

Corporation

TPO Displays Japan

K.K.


subsidiary


comparable

with purchases

from related

parties.

No material

difference( 1,228,882) 1

Chimei Innolux

Corporation


Corporation


comparable

with purchases

from related

parties.

No material


Chimei Innolux

Corporation

Optivision Technology

Incorporated



equity method


comparable

with purchases

from related

parties.

No material


Chimei Innolux

Corporation

Armadale Holdings Ltd. An indirect wholly-owned




comparable

with purchases

from related

parties.

No material


Chimei Innolux

Corporation

Leadtek Global Group

Limited

A subsidiary of the Company Processing

costs30,696,654 16 (Note) 90 days Cost plus No material

difference( 43,330,426) 36

Chimei Innolux

Corporation

Lakers Trading Ltd. An indirect wholly-owned

subsidiary

Processing

costs9,441,264 1 (Note) 90 days Cost plus No material

difference- -

Chimei Innolux

Corporation


subsidiary

Processing

costs761,475 - (Note) 90 days Cost plus No material

difference- -

Note: The percentage of cost of goods sold.

～70～

H. Receivables from related parties exceeding $100 million or 20% of the Company’s paid-in capital as at June 30, 2010:


Relationship with

the Company

Balance of

receivables

from related

parties

Turnover

rate

Overdue receivables

Subsequent

collection

Allowance for

doubtful

accounts

providedAmount

Action adopted for

overdue accounts

Chimei Innolux

Corporation


Ltd..


Corporation$ 7,525,180 5.19 $ 10,661 Subsequent collection $ 4,601,903 $ -

Chimei Innolux

Corporation

Innolux Corporation Ltd. An indirect wholly-owned

subsidiary3,535,636 10.52 37,231 Subsequent collection 1,269,925 -

Chimei Innolux

Corporation

TPO Display Hong Kong

Ltd.


subsidiary3,444,306 2.56 1,421,084 Accelerate collection 198,183 -

Chimei Innolux

Corporation

Innocom Technology

(Shenzhen) Ltd.


subsidiary2,004,634 6.30 - - 964,500 -

Chimei Innolux

Corporation

Hon Hai Precision Industry

Co., Ltd

Same major stockholder 1,542,726 5.56 65,868 Subsequent collection 267,472 -

Chimei Innolux

Corporation


Japan Co., Ltd.

A subsidiary of the Company 1,134,168 4.18 79,151 Subsequent collection 549,033 -

Chimei Innolux

Corporation

Hongfujin Precision

Industry (Wuhan)

Co., Ltd.




592,732 2.10 264,966 Subsequent collection 212,883 -

Chimei Innolux

Corporation

Ningbo Chi Mei



subsidiary474,683 1.38 - - 80 -

Chimei Innolux

Corporation


subsidiary325,822 2.80 228,364 Accelerate collection 61,404 -

Chimei Innolux

Corporation


Corporation453,459 7.33 30 Subsequent collection 63,396 -

Chimei Innolux

Corporation

TPO Displays

Shanghai Ltd.


subsidiary434,803 1.93 141,246 Accelerate collection 180,086 -

Chimei Innolux

Corporation

Foxconn CZ S. R. O. An indirect wholly-owned




Chimei Innolux

Corporation

Futaijing Precision

Electronics (Beijing) Co.,

Ltd.




184,198 3.83 43,763

Subsequent collection

46,851 -

Chimei Innolux

Corporation

Foxconn Japan Co., Ltd. An indirect wholly-owned



170,288 8.63 - - - -

Chimei Innolux

Corporation

Funing Precision

Component Co., Ltd.




116,457 3.99 - - - -

～71～


Relationship with

the Company

Balance of

receivables

from related

parties

Turnover

rate

Overdue receivables

Subsequent

collection

Allowance for

doubtful

accounts

providedAmount

Action adopted for

overdue accounts

Chimei Innolux

Corporation

Dragon Flame Industrial

Ltd.


subsidiary$ 107,792 - $ 107,792 Accelerate collection $ - -

Chimei Innolux

Corporation

TPO Displays

(Sinepal) Ltd.


subsidiary241,644 2.75 148,364 Accelerate collection - -

I. Derivative financial instruments undertaken during the six-month period ended June 30, 2010: Please refer to Notes 4(2), (7) and 10(6).

(2) Disclosure information of investee companyAll the transactions with subsidiaries disclosed below had been eliminated when preparing reviewed consolidated financial statements. The disclosure information as follows is for reference only.

A. Information on Investee Companies:

Name of company Investee company Address

Main operating

activities

Original cost

Held by the Company at June 30, 2010Income of

the investee

company

(Note B)

Investment

income

recognized by the

Company (Note B)

Number of

shares

(in thousands)

Percentage of

ownership (%) Book value

June 30,

2010

December 31,

2009

Chimei Innolux

Corporation

Innolux Holding Ltd. Samoa Investment holdings $ 6,450,487 $ 6,198,247 199,944 100 $ 12,663,312 $ 1,173,736 $ 1,237,556

Chimei Innolux

Corporation

InnoJoy Investment

Corporation

Miaoli

County

Investment company 1,500,000 1,500,000 150,000 100 2,174,540 104,222 104,222

Chimei Innolux

Corporation

InnoFun Investment

Corporation

Miaoli

County

Investment company 1,500,000 1,500,000 150,000 100 1,509,064 279 279

Chimei Innolux

Corporation

TPO Hong Kong

Holding Ltd.

Hong

Kong

Investment company 2,107,791 Note A 1,158,844 100 2,286,949 ( 1,023,951) ( 1,373)

Chimei Innolux

Corporation

Toppoly

Optoelectronics

(B. V. I.) Ltd.

BVI Investment company 2,932,293 Note A 122,430 100 3,229,318 ( 249,221) 10,785

Chimei Innolux

Corporation

BrightmInformation

Holding Ltd.

Hong

Kong

Investment company 74,924 Note A 2,782 57 70,675 ( 17,245) ( 4,808)

Chimei Innolux

Corporation

Golden Achiever

International Ltd.

BVI Investment company - Note A 39 100 ( 271,708) ( 253,122) ( 27,781)

Chimei Innolux

Corporation

Landmark

International Ltd.

Samoa Investment company 26,511,440 Note A 480,100 100 28,461,299 1,820,630 1,465,188

Chimei Innolux

Corporation

Leadtek Global

Group Limited

BVI Investment and trading

company2,064,427 Note A 160,005 100 2,212,129 ( 21,571) 13,151

Chimei Innolux

Corporation

Yuan Chi Investment

Co., Ltd.

Tainan

County

Investment company 1,817,235 Note A - 100 1,926,809 ( 51,426) 54,328

Chimei Innolux

Corporation

Chi Mei

Optoelectronics

Japan Co., Ltd.

Japan Researching,

manufacturing

and selling of the

film transistor

liquid crystal display

1,335,486 Note A - 100 1,529,719 92,521 53,912

～72～


Main operating

activities

Original cost


the investee

company

(Note B)

Investment

income

recognized by the

Company (Note B)

Number of

shares

(in thousands)

Percentage of


June 30,

2010

December 31,

2009

Chimei Innolux

Corporation

Gold Union

Investment Ltd.

Samoa Investment company $ 655,140 Note A 42,000 100 $ 661,970 ($ 111,550) ($ 5,325)

Chimei Innolux

Corporation

Keyway Investment

Management

Limited

Samoa Investment company 222,343 Note A 6,501 100 234,747 10,795 6,987

Chimei Innolux

Corporation

Chi Mei

Optoelectronics

Europe B. V.

Netherlands Importing, exporting,

buying, selling and

logistics services of

electronic equipment

and TFT-LCD

monitors

121,941 Note A - 100 115,470 6,628 3,489

Chimei Innolux

Corporation

Chi Mei

Optoelectronics

(Singapore) PTE

Ltd.

Singapore Importing, exporting,

buying, selling and

logistics services of


and TFT-LCD

monitors

5,235 Note A 10 100 5,419 8 121

Chimei Innolux

Corporation

Honor Light

Services Limited

Singapore International

trading business1,395 Note A 685 100 1,138 ( 184) ( 270)

Chimei Innolux

Corporation

Chi Mei

Energy Corp.

Tainan

County

Development, design,

manufacture and

sales of thin film

solar battery

- Note A 115,933 93 - ( 298,613) -

Chimei Innolux

Corporation

Chi Mei

El Corporation

Tainan

County

Developing,

designing,

manufacturing, and

selling of organic

light emitting diodes

( 788,618) Note A 40,500 90 ( 840,433) ( 104,283) ( 51,815)

Chimei Innolux

Corporation

Chi Mei Lighting

Technology

Corporation

Tainan

County

Manufacturing of


and lighting

equipment

819,312 Note A 71,087 36 956,255 542,112 136,328

Chimei Innolux

Corporation

Jetronics

International Corp.

Samoa Investment company 145,600 Note A 2,690 32 161,485 36,126 6,727

～73～


Main operating

activities

Original cost


the investee

company

(Note B)

Investment

income

recognized by the

Company (Note B)

Number of

shares

(in thousands)

Percentage of


June 30,

2010

December 31,

2009

Chimei Innolux

Corporation

GIOm

OptoelectronicsCorp.

Tainan

County

Developing,

designing,manufacturing andselling of

components of backlight module onTFT-LCD

$ 372,537 Note A 38,324 26 $ 375,280 ($ 46,506) $ 2,743


ContrelmTechnologyCo., Ltd.

TainanCounty

Manufacturing andselling of relatedequipments for

film transistor liquidcrystal display

135,423 Note A 17,009 13 195,533 182,491 67,361

Chimei Innolux

Corporation

Global Display Taiwan

Co., Ltd.

Taichung

County

Glass thinning

processing

45,262 Note A 3,200 23 45,377 70 98


AmpowerHolding Ltd.

Cayman Glass thinningprocessing

1,717,714 Note A 14,063 45 1,745,241 169,681 40,375


Chi Mei MaterialsTechnologyCorporation

TainanCounty

Sellingelectronic materials

973,927 Note A 72,567 17 1,090,977 976,704 123,706


ExploitmTechnologyCo., Ltd.

TaoyuanCounty

Selling electronicmaterials andtelecommunications

materials

- Note A 9,211 15 - ( 12,696) -


OptivisionTechnology

Incorporated

HsinchuCity

Designing,manufacturing,

researching andselling of opticalelements

59,774 Note A 2,329 6 59,265 ( 803) ( 474)


PowerkingOptoelectronicsCo., Ltd.

HsinchuCounty

Manufacturing ofelectronic componentand lighting

equipment

19,875 Note A 3,120 15 19,865 2,177 ( 10)


iZ3D Inc. USA Research anddevelopment and sale

of 3D flat monitor - Note A 450 40 - - -$68,003,957 $ 6,920,094 $ 3,301,520 $ 60,619,695 $ 1,446,460 $ 3,232,500

Plus: credit balance of long-term equity investments reclassified to other liabilities 1,112,141

$ 61,731,836

～74～


Main operating

activities

Original cost


the investee

company

(Note B)

Investment

income

recognized by the

Company (Note B)

Number of

shares

(in thousands)

Percentage of


June 30,

2010

December 31,

2009

Innolux Holding Ltd. Rockets Holding Ltd. Samoa Holding company $ 6,279,870 $ 6,027,630 192,785 100 $ 12,456,752 $ 1,165,816 $ 1,165,816

Innolux Holding Ltd. Lakers Trading Ltd. Samoa Trading and order

swap company- - - 100 245,004 61 61

Innolux Holding Ltd. Innolux Corporation

Ltd.

USA Trading company 6,348 6,348 200 100 ( 115,875) 7,858 7,858

Innolux Holding Ltd. Suns Holding Ltd. Samoa Holding company 164,269 164,269 5,072 100 148,220 - -

Rockets Holding Ltd. Stanford

Development Ltd.

Samoa Holding company 5,391,125 5,391,125 164,000 100 11,121,723 1,104,162 1,104,162

Rockets Holding Ltd. Sonics Trading Ltd. Samoa Trading and

order swap198,116 198,116 8,390 100 209,136 - -

Rockets Holding Ltd. Best China

Investments Ltd.

Samoa Investment company 314,740 314,740 10,000 100 324,497 90 90

Rockets Holding Ltd. Mega Chance

Investments Ltd.

Samoa Investment company 573,940 321,700 18,000 100 581,743 ( 3,097) ( 3,097)

Rockets Holding Ltd. Excel Victory Ltd. Samoa Investment company 97,182 97,182 3,000 100 163,130 64,662 64,662

Suns Holding Ltd. Warriors Technology

Investments Ltd.

Samoa Investment company 164,269 164,269 5,072 100 148,220 - -

Best China Investment

Ltd.

Asiaward

Investment Ltd.

Hong

Kong

Investment company 314,740 314,740 77,830 100 324,497 90 90

Asiaward Investment

Ltd.

Innocom Technology

(Xiamen) Ltd.

Xiamen Development, design,

manufacture and sales

of monitors

314,740 314,740 - 100 324,497 90 90

Stanford

Developments Ltd.

Full Lucky

Investment Ltd.

Hong

Kong

Investment company 1,016,035 1,016,035 1,271,015 100 11,121,707 1,104,162 1,104,162

Full Lucky Investment

Ltd.

Innocom Technology

(Shenzhen) Ltd.

Shen-Zhen Development, design,

manufacture and

sales of monitors

5,391,125 5,391,125 - 100 11,121,707 1,104,162 1,104,162

Mega Chance

Investments Ltd.

Main Dynasty

Investment Ltd.

Hong

Kong

Investment company 573,940 321,700 139,624 100 581,742 ( 3,098) ( 3,098)

Main Dynasty

Investment Ltd.

Innocom Technolgy

(Jia-Shan) Ltd.

Jia-Shan Development, design,

manufacture and

sales of monitors

573,940 321,700 - 100 581,742 ( 3,098) ( 3,098)

Excel Victory Ltd. Glory Ace

Investment Ltd.

Hong

Kong

Investment company 97,182 97,182 23,250 100 163,130 64,662 64,662

Glory Ace Investment

Ltd.

Innocom Technology

(Chongqing)

Co., Ltd.

Chongqing Development, design,

manufacture and

sales of monitors

97,182 97,182 - 100 163,130 64,662 64,662

～75～


Main operating

activities

Original cost


the investee

company

(Note B)

Investment

income

recognized by the

Company (Note B)

Number of

shares

(in thousands)

Percentage of


June 30,

2010

December 31,

2009

Chi Mei

Optoelectronics

Japan Co., Ltd.

Chi Mei

Optoelectronics

USA Inc.

USA Selling of electronic

equipment and

computer monitors

$ 2,400 Note A 1 100 $ 162,708 ($ 4,316) ($ 10,767)

Landmark

International Ltd.

Ningbo Chi Mei

Electronics Ltd.

Ningbo Manufacturing and

selling of TFT-LCD

modules

19,524,952 Note A - 100 20,914,500 1,223,134 975,428

Landmark

International Ltd.

Nanhai Chi Mei

Electronics Ltd.

Foshan Manufacturing and

customer service of

TFT-LCD

4,639,372 Note A - 100 5,438,198 996,558 693,629

Landmark

International Ltd.

Ningbo Chi Mei

Optoelectronics

Ltd.

Ningbo Developing,

manufacturing,

customer service

and warehousing of

TFT-LCD

1,149,926 Note A - 100 965,555 ( 400,760) ( 204,900)

Landmark

International Ltd.

Nanhai Chi Mei

Optoelectronics

Corp.

Foshan Manufacturing and

customer service of

TFT-LCD

1,249,033 Note A - 100 1,183,900 - 196

Yuan Chi Investment

Co., Ltd.

Fulintec Engineering

Co., Ltd.

Taipei

County

Researching,

producing,

outsourcing,

importing, and

exporting services

of semiconductor

equipments

249,997 Note A 16,565 53 265,938 25,970 9,806

Yuan Chi Investment

Co., Ltd.

Chi Mei

Logistics Co.,Ltd.

Tainan

County

Warehousing Service 124,485 Note A 12,740 49 124,736 4,174 1,101

Yuan Chi Investment

Co., Ltd.

Chi Mei Lighting

Technology

Corporation

Tainan

County

Trading business,

manufacturing of

electronic

equipment and

lighting equipment

200,482 Note A 17,726 9 238,254 542,112 48,048

Yuan Chi Investment

Co., Ltd.

Optivision

Technology

Incorporated

Hsinchu

City

Designing,

manufacturing,

researching and

selling of

optical elements

116,778 Note A 6,443 16 128,574 ( 803) ( 128)

～76～


Main operating

activities

Original cost


the investee

company

(Note B)

Investment

income

recognized by the

Company (Note B)

Number of

shares

(in thousands)

Percentage of


June 30,

2010

December 31,

2009

Yuan Chi Investment

Co., Ltd.

Powerking

Optoelectronics

Co., Ltd.

Hsinchu

City

Manufacturing of

electronic

component and

lighting

equipments

$ 8,699 Note A 1,010 5 $ 8,667 $ 1,928 $ 94

Yuan Chi Investment

Co., Ltd.

Exploit Technology

Co., Ltd.

Taoyuan

County

Selling electronic

materials and

telecommunications

materials

- Note A 2,989 5 - ( 12,696) -

Yuan Chi Investment

Co., Ltd.

Alpha Crystal

Technology

Corporation

Hsinchu

City

Trading business,

manufacturing of

electronic

equipment and other

service

73,133 Note A 10,285 22 70,467 ( 35,352) ( 7,904)

Yuan Chi Investment

Co., Ltd.

TOA Optronics

Corporation

Hsinchu

County

Selling electronic

materials, trading

business,

manufacturing of

electronic

equipments and

lighting

equipments

423,606 Note A 58,007 40 420,611 ( 10,213) ( 4,086)

Yuan Chi Investment

Co., Ltd.

Chi Mei Materials

Technology

Corporation

Tainan

County

Selling electronic

materials30,721 Note A 2,749 1 35,880 976,704 6,397

Yuan Chi Investment

Co., Ltd.

Chi Mei Energy Corp. Tainan

County

Development, design,

manufacture and

sales of thin film

solar battery

- Note A 994 1 - ( 298,613) -

Yuan Chi Investment

Co., Ltd.

GIO Optoelectronics

Corp.

Tainan

County

Developing,

designing,

manufacturing and

selling of

components of back

light module on

TFT-LCD

2,940 Note A 255 - 2,943 ( 46,506) ( 80)

～77～


Main operating

activities

Original cost


the investee

company

(Note B)

Investment

income

recognized by the

Company (Note B)

Number of

shares

(in thousands)

Percentage of


June 30,

2010

December 31,

2009


Co., Ltd.

Fu Cheng

Optoelectronic

Technology

(Shanghai) Co.,

Ltd.

Shanghai Developing,

manufacturing and

maintaining

mechanical

products.

$ 6,227 Note A - 100 $ 6,312 $ 113 ($ 142)

Chi Mei

Optoelectronics

Europe B. V.

Chi Mei

Optoelectronics

Germany GmbH.

Germany Importing, buying and

selling electronic

equipment and TFT

- LCD monitors and

providing customer

service

10,324 Note A - 100 12,127 5,060 2,831

Chi Mei

Optoelectronics

Europe B. V.

Chi Mei

Optoelectronics

UK Ltd.

UK Customer service on

electronic

equipment and

computer monitors

4,566 Note A 150 100 4,203 - -

Keyway Investment

Management

Limited

Ningbo Chi Mei

Logistics Co., Ltd.

Ningbo Warehousing Service 151,715 Note A - 100 160,995 9,606 6,084

Keyway Investment

Management

Limited

Foshan Chi Mei

Logistics Co., Ltd.

Foshan Warehousing, testing

and logistics service

of TFT-LCD

monitors

39,972 Note A - 100 41,705 1,182 902

Jetronics International

Corp.

Kunshan Guan Jye

Electronics

Co., Ltd.

Kunshan Manufacturing

transformers521,504 Note A - 100 577,718 41,575 13,315


Corp.

Champ Win

Technology

Corporation

Taipei

County

Selling electronic

materials,

computers and

equipments,

production designed

and trading

business

12,890 Note A 800 100 12,695 4,965 1,590

Gold Union

Investments Ltd.

Ningbo Chi Hsin

Electronics Ltd.


selling on TFT-LCD

modules and

touch panel

157,289 Note A - 100 135,100 ( 109,242) ( 25,042)

～78～


Main operating

activities

Original cost


the investee

company

(Note B)

Investment

income

recognized by the

Company (Note B)

Number of

shares

(in thousands)

Percentage of


June 30,

2010

December 31,

2009

Gold Union

Investments Ltd.

Dongguan Chi Hsin

Electronics Ltd.

Dongguan Manufacturing and

selling on TFT-LCD

modules and

touch panel

$ 496,657 Note A - 100 $ 526,833 ($ 2,174) $ 19,717

Chi Mei Lighting

Technology

Corporation

Smart Light Global

Limited

Samoa Investment business 199,634 Note A 8,000 100 214,452 19,327 6,870

Smart Light Global

Limited

Foshan Chi Mei

Lighting

Technology Ltd.

Foshan Designing,

manufacturing

and selling LED

199,541 Note A - 100 214,353 19,326 6,865

Chi Mei Energy Corp. Chi Mei Energy

Europe B. V.

Netherlands Sales of solar products

and service of solar

technology

2,136 Note A 1 100 1,283 ( 386) 12,283

Contrel Technology

Co., Ltd.

Far Technology

Co. Ltd.

Samoa Investment business 71,209 Note A 2,155 100 34,859 ( 6,516) ( 840)

Contrel Technology

Co., Ltd.

Contrel Holding Ltd. Samoa Investment business 5,065 Note A 155 100 53,241 696 90

Far Technology Co.,

Ltd.

Ningbo Contrel

Technology

Co., Ltd.


selling of TFT-LCD

related mechanical

equipment; cleaning

service of

clean-room garment

63,600 Note A - 100 34,933 ( 6,326) ( 816)

Contrel Holding Ltd. Ningbo Contrel

Trading Co., Ltd.

Ningbo Import and export

trading4,770 Note A - 100 53,185 696 90

GIO Optoelectronics

Corp.

Double Star Inc. Investment business 75,572 Note A 2,350 100 72,315 - -

Double Star Inc. Foshan Chi Mei

LightingTechnolog

y Ltd.

Foshan Designing,

manufacturing

and selling LED

75,572 Note A - 100 72,719 ( 3,198) ( 846)

Toppoly

Optoelectronics

(B.V. I.) Ltd.

Toppoly

Optoelectronics

(Cayman) Ltd.

Cayman Investment company 2,908,357 Note A 122,400 100 3,228,943 ( 249,221) 10,785

Toppoly

Optoelectronics

(Cayman) Ltd.

Toptech

Trading Limited

B. V. I. Import and export

trading company3,660 Note A 300 100 2,926 ( 814) ( 777)

～79～


Main operating

activities

Original cost


the investee

company

(Note B)

Investment

income

recognized by the

Company (Note B)

Number of

shares

(in thousands)

Percentage of


June 30,

2010

December 31,

2009

Toppoly

Optoelectronics

(Cayman) Ltd.

TPO Displays

(Nanjing) Ltd.

Nanjing Liquid crystal devices $ 2,803,402 Note A $ - 100 $ 3,123,961 ($ 262,956) $ 12,851

Toppoly

Optoelectronics

(Cayman) Ltd.

TPO Displays

(Sinepal) Ltd.

Nanjing Purchases and sales of

monitor-related

components

company

101,283 Note A - 100 102,042 14,550 ( 1,289)

TPO Hong Kong

Holding Ltd.

TPO Displays

Hong Kong Ltd.

Hong

Kong

Investment company - Note A 162,898 100 ( 330,997) ( 490,772) 16,894

TPO Hong Kong

Holding Ltd.

TPO Displays

Hong Kong Ltd.

Hong

Kong

Import and export

trading- Note A 35,000 100 ( 2,468,135) 169,177 129,987

TPO Hong Kong

Holding Ltd.

TPO Displays

Japan K. K.

Japan Manufacturing and

selling of panels1,815,603 Note A - 100 2,152,840 ( 360,054) 21,431

TPO Hong Kong

Holding Ltd.

TPO Displays

Europe B. V.

Europe Import and export

trading3,073,072 Note A 1 100 2,759,242 ( 257,625) ( 125,786)

TPO Hong Kong

Holding Ltd.

TPO Displays

USA Inc.

USA Import and export

trading company263,856 Note A 1 100 252,273 ( 24,297) ( 14,050)

TPO Displays Hong

Kong Holding Ltd.

TPO Displays

Shanghai Ltd.

Shanghai Liquid crystal devices - Note A - 100 ( 330,997) ( 490,772) 16,894

TPO Displays Europe

B. V.

TPO Displays

Germany GmbH.

Germany Import and export

trading33,597 Note A - 100 18,623 ( 29,297) ( 17,548)

TPO Displays Europe

B. V.

TPO Displays

Sweden AB

Sweden Import and export

trading681,201 Note A 1 100 687,405 45,837 45,666

Bright Information

Holding Ltd.

Kunpal

Optoelectronics

Ltd.

Nanjing TFT-LCD glass

thinning processing792,390 Note A - 100 740,838 ( 13,648) ( 8,571)

Golden Achiever

International Ltd.

Dragon Flame

Industrial Ltd.

B. V. I. Selling of

components of LCD

module and back

light module and

providing customer

service.

42,007 Note A 1 100 42,515 87 ( 61)

Golden Achiever

International Ltd.

VAP Optoelectronics

(Nanjing）Corp.

Nanjing Manufacturing and

selling of

components of LCD

module and back

light module

- Note A - 100 ( 273,291) ( 253,209) ( 29,850)

～80～


Main operating

activities

Original cost


the investee

company

(Note B)

Investment

income

recognized by the

Company (Note B)

Number of

shares

(in thousands)

Percentage of


June 30,

2010

December 31,

2009

Golden Achiever

International Ltd.

Eastern Vision

Co. Ltd.

B. V. I. Selling of

components of LCD

module and back

light module and

providing customer

service.

$ 79 Note A 1 100 $ 80 $ - $ -

Note A: The investee companies were acquired because of merger. Please refer to Notes 1 and 4(10) for explanation.

Note B: The net income of the investee companies represents the net income for the period from January 1 to June 30, 2010. The investment income recognized under equity-method was calculated

based on the net income from March 18 (the consolidated date) to June 30, 2010.

B. Loans granted during the six-month period ended June 30, 2010

Financing


Financial

statement

account

Maximum

balance for

the period

Ending


Type of

financing

(Note A)

Transaction

amounts

Reason for

short-term

financing

Allowance

for

bad debt

Collateral

Financing

limit

for each

borrowing

company

Financing

company’s

financing


Chi Mei

Optoelectronics

Europe B. V.

Chi Mei

Optoelectronics

Germany GmbH.

Other

receivables$ 60,946 $ 60,946 0.678% 2 $ - Note B $ - - - Note C Note D

Ningbo Chi Mei

Electronics Ltd.

Ningbo Chi Mei

Optoelectronics

Ltd.

Other

receivables3,022,100 3,022,100 1.7916% ~ 2.26% 2 - Note B - - - Note C Note D

Ningbo Chi Mei

Electronics Ltd.

Ningbo Chi Mei

Logistics

Co., Ltd.

Other

receivables118,358 71,015 5.310% 2 - Note B - - - Note C Note D

Leadtek Global

Group Limited

Landmark

International

Ltd.

Other

receivables3,215 3,215 - 2 - Note B - - - Note C Note D

TPO Displays

USA Inc.

TPO Displays

Hong Kong Ltd.

Accounts

receivable –

related

parties

192,900 192,900 0.57% ~ 0.72% 2 - Note B - - - Note C Note D

TPO Displays

Sweden AB

TPO Displays

Hong Kong Ltd.

Accounts

receivable –

related parties

695,554 695,554 - 2 - Note B - - - Note C Note D

TPO Displays

Europe B. V.

TPO Displays

Hong Kong Ltd.

Accounts

receivable –

related parties

591,847 561,809 - 2 - Note B - - - Note C Note D

～81～

Financing


Financial

statement

account

Maximum

balance for

the period

Ending


Type of

financing

(Note A)

Transaction

amounts

Reason for

short-term

financing

Allowance

for

bad debt

Collateral

Financing

limit

for each

borrowing

company

Financing

company’s

financing


Toptech

Trading Limited

TPO Displays

(Nanjing) Ltd.

Prepayments $ 186,470 $ - - 2 $ - Note B $ - - - Note C Note D

Toptech

Trading Limited

VAP

Optoelectronics

(Nanjing）Corp.

Prepayments 170,395 170,395 - 2 - Note B - - - Note C Note D

Note A: The type No. 1 represents business relationship.

The type No. 2 represents necessary for short-term financing.

Note B: Provision of financial support for operations.

Note C: Not to exceed 10% of the Company’s net equity.

Note D: Not to exceed 40% of the Company’s net equity. If it’s for short-term loans, not to exceed 30% of the Company’s net equity.

C. Endorsements and guarantees provided during the six-month period ended June 30, 2010:

Endorsement/

guarantee

provider

Guaranteed party

Limits on

endorsement/

guarantee amount

provided to each

counterparty

Maximum

balance for

the period Ending balance

Amount of


collateralized by properties

Ratio of accumulated


to net equity per latest

financial statements

Maximum


amounts allowableName

Nature of

relationship

(Note A)

TPO Displays

(Nanjing) Ltd.

TPO Displays Shanghai

Ltd.

2 Note B $ 1,544,281 $ 1,287,081 $ - 0% Note C

Note A: The type No. 1 represents the Company’s subsidiary.

The type No. 2 represents the Company’s indirect wholly-owned subsidiary.

The type No. 3 represents mutual guarantors as required by construction contracts.

Note B: Limits on endorsement/guarantee amount provide to each counter party did not exceed 0.5% of the Company’s net equity for each entity. Maximum endorsement/guarantee amounts

allowable should not exceed 1% of the Company’s net equity.

Note C: Maximum endorsement/guarantee amount provided to each counter party did not exceed 50% of the Company’s net equity. If endorsements and guarantees were provided for investees

which the Company directly (or indirectly) owns more than 50% of equity interest, the endorsement/guarantee should not exceed 100% of the Company’s net equity.

～82～

D. Marketable securities held as at June 30, 2010:

Name of subsidiary

Kind and name of

marketable securities

Relationship

of the issuers with

the investee company

General ledger

accounts (Note 1 )

June 30, 2010

Number of shares


Market value/

Net worth

Innolux Holding Ltd. Common stock of Rockets Holding Ltd. An indirect wholly-owned

subsidiary

(1) 192,785 $ 12,456,752 100 $ 12,456,752

Innolux Holding Ltd. Common stock of Lakers Trading Ltd. An indirect wholly-owned

subsidiary

(1) - 245,004 100 245,004

Innolux Holding Ltd. Common stock of Innolux Corporation Ltd. An indirect wholly-owned

subsidiary

(1) 200 ( 115,875) 100 ( 115,875)

Innolux Holding Ltd. Common stock of Suns Holding Ltd. An indirect wholly-owned

subsidiary

(1) 5,072 148,220 100 148,220

InnoJoy Investment

Corporation

Common stock of Entire Technology Co., Ltd. None (5) 5,499 995,847 5.96 995,847

InnoJoy Investment

Corporation

Common stock of G-TECH

Optoelectronics Corporation

None (2) 2,261 49,732 1.5 Note B

InnoJoy Investment

Corporation

Common stock of Advanced

Optoelectronics Technology Co., Ltd.

None (2) 11,212 76,007 8.62 Note B

InnoJoy Investment

Corporation

Bonds of ILI Technology Corp. None (3) - 47,042 - Note B

InnoJoy Investment

Corporation

Bonds of Sintronic Technology Inc. None (4) - 241,956 - Note B

Innofun Investment

Corporation

Common stock of J TOUCH Corporation None (2) 6,965 400,000 9.3 Note B

Innofun Investment

Corporation

Common stock of G-TECH

Optoelectronics Corporation

None (2) 2,500 55,000 1.66 Note B

Rockets Holding Ltd. Common stock of Stanford Development Ltd. An indirect wholly-owned

subsidiary

(1) 164,000 11,121,723 100 11,121,723

Rockets Holding Ltd. Common stock of

Mstar Semiconductor, Inc. (Cayman)

None (2) 1,263 40,058 0.43 Note B

Rockets Holding Ltd. Common stock of Sonics Trading Limited An indirect wholly-owned

subsidiary

(1) 8,390 209,136 100 209,136

Rockets Holding Ltd. Common stock of Best China Investment Ltd. An indirect wholly-owned

subsidiary

(1) 10,000 324,497 100 324,497

Rockets Holding Ltd. Common stock of Mega Chance

Investments Ltd.


subsidiary

(1) 18,000 581,743 100 581,743

Rockets Holding Ltd. Common stock of Excel Victory Ltd. An indirect wholly-owned

subsidiary

(1) 3,000 163,130 100 163,130

Suns Holding Ltd. Common stock of Warriors Technology

Investment Ltd.


subsidiary

(1) 5,072 148,220 100 148,220

～83～

Name of subsidiary

Kind and name of


Relationship

of the issuers with


General ledger

accounts (Note 1 )

June 30, 2010

Number of shares


Market value/

Net worth

Warriors Technology

Investment Ltd.

Common stock of ILI Technology Corp. None (2) 3,077 $ 71,255 6.77 Note B

Warriors Technology

Investment Ltd.

Common stock of OED Holding Ltd. None (2) 800 64,936 5.88 Note B

Best China Investment

Ltd.

Common stock of Asiaward Investment Ltd. An indirect wholly-owned

subsidiary

(1) 77,830 324,497 100 $ 324,497

Stanford Development

Ltd.

Common stock of Full Lucky Investment Ltd. An indirect wholly-owned

subsidiary

(1) 1,271,015 11,121,707 100 11,121,707

Mega Chance

Investments Ltd.

Common stock of

Main Dynasty Investment Ltd.


subsidiary

(1) 139,624 581,742 100 581,742

Excel Victory Ltd. Common stock of Glory Ace Investment Ltd. An indirect wholly-owned

subsidiary

(1) 23,250 163,130 100 163,130

Full Lucky Investment

Ltd.

Common stock of

Innocom Technology (Shenzhen) Ltd.


subsidiary

(1) - 11,121,707 100 11,121,707

Asiaward Investment

Ltd.

Common stock of

Innocom Technology (Xiamen) Ltd.


subsidiary

(1) - 324,497 100 324,497

Main Dynasty Investment

Ltd.

Common stock of

Innocom Technology (Jia-Shan) Ltd.


subsidiary

(1) - 581,742 100 581,742

Glory Ace Investment

Ltd.

Common stock of

Innocom Technology (Chongqing) Co., Ltd.


subsidiary

(1) - 163,130 100 163,130


Japan Co., Ltd.

Common stock of

Chi Mei Optoelectronics USA, Ltd.


subsidiary

(1) 1 162,708 100 162,708

Landmark International

Ltd.

Common stock of

Ningbo Chi Mei Electronics Ltd.


subsidiary

(1) - 20,914,500 100 20,914,500


Ltd.

Common stock of

Nanhai Chi Mei Electronics Ltd.


subsidiary

(1) - 5,438,198 100 5,438,198


Ltd.

Common stock of

Ningbo Chi Mei Optoelectronics Ltd.


subsidiary

(1) - 965,555 100 965,555


Ltd.

Common stock of

Nanhai Chi Mei Optoelectronics Corp.


subsidiary

(1) - 1,183,900 100 1,274,805

Yuan Chi Investment

Co., Ltd.

Common stock of

Fulintec Engineering Co., Ltd.


subsidiary

(1) 16,565 265,938 53 265,938

Yuan Chi Investment

Co., Ltd.

Common stock of Chi Mei Logistics Co., Ltd. An indirect wholly-owned

subsidiary

(1) 12,740 124,736 49 124,736

Yuan Chi Investment

Co., Ltd.

Common stock of

Optivision Technology Incorporated

An investee company accounted


(1) 6,443 128,574 16 117,377

Yuan Chi Investment

Co., Ltd.

Common stock of

Powerking Optoelectronics Co., Ltd.



(1) 1,010 8,667 5 8,667

～84～

Name of subsidiary

Kind and name of


Relationship

of the issuers with


General ledger

accounts (Note 1 )

June 30, 2010

Number of shares


Market value/

Net worth

Yuan Chi Investment

Co., Ltd.

Common stock of Exploit Technology Co., Ltd. An investee company accounted


(1) 2,989 $ - 5 $ -

Yuan Chi Investment

Co., Ltd.

Common stock of GIO Optoelectronics Corp. An investee company accounted


(1) 255 2,943 - 2,943

Yuan Chi Investment

Co., Ltd.

Common stock of

Alpha Crystal Technology Corporation


accounted for under the equity

method

(1) 10,285 70,467 22 70,467

Yuan Chi Investment

Co., Ltd.

Common stock of

TOA Optronics Corporation


accounted for under the equity

method

(1) 58,007 420,611 40 420,611

Yuan Chi Investment

Co., Ltd.

Common stock of

Chi Mei Lighting Technology Corporation

A subsidiary of the Company (1) 17,726 238,254 9 238,254

Yuan Chi Investment

Co., Ltd.

Common stock of

Chi Mei Materials Technology Corporation



(1) 2,749 35,880 1 35,880

Yuan Chi Investment

Co., Ltd.

Common stock of Chi Mei Energy Corp. A subsidiary accounted for under

the equity method

(1) 994 - 1 3,141

Yuan Chi Investment

Co., Ltd.

Common stock of Trillion Science None (2) 1,000 11,424 5 Note B

Yuan Chi Investment

Co., Ltd.

Common stock of Himax Analogic Company None (2) 1,500 2,818 4 Note B

Yuan Chi Investment

Co., Ltd.

Common stock of

Himax Media Solutions Company

None (2) 241 439 0 Note B

Yuan Chi Investment

Co., Ltd.

Common stock of

Tera Xtal Technology Corporation

None (2) 4,869 112,558 9 Note B

Yuan Chi Investment

Co., Ltd.

Common stock of China Electric Mfg. Corp. None (5) 13,000 323,050 3 323,050


Co., Ltd.

Common stock of Fu Cheng Optoelectronic

Technology (Shanghai) Co., Ltd.


subsidiary

(1) - 6,312 100 6,312

Leadtek Global Group

Limited

Common stock of

Himax Technologies, Inc. (Himax Cayman)

None (5) 49,645 2,322,309 14 2,322,309

Keyway Investment

Management Limited

Common stock of

Ningbo Chi Mei Logistics Co., Ltd.


subsidiary

(1) - 160,995 100 160,995

Keyway Investment

Management Limited

Common stock of

Foshan Chi Mei Logistics Co., Ltd.


subsidiary

(1) - 41,705 100 41,705


Europe B. V.

Common stock of

Chi Mei Optoelectronics Germany GmbH.


subsidiary

(1) - 12,127 100 12,127


Europe B. V.

Common stock of

Chi Mei Optoelectronics UK Ltd.


subsidiary

(1) 150 4,203 100 4,203

～85～

Name of subsidiary

Kind and name of


Relationship

of the issuers with


General ledger

accounts (Note 1 )

June 30, 2010

Number of shares


Market value/

Net worth


Corp.

Common stock of

Kunshan Guan Jye Electronics Co., Ltd.


subsidiary

(1) - $ 577,718 100 $ 577,718


Corp.

Common stock of

Champ Win Technology Corporation


subsidiary

(1) 800 12,695 100 12,695

Chi Mei Lighting

Technology

Corporation

Common stock of Smart Light Global Limited An indirect wholly-owned

subsidiary

(1) 8,000 214,452 100 214,452

Smart Light Global

Limited

Common stock of

Foshan Chi Mei Lighting Technology Ltd.


subsidiary

(1) - 214,353 100 214,353

Chi Mei Energy Corp. Common stock of

Chi Mei Energy Europe B. V.


subsidiary

(1) 1 1,283 100 1,283

Gold Union Investments

Ltd.

Common stock of

Ningbo Chi Hsin Electronics Ltd.


subsidiary

(1) - 135,099 100 135,099

Gold Union Investments

Ltd.

Common stock of

Dongguan Chi Hsin Electronics Ltd.


subsidiary

(1) - 526,833 100 526,833

Contrel Technology Co.,

Ltd.

Common stock of Far Technology Co., Ltd. An indirect wholly-owned

subsidiary

(1) 2,155 34,859 100 34,859


Ltd.

Common stock of Contrel Holding Ltd. An indirect wholly-owned

subsidiary

(1) 155 53,241 100 53,241


Ltd.

Common stock of

Chimei Innolux Corporation

The Company (6) 3,004 100,351 - 100,351

Far Technology Co., Ltd. Common stock of

Ningbo Contrel Technology Co., Ltd.


subsidiary

(1) - 34,933 100 34,851

Contrel Holding Ltd. Common stock of

Ningbo Contrel Trading Co., Ltd.


subsidiary

(1) - 53,185 100 53,113

Toppoly Optoelectronics

(B. V. I.) Ltd.

Common stock of

Toppoly Optoelectronics (Cayman) Ltd.


subsidiary

(1) 122,400 3,228,943 100 3,228,943


(Cayman) Ltd.

Common stock of Toptech Trading Limited An indirect wholly-owned

subsidiary

(1) 300 2,926 100 2,926


(Cayman) Ltd.

Common stock of TPO Displays (Nanjing) Ltd. An indirect wholly-owned

subsidiary

(1) - 3,123,961 100 3,123,961


(Cayman) Ltd.

Common stock of TPO Displays (Sinepal) Ltd. An indirect wholly-owned

subsidiary

(1) - 102,042 100 102,042

～86～

Name of subsidiary

Kind and name of


Relationship

of the issuers with


General ledger

accounts (Note 1 )

June 30, 2010

Number of shares


Market value/

Net worth

TPO Hong Kong Holding

Ltd.

Common stock of

TPO Displays Hong Kong Holding Ltd.


subsidiary

(1) 162,898 ($ 330,997) 100 ($ 330,997)


Ltd.

Common stock of

TPO Displays Hong Kong Ltd.


subsidiary

(1) 35,000 ( 2,468,135) 100 ( 2,468,135)


Ltd.

Common stock of

TPO Displays Japan Ltd.


subsidiary

(1) - 2,152,840 100 2,152,840


Ltd.

Common stock of TPO Displays Europe Ltd. An indirect wholly-owned

subsidiary

(1) 1 2,759,242 100 2,759,242


Ltd.

Common stock of TPO Displays USA Inc. An indirect wholly-owned

subsidiary

(1) 1 252,273 100 252,273

TPO Displays Hong

Kong Holding Ltd.

Common stock of TPO Displays Shanghai Ltd. An indirect wholly-owned

subsidiary

(1) - ( 330,997) 100 (330,997)

TPO Displays

Europe B. V.

Common stock of

TPO Displays Germany GmbH.


subsidiary

(1) - 18,623 100 18,623

TPO Displays

Europe B. V.

Common stock of

TPO Displays Sweden AB


subsidiary

(1) 1 687,405 100 687,405

Bright Information

Holding Ltd.

Common stock of

Kunpal Optoelectronics Ltd.


subsidiary

(1) - 740,838 100 740,838

Golden Achiever

International Ltd.

Common stock of

Dragon Flame Industrial Ltd.


subsidiary

(1) 1 42,515 100 42,515

Golden Achiever

International Ltd.

Common stock of

VAP Optoelectronics (Nanjing) Corp.


subsidiary

(1) - ( 273,291) 100 ( 273,291)

Golden Achiever

International Ltd.

Common stock of Eastern Vision Co., Ltd. An indirect wholly-owned

subsidiary

(1) 1 80 100 80

Note 1: Code of general ledger accounts: (1) Long-term investment accounted for under the equity method

(2) Financial assets carried at cost - non-current

(3) Investment in bonds without active markets - non-current

(4) Financial assets at fair value through profit or loss - non-current.

(5) Available for sale financial asset - non-current

(6) Available for sale financial asset - current

Note 2: The investment was measured at cost since it has no active market price, and its fair value cannot be measured reliably.

～87～

E. Acquisition or sale of the same security with the accumulated cost exceeding $100 million or 20% of the Company’s paid-in capital during the six-month period ended June 30, 2010:

Beginning balance Acquisition Disposal Ending balance

Company

Name

Marketable

securities type

and name

Financial

statement

account Counterparty

Nature of

relationship

Shares/units

(thousands) Amount

Shares/units

(thousands) Amount

Shares/units

(thousands) Amount

Carrying

value

Gain (loss)

on disposal

Shares/units

(thousands) Amount

Innolux

Holding Ltd.

Rockets

Holding Ltd.

Long-term

investments

accounted for

under the equity

method

Note Note 184,785 $ 6,027,630 8,000 $ 252,240 - $ - $ - $ - 192,785 $ 6,279,870

Rockets

Holding Ltd.

Mega Chance

Investments

Ltd.

Long-term

investments

accounted for

under the equity

method

Note Note 10,000 321,700 8,000 252,240 - - - - 18,000 573,940

Mega Chance

Investments

Ltd.

Main Dynasty

Investment

Ltd.

Long-term

investments

accounted for

under the equity

method

Note Note 77,511 321,700 62,113 252,240 - - - - 139,624 573,940

Main Dynasty

Investment Ltd.

Innocom

Technology

(Jia-shan) Ltd.

Long-term

investments

accounted for

under the equity

method

Note Note - 321,700 - 252,240 - - - - - 573,940

Toppoly

Optoelectronics

(B. V. I.) Ltd.

Toppoly

Optoelectronics

(Cayman) Ltd.

Long-term

investments

accounted for

under the equity

method

Note Note 93,400 1,971,947 29,000 936,410 - - - - 122,400 2,908,357

Toppoly

Optoelectronics

(Cayman) Ltd.

TPO Displays

(Nanjing) Ltd.

Long-term

investments

accounted for

under the equity

method

Note Note - 1,866,992 - 936,410 - - - - - 2,803,402

$10,831,669 - $2,881,780 - $ - $ - $ - - $13,713,449

Note: The wholly-owned subsidiary increased capital through cash or was newly established.

～88～

F. Acquisition of real estate properties exceeding $100 million or 20% of the Company’s paid-in capital during the six-month period ended June 30, 2010:

Prior transaction of related counterpart

Company

name

Types of

property

Transaction

date

Transaction

amount

Payment

term Counterparty

Nature of

relationship Owner Relationship

Transfer

date Amount

Price

Reference

Purpose of

Acquisition

Other

terms

Chi Mei Lighting

Technology

Corporation

Building 2010.05.31 $1,130,000 Installment GIO

Optoelectronics

Corp.

Substantive

related party

- - - - Appraisal

report

To use the

Group’s resources

effectively

G. Disposal of real estate properties exceeding $100 million or 20% of the Company’s paid-in capital during the six-month period ended June 30, 2010: None.

H. Purchases from or sales to related parties exceeding $100 million or 20% of the Company’s paid-in capital during the six-month period ended June 30, 2010(Note): refer to Note 11(1) and following information


Relationship with

the Company

Transactions


transactions

Notes and accounts


Purchases / sales Amount

Percentage of

purchases / sales Terms Unit price Terms Balance

Percentage

of balance

Lakers Trading Ltd. Carston Ltd. B. H. An indirect

wholly-owned

subsidiary of

Hon Hai

Precision Industry

Co., Ltd.

Processing costs $ 449,794 5 90 days Cost plus No material


Innocom Technology

Shenzhen Ltd.

Hongfujin Precision

Industry (Shenzhen)

Co., Ltd.

An indirect

wholly-owned

subsidiary of

Hon Hai

Precision Industry

Co., Ltd.

Processing costs 534,374 92 90 days Cost plus No material

difference- 0

Innocom Technology

Shenzhen Ltd.

Lakers Trading Ltd. An indirect

wholly-owned

subsidiary

Processing

revenue8,801,525 100 90 days Cost plus No material

difference- 0

TPO Displays

(Nanjing) Ltd.

Toptech

Trading Limited

An indirect

wholly-owned

subsidiary

Processing

revenue987,841 77 60 days Cost plus No material

difference797 0

TPO Displays

(Nanjing) Ltd.

TPO Displays

Hong Kong Ltd.

An indirect

wholly-owned

subsidiary

Processing


difference214,012 0

VAP Optoelectronics

(Nanjing）Corp.

Toptech

Trading Limited

An indirect

wholly-owned

subsidiary

Processing


difference151,148 58

Ningbo Chi Mei

Electronics Ltd.

Leadtek Global

Group Limited

A subsidiary

of the Company

Processing



Nanhai Chi Mei

Electronics Corp.

Leadtek Global

Group Limited

A subsidiary

of the Company

Processing



～89～


Relationship with

the Company

Transactions


transactions

Notes and accounts



Percentage of


Percentage

of balance

Ningbo Chi Hsin

Electronics Ltd.

Leadtek Global

Group Limited

A subsidiary

of the Company

Processing

revenue$ 2,580,688 100 60 days Cost plus No material

difference$ 234,723 99

Dongguan Chi Hsin

Electronics Corp.

Leadtek Global

Group Limited

A subsidiary

of the Company

Processing



Ningbo Chi Mei

Optoelectronics

Ltd.

Leadtek Global

Group Limited

A subsidiary

of the Company

Processing



TPO Displays

Shanghai Ltd.

TPO Displays

Hong Kong Ltd.

An indirect

wholly-owned

subsidiary

Processing



Toptech Trading

Limited

TPO Displays

(Sinepal) Ltd.

An indirect

wholly-owned

subsidiary

Sales 989,656 44 60 days Cost plus No material


Toptech Trading

Limited

VAP Optoelectronics

(Nanjing）Corp.

An indirect

wholly-owned

subsidiary


difference11,936 1

TPO Displays Hong

Kong Ltd.

TPO Displays

(Sinepal) Ltd.

An indirect

wholly-owned

subsidiary


difference225,407 6

Innolux Corporation

Ltd.

Hon Hai

Precision Industry

Co., Ltd.

Same

major stockholder

Sales 1,621,323 11 60 days Similar with

general

transactions

No material


Chi Mei Lighting

Technology

Corporation

Foshan

Chi Mei Lighting

Technology Ltd.

An indirect

wholly-owned

subsidiary

Sales 250,051 13 90 days Similar with

general

transactions

No material


Innocom Technology

Shenzhen Ltd.

Innocom Technology

(Chongqing) Co.,

Ltd.

An indirect

wholly-owned

subsidiary

Sales 156,395 21 90 days Similar with

general

transactions

No material

difference121,921 5

Innocom Technology

Shenzhen Ltd.

Hongfujin

Precision Industry

(Shenzhen) Co., Ltd.

An indirect

wholly-owned

subsidiary of

Hon Hai

Precision Industry

Co., Ltd.

Purchases 4,675,570 6 90 days Single supplier;

no basis for

comparision

No material

difference254,384 5

～90～


Relationship with

the Company

Transactions


transactions

Notes and accounts



Percentage of


Percentage

of balance

Ningbo Chi Mei

Electronics Ltd.

Ampower

Technology Co., Ltd.

Subsidiary of an

investee company

accounted for

under the

equity method

Purchases $ 259,870 0 90 days Single supplier;

no basis for

comparison

No material


Ningbo Chi Mei

Electronics Ltd.

Ningbo

Chi Mei Material

Technology Corp.

Subsidiary of an

investee company

accounted for

under the

equity method


no basis for

comparison

No material


Ningbo Chi Mei

Electronics Ltd.

Ningbo Lin Moug

Optronics Co., Ltd.

An indirect

wholly-owned

subsidiary of

Chi Mei

Corporation


no basis for

comparison

No material


Nanhai Chi Mei

Electronics Corp.

Nanhai Lin Chaun

Optronics Co., Ltd.

An indirect

wholly-owned

subsidiary of

Chi Mei

Corporation


no basis for

comparison

No material


Nanhai Chi Mei

Electronics Corp.

Chi Mei Materials

Technology

Corporation

An investee company

accounted for

under the

equity method

Purchases 335,333 1 60 days Single supplier;

no basis for

comparison

No material

difference148,460 3

Nanhai Chi Mei

Electronics Corp.

Ningbo

Chi Mei Material

Technology Corp.

Subsidiary of an

investee company

accounted for

under the

equity method


no basis for

comparison

No material

difference137,749 3

Ningbo Chi Mei

Optoelectronics

Ltd.

Ningbo

Chi Mei Material

Technology Corp.

Subsidiary of an

investee company

accounted for

under the

equity method


no basis for

comparison

No material

difference235,347 8

Ningbo Chi Mei

Optoelectronics

Ltd.

Ningbo

Lin Moug Optronics

Co., Ltd.

An indirect

wholly-owned

subsidiary of

Chi Mei

Corporation


no basis for

comparison

No material

difference167,653 6

～91～


Relationship with

the Company

Transactions


transactions

Notes and accounts



Percentage of


Percentage

of balance

Ningbo Chi Hsin

Electronics Ltd.

Ningbo

Lin Moug Optronics

Co., Ltd.

An indirect

wholly-owned

subsidiary of

Chi Mei

Corporation

Purchases $ 158,877 4 60 days Single supplier;

no basis for

comparison

No material


Note: The purchases and sales transaction between the investee company of the Company and related parties are disclosed for the first semi-annual of 2010.

I. Receivables from related parties exceeding $100 million or 20% of the Company’s paid-in capital as at June 30, 2010:


Relationship with

the Company

Balance of receivable

from related parties Turnover rate

Overdue receivables


Allowance for

doubtful

accounts providedAmount

Action adopted

for overdue accounts

Innolux Corporation

Ltd.

Hon Hai Precision

Industry Co., Ltd

Same

major stockholder$ 845,487 1.92 $ - - $ 440,873 $ -

Innocom Technology

Shenzhen Ltd.

Innocom Technology

(Chongqing)

Co., Ltd.

An indirect

wholly-owned

subsidiary

121,921 13.30 - - - -

Ningbo Chi Mei

Electronics Ltd.

Leadtek Global

Group Limited

A subsidiary of

the Company21,380,448 1.46 9,885,452 Subsequent collection 12,217,000 -

Nanhai Chi Mei

Electronics Corp.

Leadtek Global

Group Limited

A subsidiary of

the Company8,217,161 1.97 - - 4,404,721 -

Ningbo Chi Hsin

Electronics Ltd.

Leadtek Global

Group Limited

A subsidiary of

the Company234,723 10.99 - - 234,723 -

Dongguan Chi Hsin

Electronics Corp.

Leadtek Global

Group Limited

A subsidiary of

the Company376,334 0.63 117,786 Subsequent collection 74,045 -

Ningbo Chi Mei


Leadtek Global

Group Limited

A subsidiary of

the Company476,394 2.50 - - 476,394 -

Chi Mei

Lighting Technology

Corporation

Foshan Chi Mei

Lighting Technology

Ltd.

An indirect

wholly-owned

subsidiary

186,171 6.28 - - - -

Contrel

Technology Co., Ltd.

Nanhai Chi Mei

Electronics Corp.

An indirect

wholly-owned

subsidiary

295,206 0.01 - - - -

Kunshan Guan Jye

Electronics

Co., Ltd.

Amlink

(Shanghai) Ltd.

An indirect

investee company

accounted for

under the

equity method

104,594 1.29 23,004 Accelerate collection - -

～92～


Relationship with

the Company

Balance of receivable

from related parties Turnover rate

Overdue receivables


Allowance for

doubtful

accounts providedAmount

Action adopted

for overdue accounts

TPO Displays

Shanghai Ltd.

TPO Displays

Hong Kong Ltd.

An indirect

wholly-owned

subsidiary

$ 1,219,790 4.65 $ - - $ - $ -

Toptech

Trading Limited

TPO Displays

(Nanjing) Ltd.

An indirect

wholly-owned

subsidiary

163,594 - - - 159,081 -

Toptech

Trading Limited

TPO Displays

(Sinepal) Ltd.

An indirect

wholly-owned

subsidiary


VAP Optoelectronics

(Nanjing）Corp.

Toptech

Trading Limited

An indirect

wholly-owned

subsidiary

151,148 3.72 - - 84,439 -

Dragon Flame

Industrial Ltd.

VAP Optoelectronics

(Nanjing）Corp.

An indirect

wholly-owned

subsidiary

135,674 - - - - -

TPO Displays

(Nanjing) Ltd

TPO Displays

Hong Kong Ltd.

An indirect

wholly-owned

subsidiary

214,012 2.74 - - 80,141 -

TPO Displays

Hong Kong Ltd.

TPO Displays

Shanghai Ltd.

An indirect

wholly-owned

subsidiary

508,899 0.01 507,176 Accelerate collection - -

TPO Displays

Hong Kong Ltd.

TPO Displays

(Sinepal) Ltd.

An indirect

wholly-owned

subsidiary

225,407 1.99 - - - -

J. Information on derivative transactions

a. As of June 30, 2010, the information on derivative financial instruments of investee companies is as follows:

Investee company Financial assets held for trading Book value (namely fair value) Contract amount (in thousands)

Chi Mei Lighting Technology Corporation Foreign exchange forward contract

- Sell HKD dollars (Sell HKD/Buy USD)$ 86 HKD 20,000

USD 2,572

Leadtek Global Group Limited Foreign exchange forward contract

- Sell USD dollars (Sell USD/Buy JPY)86,702 USD 85,000

JPY 7,765,325

$ 86,788

Investee company Financial liabilities held for trading Book value (namely fair value) Contract amount (in thousands)

Chi Mei Lighting Technology Corporation Foreign exchange forward contract

- Sell HKD dollars (Sell HKD/Buy USD)( $ 50) HKD 12,000

USD 1,540

( $ 50)

～93～

b. Additional disclosure:

As of June 30, 2010, the Company recognized net gain of $111,297 on derivative transactions (including net gain of $86,738 on valuation of financial assets and liabilities on June 30, 2010).

(3) Disclosure of information on indirect investments in Mainland China

A. Information on investments in Mainland China:

Name of

investee in

Mainland

China

Main activities

of investee

Capital

(in thousand

of USD)

Method of

investment

Balance of

amount remitted

from Taiwan on

January 1, 2010

(in thousands of USD)

Transactions during

Jan. 1, 2010 ~

Jun. 30, 2010


Balance of amount

remitted from

Taiwan as of

Jun. 30, 2010


Ownership

percentage held by

the Company

(Direct/indirect)

Profit recognized

during Jan. 1,

2010 ~ Jun. 30,

2010 (Note A)

Book value of

investment as of

Jun. 30, 2010

Profit remitted

to Taiwan

during Jan. 1,

2010 ~ Jun.

30, 2010

Remittance

out

Remittance

in

Innocom

Technology

Shenzhen Ltd.

Manufacturing and

production of

LCD backend

module

$ 164,000 Investee company

located outside

of Taiwan and

mainland China

remits its own

funds directly to

the investee

companies

located in

mainland China

$ 164,000 $ - $ - $ 164,000 100 $ 1,104,162 $ 11,121,707 $ -

Innocom

Technology

(Xiamen) Ltd.

Manufacturing and

production of

LCD backend

module

10,000 Investee company

located outside

of Taiwan and

mainland China

remits its own

funds directly to

the investee

companies

located in

mainland China

10,000 - - 10,000 100 90 324,497 -

Innocom

Technology

(Jia-shan) Ltd.

Manufacturing and

production of

LCD backend

module

18,000 Investee company

located outside

of Taiwan and

mainland China

remits its own

funds directly to

the investee

companies

located in

mainland China

- 8,000 - 8,000 100 ( 3,098) 581,742 -

～94～

Name of

investee in

Mainland

China

Main activities

of investee

Capital

(in thousand

of USD)

Method of

investment

Balance of

amount remitted

from Taiwan on

January 1, 2010


Transactions during

Jan. 1, 2010 ~

Jun. 30, 2010


Balance of amount

remitted from

Taiwan as of

Jun. 30, 2010


Ownership

percentage held by

the Company

(Direct/indirect)

Profit recognized

during Jan. 1,

2010 ~ Jun. 30,

2010 (Note A)

Book value of

investment as of

Jun. 30, 2010

Profit remitted

to Taiwan

during Jan. 1,

2010 ~ Jun.

30, 2010

Remittance

out

Remittance

in

OED Company Manufacturing andproduction ofLCD backendmodule

$ 5,500 Investee companylocated outsideof Taiwan andmainland Chinaremits its ownfunds directly tothe investeecompanieslocated inmainland China

$ - $ 1,500 $ - $ 1,500 2 $ - $ 117,077 $ -

InnocomTechnology(Chongqing)Co., Ltd.

Manufacturing andproduction ofLCD backendmodule

3,000 Investee companylocated outsideof Taiwan andmainland Chinaremits its ownfunds directly tothe investeecompanieslocated inmainland China

3,000 - - 3,000 100 64,662 163,130 -

Ningbo Chi MeiOptoelectronicsLtd.

Developing,manufacturing,customer serviceand warehousingon TFT-LCDmodule

97,000 Note C 97,000 - - 97,000 100 ( 204,900) 965,555 -

Ningbo Chi MeiElectronics Ltd.

Manufacturingand selling ofTFT-LCDmodules

215,000 Note C 180,000 - - 180,000 100 975,428 20,914,500 -

Nanhai Chi MeiElectronicsCorp.

Manufacturing andcustomer serviceon TFT-LCDmodule

166,600 Note C 160,000 6,600 - 166,600 100 693,629 5,438,198 -

Nanhai Chi MeiOptoelectronicsLtd.

Manufacturing andcustomer serviceon TFT-LCDmodule

36,500 Note C 36,500 - - 36,500 100 196 1,183,900 -

～95～

Name of

investee in

Mainland

China

Main activities

of investee

Capital

(in thousand

of USD)

Method of

investment

Balance of

amount remitted

from Taiwan on

January 1, 2010


Transactions during

Jan. 1, 2010 ~

Jun. 30, 2010


Balance of amount

remitted from

Taiwan as of

Jun. 30, 2010


Ownership

percentage held by

the Company

(Direct/indirect)

Profit recognized

during Jan. 1,

2010 ~ Jun. 30,

2010 (Note A)

Book value of

investment as of

Jun. 30, 2010

Profit remitted

to Taiwan

during Jan. 1,

2010 ~ Jun.

30, 2010

Remittance

out

Remittance

in

Ningbo Chi Hsin

Electronics Ltd.

Manufacturing and

customer service

on TFT-LCD

module

$ 29,150 Note C $ 29,150 $ - $ - $ 29,150 100 ($ 25,042) $ 135,100 $ -

Dongguan

Chi Hsin

Electronics

Corp.

Manufacturing and

customer service

on TFT-LCD

module

13,719 Note C 12,850 - - 12,850 100 19,717 526,833 -

Ningbo Chi Mei

Logistics

Co., Ltd.

Warehousing

Service4,000 Note C 4,000 - - 4,000 100 6,084 160,995 -

Foshan Chi Mei

Logistics

Co., Ltd.

Warehousing,

testing and

logistics service

of TFT-LCD

monitors

1,500 Note C 1,500 - - 1,500 100 902 41,705 -

Kunshan

Guan Jye

Electronics

Co., Ltd.

Manufacturing of

transformers8,400 Note C 2,690 - - 2,690 32 13,315 577,718 -

TPO Displays

(Nanjing) Ltd.

Liquid crystal

device (TN/STN,

assembly of

TFT-LCD device

module, not

including

TFT-LCD panel

process

120,000 Note C 91,000 29,000 - 120,000 100 12,851 3,123,961 -

TPO Displays

(Sinepal) Ltd.

Purchases and sales

of monitor-related

components

2,100 Note C 2,100 - - 2,100 100 ( 1,289) 102,042 -

Kunpal

Optoelectronics

Ltd.

TFT-LCD glass

thinning

processing

4,000 Note C 2,267 - - 2,267 57 ( 4,857) 419,833 -

～96～

Name of

investee in

Mainland

China

Main activities

of investee

Capital

(in thousand

of USD)

Method of

investment

Balance of

amount remitted

from Taiwan on

January 1, 2010


Transactions during

Jan. 1, 2010 ~

Jun. 30, 2010


Balance of amount

remitted from

Taiwan as of

Jun. 30, 2010


Ownership

percentage held by

the Company

(Direct/indirect)

Profit recognized

during Jan. 1,

2010 ~ Jun. 30,

2010 (Note A)

Book value of

investment as of

Jun. 30, 2010

Profit remitted

to Taiwan

during Jan. 1,

2010 ~ Jun.

30, 2010

Remittance

out

Remittance

in

VAP

Optoelectronics

(Nanjing）Corp.

Selling and

customer service

of LCD module,

back light module

and related

component

$ 6,600 Note C $ - $ 300 $ - $ 300 100 ($ 29,850)($ 273,291) $ -

TPO Displays

Shanghai Ltd.

Liquid crystal

devices21,000 Note C - - - - 100 ( 16,894)( 330,997) -

Amlink

(Shanghai) Ltd.

Manufacturing and

selling of power

supply, modem,

ADSL, and other

IT equipments

20,000 Note C 10,000 - - 10,000 45 54,064 490,099 -

B. Information on investments in Mainland China:

Accumulated amount wired

out from Taiwan to mainland

China as of the end of the period

Investment amount

approved by FIC of MOEA

Ceiling of investment

amount of the Company

NT$ 28,848,677 NT$ 37,009,408 Note B

(US$ 897,315) (US$ 1,151,148)

Note A: Profit or loss recognized for the six-month period ended June 30, 2010 were not reviewed by the independent accountants.

Note B: Pursuant to the Jing-Shen-Zi Letter No. 09704604680 of the Ministry of Economic Affairs, R.O.C., dated August 29, 2008, as the Company has obtained the certificate of conforming to the business

scope of headquarters, issued by the Industrial Development Bureau, MOEA, the investment ceiling regulation for Taiwan-based companies investing in Mainland China is not applicable to the Company.

Note C: The company was acquired from merger. The way of investment in Mainland China was through an existing company in third area.

C. Significant transactions with investee in Mainland China:

The significant transactions between the Company and the investee companies for the six-month period ended June 30, 2010 were eliminated in these financial statements and shown in Notes 5(2) 1, 3, 4, 7, and

9 and Notes 11(1) B, G, and H.

～97～

(4) The relationship and significant transactions between the Company and its subsidiaries


Number

(Note A) Name of counterparty Name of transaction parties

Relationship

(Note B)

Information from transactions (Notes c and d) Percentage of

total combined

revenue or total assetsSubject Amount

Transaction terms

(Note C)

0 Chimei Innolux Corporation Lakers Trading Ltd. 1 Accounts payable $ 4,753,575 - 3

0 Chimei Innolux Corporation Lakers Trading Ltd. 1 Processing costs 6,400,336 - 9

0 Chimei Innolux Corporation Lakers Trading Ltd. 1 Accrued expenses 3,081,159 - 2

0 Chimei Innolux Corporation Lakers Trading Ltd. 1 Sales 190,781 - -

0 Chimei Innolux Corporation Innolux Corporation Ltd. 1 Sales 10,041,318 - 14

0 Chimei Innolux Corporation Innolux Corporation Ltd. 1 Accounts receivable 2,337,830 - 1

0 Chimei Innolux Corporation Innocom Technology Shenzhen Ltd. 1 Sales 7,189,079 - 10

0 Chimei Innolux Corporation Innocom Technology Shenzhen Ltd. 1 Accounts receivable 2,998,436 - 2

1 Lakers Trading Ltd. Innocom Technology Shenzhen Ltd. 3 Processing costs 5,698,116 - 8

1 Lakers Trading Ltd. Innocom Technology Shenzhen Ltd. 3 Accrued expenses 2,316,998 - 1


Number


Relationship

(Note B)

Information from transactions (Notes c and d)

Percentage of

total combined


Transaction terms

(Note C)

0 Chimei Innolux Corporation Innolux Corporation Ltd. 1 Sales $ 14,439,862 - 7

0 Chimei Innolux Corporation Innolux Corporation Ltd. 1 Accounts receivable 3,535,636 - -

0 Chimei Innolux Corporation Innocom Technology Shenzhen Ltd. 1 Sales 7,332,944 - 3

0 Chimei Innolux Corporation Innocom Technology Shenzhen Ltd. 1 Accounts receivable 2,004,634 - -

0 Chimei Innolux Corporation Nanhai Chi Mei Electronics Corp. 1 Sales 817,210 - -

0 Chimei Innolux Corporation Ningbo Chi Mei Optoelectronics Ltd. 1 Sales 237,431 - -

0 Chimei Innolux Corporation Ningbo Chi Mei Electronics Ltd. 1 Sales 140,176 - -

0 Chimei Innolux Corporation Ningbo Chi Mei Electronics Ltd. 1 Accounts receivable 474,683 - -

0 Chimei Innolux Corporation Chi Mei

Optoelectronics Japan Co., Ltd.

1 Sales 1,722,588 - -

0 Chimei Innolux Corporation Chi Mei

Optoelectronics Japan Co., Ltd.

1 Accounts receivable 1,134,168 - -

0 Chimei Innolux Corporation Toptech Trading Limited 1 Sales 476,701 - -

0 Chimei Innolux Corporation Toptech Trading Limited 1 Accounts receivable 325,822 - -

0 Chimei Innolux Corporation TPO Displays Hong Kong Ltd. 1 Sales 3,199,584 - 1

0 Chimei Innolux Corporation TPO Displays Hong Kong Ltd. 1 Accounts receivable 3,444,306 - -

0 Chimei Innolux Corporation TPO Displays Shanghai Ltd. 1 Sales 304,474 - -

0 Chimei Innolux Corporation TPO Displays Shanghai Ltd. 1 Accounts receivable 434,803 - -

～98～


Number


Relationship

(Note B)


Percentage of

total combined


Transaction terms

(Note C)

0 Chimei Innolux Corporation TPO Displays Hong Kong Ltd. 1 Purchases $ 288,556 - -

0 Chimei Innolux Corporation TPO Displays Hong Kong Ltd. 1 Accounts payable 154,739 - -

0 Chimei Innolux Corporation TPO Displays (Sinepal) Ltd. 1 Purchases 282,334 - -

0 Chimei Innolux Corporation TPO Displays (Sinepal) Ltd. 1 Accounts receivable 241,644 - -

0 Chimei Innolux Corporation TPO Displays Japan K. K. 1 Purchases 218,418 - -

0 Chimei Innolux Corporation TPO Displays Japan K. K. 1 Accounts payable 1,228,882 - -

0 Chimei Innolux Corporation Leadtek Global Group Limited 1 Processing costs 30,696,654 - 14

0 Chimei Innolux Corporation Leadtek Global Group Limited 1 Accounts payable 43,330,426 - 6

0 Chimei Innolux Corporation Lakers Trading Ltd. 1 Processing costs 9,441,264 - 4

0 Chimei Innolux Corporation Lakers Trading Ltd. 1 Accounts payable 1,218,626 - -

0 Chimei Innolux Corporation Toptech Trading Limited 1 Processing costs 761,475 - -

0 Chimei Innolux Corporation Dragon Flame Industrial Ltd. 1 Accounts payable 107,792 - -

1 Innocom Technology Shenzhen Ltd. Lakers Trading Ltd. 3 Processing costs 8,801,525 - 4

1 Lakers Trading Ltd. Carson Ld. B. H. 3 Processing costs 449,794 - -

1 Lakers Trading Ltd. Carson Ld. B. H. 3 Accounts payable 2,106,501 - -

1 Innocom Technology Shenzhen Ltd. Hongfujin Precision Industry

(Shenzhen) Co., Ltd.

3 Processing costs 534,374 - -

1 Ningbo Chi Mei Electronics Ltd. Leadtek Global Group Limited 3 Processing revenue 31,177,611 - 14

1 Ningbo Chi Mei Electronics Ltd. Leadtek Global Group Limited 3 Accounts receivable 21,380,448 - 3

1 Nanhai Chi Mei Electronics Corp. Leadtek Global Group Limited 3 Processing revenue 16,162,041 - 7

1 Nanhai Chi Mei Electronics Corp. Leadtek Global Group Limited 3 Accounts receivable 8,217,161 - -

1 Ningbo Chi Hsin Electrics Ltd. Leadtek Global Group Limited 3 Processing revenue 2,580,688 - 1

1 Ningbo Chi Hsin Electrics Ltd. Leadtek Global Group Limited 3 Accounts receivable 234,723 - -

1 Dongguan Chi Hsin

Electronics Corp.Leadtek Global Group Limited

3 Processing revenue 237,457 - -

1 Dongguan Chi Hsin

Electronics Corp.Leadtek Global Group Limited

3 Accounts receivable 376,334 - -

1 Ningbo Chi Mei

Optoelectronics Ltd.Leadtek Global Group Limited

3 Processing revenue 1,166,674 - 1

1 Ningbo Chi Mei

Optoelectronics Ltd.Leadtek Global Group Limited


1 TPO Displays (Nanjing) Ltd. Toptech Trading Limited 3 Processing revenue 987,841 - -

1 TPO Displays (Nanjing) Ltd. TPO Displays Hong Kong Ltd. 3 Processing revenue 293,112 - -

1 TPO Displays (Nanjing) Ltd. TPO Displays Hong Kong Ltd. 3 Accounts receivable 214,012 - -

～99～


Number


Relationship

(Note B)


Percentage of

total combined


Transaction terms

(Note C)

1 VAP Optoelectronics

(Nanjing）Corp.

Toptech Trading Limited 3 Processing revenue $ 271,391 - -

1 VAP Optoelectronics

(Nanjing）Corp.Toptech Trading Limited


1 TPO Displays Shanghai Ltd. TPO Displays Hong Kong Ltd. 3 Processing revenue 2,836,197 - 1

1 TPO Displays Shanghai Ltd. TPO Displays Hong Kong Ltd. 3 Accounts receivable 1,219,790 - -

1 Toptech Trading Limited TPO Displays (Sinepal) Ltd. 3 Sales 989,656 - -

1 Toptech Trading Limited TPO Displays (Sinepal) Ltd. 3 Accounts receivable 463,997 - -

1 Toptech Trading Limited VAP Optoelectronics (Nanjing）Corp. 3 Sales 292,293 - -

1 TPO Displays Hong Kong Ltd. TPO Displays (Sinepal) Ltd. 3 Sales 224,291 - -

1 TPO Displays Hong Kong Ltd. TPO Displays (Sinepal) Ltd. 3 Accounts receivable 225,407 - -

1 Chi Mei

Lighting Technology Corporation

Foshan Chi Mei LightingTechnology

Ltd.

3 Sales 250,051 - -

1 Chi Mei

Lighting Technology Corporation

Foshan Chi Mei LightingTechnology

Ltd.


1 Innocom Technology

Shenzhen Ltd.

Innocom Technology (Chongqing) Co.,

Ltd.

3 Sales 156,395 - -

1 Innocom Technology

Shenzhen Ltd.

Innocom Technology (Chongqing) Co.,

Ltd.


Note A: The transaction information of the Company and the consolidated subsidiaries should be noted in column “Number”. The number means:

1. Number 0 represents the Company.

2. The consolidated subsidiaries are in order from number 1.

Note B: The relationships with the transaction parties are as follows:

1. The Company to the consolidated subsidiary.

3. The consolidated subsidiary to another consolidated subsidiary.

Note C: Except for no comparable transactions from related parties, sales prices were similar to non-related parties transactions and the collection period was 30~120 days; the purchases from related parties wereat market prices and payment term was 30~120 days upon receipt of goods.

Note D: Amount disclosure standard: purchases, sales and receivables from related parties in excess of $100,000 or 20% of capital.

Note E: Amount of transactions between subsidiaries represent transactions during the first semi-annual of 2010.

12. SEGMENT INFORMATION

In accordance with R.O.C SFAS No. 23, segment financial information is not required for interim financial statements.

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